Broadcom (NASDAQ: BRCM), until fairly recently, had been a company with a story centered around its potential as the next big mobile chip competitor. Given that, according to Strategy Analytics the smartphone applications market was worth about $18 billion in 2013, it's not hard to see why Broadcom -- which reported approximately $8.2 billion in mostly non-mobile applications processor sales over that same period -- and its investors were excited about this opportunity.

That said, following Broadcom's divestiture of its cellular chip business, it has become a less headline-worthy stock as its focus on products such as connectivity combo chips, network processors, and set-top box chips that just don't quite drum up the excitement that a "2GHz Octa-Core 64-bit processor" does.

Paradoxically, now that Broadcom is out of cellular, its business has become significantly more attractive. Even after a sharp rise in its stock year-to-date, Broadcom may be one of the few compelling tech value plays left on the market.

Bridging the gap between GAAP and non-GAAP
A quick glance at Broadcom's GAAP price-to-earnings ratio shows a stock that could potentially be expensive at just south of 35 times earnings. However, this number is misleading as the company has taken numerous restructuring and impairments over the last several quarters that have masked its true earnings power.

For example, adding up the company's GAAP operating income over the last four quarters works out to about $706 million. However, looking at non-GAAP (which excludes these one-time items as well as share based compensation), the company raked in $1.61 billion in operating income.

Getting a better approximation of current earnings power
Now, there are a couple of things to consider here. First, since share-based compensation comes out of the pockets of shareholders (though via dilution rather than cash expense), it's a good idea to strip out both one-off charges as well as share-based compensation.

Further, given that Broadcom has officially announced that it is winding down its cellular business and that this would save approximately $600 million in research and development expense (along with an additional $100 million in stock-based compensation), investors should add this back to operating profit.

The math in trying to figure out the "true" operating profit over the last four quarters works out to about $1.77 billion in operating profit. To be clear, this is non-GAAP operating profit, less share-based expense, but with $650 million added back from the divestiture of cellular (the total savings from this divestiture, according to Broadcom, is $700 million, but management did indicate that it would be allocating $50 million of those savings to its other business units).

One last thing to consider
A final point to consider is that Broadcom estimates that, over time, approximately $500 million-$800 million of its connectivity business is at risk as a result of its divestiture of cellular. This is, according to the company, due to the fact that the low-end and mid-range of the smartphone connectivity market necessitates that a chip vendor have the entire platform (including cellular) in order to secure a win.

For the sake of conservatism, let's assume that this business is worth $800 million at approximately 17% operating margin (which Broadcom has suggested was its mobile operating margins excluding the heavy cellular investment). Doing so yields operating profit of $136 million, which should be removed from this conservative estimate of Broadcom's operating profit baseline.

All told, this gives a baseline of $1.63 billion of operating profit to work with.

Thinking about the growth and valuing the stock
Broadcom has indicated that its combined Infrastructure and Broadband segments together have seen a 9% revenue and 12% operating profit compounded annual growth rates, respectively. 

The trickiest part is trying to figure out the growth profile of the company's connectivity business, but after the revenue "reset" related to the potential loss of the low-end and mid-range connectivity business, it is probably safe to expect growth slightly above that of the high end smartphone market (perhaps mid-to-high single digit revenue growth).

How do the numbers work out then? Well, the S&P 500 commands a multiple of 19.61 as of this writing, so even playing it safe and assuming a sub-market multiple range of 15-17 times earnings, and assuming that Broadcom can keep its tax rate in-line with historically low levels (according to a piece in the OC Register, Broadcom's median tax rate between 2005 and 2010 was 2.8%), the stock could be worth $44 -$50, representing anywhere from 13.5%-26.5% upside.

Foolish bottom line
Though much of the upside has been captured in the move from about $23 per share last year to today's approximately $39 per share, the stock still appears to offer fairly compelling upside potential even in light of some very conservative assumptions and estimates.