Barclays sets tgt $28, possible design losses besides S4 mini to come at Aapl, Samsung due to Qcom
Shares of Broadcom Corp. (Nasdaq: BRCM) declined on Wednesday after Barclays analyst Blayne Curtis said a teardown of Samsung's Galaxy S4 mini (3G dual sim variant) showed the device includes a Qualcomm (Nasdaq: QCOM) WLAN combo chip instead of a Broadcom combo chip.
In his view, the loss may be a sign of more to come. Curtis wouldn't rule out more losses at Apple (Nasdaq: AAPL) or Samsung as early as next year.
Barclays has an Underweight rating on Broadcom with a price target of $28.00
Shares of Broadcom closed at $34.85 yesterday, with a 52 week range of $28.60-$37.85
Curtis, who has an Underweight rating on Broadcom and an Overweight rating on Qualcomm, thinks Broadcom could lose further share in combo chips:
The inclusion of a QCOM WLAN combo shows (1) QCOM is not as far behind as many perceive, and (2) the mobile market is moving to a cost vs. performance focus as volumes move to the mid and low-end, which favors platform sales. QCOM already has a high attach rate of its WLAN on QRD platforms in Asia but this is the first indication that Samsung will move away from BRCM. Recall, HTC did use the WCN3660 in the HTC One X in late 2012 but we believe the general perception is that BRCM’s share is secure. We see this loss in the GS4 mini (the GS3 mini featured the BCM4334) as a sign that is not the case and that more share loss is to come for BRCM in 802.11n but also 802.11ac, as QCOM’s solution is likely to ship later this year to multiple OEMs such as Sony, Fujitsu, and HTC paired with the MSM8974 (S800). As we outlined in our April downgrade, we believe BRCM’s combo business (28-30% of rev) has unsustainable profitability (combo OPMs likely over 20%) and market share (70-80%) as the smartphone market matures. We see a loss of $0.50-1.00 of earnings power over the next 1-2 years as BRCM’s share and profitability decline through the shift to Asia/low-end, pricing pressure (platform pricing), and gradual share loss. Additionally, we would not rule out the potential for a marquee handset (Apple (AAPL) or Samsung) to eventually move to QCOM even as early as next year.