But, there is so much value to be gained here that we hesitate to give up on the hope of outside pressure driving change, with softer approaches still potentially holding promise. At a minimum, we believe a significant fraction of shareholders would back such an effort.
Additionally, “performance-based” bonus payouts have been astonishingly high given company execution, with targets seemingly set well below “typical,” operating metrics changing year-to-year (sometimes based on cash flow, sometimes on margins, sometimes on EPS), and a heavy “strategic” (e.g. discretionary) component (30% of the total base contribution). Consequently, performance bonus payouts have averaged ~170% of target levels over the last 5 years.
Rasgon thinks Broadcom management wants to press on with baseband, but he thinks the company should spin out the cellular parts, even if it means abandoning a strategy to protect its “connectivity” business in WiFi chips:
We recently wrote of our believe that Broadcom, rather than continue to throw money down the cellular hole, should instead consider discontinuing investment, and seek to monetize the remaining connectivity business either through an outright sale, or through an (eventual) cash-flowing1. This would leave a smaller company, but one without the perceived long-term secular headwinds inherent in the wireless business (arguing for substantially higher valuation), and with substantial net cash that could be returned to shareholders. We believe such an action could yield stock valuations approaching of $40 per share.
Rasgon thinks it would be hard to bring a challenge to the company to pursue such structural change, given that co-founders hold almost a majority of voting power, but he hopes to at least prompt the discussion:
The company’s voting structure is likely to make a direct activist intervention challenging. Namely, the two co-founders, Drs. Henry Samueli and Henry
Nicholas (the company’s former CEO) together control ~ 49% of the voting power through their ownership of Class B shares, which carry 10x the voting rights of ordinary Class A equity [...] Thus, it may be difficult or impossible for an activist investor to carry the threat of a proxy battle [...] But, there is so much value to be gained he
Bernstein Research semiconductor analyst Stacy Rasgon today returns to the theme of whether Broadcom (BRCM) needs to break into pieces given limited succcess in the wireless baseband chip business, where it is trying to compete with Qualcomm (QCOM), as well as a host of others such as Intel (INTC), Nvidia (NVDA), and MediaTek.
Rasgon had written back on October 7th that controversy about the investment cases for Broadcom stems from the fact that “Despite several billion dollars of investments, Broadcom’s baseband efforts have failed to deliver the goods so far.”
Rasgon, who rates the stock Outperform, with a $30 price target, writes today that “Current leadership has not proven to be good stewards of shareholder capital,” pointing out that management compensation has risen even while baseband investments have failed to bear fruit:
However, while stock performance has significantly lagged and investors have suffered, management compensation has substantially climbed. While the stock has significantly underperformed, total pay for top executives has increase by almost 60% over the last few years, and “performance-based” bonus payouts have averaged 170% of (apparently easily-met) targets. - Investors have felt a significant amount of pain stemming from Broadcom’s actions. Broadcom’s stock returns vs. the S&P 500 and the SOX have been, frankly, atrocious, underperforming the relevant indexes by thousands of basis points on a one, three, five, and sever year horizon. The stock today is one of the cheapest in all of semiconductors with fears of wireless headwinds and never-ending investment in baseband making the market treat the company as broken. However, while investors have suffered, management compensation has climbed. The pay of the top five executives has increased by 58% from 2010 through 2012 while the stock posted heavily negative returns relative to the market. Additionally, “performance-based” bonus payouts have been astonishingly high given company execution,
Apple's mission to bring the iPhone to the world's largest mobile operator has apparently dragged on since 2007. Now, however, it finally looks as if Tim Cook's latest round of secret negotiations has paid off. TENAA, China's equivalent to the FCC, has released documents clearing a pair of iPhones packing GSM-enabled TD-LTE radios. Considering that China's other two carriers (Telecom and Unicom) use the more common CDMA2000 or WCDMA, this is a very hefty hint that the iPhone 5s and 5c will shortly be available to China Mobile's 740-million plus subscribers.
Update: Looks like these variants were actually first made public on TENAA back in September, according to our friends over at The Next Web, but a tease can only last for so long. China will just have to hurry up with its official TD-LTE roll-out, which is rumored to take place later this year.
The industry is waiting for the licensing of China’s 4G network, rumoured to be in November, which will then let China Mobile start up its TD-LTE service. Apple is reported to have boosted iPhone 5s production by 75%, which ties in with other gossip that China Mobile is getting ready to launch both the 5s and the 5c. Now that the iPhone 5s and 5c have been approved by TENAA (China’s FCC-equivalent) for China Mobile, this version of the phone could be in for a big boost in sales by year-end.
