The Best U.S. Chip Companies Know China: QUALCOMM, Inc. (QCOM), Broadcom Corporation (BRCM)

Broadcom Ethernet controllers and wireless communication devices are sold under a host of brand names, both American and foreign. The company defines its markets as “home, hand and infrastructure,” which runs the gamut from carriers to phone makers to cable and networking companies.

Broadcom is not as big as Qualcomm, nor as profitable, but revenues are up from $4.5 billion in 2009 to $8 billion last year. This has come at the expense of some debt, now about 15% of assets, but that’s very manageable, and interest rates are dirt cheap. Operating cash flow is on the up, whether you look at it from a quarterly or annual perspective. Return on equity is a healthy 13%.

Broadcom is based in Irvine, Calif., up the coast from Qualcomm’s San Diego headquarters, and Qualcomm could in theory buy Broadcom, but the two companies have quite different business cultures. Qualcomm is focused on carriers, Broadcom on manufacturers. Qualcomm is buttoned-down, Broadcom swashbuckling. Both have salesmen who will buy you a nice steak dinner, but the Broadcom guy is more likely to take you out for some adventure later.

Which to Buy?

Safe investors can’t go wrong with Qualcomm. It’s the best play on the U.S. chip board. But Broadcom has made a nice recovery from its past problems, without really changing its focus, and it may deliver a better shot at capital gains in a near time horizon.

The article The Best U.S. Chip Companies Know China originally appeared on and is written by Dana Blankenhorn.

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