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Broadcom: The Chips are Stacked


The chips are stacked with the positive data points, while price gains in the group remain muted.

PC sales are rising, and rising over double digits rates as recently reported. The smart phone market is growing beyond even most bullish estimates of a year ago. Bandwidth demand is rising rapidly with the high router and switch sales are strong and picking up steam.

There are many chips names that are poised to benefit from these factors. However, I think a clear standout name is Broadcom (BRCM). While BRCM's current revenue growth looks somewhat muted, I believe we could see an acceleration beyond what many are expecting in the quarters to come. In fact, we could be approaching one of those times where some or most of BRCM's business lines are hitting at the same time.

Simply put, BRCM is leveraged to the higher growth markets in the semi space, and have little legacy chip business. Companies like Maxim Integrated Products (MXIM), Linear Technology (LLTC) and Analog Devices (ADI) are all fine companies with diverse businesses lines -- but usually the cyclical nature of certain end markets (such as automotive) prevents them from really showing hitting that extra gear. Pun intended...

As for BRCM, expect to see strong sales in markets for HDTV, HDTV set-top boxes, Bluetooth devices, Internet routers (wireless/wireline), switches and baseband processors. Oh, the sales into the Nintendo (NTDOY) Wii and other gaming consoles are not exactly a bad business to be in either. And, I might as well mention the same thing everyone else is talking about, the touchscreen technology for the Apple (AAPL) iPhone.

In all seriousness, the bigger opportunity could occur if there is a greater adoption of the that touchscreen interface into PC's or laptops. That is not a difficult assumption to make going forward.

As for other analog chips players mentioned above -- I would not disagree with owning any of them. They all possess good potential at reasonable valuation levels and superb balance sheets. In fact, that is a common theme throughout the semiconductor landscape currently.

Technically, the group held up pretty well during the recent sharp sell-off, while BRCM showed even even stronger technical performance.

Bottom line, I think BRCM one of the better opportunities in the chip space currently. Do some homework and I would urge a listen to their last conference call.
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Position in BRCM.

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