Taking a peek under the covers of the revised AirPort Card, we find:
Broadcom BCM4360 5G Wi-Fi 3-Stream 802.11ac Gigabit Transceiver
Broadcom BCM20702 Single-Chip Bluetooth Processor with a High Performance Integrated 2.4-GHz RF Transceiver
Skyworks SE5516 Dual-Band 802.11a/b/g/n/ac WLAN Front-End Module
Broadcom BCM5976 Touchscreen Controller (as found in the earlier versions and the iPhone 5)
Easy-upgrade #2: Add a new AirPort card that supports 802.11ac Wi-Fi.
Apple's go-to provider of 802.11ac support is again at work. The Broadcom BCM4360 on this AirPort card enables operation on the 5 GHz band at speeds up to 1.3 Gbps.
A Broadcom BCM20702 Single-Chip Bluetooth 4.0 Processor gets Bluetoothy things done for your convenience.
Also in residence are a pair of Skyworks SE5516 dual-band 802.11 a/b/g/n/ac WLAN front-end modules.
When you look across Samsung’s smartphone and tablet portfolio, you’ll notice that the company uses chips from various vendors. Samsung typically relies on their own chips for high end devices, though this year that’s changed with the S4 getting Qualcomm’s Snapdragon 600. Moving down to midrange, again, typically you’d see Samsung’s older chips, but this year we’re seeing the Snapdragon 400 show up in devices like the GS4 Zoom, GS4 Mini, and the Galaxy Mega phone/tablets.
Stepping down yet another peg, to the devices that normally cost under $200, these usually have chips from Broadcom. The Galaxy Young and Galaxy Fame are two Galaxy phones you might not be familiar with, but they’re probably going to be some of Samsung’s best selling phones this year in emerging markets.
With that in mind, I’d like to introduce you to the new “BCM23550″ from Broadcom. Horrible name, but here’s what you need to know: Four ARM Cortex A7 cores clocked at 1.2 GHz, 21 megabit per second HSPA+ radio, Android 4.2 optimized, 12 megapixel camera support, 1080p hardware accelerate h.264 video encoding and decoding, the latest WiFi, NFC, and just about everything else you need to make a smartphone.
You might not care about whatever sub $200 smartphone Samsung launches next year, but millions of people do. The Galaxy S II, arguably the most advanced Android phone to come out in 2011, is now less than $300. By this time next year, I wouldn’t be surprised if Samsung had an equivalent Galaxy S II class device out on the market for as low as $150.
Chip maker Broadcom will shed 1,150 jobs as it struggles to keep selling 3G tech while getting its 4G product line out of the door.
Revenue growth in the third quarter of 2013 was fairly flat for the company, which ships system-on-chips and communications ICs for use in mobile gadgets: sales were up a smidgen on last year to $2.14bn from $2.12bn, and net income grew to $316m from $220m in the year-ago period. The markets, though, expected better.
Broadcom's specialist subject is silicon packed with integrated communications, but its integrated products don't support next-gen mobile broadband LTE so it's been forced to bang the Wi-Fi drum very loudly. The company sells system-on-a-chip (SoC) silicon into low-end handsets, but can't reach higher without 4G baked in.
Broadcom gave up developing its own 4G SoC with the acquisition of the LTE assets from Renesas Electronics, for which Broadcom paid $164m and completed the purchase on 1 October. That gives it a SoC with a couple of ARM Cortex-A9 cores supporting multi-band LTE, and is already stamped for approval by AT&T, Vodafone, EE and so forth, which should be attractive to mid-range manufacturers.
But that won't bring in revenue until the middle of next year, so in the meantime the company is busy cutting costs and spent $12m doing that in the third quarter, with another $20m expected to be spent before the end of 2013.
350 of the staff on the chopping block are at Renesas, while 425 are Broadcom workers whose skills are no longer required thanks to the acquisition, all of which was widely expected even if the details weren't known. That leaves another 375 to be cut from Broadcom to reduce costs, along with other savings all of which cost money in the short term.
Smartphones and tablets: Samsung said that it expects competition in the markets for smartphones and tablets to intensify in the fourth quarter despite it being a strong selling season. Samsung executives said they’ll aim for similar profits from from smartphones in the fourth quarter compared with the third quarter. The Galaxy Note 3 smartphone—a key premium product line-up for Samsung released in September —was frequently mentioned on the earnings call, highlighting how much Samsung is depending on sales of this large-screen smartphone/tablet. Samsung said the proportion of high-end smartphones in its mobile portfolio for the fourth quarter will likely remain similar to what it was like in the third quarter, but didn’t provide specific details.
