One of the most interesting areas in technology at the moment is the mobile chipset industry. Companies active in this arena have been able to greatly profit from the huge popularity of smartphones and other mobile technologies, and competition for the top manufacturing slots is heating up. Qualcomm has for a long time dominated the space, but rival chipmakers are starting to introduce their own products in an attempt to steal away market share from this titan. Broadcom has recently introduced its own LTE baseband chip with which it hopes to compete with Qualcomm’s more established chipset.
Stock at a Glance
Broadcom is a chipmaker providing semiconductor solutions for wired and wireless communications. The company operates in three divisions, namely Broadband Communications, Mobile and Wireless, and Infrastructure and Networking. The Mobile and Wireless division, responsible for the new chip, produces a variety of low-power, high-performance solutions for mobile and wireless technology. The stock has a market cap of $19.65 billion and offers a dividend yield of 1.27%.
Broadcom’s New Chipset
The market for LTE, or Long Term Evolution high-speed wireless chips, is clearly heating up, with a number of chipmakers introducing alternatives to Qualcomm’s currently dominant product. Earlier this month, Broadcom introduced its first LTE chip, expecting production to begin in 2014. According to some commentators, Broadcom is in better shape to challenge Qualcomm’s dominance than some other competitors such as NVIDIA and Marvell Technology Group due to its scale advantages. The main differentiating factor of Broadcom’s chip offering is the smaller size, taking up some 35% less space than comparable chips, which makes it cheaper to produce and more power efficient in its use.
However, Broadcom will have a hard time gaining market share from Qualcomm. The tech giant supplied almost 86% of the 47 million LTE-capable chipsets that were shipped last year, which is a testament to the company’s early lead in the development of this type of technology. Still, the news is favorable for smartphone makers, who are anxious for other companies to join the fray in order to reduce the dependence on one supplier.
Comparative Valuations and Metrics
So, Broadcom is planning on heating up the battle for mobile chipsets. Is it also cheaper than the competition? The stock currently trades at a fairly high TTM P/E of 27.62x, but a forward P/E of only 11.21x. The PEG ratio is very low at 0.82 and price to sales and price to book are both at a reasonable 2.51. Qualcomm’s TTM P/E is far lower at 17.14x, but has a higher forward P/E of 13.4x as well as a substantially higher price to book and price to sales. NVIDIA has a TTM P/E of only 13.91, but again, a higher forward P/E of 15.27. It appears as if Broadcom is the cheaper alternative looking forward, but it remains to be seen whether they can keep up their earnings growth and steal away market share from the dominant player in the area.
After some years of industry dominance by Qualcomm, several competitors are introducing technology which is meant to challenge the chip giant’s position. Broadcom has unveiled an LTE chipset of its own, indicating that the company is ready to enter the high-speed wireless chipset battle. It remains to be seen how well this new chipset is able to compete with alternatives, as it is only scheduled to begin production in 2014, but it is clear that Qualcomm is no longer alone. Based on valuations, Broadcom looks a little cheaper than its competitors based on forward P/E, which may provide the stock with some upside for the year.
Copyright © 2009 The Motley Fool, LLC. All rights reserved.