A Possible Buy in the Semiconductor Space

It seems like semiconductor players are having a good time this earnings season. After industry peers such as Skyworks, Xilinx, and others romped home, beating Street expectations, it was time for Broadcom (Nasdaq: BRCM  ) to trump the Street in the fourth quarter.

Fellow Fool Seth Jayson has already briefed you on the numbers, and now I will check out Broadcom to see if it's worthy of a place in your portfolio.

Riding the smartphone revolution
The story behind Broadcom's strong performance is pretty simple to interpret. The company supplies chips that are used by smartphone bellwethers Apple (Nasdaq: AAPL  ) and Samsung to enable Wi-Fi and Bluetooth connectivity. And smartphone sales figures from both of these bigwigs are no more a clandestine affair. Apple reportedly sold some 37 million iPhones in the previous quarter, with Samsung close on its heels. The smartphone success story seems nowhere near the end.

Broadcom was in turbo mode last year, placing orders in bulk at its supplier Taiwan Semiconductor for manufacturing chips for the iPhone 5. The company is well placed for this year, too, and is expected to see good returns.

Cutting-edge technology
The company has been making huge strides in product development. Its unique and unrivalled product integrates Wi-Fi, Bluetooth, and radio on a single chip. This will enable smartphone manufacturers to bring down costs significantly while improving battery life and performance of phones. That's a win-win situation and should work in favor of Broadcom.

Turning around its weakness
However, there is a small area of concern (but nothing that cannot be fixed). Broadcom's Infrastructure & Networking segment revenue was a damper, dropping 13%, due to weakness in sales of Ethernet switching devices. The long-term outlook for the segment is robust, reaching approximately $28 billion by 2016. Broadcom should be able to recover and grow the segment as demand improves in the near future.

The Foolish takeaway
With its top-of-the rung technology and potential to drive revenue north, I see there are some good reasons that Broadcom is worthy of your money. And if you don't wish to miss out on the latest developments at the company, add it to your Watchlist.

Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 


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