Broadcom Corporation ( BRCM) recently updated its guidance for the fourth quarter of 2012. The company expects revenues to come between $2.0 billion and $2.10 billion compared to the previous guidance of $1.95 billion – $2.10 billion.
The increase in guidance was attributable to slightly better-than-expected revenue in the Mobile & Wireless business.
Broadcom now expects product gross margin on a GAAP basis to increase slightly from 48.8% reported in the third quarter of 2012 as compared to the earlier expectation of being flat to slightly up.
On a non-GAAP basis as well, product gross margin is projected to increase slightly from 52.1% reported in the third quarter of 2012 as compared to the earlier expectation of being flat to slightly up.
On a GAAP basis, research & development and selling, general, and administrative expenses are expected to be down $5 million - $15 million from the third-quarter level of $648 million. The decrease in guidance was due to lower-than-expected headcount costs, primarily driven by reduced incentive compensation, as well as tighter expenses and services management.
Amidst a weak macro environment, the positive guidance from Broadcom is quite encouraging. Broadcom is well placed in the fast-growing wired and wireless communications markets, with cutting-edge solutions for a growing number of connected users, who are on the look out for more content and bandwidth. The market for wireless connectivity devices is expected to grow, driven by increasing demand of smartphones, tablets, netbooks and digital TVs.
The company currently faces competition from bigwigs like QUALCOMM Incorporated (QCOM ) and Texas Instrument ( TXN). QUALCOMM’s operating unit, Qualcomm Technologies, Inc. (:QTI) recently completed the acquisition of EPOS Development, Ltd. In order to retain its position in the global market, it is imperative that Broadcom continues to undertake various initiatives and develop new products, keeping in mind the betterment of the organization in both the long and short run.
We currently maintain a ‘Neutral’ recommendation on Broadcom. The stock carries a Zacks #3 Rank, translating into a short-term (1-3 months) ‘Hold’ rating.
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