Broadcom New Coverage: $50 Fair Value on Wireless Demand Growth
Broadcom (NASDAQ:BRCM) is a leading manufacturer of Wireless connectivity chips, mobile baseband and application processors, digital set-top box and home networking solutions, and chips for networking equipment. It competes with other North American semiconductor companies like Qualcomm, Nvidia, Texas Instruments, Marvell technologies (NASDAQ:MRVL) and European semiconductor manufacturers like STMicroelectronics and Renesas electronics.
We recently launched coverage on Broadcom with a near $50 price estimate for the company’s stock. Our estimate is around 35% ahead of the market price.
Launch of Coverage on Broadcom; $50.29 price estimate
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We have broken down our analysis of Broadcom into three major segments:
- Mobile Baseband and Wireless Connectivity
- Home entertainment, Broadband communications & Licensing
- Infrastructure & Networking
See our complete analysis of Broadcom here
Mobile Baseband and Wireless Connectivity market
The mobile baseband and wireless connectivity market is made up of two different markets. The first one is that of cellular baseband chipsets and mobile application processors, which are used to provide calling capabilities and processing power in phones and the second one is the wireless connectivity solutions market which consists of devices that add connectivity solutions to the mobile phone like Wireless LAN (WiFi), Bluetooth, FM, Global Position system, Near-field Communication (NFC).
The mobile baseband market grossed close to $15 billion in revenue in 2011, and the leading player in cellular baseband is Qualcomm with more than 40% market share. The mobile application processor market grossed upwards of $5 billion in 2011 and is growing quickly as the demand for smartphones and tablets is on the rise. Qualcomm leads this market as well with an almost 50 percent revenue share in Q3 2011.
The wireless connectivity market is the fastest growing market in the wider semiconductor market. It is experiencing huge growth due to the demand for devices to be interconnected as well as the almost standardization of WiFi, Bluetooth, FM and GPS applications on smartphone and tablet devices. The wireless connectivity market was more than $7 billion in 2011 and is expected to outgrow other markets. Broadcom is the leader in the wireless connectivity market with and almost 35% market share and well ahead of players like Texas Instruments and Qualcomm.
Broadcom leads the mobile wireless connectivity market
While Broadcom has a 35% share in the wireless connectivity market, its share of the mobile wireless market (i.e. WiFi, Bluetooth, FM, GPS solutions solely for mobile platforms) is around 90%, giving it a huge lead over other players in this market. Though, wireless connectivity is being extended to other consumer electronic products as well, it is the smartphone and tablet market that has the biggest demand and the biggest growth potential.
Broadcom’s advantage is such that all high-end smartphones of today use Broadcom’s connectivity solutions. In fact Broadcom’s chips are present in the Apple iPad, the Samsung Tab, the Motorola Zoom, in 4 of the top 4 Gizmodo phones, 4 of CNET’s top 5 phones; and 9 of PCWorld’s top 10 phones.
Though the recent acquisition of wireless chip maker Atheros by competitor Qualcomm indicates that competition may get tougher for Broadcom, we believe that Broadcom’s superior R&D and integration capabilities will put it ahead of the competition.
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