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Monday, July 24, 2006

Broadcom: Cheap Gets Expensive-Widely Held Stocks

Stocks: (BRCM)(TXN)(INTC))(QCOM)

Some times a stock get so inexpensive that investor feel they must be a bargain. That would be a poor assumption with Broadcom.

Broadcom has issues with rising inventory and slowing sales for some of its key products especially in the DSL arena. The options scandal is more like than not going to do more damage to the company and take up a great deal of management and the board’s time.

Broadcom did release revenue data for its second quarter. The top line hit $941 million, up 56% from the same quarter a year ago. But guidance was for the third quarter to be about $900 million, so sales are clearly slowing. Consensus on Wall St. was for the company to hit $985 million

Morningstar recently made the point that Broadcom is losing share to large rivals in several critical markets. Intel has taken business away in the server chipset area. Qualcomm and Texas Instruments have held share against Broadcom in the wireless handset market.

Revenue at Broadcom rose significantly from 2003 at $1.61 billion to 2004 at $2.40 billion. Growth slowed in 2005, with revenue at $2.67 billion. Over the last few quarters, revenue continued to rise. Each quarter from the June 2005 quarter through the quarter reported last week grew compared to the immediately previous quarter. In the second quarter of 2005 revenue was $605 million followed by quarters of $695 million, $821 million, $900 million, and, most recently, $941 million.

Now, revenue is shrinking and turmoil is growing.

Broadcom’s stock has come way down. The stock hit $50 in March. The shares now trade at just above $23. The company is valued at about 4.6 times sales according to Yahoo!Finance. Texas Instruments stands at 3.1 times sales. And, it doesn’t have all of Broadcom’s problems.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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