Newman also countered signs of slowing growth in Samsung’s mobile division, pointing out that its operating-profit margins had grown to 18.3%, from 17.7%, quarter-on-quarter. He added that while sales of high-end smartphones had been flat, they’d increase in the all-important fourth quarter with strong Galaxy Note 3 sales.
Samsung doesn’t break out unit sales, but Newman estimates the company shipped 88 million smartphones in the third quarter, including 3 million Galaxy Note 3s. That’s about 2.7 times more shipments than Apple for total comparative devices in the quarter.
High-end smartphones, he also estimates, made up 40% of smartphone shipments in the quarter, down from 48% in the second quarter, as the company trends towards selling older models.
Broadcom announced its earnings after the close of the Oct. 22 session. While the company's results for the quarter were a mild beat, the company's guidance was weaker than expected -- $1.975 billion, +/- 3%, against consensus of $2.13 billion. The company announced a fairly substantial set of layoffs, to the tune of 1,150 personnel, or about 10% of the workforce. While the network-infrastructure business is in good shape and its home business throws off plenty of cash, significant concerns around its mobile and wireless business loom.
High-end phone growth slowing significantly; low end in desperate need of a solution
Broadcom's connectivity combo chip share -- semiconductor products that build in Wi-Fi, Bluetooth, NFC, and/or GPS -- has been quite strong in the high end of the market. But in the mid-to-low-end space, its lack of a competitive offerings -- particularly lack of LTE -- has been a clear negative. Indeed, in the lower end of the smartphone/tablet markets, Broadcom's seemingly superior solutions still don't hold up against cheaper, bundled solutions from other players such as Qualcomm . Broadcom needs to be selling the entire platform, soup to nuts, in order to continue to drive meaningful growth here.
The problem here is that while Broadcom has 3G solutions, the 3G market is dwindling. The margin situation there is terrible -- lots of competitors all selling largely the same technology, which is a problem Intel has faced with its own 3G solutions, and why it is rushing to get its LTE solutions to market as soon as possible.
The transition to LTE has been difficult for most players, and it is likely that Broadcom ends up one of the increasingly fewer players that compete in the 4G/LTE market. However, the first products -- an integrated dual Cortex A9 coupled with Renesas-designed modem -- will roll out in early 2014 (CEO Scott McGregor defined this as "January to April"). Management seems optimistic that these will gain meaningful design traction, although investors rightly remain skeptical, particularly in light of the difficulties that the company has had in the cellular baseband space thus far. The company is already late and can't afford yet another delay.
Apple's lack of 802.11ac damages mix/confidence
Apple's latest iPhone 5c/5s, as well as its freshly launched iPad Mini and iPad Air tablets, feature Broadcom's lower-end 802.11n Wi-Fi rather than the 802.11ac (5G) Wi-Fi that some other higher-end devices, such as the HTC One, come packed with. While Broadcom's management is confident that the trend toward higher-end 802.11ac is intact and should manifest itself more prominently over the next year, Apple's adoption of older, lower-dollar content technologies may raise some doubt among investors. In addition, Apple's use of 802.11n rather than 802.11ac means that Broadcom doesn't see what could have been a very real ASP/margin dollar uplift with this year's Apple product models.
Nevertheless, shares are dirt cheap
Excluding the NetLogic impairment charge, but keeping in share-based compensation expenses, the company is set to earn between $1.53 and $1.69 per share. On a non-GAAP basis, the company is set to earn between $2.58 and $2.73. This means that at the most recent after-hours price of $24.98, Broadcom trades at 15.5 times the midpoint of expected full-year earnings, excluding share-based compensation. On a non-GAAP basis, shares trade at 9.4x fiscal 2013 estimates.
The shares are dirt cheap, and once the company can show signs of material traction in the highly integrated low-to-mid-range of the cellular platform space, then it is likely that we will see significant operating leverage into fiscal 2014 -- operational expenses will likely be flat in 2014 year over year, but mobile and wireless investments into LTE have been significant with no payoff yet.
As long as Broadcom can execute on its LTE plans into 2014, shares should trade meaningfully higher from current levels. In addition, the company's analyst day is coming up in November, which could help to assuage investor fears and explain/expand upon the long-term strategy. Until then, it will be a very volatile ride.
The closed-off chassis means that expandability is all about what happens outside of the computer now. With a whopping six Thunderbolt 2 ports, Apple figures you can hook up all the storage you’ll need. But the lack of replaceable graphics cards could be an issue for buyers down the road — while the new AMD FirePro options users can get in the Mac Pro are certainly amongst the best high-end options available at the moment, they could turn into a bottleneck for users in a few years. But that’s clearly not a concern for Apple. The company’s been pushing a more closed-off, less expandable ethos with its machines for years now, and the new Mac Pro is just the next logical step in that progression. Apple clearly believes that its external, Thunderbolt-powered expansion scheme is enough for professionals — does the Mac Pro’s potential audience agree?
