First-Quarter Results Help Boost Broadcom From Six-Month Slide

Orange County Business Journal, Apr 28-May 4, 2008 by Tolkoff, Sarah

Irvine chipmaker Broadcom Corp. could be climbing out of a sixmonth slump on Wall Street.

The company has seen its stock rebound in recent weeks after being hammered by investors since the fall. The slide brought the market value of Broadcom-once Orange County's most valuable company-to its lowest point since the technology downturn of 2002. The company's shares are down some 20% in the past 12 months with a market value of about $13 billion, up from a recent low of $10 billion in March.

"With good companies with high prices, they get hit pretty hard when the expectations of investors change," said Norm Bogen, senior director of research at In-Stat, a chip market tracker based in Scottsdale.

Broadcom's shares have rebounded in the past month and got a big boost last week after the company reported strong first-quarter results and gave an optimistic outlook for the current quarter.

First-quarter sales were $1 billion, up near- , Iy 15% from a year earlier.

Including costs for stock compensation, research and development, write-downs on assets and other charges, Broadcom saw $74 million in profits, up 22% from a year earlier.

The company is coming off a slump in which it took a bigger hit than its peers in die past six months.

Broadcom's shares plunged some 60% from their recent peak in October to March.

Rival Marvel Technology Group Ltd.'s shares fell about 40% during the same period. Texas Instruments Inc. fell about 14%.

San Diego's Qualcomm Inc., Broadcom's biggest competitor for cell phone chips, fell about 10%.

Broadcom got knocked down on concerns about slimmer profits and slowing growth.

"The stock has traded at a premium to peers and it's the kind of premium you give to a growth stock," said Daniel Berenbaum, analyst at Caris & Co. in New York. "If you look at earnings over the past couple of years, they have shrunk, so that's not characteristic of a growth stock."

Concerns about the economy and consumer spending also have been a factor.

"In good times people love Broadcom because they are in everything and they are in high growth markets," In-Stat's Bogen said. "But when the general economy goes into recession, they think that they are overvalued."

Broadcom has chips in a lot of consumer devices, such as cell phones, Apple Inc.'s iPod and Nintendo Co.'s Wii.

"Consumer electronics are going to take a hit because people aren't going to be able to buy all those fancy gadgets at the same pace they did last year," Bogen said.

Cell Phone Chips

Some analysts say investors were disappointed when they didn't see an immediate payoff from Broadcom's deals with top cell phone makers Nokia Corp. and Samsung Corp.

Broadcom announced the wireless chip deals last year But investors were expecting to see a boost to the top line sooner.

Broadcom Chief Executive Scott McGregor hinted that those sales could show up as late as 2009.

"There was expectation that it would comesooner-and with this stock it's all about expectations," Cans & Co.'s Berenbaum said.

In a conference call last week, McGregor suspended Broadcom's goal of doubling its market share for cell phone chips by 2010.

"I feel it is no longer productive to comment on the timing of our future market share because it will be highly dependent on the rollout schedules agreed upon between the handset makers and the cellular carriers and on the popularity and success of the models therr selves, factors over which we have little cor trol and which cannot be reasonably predict ed," McGregor said.

He temporarily took over Broadcom1 mobile group last month in place of longtim vice president Yossi Cohen, who steppe down to run a chip startup.

"I have had the opportunity to dig in th products and customer programs over the lai month," McGregor said. "However, I nov believe it will take us longer than original!; anticipated to reach our goal of 10% to 15^ market share."

The news didn't seem to shake analysts.

"We think this shows some refreshing hon esty in facing penetration of a tough market, Berenbaum said.

Berenbaum called the earnings report "ver solid." He has a "buy" rating on the stock.

He said he was pleased Broadcom is focusei on reining in its expenses.

Broadcom is expecting "solid growth in tfo second quarter," said Chief Financial Office Eric Brandt.

The company is looking for sales of $1.0! billion to $1.12 billion. In the second quarte: of 2007, Broadcom had sales of $898 million

The company didn't offer a profit outlool for the current quarter.

Wall Street is looking for second-quarte profits of about $151 million on sales of $1.0' billion.

But some of the concerns that have doggec ^sub ^Broadcom since the fall remain, according t( analysts.

A stalled economy could hurt sales of chip; for corporate networks as companies pull bacfc on technology spending. Delays in chips foi wireless phones and digital TVs also could be a factor. And wireless chips could see lower prices, crimping Broadcom's profits.