For all the lamenting I do about stocks that are just not cheap enough, Broadcom (Nasdaq:BRCM) is a welcome antidote. While this leading wireless chip company has lost none of its edge or appeal, a short-term burp in guidance has some investors selling the shares. Unless people believe that the move to smartphones and greater connectivity is suddenly over, this is a serious candidate to buy for a rebound.
Q1 Results - So-So ... But So What?
Broadcom did not deliver great results for the first quarter, but there was no particular expectation that it would. Revenue did fall 7% from the fourth quarter (although up 24% from the year-ago period), as broadband (down 15% sequentially) really fell off and mobile/wireless dropped almost 6%. Though there are many moving parts to consider, it looks like weakness in the cellular baseband business, largely a problem with Nokia (NYSE:NOK), was part of the sales decline. (For more, see The Rest Of The Earnings Story.)
There is a lot of operating leverage in Broadcom's business model, but that cuts both ways. GAAP gross margin slid about 20 basis points from the fourth quarter and close to two full points from the year-ago level. Operating income fell about 16% sequentially - and rose 16% from the year-ago level - while the operating margin contracted.
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