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Don't Overreact to Broadcom Fears

NEW YORK ( TheStreet) -- It hasn't been a great year for chip giant Broadcom (BRCM).

Although the company enjoys a strong market position as one of the best part suppliers in a growing mobile industry, the stock has suffered, losing as much as 22% on the year to date. There are growing concerns that Broadcom, which has long been a standout is a weak chip industry, is beginning to lose market share to Qualcomm (QCOM).

Making matters worse, the company's margins have come under pressure as the average selling price (ASP) of high-end mobile devices have begun to come down due of fear of saturation. While Broadcom is not alone in these concerns, unlike its rivals Broadcom's stock has been unable to find a floor. After a horrid second quarter, which fanned the flames of worry, investors are beginning to wonder can this company ever recover.

Even with the prolonged weakness in the sector, which produced uninspiring results from the likes of Intel (INTC) and Advanced Micro Devices (AMD), given Broadcom's "upper-tier level" position within the market, expectations for the company were still high. But with revenue growing just 6% year over year, which was below Street estimates, it was clear that management just couldn't live up to the growth demands.
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The company's once-strong mobile/wireless business grew 7%. Ordinarily this would have been considered a solid performance. But in this case it fell short of Street expectations by almost 10%. By contrast, Qualcomm, which posted 35% year-over-year revenue growth, was able to beat Street expectations by 3%. Much of Qualcomm's performance was due to a strong showing in its chip business, which surged almost 50% year over year.

Not unlike Broadcom, which couldn't navigate the recent decline in device ASP's, Qualcomm management said that the company benefited from not only a slight recovery in device prices, but also better-than-expected unit shipments. Along those lines, while it was clear that Qualcomm was a beneficiary of Apple's (AAPL) strong iPhone shipments, I don't believe that Broadcom reaped an equal advantage. To that end, the idea that Broadcom is losing share to Qualcomm is no longer just a rumor.
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