With a cash position of more than $3 billion and another $2 billion in operating cash flow, Broadcom now has its eye set on the emerging "Internet of Things" market, or IoT. This makes sense and could push the stock towards $50 in the next 12 to 18 months.
Why should you invest in Broadcom? For one thing, the shares, at around $41, are up 37% for the year to date.
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Another reason is that, according to research firm Gartner, by the year 2010 IoT will grow to 26 billion units installed, representing roughly 30-fold jump from less than one billion units five years ago. Peter Middleton, Gartner's research director, believes this will translate to roughly $2 trillion in global economic value.
Broadcom, whose baseband/wireless business was struggling with high-end device saturation and low average selling prices, saw an opportunity it couldn't pass up. It wasn't worth risking a bigger piece of a larger pie just to stay in a baseband business that was struggling just to break even. IoT gives the company a new start.
The "Internet of Things," which was first used more than a decade ago by British tech pioneer Kevin Ashson, refers to objects and devices that are virtually represented in the Internet. If this sounds complicated, you shouldn't worry. It will soon become a household term, helped by -- among other things -- Apple's (AAPL) recently-launched "HomeKit," which will automate various household functions.