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Investment Overview for Broadcom (NASDAQ:BRCM)
Below are key drivers of Broadcom's value that present opportunities for upside or downside to the current Trefis price estimate for Broadcom:
Mobile Baseband and Wireless Connectivity
- Mobile Baseband and Application Processor market share: We estimate Broadcom's share in cellular baseband and application processor market to reach around 5% by the end of Trefis forecast period. Broadcom's baseband products are currently being used by Nokia and Samsung. If Nokia and Samsung do not buy future baseband modules from Broadcom, its market share might decline to around 3% which would lead to a 5% downside in our current estimate. Currently, Qualcomm leads the cellular baseband market. If Broadcom's future product offerings prove competitive, it could challenge Qualcomm. In the likely scenario of its market share increasing to around 10%, there will be a 10% upside to our current price estimate.
- Wireless connectivity solutions market share: We forecast Broadcom's market share in wireless connectivity solutions to be remain around 33% over our review period. However, due to increasing competition post Atheros' buyout by Qualcomm, Broadcom's market share might be negatively impacted. If Broadcom loses around 5% market share, there could be a downside of roughly 3% to our current price estimate. However, if Broadcom continues to remain the market leader and increase its market share to around 45%, there would be a 6% upside to our current price estimate.
Broadcom is a major technology innovator and global leader in semiconductors for wired and wireless communications. Broadcom products enable the delivery of voice, video, data and multimedia to and throughout the home, the office and the mobile environment. Broadcom provides the industry’s broadest portfolio of state-of-the-art system-on-a-chip, or SoC, and software solutions to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices.Its recent acquisition of NetLogic and Broadlight adds to its product competitiveness and lead to a potential increase in its addressable market.
Broadcom reports revenue in three major segments: Mobile & Wireless, Broadband communications and Infrastructure and Networking.
Mobile & Wireless Group
Mobile & Wireless group is the most valuable segment for Broadcom. It accounts for around half of the company’s value, as per our estimate. Broadcom is the leader in wireless connectivity solutions (WiFi, Bluetooth, GPS, NFC) and also an upcoming player in baseband and applications processors market.
Infrastructure and Networking
Infrastructure and Networking group is the second most valuable segment for Broadcom, as per our estimate. Infrastructure and Networking group manufactures semiconductors to be used in networking equipment. This segment is less valuable as the growth prospects of this segment is dependent on enterprise investment in infrastructure. The growth in consumer based networking products (PC and associated devices) has slowed down over the years.
Increasing demand for Internet access
Developing regions, especially China is driving demand for Internet access. As a result, the global broadband subscriber base is expected to increase overall by 75% with more than 400 million new consumers projected to come online from 2010 to 2015.
Asia will fuel growth in demand
Asia is expected to fuel the future growth in demand with an estimated growth rate of 16 percent from 2010 to 2015. The Asia-Pacific region accounts for a large share of new subscribers.
Growth in data traffic will fuel network expansion and upgrades
The data traffic on the mobile side is expected to grow at compound annual growth rate of around 92%, between 2010 to 2015.
Cloud computing will drive demand from data centers
Cloud data centers are getting bigger insize on account of increasing demand for content. In fact, it is estimated that for 70% to 80% of content, more data is generated by users than operations.
Growth in smartphone market
The market for smartphones is growing at a 23% compounded average growth rate. It's growing 4x faster than the 2 billion unit cell phone market. It's providing Broadcom with a $25 billion opportunity. The growth in smartphones is going to come from 3G and 4G. According to ABI Research, 3G sales will be over 3 billion units between 2011 to 2015 and 4G sales will be around 310 million units.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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