"$3,000 ISN'T TOO MUCH TO PAY FOR A MONSTER OF A MACHINE."
So far, it seems that some are already on board with this brave new world. Photographer Duncan Davidson tells us that he’s been using a Retina MacBook Pro as the Mac Pro stagnated in recent years, but that he’s looking forward to getting back on Apple’s pro tower — despite its more limited expandability. As part of the move to a portable, Davidson has invested in networked-attached storage (NAS), a move that readied him for not having all of his data stored directly on the machine itself. "I think you’re going to hear a lot of people make a big deal about the externalization of storage," Davidson tells The Verge. "It’s an easy thing to pick on. Sort of like dropping floppy drives and DVD drives. But I’m not concerned about that at all."
Davidson may have fallen in love with the high-DPI screen on his MacBook Pro, he says he’ll be switching to a Mac Pro "as soon as I can have Retina High DPI screens" with Apple’s new desktop machine. While Apple didn’t introduce a 4K Thunderbolt display to go along with the Mac Pro, the company did tout the computer’s ability to run up to three 4K displays simultaneously, something that may help Davidson make the move back to a tower. "At this point, I still have a need for a more powerful machine than my MacBook Pro," says Davidson. "When editing lots of photos or working on video footage, every little bit of horsepower is welcome."
Goldman Sachs maintained a Neutral rating on Broadcom (NASDAQ: BRCM) with a price target of $30.00. The stock was pressured following Q3 results, but analyst James Schneider thinks downside is limited.
"We remain Neutral rated on Broadcom as we believe investors will need to regain confidence in the company's wireless growth prospects to own the stock, even after its significant under-performance. In order to do this, we think Broadcom will need to diversify its customer base significantly and show clear design win momentum in LTE, which we do not anticipate before 2H14. However, we also believe downside in the stock is limited at current levels based on our SOTP analysis," he said.
Communications chipmaker Broadcom is cutting approximately 1,150 jobs, nearly one-tenth of its workforce, as part of a global restructuring.
The company announced the cuts Tuesday as it reported third-quarter revenue that was nearly flat from last year’s third quarter, at $2.15 billion. That was up just 0.8 percent from $2.13 billion a year earlier. The company also posted net income of $316 million, compared with a loss of $251 million in last year’s third quarter.
Broadcom said the restructuring, which its board approved on Sept. 25, is aimed at cutting costs as well as better focusing the company’s spending on key initiatives. The cost-cutting also includes lease terminations, the company said.
The layoffs will include about 350 employees that Broadcom took on through its acquisition of LTE chip technology from Renesas Electronics, which was completed on Oct. 1. As many as 425 Broadcom workers will also be cut because their jobs became redundant after Renesas was absorbed into the company.
But the layoffs will also include up to 375 employees to be cut from across all of Broadcom’s regions and business functions, according to a U.S. Securities and Exchange Commission filing by the company. That resulted from a regular review of the company’s resource allocation, President and CEO Scott McGregor said on a conference call following the financial report.
It has approximately 11,750 employees.
In early September, the company announced it would pay an estimated $162 million for LTE assets from Renesas that it would ship starting early next year. Among other things, the deal will allow Broadcom to ship its first multiband, carrier-validated LTE system-on-a-chip product for mobile devices. It also acquired intellectual property for emerging LTE technologies including VoLTE (voice over LTE) and carrier aggregation, which lets operators combine spectrum bands to boost capacity.
Our Mobile and Wireless segment increased 5% sequentially to $1.02 billion, driven primarily by stronger than anticipated sales of our cellular SOCs and other technologies including touch controllers.
Moving to the balance sheet, cash and marketable securities ended Q3 at $4.3 billion. This reflects cash flow from operations of $672 million, our dividend payment of $63 million and stock repurchases of $378 million in the quarter. We ended the quarter with $2.1 billion in U.S. cash, down roughly $280 million from the prior quarter.
Scott kept sandbagging next qtr so much that the co. ends up beating St consensus in Q3. The sand bagging really hurt stock badly at Q2 ER. He didn't know how to manage St expectation. 3G rev beats expectation. No 4-core 3G design win as promised in Q2 CC.
Bob, Scott MUST GO. Nick, Henry run the show. Split in 3. Buy Back more.
