With the acquisition of NetLogic Microsystems in February this year, Broadcom (NASDAQ:BRCM) 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.
The revenue stream from NetLogic gave an additional push to Broadcom’s revenue in the last two quarters. However, the introduction of the first 28 nm multicore network chip, earlier this month, is probably the first significant move that demonstrates the successful integration of the two companies.
We believe the addition of NetLogic’s 700+ patents to Broadcom’s 15,000+ patent portfolio will help the latter retain its footprint and lead to a potential increase in its addressable market within the $3 billion communications processor market.  
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We estimate the infrastructure and networking segment to contribute over 27% to Broadcom’s valuation. With an exponential increase in data traffic and growing popularity of cloud computing, the global infrastructure and networking market will continue to grow at a rapid pace for the rest of our review period. Accounting for close to 60% of the market, we believe that Broadcom is well equipped to meet the customer demand for integrated, end-to-end communications and processing platforms for network infrastructure.
Industry’s First 28 nm Multicore Communication Processor Series
The new line of low-power multicore communication processors (XLP 200-series) is the world’s first multicore communication processor family. Broadcom claims that not only do these processors reduce power consumption by around 60% but they also enhance performance by up to 400% compared to competing solutions.  Additionally, the series offers a complete suite of security features that allow network managers to inspect, encrypt, authenticate and secure Internet traffic at wire speeds.
The communication processors are aimed at meeting the demands of enterprises, data centers, 4G LTE service providers, cloud computing and SDN environments. Broadcom touts this as a big leap ahead of competitors such as LSI, Marvell and Freescale. We think that being the first company to bring the 28 nm prodcution technology to multicore communication processors should give Broadcom a competitive advantage over its competitors.
TSMC and Globalfoundries are two of the companies that manufacture the chips designed by Broadcom. Both TSMC and Globalfoundries are currently struggling to keep up with the demand for 28 nm chips, but the situation is likely to improve next year onward. Broadcom is targeting to deliver these chips in high volume by the second half of 2013.
We have a price estimate of $45.99 for Broadcom, a premium of close to 40% to the current market price.Notes:
- Broadcom Acquires NetLogic Microsystems for $3.7 Billion, PC Mag, September 12, 2011 [↩]
- Broadcom Delivers World’s First 28 nm Multicore Communications Processor Series, Broadcom Press Release, October 1, 2012 [↩] [↩]