Broadcom's Not Cheap, But it's Far From Expensive

NEW YORK ( TheStreet) -- With the ongoing weakness in the semiconductor space, it's starting to look as though this group has been tiered off between the "haves," where Qualcomm ( QCOM) resides and the "have nots", a space occupied by Intel ( INTC).

It's now clear that Broadcom's ( BRCM) has reached the ranks of the "haves." It's hard to ignore the company's strong market position as one of the best part suppliers in a growing mobile industry. And after a solid Q4 earnings results, Broadcom has shown no indication of slowing growth. Although the stock is not cheap, there's plenty of momentum here to produce more gains.

The downbeat guidance not withstanding, the chip giant delivered a strong Q4 with revenue growing at 14% year-over-year to $2.08 billion. Although it was a 2% sequential decline, it was good enough to beat analysts' consensus estimate of $2.07 billion. Net income arrived at $251 million, or 43 cents per share -- beating analysts' projections by 4 cents.

The company logged strong revenue numbers in each of its three segments -- helping boost cash flow to record levels. However, the 2% sequential revenue dip was a bit of a surprise, especially since rival Qualcomm just boasted a 24% sequential improvement with chip revenue growing 34%.

It stands to reason that Broadcom ceded market share to Qualcomm during the quarter. Then again, whatever market share Broadcom is losing to Qualcomm, the company is offsetting by taking it from the likes of Texas Instruments ( TXN), which just reported another horrid quarter, during which revenue dropped 12% sequentially and 13% year-over-year.

For Texas Instruments this marked the fifth consecutive quarter of declining revenue. And the company is not expecting much sequential improvement as it issued revenue guidance that represents 6% decline. Broadcom is also outperforming Intel -- even Intel seems to be on a verge of a comeback after posting Q4 revenue of $13.477 billion.

However, it still missed estimates -- albeit by less than 1%. Then again, considering how down and out Intel has been in this race, its recent quarter qualified as a win. But not nearly enough to best Broadcom's performance, which grew gross margins sequentially by 10 basis points and by almost 2 points year-over-year.

Then again, Broadcom has the advantage being a parts supplier not only to Apple ( AAPL), but also Samsung. This is interesting to note, because ahead of Apple's Q1 report, there were concerns about Apple's supply chain issues, which caused analysts to cut estimates.

Plus, since Apple eventually missed revenue projections, it's possible to suspect that this also impacted Broadcom's revenue to the extent of the 2% sequential decline. Then again, with Broadcom's relationship with Samsung, which is the leader in worldwide unit sales, this should have served as an offsetting scenario.

In that regard, it's disappointing that the company guided Q1 revenue lower than Street estimates $1.9 billion versus $2 billion. But chips are only one part of Broadcom's revenue stream. The company also does well in the realm of networking where one of its biggest customers includes 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 beyond what it generates as a component supplier.

As I noted, 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 $40 by the second half of the year -- representing a 20% gain. In the meantime, the company just declared an 11 cents quarterly dividend, or 10% higher than the previous disbursement.

At the time of publication the author held no positions in any of the stocks mentioned.

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.