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Broadcom Joins AT&T and Best Buy in Piling Up the Ammunition for Apple Bulls


Broadcom's strong fourth-quarter guidance is giving more ammunition to Apple bulls.

Well, isn't it nice to wake up to good news from the semiconductor space?

After Intel (INTC) and Altera (ALTR) guided down in less than a week's span (see Texas Instruments, Altera, Dupont: Harbingers of Doom?), communications-chip specialist Broadcom (BRCM) came out this morning and let investors know that its fourth-quarter is looking tip-top.

Broadcom sees fourth-quarter sales coming in at $1.8 billion, or the high end of prior guidance. This number is only modestly above the analyst consensus of $1.77 billion, but it's reassuring investors that a miss is off the table.

Plus, Broadcom said that gross margins would also come in at the top of its guidance range, or roughly flat sequentially from the third quarter. The company's also doing well on the expense side, saying that selling, general, and administrative and research and development spend will be at the midpoint of guidance, which implies further upside on the operating line.

In the press release, management kept its explanation short and sweet, with CEO Scott McGregor simply noting that "Broadcom's Q4 is coming in stronger than expected driven by solid shipments and tight operational management."

So what's driving the strength at Broadcom?

Simple -- big-selling products powered by Apple's (AAPL) iOS and Google (GOOG) Android.

Broadcom's two biggest customers are Apple and Samsung, to which it supplies products like baseband processors and Bluetooth chips.

That's allowed Broadcom to benefit from the success of blockbuster mobile products like Apple's iPhone and iPad lines, and Samsung's booming Galaxy Nexus smartphone.

The first takeaway is obvious: Broadcom's hanging tough within a pretty stinky semiconductor industry. I've heard quite a few Broadcom bulls wondering why the stock's been acting so lousy -- since hitting a high of $38.88 on July 26, it's down 24% vs. a decline of just 10% for the NASDAQ (^IXIC). So today's news has to be reassuring for those on the long side as the fundamentals are holding up just fine.

Secondly, it's yet another confirmation that Apple's having a bang-up fourth quarter on the mobile side.

I've made it clear -- I'd like to stop hearing good news about Apple because I want expectations as low as possible when its next earnings report hits. (See Apple iPhone Bulls, Please Keep Quiet.)

However, the hits just keep on coming.

Just look at this recent timeline:

November 3 - Qualcomm (QCOM), a key supplier for the iPhone 4S, delivered impressive third-quarter numbers, and huge guidance for the fourth quarter and next year. (See Qualcomm Erases Fears of a Smartphone Slowdown.)

November 25 -- For Black Friday, Apple keeps with its usual 8 to 10% discounts on major products (see Apple Store Rolls Out the Black Friday Deals), indicating that the company felt zero need to follow the industry practice of sacrificing its sky-high margins to goose sales.

December 7 -- Key iPhone reseller AT&T (T) says that it expects the fourth-quarter to be its best single quarter ever for smartphone sales. In fact, AT&T had nearly broken its prior record before December even began. That's huge because AT&T will sell a ton of smartphones this month as well.

December 12 -- Within an overall stinky quarter (see Best Buy: Weak Sales, Weak Margins, More Buybacks!), Best Buy (BBY) specifically highlighted the Apple iPhone 4S and iPad as strong sellers.

So it's safe to say that, at least on the mobile side, Apple is headed for one blockbuster holiday season.

However, as a skeptical bull who's concerned that the jubilation is getting out of control, I have to ask all of you -- is it priced in?

Let me know in the comments section below.

Twitter: @MichaelComeau

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