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Buy Broadcom on Weakness, Sell ARM Into Strength

NEW YORK ( TheStreet) -- If the level of impact surrounding the growth projections of smartphones and mobile devices were ever in doubt, investors should look no further than a recent study by Cisco (CSCO) where it projects not only that the average consumer will have more than one device, but remarkably the total number of devices will exceed the number of humans on the planet. So as the market continues its transition away from PCs to an ecosystem of "mobile data," it stands to reason that companies that contribute to this evolution will grow commensurately.

Speaking of "ecosystem," while Apple (AAPL) and its rivals in Google (GOOG) and Amazon (AMZN)generate the lion's share of Wall Street accolades for having their names planted on these devices, investors will be wise to start considering the names that are not as prominent on the outside, but instead plastered all over (inside) the devices -- many of which are now silently growing revenue and margins at impressive rates. Of course, some of the first names that come to mind are going to include Intel (INTC), Qualcomm (QCOM), and Texas Instruments (TXN) -- and deservedly so. However, one name that rarely ever gets mentioned and should be on the radar of value investors is Broadcom (BRCM - Get Report).

Be that as it may, the company has always been one that has shown it can stand out from its peers. Unlike its rivals, Broadcom also generates revenue from another popular and highly profitable stream -- routing and switching equipment, one where it competes with (among others) Cisco, Dell (DELL) and Hewlett-Packard (HPQ). As tough of a competition this may pose, it makes sense to expect good things from Broadcom if for no other reason than Cisco's own recent study and Broadcom's own recent earnings performance -- one where although it beat estimates, offered outlook that was somewhat uninspiring.

The broadly better quarter

Last week, for the period ending in March the company reported net income of $88 million, or 15 cents per share compared to having earned $228 million or 42 cents per share in the same period of a year ago. The company attributed the decline (among other things) to weaker sales of handsets from one of its biggest customers in Nokia (NOK) -- this is despite strong iPad sales. It earned 65 cents per share (excluding one-time items) and beating analysts' estimates polled by Thomson Reuters as revenue arrived at $1.83 billion, up slightly from $1.82 billion a year earlier -- also topping the Street's expectations.

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