Broadcom (NASDAQ:BRCM), which faces competition from semiconductor companies like Qualcomm (NASDAQ:QCOM), Nvidia (NASDAQ:NVDA), Texas Instruments (NASDAQ:TXN) and Marvell Technologies (NASDAQ:MRVL), announced its Q1 2012 result on Tuesday. With the acquisition of NetLogic complete, the company posted revenues of $1.83 billion this quarter. Though excluding the NetLogic revenue Broadcom saw a marginal decline in its result, we believe it is more on account of the industry slowdown, and the overall prospects of the company look good to support a double digit growth in 2012. We point out certain factors that had an impact on Q1 performance as well as trends likely to influence the future outlook of the company.
Acquisition of NetLogic Microsystems
Broadcom completed its acquisition of the networking chipmaker NetLogic Microsystems, in February 2012. With NetLogic, Broadcom acquired a leading multi-core embedded processor solution, market leading knowledge-based processors, and unique digital front-end technology for wireless base stations that are key enablers for the next generation infrastructure build-out.
Including revenue from NetLogic, the infrastructure & networking segment revenue saw a 6% sequential increase, which otherwise was down 3% due to a weakness in the service provider market. The company also posted a decrease in its controller products, which were partially offset by strength in the data center.
With the acquisition complete, Broadcom is now better positioned to meet growing customer demand for integrated, end-to-end communications and processing platforms for network infrastructure. The addition of NetLogic’s 700 plus patents to Broadcom’s more than 15,000 patents will help Broadcom retain its footprint in this growing segment and lead to a potential increase in its addressable market. 
We estimate the Infrastructure and networking market to see a y-o-y growth and reach around $6 billion by the end of our forecast period.
5G Wi-Fi Solutions to give Stability to the Wireless Connectivity Segment
Mobile and wireless segments were flat sequentially as growing strength in 3G, basebands and Wi-Fi combinations were offset by the anticipated softness in 2G baseband and multimedia coprocessors. However, the company claims that it saw the cross over from 2G to 3G earlier than it expected, and thus the impact of softness in 2G will continue to decline over the course of the year.
The company extended its lead in 5G Wi-Fi, with Netgear (NASDAQ:NTGR) announcing industry’s first 5G Wi-Fi router powered by Broadcom, which is expected to be out by end of this month. Though the company faces a potential threat in this segment from Qualcomm after the acquisition of Atheros, we believe that the broadening of 5G Wi-Fi portfolio combined with growth in advanced 3G solutions will help Broadband maintain its foothold in this segment. We see Broadcom’s share increasing marginally this year and stabilizing thereon.
Flat Revenues from Broadband in a Seasonally Down Quarter
Broadband Communications segment, which contributes around 16% to our price estimate, saw a sequential decline of 3%. However the company attributes this to the seasonal decline in this quarter which it feels is better than their normal Q1 seasonal demand decrease for broadband.
This quarter Broadcom introduced their latest generation of entry-level cable set-top box platforms, to fuel the global migration to HD. It also announced several partnerships in China to deploy Ethernet over Coax. With the introduction of industry’s first platform enabling secure convergence of pay TV and Internet applications for hybrid gateways, combined with NAGRA certification for Broadcom’s latest 40 nanometer set-top box platforms, we believe the company could see a growth in opportunities in this segment outside North America.
With the introduction of new broadband platforms for international and developed markets, expansion of addressable markets for infrastructure solutions and introduction of 5G Wi-Fi solutions, the company is confident of a strong Q2 and forecasts revenues in the range of $1.9 – $2 billion. Keeping in mind the record design wins in Q1 across all three segments, we believe the company’s product competitiveness is higher than it has ever been and remain optimistic on the future performance of the company.
We are in the process of updating our model and will soon revise the current price estimate of $51.60 for Broadcom.Notes:
- Broadcom Acquires NetLogic Microsystems for $3.7 Billion, PC Mag, September 12, 2011 [↩]