Where’s the company heading?
Management has made it very clear where it wants to take the company. If the recent product announcements serve as an indication, the company also wants to be better diversified. When Broadcom held its analyst day last December, management revealed encouraging strategies related to near-field-communication, or NFC, and how the future of mobile payments can become a strong revenue stream for Broadcom. Here too, is an advantage with Apple Inc. (NASDAQ:AAPL).
There were also positive remarks about fifth-generation Wi-Fi. Management said new standards can generate 20% to 30% higher average selling prices. But there was also a significant focus on long-term-evolution, or LTE, technology. The company has held true to its promise and has taken on the LTE platform and has pioneered new designs such as the BCM21892.
It remains to be seen, however, how these new chips can affect QUALCOMM, Inc. (NASDAQ:QCOM), which has a sizable lead in mobile baseband technology. But given the traction that NVIDIA is starting to gain, Broadcom Corporation (NASDAQ:BRCM) understands how important it is to push chip capabilities further, especially since mobile/wireless now comprises almost 50% of Broadcom’s revenue. In the meantime, the company has some offsetting advantages not shared by Qualcomm or NVIDIA.
One such advantage is Broadcom’s infrastructure position, which was one of Broadcom’s strongest areas in the recent quarter — growing 21% year over year. But management isn’t satisfied. The company is looking to deploy new products through various data center components, which includes core network, access, and aggregation. This is while also investing in software-defined networking, where it can better compete against the likes of Cisco Systems, Inc (NASDAQ:CSCO).
Then again, add the fact that the infrastructure/networking segment makes up 22% of the company’s revenue, and it’s hard to not see Broadcom as an attractive acquisition candidate to Cisco, which has been looking for new growth opportunities. For now, however, Broadcom has put itself in a unique position to grow its business in multiple ways, whether through mobile, wireless, or infrastructure.
What of the stock
I like Broadcom Corporation (NASDAQ:BRCM)’s prospects. Not only is the company well managed, but Broadcom is also well positioned for long-term growth in mobile devices, which is not expected to slow any time soon. But that’s not to say the stock is cheap. Granted, there’s strong competition from QUALCOMM, Inc. (NASDAQ:QCOM) and NVDIA, but the company has shown no meaningful signs of worry.
At $34 per share, the stock is trading at just 12 times forward estimates for fiscal 2013 and at 11 times estimates for 2014, both of which are under Broadcom’s historical average. And as long as cash flow continues to rise in the mid- to single-digit range, Broadcom’s stock can command a fair value at $40.
The article Can New Products and Better Focus Drive Broadcom? originally appeared on Fool.com.
Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Apple, Cisco Systems, and NVIDIA and owns shares of Apple and Qualcomm.
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