Broadcom Corp. (BRCM) is expected to report its third quarter results on Oct 22. The company expects revenues to grow by 7% – 14% sequentially in the third quarter fueled by growth within the mobile and wireless targeted end market, which in turn is driven by new product ramps and the upcoming holiday season. This implies revenue guidance between $1.11 billion and $1.18 billion. 

Revenues from the Broadband Communications market is expected to grow across all targeted markets. Enterprise Networking business is also expected to stabilize driven by improving customer order patterns particularly in the Ethernet switching area. The revenue guidance includes $55 million of license revenues.

Broadcom had earlier reported encouraging second quarter results in July but margins took a beating due to a decrease in product gross margin. However, product gross margin is also expected to increase in the third quarter. Operating expenses are projected to increase by $15 million – $20 million driven by tapeouts and prototyping costs of newer solutions.

Order patterns appear to have normalized, after six months of inventory corrections in the semiconductor industry. The economic crisis has led to cancellations, deferrals and a significant slowdown in orders. Management expects that this trend will continue throughout 2009 and demand is not expected to turn around before 2010.
Broadcom was earlier involved in a hostile takeover battle with Emulex Corp. (ELX) since May 2009 which the latter turned down after a series of revisions in the offer price. We think management should now concentrate on improving operating performance given signs of economic recovery in later half of this year/early next year.

California-based Broadcom is a leading chipmaker of products used in wired and wireless communications. The company remains a leader in designing and marketing semiconductor components of network voice, video, and data traffic for various applications. Our long-term recommendation for Broadcom is neutral, which means the stock will perform in line with the broader market.

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