Must-know: Renaissance Technologies' 2Q positions (Part 5 of 7)
Renaissance Technologies added new positions in Procter & Gamble Co. (PG), Bed, Bath and Beyond (BBBY), ExxonMobil Corp. (XOM), Chevron Corp. (or CVX), and Broadcom Corp. (BRCM). It exited positions in Priceline Group (or PCLN) and Schlumberger (SLB).
Renaissance Technologies disclosed a new position in Broadcom Corp. (BRCM) that accounted for 0.28% of the fund’s total portfolio.
Broadcom makes semiconductors for wired and wireless communications. It provides the industry’s broadest portfolio of highly integrated system-on-a-chip solutions (or SoCs). It seamlessly delivers voice, video, data, and multimedia in home, office, and mobile environments. The company has one of the strongest IP portfolios among global fabless semiconductor suppliers.
Its solutions are structured around three core platforms—Broadband Communications—Solutions for the Home, Mobile and Wireless—Solutions for the Hand, and Infrastructure and Networking—Solutions for Infrastructure. For Wireless, Broadcom offers a family of 3G and 4G baseband processors for use in cellular handsets, PC cards, and other wireless-enabled consumer electronics.
Broadcom to decrease its cellular baseband business
In June, Broadcom said that it’s exploring strategic alternatives. This includes a potential sale or decrease for its cellular baseband business in its Mobile and Wireless reportable segment. It added that the commercial and economic opportunity in its cellular baseband business “was not sufficiently compelling to justify the continued investment, especially when compared to other opportunities within our product portfolio.”
In its June 2Q14 earnings call, management said that it has decided to decrease the business to minimize losses after “testing the market for interest in a potential transaction.”
At the end of June, its audit committee approved a global restructuring plan that focuses on cost reductions and operating efficiencies. News reports noted that the company will terminate 250 sales and administrative jobs. It could see further headcount reductions of 2,250.
Decelerating smartphone market
For 2Q14, Broadcom posted revenue of $2.04 billion—a decline of 2.3% from the same period last year. It saw a net loss of $1 million, or zero per basic and diluted share, compared to a net income of $165 million, or $0.28 per diluted share, for 1Q14. It saw a net loss of $251 million, or $0.43 per basic and diluted share, in the same period last year.
Broadband’s Communications segment saw a revenue increase. It was driven by set top box and broadband modem platforms. The Infrastructure and Networking segment posted a revenue increase for the quarter. It was driven primarily by sales in the data center and service provider segments.
The Mobile and Wireless segment revenue declined due to decreases in sales of wireless connectivity products of $133 million and of cellular SoCs of $54 million.
The company said in its 10Q filing that “the decline in revenue related to wireless connectivity and other technologies incorporated primarily into handheld devices were driven principally by the impact of a decelerating smartphone market, particularly in higher-end devices, and reduced sales into low-cost smartphones. Low-cost smartphones have trended toward integrated platforms from single suppliers, which tend not to include Broadcom’s solutions. The decreases in revenue related to cellular SoCs were driven at least in part by the decision to exit the cellular baseband business.”
Broadcom supplies chips for the high-end smartphone market, including Apple and Samsung. It has been impacted by the shift to low-end handsets in the emerging markets. News reports in the first quarter cited OTR Global and said Broadcom’s 3G baseband chip sales to Samsung have seen a sharp fall. The company has seen competition from Qualcomm (QCOM) which dominates the field in the long-term evolution (or LTE) or 4G smartphone chips segment.
With the exit of the baseband business, the company said it has a “renewed focus on the broadband connectivity and infrastructure markets, and is positioned well in the dynamic segments of the communication semiconductor market.”
Browse this series on Market Realist:
- Part 1 - Highlights of Renaissance Technologies’ 2Q positions
- Part 2 - Renaissance Technologies starts new position in Procter & Gamble
- Part 3 - Renaissance starts new position in Bed, Bath and Beyond
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