One group that’s often overlooked in the media hype surrounding technology is companies that make the things that make the sexier things. There’s a lot of coverage of the iPhone or Android phones, for instance, but what about the things inside them? No one seems to talk much about the chipmakers and other manufacturers who actually profit on the sales of consumer electronics.
Chipmaker Broadcom Corporation (NASDAQ:BRCM)is the one that caught my eye recently. With a market cap of almost $20 billion and its chips all over, one would think that Broadcom Corporation (NASDAQ:BRCM) would be better known. Sadly, outside of some hardcore industry types, I’d say that not one person in fifty knows which firm makes the chips in their personal technology. Heck, even that might be an overestimate.
Take this away, though: Broadcom Corporation (NASDAQ:BRCM) chips are used in BOTH iPhones and Android phones. So in the coming ferociously-covered “smartphone war” Broadcom Corporation (NASDAQ:BRCM) and other chip manufacturers will win no matter what. Like armsmakers during wartime, no matter who ends up winning, chip manufacturers will come out ahead.
Broadcom
Broadcom Corporation (NASDAQ:BRCM) is well positioned as a company. With the firm’s chips running across all sort of activity and devices, growth can be maintained even if one of the companies that uses them has a rough quarter or two. Recently, new orders from Samsung may be giving the firm an extra boost as the next wave of mobile devices hits the market.
The firm’s stock has been up and down over the last year and is, in fact, down 11.5% since twelve months ago. Still, it’s grown 13.6% from a November low, and the firm raised its dividend by 10% during that time. It now pays a yield of 1.28%. That’s not enough to pop anyone’s eyes out, but it’s a nice bonus.
Intel Corporation (NASDAQ:INTC)
Another firm that is quiet (aside from its iconic sound effect, I guess). Still, Intel is the chipmaker that most consumers could name if asked. That doesn’t mean the company gets a free pass on performance. The company is a good performer, posting an operating margin of 27.44% for all of 2012.
Still, that hasn’t been reflected in the share price. Intel Corporation (NASDAQ:INTC) has seen a long, slow decline over the last twelve months that can’t be fully accounted for in the news or the company’s performance. This has led it to a P/E of 10.02, and I think it’s undervalued right now. This could be a time to take a chance on the most famous chip manufacturer of all.
QUALCOMM, Inc. (NASDAQ:QCOM)
Another chipmaker, but one less quiet than Broadcom Corporation (NASDAQ:BRCM). QUALCOMM, Inc. (NASDAQ:QCOM) makes chips for all forms of electronics, including things as far afield as mobile devices, networking solutions and even gesture recognition through the newly acquired EPOS Development. It’s a good, solid and established company with an operating margin of 29.28% last year. I like that number a lot.
The good part is represented in the share price. After issuing guidance below expectations last April the stock took a header for about six weeks. Since then it’s been doing well, climbing 23% since bottoming out in June. It also pays a 1.52% dividend yield for those of you who want your tech stocks to behave like mature firms (hint: that should be all of you).
Texas Instruments Incorporated (NASDAQ:TXN)
Another semi-famous name that people old enough to remember the 1980s and handheld calculators will know but might not be so familiar to the younger set. Texas Instruments in 2011 sold more than $14 billion worth of integrated chips, third behind Intel Corporation (NASDAQ:INTC) and Samsung, believe it or not. These firms can sneak up on investors sometimes.
Another stock that had a summer 2012 slump, TXN bottomed out in July last year at $26.43 but mounted a real resurgence since then, growing 30.3% since that time. The firm also posted an operating margin of 8.86% for Q4 last year and raised its dividend 23.5% to a yield of 3.25%. TXN is a keeper and an investment your should be into.
Investing in chip makers is a more subtle play than most people think. It’s a means by which a smart investor can get involved in technology without all the fuss and bother of being forced to choose sides in some pointless media-induced tech skirmish that does nothing except stir up people and sell advertising. Think of it as a way of insulating yourself from the vagaries of CEO discussions and the back and forth of talking heads screaming at each other. Think about it for your portfolio.
The article Trading Chips: Broadcom and Others Can Win Either Way originally appeared on Fool.com and is written by Nate Wooley.
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