During the quarter we repurchased 14 million shares bringing total repurchases year-to-date to 20M shares well ahead of our target for the year.
Good question, and we'll definitely cover that more at Analysts Day 12/10 coming up. I would give you more visibility on our overall LTE plan, some milestones, where we are with some customers, and progress on development. So we're planning to share a bit more with you at Analysts Day. I think for the main point of your question though, you can probably assume that it is in a cold start with the Renesas team and that we're able to leverage a lot of what they were able to do in ongoing conversations with discussions that they had and translate that into revenue in early 2014.
So we’ve said early next year, we haven’t change that, early next year is January to April, in my view first part of the year and we are on track with that. And in terms of the quad-core we do expect to have that out and we do expect to get revenue for the quad-core next year as well.
So in terms of the inventory question, I think you saw that we shipped a little more than we expected on basebands in Q3 and I think there’s a little bit of an inventory build in that. We also have a large customer who typically does it pretty significant inventory correction or inventory adjustment in the fourth quarter to exit the year with very low inventory and so we believe that’s a factor in our Q4 numbers
BRCM should spin off ING, M&W, Broadband into 3 cos to unlock shareholders' value. The aggregate value of 3 spin offs will be $50/ shr. ING, Broadband will fetch premium value due to high GM, Ops Margin, high growth, clear visibility. They will be unshackled to show its intrinsic EV.
M&W will eventually recover when it ship dual core, quad core LTE-A, ET, CA baseband w/
integrated 11ac Wifi, GNSS, NFC, App processor. The 3 cos can be arranged to cross license each other IP.
After spinoff, Scott will automatically be out. Rango should be replaced by Hurlston's. Nick, Henry should not tolerate Scott and Bob any longer. When Nick was CEO, he would never tolerate such catastrophe like this.
Scott, Bob have to go for single handedly destroying shareholders' value costing Nick, Henry billion of dollars.
Bob Rango should be held accountable too as head of M&W. He rode Hurlston's coattail in Wifi but watched 3G, LTE Baseband biz fall apart.
BRCM hits 4 yr low while Dow, SP 500 hit all time high, Nasdaq is almost 4,000.
Henry, Nick should have the courage to force CEO resign for acquiring WiMax Beceem instead of Nok baseband, losing to MediaTek quad core. Scott promised 3G quad core baseband, app win in 3Q13. Where are they?
The co. Burnt billions of dollars in baseband while severely cutting cost in other profitable BUs. Someone must be held a countable including the top. The buck stops at the CEO's desk.
Stock would jump immediately if CEO resigns. Nick, Henry, employees, shareholders have suffered enough.
Broadcom is initiating widespread layoffs from its LTE and modem design teams both in the U.S. and overseas, according to sources familiar with the situation. The move comes just days after the company closed a $164 million deal to acquire the LTE-related assets of Japan-based Renesas Electronics.
The layoffs, which began last week and are expected to continue on through this week and potentially longer, will hit at least several hundred IT workers, sources say. More than likely, they’ll get deeper over the next 12 months, since the company has said it expects to slash roughly $45 million in operating expenses as a result of the Renesas transaction.
Last week, Broadcom handed out an undetermined number of pink slips to its LTE and modem design operations in San Diego, as well as in New Jersey, Colorado and India, sources say. The New Jersey layoffs affected approximately 30 people, or about a third of the team there. Roughly 220 people – about half of the local team — were given layoff notices in India.
This week, members of Broadcom’s Sunnyvale, Calif., LTE and modem design teams, which combined have upwards of 90 people, will reportedly receive layoff notices. They’re expected to receive packages that include at least two months of severance. Under the federal WARN Act, companies are required to give workers 60 days of notice when large layoffs are planned.
Broadcom declined to comment because it’s in a pre-earnings quiet period, a company spokeswoman said.
Broadcom employees say the layoffs come as no surprise, given that the company acquired LTE assets and nearly 2,000 engineers with the Renesas agreement, which was announced in early September and closed October 1.
In September, Deutsche Bank Analyst Ross Seymore said in a research note that the deal would help the company “to accelerate availability of its first multimode, carrier-validated LTE SoC platform into early 2014 from prior expectations of (the second half of 2014).” After the announcement, EE Times noted that Broadcom had been working on LTE for several years but didn’t appear close to shipping a product on its own.
Although the layoffs weren’t necessarily a surprise, no one likes to lose their job. That said, some workers are already fielding offers for contracting jobs that pay at a higher rate than their Broadcom positions did, our sources say. Of course, not everyone is landing such offers.
Broadcom may have more to say about the layoffs when it holds its third quarter earnings announcement on October 22.