Communications-chip maker Broadcom (Nasdaq: BRCM) is on tap to deliver its fourth-quarter 2007 earnings. Rather than resort to tea leaves, let's dig in to see what's in store for the broadband silicon leader.

What analysts say:

  • Buy, sell, or waffle? Of the 26 analysts tracking Broadcom's every move, 15 of them rate the company a buy, 10 say hold, and one has stamped Broadcom with a sell rating. Broadcom also holds a three-star rating (out of five) with more than 521 opinions in the Motley Fool CAPS community.
  • Revenue. On average, analysts expect revenue to inflate 10% to $1.02 billion compared with the same quarter last year.
  • Earnings. The average expectation for earnings this quarter is set at $0.11 per share, 38% higher than the $0.08 per share reported last year on a GAAP basis.

What management says:
CEO Scott McGregor lauded the record revenue reported last quarter, he also noted, "In the fourth quarter and in 2008 we will continue to invest aggressively in research and development of products for the very large cellular handset market."

Displacing cellular giants like Qualcomm (Nasdaq: QCOM) and Texas Instruments (NYSE: TXN) will not be easy, but Broadcom is willing to pay now in exchange for significant market share later. As such, investors will likely see margins drop further and should expect increased R&D spending this quarter and in 2008 as well.

What management does:
True to its word, Broadcom is spending heavily, sending margins plunging on increasing R&D costs.

Margin

6/06

9/06

12/06

03/07

06/07

09/07

Gross

52.4%

51.8%

51.3%

51.1%

51.1%

51.3%

Operating

13.9%

11.4%

6.8%

4.9%

2.9%

1.6%

Net

15.8%

14.6%

10.3%

8.8%

6.9%

4.6%

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

One Fool says:
On the cellular front, Broadcom has made progress in landing design wins with Nokia (NYSE: NOK) and Samsung for future wireless handsets, but the company won't see significant revenue from its efforts until 2009. With several big announcements, including a partnership with Microsoft (Nasdaq: MSFT) at the recent Consumer Electronics Show, Broadcom is also making an aggressive push into many new products for the connected home.

But what will probably hit Broadcom hardest in the near term is recent comments from Motorola (NYSE: MOT) that the handset maker will see significant losses in its current quarter from a weakening position in the cellular handset market.

Because Motorola is a significant customer for Broadcom, Broadcom is deeply affected by Motorola's poor performance, and has already been stung by Motorola once. It looks like this wound will take more time to heal. Based on Motorola's grim picture, this Fool is expecting a bleak outlook from Broadcom as well.

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Fool contributor Dave Mock owns shares of Motorola and Qualcomm and is the author of The Qualcomm Equation. Microsoft is an Inside Value recommendation. The Fool's disclosure policy did five seasons with a traveling circus before retiring because of an allergy to peanuts.