Communications chip maker Broadcom (NASDAQ:BRCM) will be announcing its first-quarter 2007 earnings on April 26. Ahead of the release, we'll take a look at what expectations await the company.

What analysts say:

  • Buy, sell, or waffle? A total of 30 analysts follow Broadcom and give their opinion on the company's prospects. Of these, 21 view the company favorably and say buy, seven have a hold rating, and two currently flag the shares with a sell rating. Broadcom also holds a subpar two-star rating (out of five) with more than 350 opinions in the Motley Fool CAPS community.
  • Revenue. On average, analysts predict a slight dip of 0.2% in quarterly revenue to $899 million when compared to the same quarter last year.
  • Earnings. Profits are predicted to drop 20% to $0.30 per share.

What management says:
CEO Scott McGregor sums it up best: "Our goal is to enable Broadcom's customers to bring to market new and innovative products incorporating ever-increasing wired and wireless communication capabilities and converge those technologies into a wide variety of smart devices for processing voice, video and data, anytime and anywhere." McGregor states that despite a tough and competitive semiconductor market, Broadcom continues to win new designs, placing its chips in cell phones, digital televisions, and game consoles.

Despite the challenges, new acquisitions and design wins have helped grow the top line, as McGregor states: "Our continued focus on hiring the world's best talent, combined with our execution in bringing new products to market and expanding into new end markets, enabled Broadcom's revenue growth to outpace the overall semiconductor industry fourfold in 2006."

What management does:
Operational achievements aside, investors are not seeing the fruits of growing sales just yet. The strong sales growth has been accompanied by significant increases in spending for R&D and charges related to stock-based compensation. The result is a gross margin that has ticked down slightly, while operating and net margins have fallen even quicker. This is a marked change from the past few years as Broadcom has been refining its business.

Margin

9/05

12/05

3/06

6/06

9/06

12/06

Gross

52.1%

53.1%

52.8%

52.6%

52.0%

52.0%

Operating

17.1%

20.4%

21.0%

21.7%

21.4%

19.6%

Net

8.6%

13.7%

13.9%

15.8%

14.6%

10.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Broadcom and its investors have learned a big lesson in dealing with its stock-option backdating investigation: Options are expensive. Restatements of past earnings back to 1998 and the ongoing costs have hit the bottom line hard. Investors will want to see what costs have been incurred this quarter for options, and they will want to see evidence that the company is getting its house in order. Also, since Motorola (NYSE:MOT) is the largest customer, making up more than 15% of sales in 2006, investors will also want to hear what Broadcom's exposure is to Motorola's recent woes.

Even with these issues, there's a lot to like about Broadcom. The company is aggressively growing and will likely continue making acquisitions this year to fuel growth. A recently announced share repurchase program to buy up to $1 billion in common stock over the coming 18 months is encouraging as well. Stay tuned and we'll see just how this episode ends.

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Fool contributor Dave Mock has never licked a frog, nor kissed one for that matter. He owns shares of Motorola and Qualcomm. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.