Broadcom's Turnaround Story Continues

NEW YORK ( TheStreet) -- It seems with each passing quarter, semiconductor giant Broadcom ( BRCM) finds a way to narrow the gap that exists between it and market leaders Qualcomm ( QCOM) and Texas Instruments ( TXN).

The company's performance is even more notable when one considers how unimpressive recent earnings results have been from not only Intel ( INTC), but from the entire sector. While Broadcom stock is far from cheap at current levels, investors were looking to the company's Q3 results for further confirmation that they had placed the right bet buying the stock several quarters ago. Broadcom delivered.

The Quarter That Was

Broadcom reported third-quarter non-GAAP net income of 79 cents per share compared with analysts expectations of 76 cents. Impressively, for the first time in the company's history, Broadcom was able deliver $2 billion in revenue in one quarter -- reaching $2.13 billion, up 9% year over year and beating analysts' estimates of $2.09 billion. This marks the third consecutive quarter revenue has grown on an annual basis.

The performance was good, but it generated some mixed views from investors who were quick to point out the company actually missed its EPS estimates on a GAAP basis with net income falling to $220 million and down 18.5% year over year. It also didn't help generate much excitement that Broadcom offered weaker guidance than expected.

Broadcom expects fourth-quarter revenue of $1.95 billion to $2.10 billion -- slightly weaker than consensus estimates of $2.12 billion. Likewise, analysts lowered 4Q estimates one penny to 54 cents per share. While that might be indeed legitimate cause for concern, that the company is growing revenue in the face of stiff competition and a tough macro environment suggests that its investments in sales and marketing are doing just fine.

What's more, Broadcom's performance during the quarter as well as its guidance stacks up very well compared with Texas Instruments and Intel. But it seems it continues to trail the performance of Nvidia ( NVDA), which not only beat on both on its top and bottom lines but also raised guidance for its third quarter.

Moving Forward

Though Broadcom is expecting revenue weakness in the fourth quarter, I'm inclined to be a bit more optimistic about its prospects. A lot of that has much to do with recent and imminent product launches from Amazon ( AMZN) and Apple ( AAPL) -- products which include the new Kindle Fire as well as the iPhone 5. What's more, that Apple already reported 5 million iPhone 5 sales in the first three days of the launch speaks to the potential positive impact on Broadcom's revenue.

Likewise, Broadcom's relationship with Samsung coupled with that of Apple presents Broadcom with 50% exposure in the smartphone market. As impressive as this fact may be, this represents only one part of the company's portfolio of products. Investors continue to discount Broadcom's dominance in networking where its biggest customers include Cisco ( CSCO).

Broadcom is also involved in satellite and VoIP components as well as set-top boxes. At some point these markets should also see a slight rebound -- helping Broadcom generate more revenue outside of the market for which it is currently known.

There is a lot to like about Broadcom and its current ranking in the ongoing battle for chip supremacy.

As I noted above, the stock is far from cheap but there is considerable value left for investors who are willing to be patient. The stock can easily approach $35 by year's end with better than expected earnings numbers by Apple, Samsung and Amazon, which all have the potential to dominate that all important holiday shopping season.

At the time of publication, the author was long AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.