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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
- Wireless connectivity solutions market share: We forecast Broadcom's market share in wireless connectivity solutions to remain around 31% 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 marginal downside 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 marginal upside to our current price estimate.
Infrastructure and Networking
- Infrastructure and networking market share:We forecast Broadcom to retain its infrastructure and networking market share over our review period. However, with the company's increased focus on this division and new product introduction, if the market share rises to 45%, there will be a 10% upside to our price estimate.
Broadcom is a major technology innovator and global leader in semiconductors for wired and wireless communications. Its 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 as well as mobile devices. Its 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: Wireless Connectivity, Broadband communications and Infrastructure and Networking.
Mobile & Wireless group is the most valuable segment for Broadcom. It accounts for over 35% of the company’s value, as per our estimate. Broadcom is the leader in wireless connectivity solutions (WiFi, Bluetooth, GPS, NFC), accounting for 31% of the 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. 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% between 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 was estimated 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
Despite macro headwinds, the mobile device market continues to grow at a quick pace and is the fastest growing segment in the semiconductor industry. Total smartphone shipments is expected to increase to 1.7 billion units by 2018, resulting in a CAGR of 11.5%.
Growth in new markets
Growth in new markets, such as Internet-of-Things (IoT), automotive, wearables and small cells, will continue to fuel demand for connectivity solutions in the future. The IoT, which includes all other computing devices apart from PCs, tablets and smartphones, is considered to be the next big driver for the semiconductor industry. Gartner estimates the market will grow almost 30 times, from an installed base of 0.9 billion in 2009 to 26 billion by 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets. (Link)
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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