Broadcom Coming Ahead of Peers (BRCM, QCOM, TXN, INTC)

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Broadcom Corp. (NASDAQ: BRCM) has managed to do something that other chip outfits have not been able to manage this quarter by actually beating estimates.  Non-GAAP EPS was $0.54 and revenues were $1.298 billion, while First Call estimates were $0.44 EPS and $1.27+ billion in revenues. Even though the company warned of lower profit margins ahead, there are many things that make this a very positive call.  At least, compared with its rivals.

Scott A. McGregor, Broadcom’s President & CEO commented on thecaution ahead: "As in prior economic slowdowns, we expect to enhanceour competitive positioning and drive the next wave of communicationsconvergence. The widespread acceptance of our combination solutionsvalidates our strategy, and together with our rapid transition to 65nmprocess technology, should enable us to emerge in a much strongerposition when the economy recovers."  But all in all, that is far moreconfident than others.

$38 million of the revenue numbers were from royalties, which some will consider part of operations and some will not.

The company’s guidance for revenues was $1.17 billion to $1.235billion and it seems from the tone of the conference call that this wasbeing more conservative in acautious time for the economy and for the sector.  First Call hadestimates at $1.28+ billion.  Again, this isn’t a win but it isn’t adisaster considering what we saw yesterday.

Another issue is that Broadcom seems to be on the winning end of the courtroom cases against Qualcomm (NASDAQ: QCOM).  Itscomments of a "likely drop in margins" are not showing some of the gloom that we just saw yesterday from Texas Instruments (NYSE:TXN).  Broadcom even seems on better footing from a trader’s perspective than processor giant Intel Corp. (NASDAQ: INTC) did last week.

A drop of 0.50% to 0.75% off of margins for the coming quarter report in today’s climate might even be considered a win by some.

Traders were bracing for worse news, or at least with a 4% drop to$13.80 today before the report.  Shares are up almost 8% at $14.90 inafter-hours trading, and its 52-week trading range is $12.98 to $43.00.

It might be a lay-up to at least call this the best earningsreport including guidance of the large leading chip companies thisearnings season.  Considering that shares were north of $25.00 inmid-August, we’d label this chip stock earnings report as "King of theProm… even if they are mostly dogs at the school."

Jon C. Ogg
October 21, 2008