Investopedia: New Hope At Broadcom

Calling bottoms and turnarounds is a tricky business, but it does not seem so outlandish to still be positive on Broadcom (Nasdaq:BRCM) at these levels. Certainly there are competitive risks, but what semiconductor company exists in a competition-free environment? Likewise, there is also the risk that this lull in the cycle lasts longer than the companies themselves expect, but the long-term valuation here looks compelling even if near-term results are not superb. 

Signs of Life in Q2  
Broadcom's first quarter results were not very good and still the best that can be said about the second quarter is that it was meaningfully "less bad" as opposed to really better. Revenue decli ned again, but this time the sequential drop was just 1% (and revenue was up 12% from last year). The best performer in the group was the mobile and wireless, even though weakness in other segments results. Broadband and communication was down 4%. 

Profitability is still a concern, however. Gross margin did pick up about 70 basis points from the first quarter, but dropped 120 basis points from last year. Likewise, operating income was not strong on an annual comparison, dropping over 26% (and weak sequentially as well). Broadcom isn't stinting on R&D during this downturn, but the big jump in SG&A is a reason for pause. 


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