Broadcom Corp (BRCM)

carlosgg (77.59) Submitted: 3/30/08 2:31 PM : Start Price: $19.16 BRCM Score: 27.48

In 2007 Broadcom spent a significant portion of its revenue in R&D, preparing for its foray into the cell phone market. As a result its operating margins suffered and 2007 EPS went down 42% from 2006. Now that transition is over and Broadcom is ready to capitalize and in the next two years we will see if the company can reap the rewards of its calculated gamble. On October of 2007 they announced their “3G-phone-on-a-chip” IC, which they claim will allow cell phone manufacturers to design phones with a lower parts counts (due to the amount of circuitry integrated in the IC), at a lower cost and using a reduced amount of current, which would increase a phone’s battery life.

The most conservative revenue estimate (Yahoo!) for 2008 has them earning $1.14. That would give them a P/E of 17 at today’s price levels. This company has usually traded at P/E’s of 25 or higher, and if their investment does pay off they will surely trade at such P/E’s again, so I would say a gain of 40-50% from here in the next year or so is very possible.

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