Taking the Wide View on Broadcom

Everybody has to get it.
Got to get it together... -- Grand Funk Railroad

It sure is getting tempting to start buying tech again.

Broadcom (BRCM - commentary - Cramer's Take) is going to become a primary tech tell for me now, because the stock's setup seems to have encapsulated most of the dynamic that's driving tech stocks. The company has reported three successive quarters of absolutely stunning and shocking growth. (I'm not using stunning and shocking to be hyperbolic. They were stunning and shocking even to this long-time tech bull.)

The commentary on the first two of those earnings conference calls (the third and fourth quarters of 2005) were all about how they don't have enough inventory and how they can't possibly meet the demand for almost all of their chip lines. That commentary was music to a tech bull's ears, as were the results themselves.

But when Broadcom reported its third consecutive blowout quarter a few weeks ago, the commentary on the call changed, mainly because of inventory build and also the potential of its customers having doubled and tripled ordered supplies from Broadcom. I mean, you can understand why those customers might have been double and triple ordering after Broadcom had spent the past six months telling customers that they couldn't produce enough to meet demand. So this means there's more inventory in the supply chain away from Broadcom's own inventories, and nobody can really be sure just how much.

It's absolutely plausible that those inventories will be worked down as end-user demand for the finished products stays strong. And it's absolutely plausible that Broadcom ends up reporting another blow-out quarter when it reports results again in about 70 or 80 days.

In fact, with Broadcom having slid from the high $40s to the mid-$30s in a matter of days, I'd like to start buying Broadcom again. But in a break from the past few years, I'm going to be patient and let the fundamentals play out a little bit more before I start anticipating such a happy ending.

I'm now likely to become more of a buyer than a seller in tech again. But I'm not going to do much of either selling or buying for the time being. Easy does it as usual.

At the time of publication, the firm in which Willard is a partner was net long BRCM, although positions can change at any time and without notice.

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Cody Willard is the manager of a hedge fund, author of The Telecom Connection, a newsletter published by TheStreet.com and a contributor to the Financial Times and VON Magazine. He is also a regular guest on CNBC's Kudlow & Company and an adjunct professor at Seton Hall.

He earned a bachelor's degree in economics at the University of New Mexico. Willard appreciates your feedback -- click here to send him an email.