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Broadcom Signals Weakness for Cisco

Stocks in this article: CSCO BRCM TWC MMI

NEW YORK ( TheStreet) -- Late Tuesday, Broadcom (BRCM) offered more signs of slump in the cable TV sector, a bad omen for Cisco (CSCO), which posts its second-quarter earnings next week.

The communications chip maker delivered solid fourth-quarter results, but offered disappointing first-quarter guidance, sending its shares down 6% Wednesday.

Among the worries, Broadcom pointed to a potential inventory buildup at two of its set-top box customers.


"We expect Broadcom revenue to decline in the first quarter due to excess inventory and a couple of our customers ordering more than underlying demand in fourth quarter," Broadcom CEO Scott McGregor told analysts on the company's earnings call Tuesday.

And since Cisco and Motorola Mobility (MMI) basically fill that entire description, analysts had a easy time picking out the usual suspects.

"We believe that Motorola Mobility and Cisco are major buyers of Broadcom's set-top box chipsets and that Broadcom's inventory comments suggest ramping inventory," JPMorgan analysts wrote in a note Wednesday to clients.

The news of weak underlying demand for set-top boxes should sound familiar to Cisco investors. In November, Cisco shares got crushed after the company reported hitting certain "air pockets," including canceled orders for set-top boxes.

The situation hasn't improved either. With consumers opting for satellite TV or Internet video, the so-called cord-cutting trend continues. Time Warner Cable (TWC) said last week that it lost 141,000 video subscribers in the fourth quarter and nearly half a million for the year.

The eroding cable TV business will not help Cisco put together a solid story for investors when the networking gear maker reports earnings next week.

--Written by Scott Moritz in New York.

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