Unscrambling Monday's Egg

Unscrambling Broadcom

Running Broadcom through the Chicks' Dozen
by Chick Kristin

 
You're here. In order to be here, reading this, you must be on the Internet. How did you get here? Through a cable modem, a DSL line, a cell phone, or maybe even a Palm Pilot? If you answered yes to any of those questions, then you're one of millions already addicted to Broadcom (NASDAQ: BRCM).

1. Buy What You Know  Does stating, "It's one of Chick Karin's favorite personal investments," satisfy this criterion? All right, I work in the tech industry, which depends primarily on Broadcom's optical networking, radio frequency and cable modem products in order to move data quickly. My hubby and I own a satellite, which Broadcom's Direct Broadcast Satellite (DBS) products support as well. We each have a cell phone, a network hub linking both workstations; needless to say, we rely on Broadcom's technology.

2. Keep it Simple Sister  Broadcom makes the chips that allow all of the above to talk to each other. These chips are put into the satellite dishes, the cell phones, the television screens, the Palm Pilots etc. People born in the early 1900s still living today might not find these chips (a.k.a. integrated circuits) easy to fathom. But ask your child today what makes data, video and voice move so quickly across the Internet, and he'll probably know the answer. He's smarter than you were at his age, anyway -- how intimidating!

3. Industry The Electronics - Semiconductors industry (chips are also called semiconductors) is forever growing with newer, more convenient creations hitting the market by the minute. Remember the first cell phone you bought, or how about your first computer? As we continue to gobble up the latest technology, Broadcom will always have a place in the electronics market.

4. Leader in its Field  Let me rattle off a few of Broadcom's key customers: Cisco, Motorola, 3Com, Samsung -- do those names ring a bell? Compared to some of their key competitors, i.e. Lucent and Texas Instruments, Broadcom undoubtedly leads the pack. Broadcom's CEO, Henry Nicholas is a fierce competitor and will stop at nothing to be the leader in this field and remain the leader in this field. In 1993 Nicholas had a meeting with 3Com. 3Com executives scoffed at this small semi-conductor company and told them to go away, they were not going to do business with an unknown. Nicholas spent the next year building a smaller chip that ended up being ten times faster than anything on the market. 3Com was forced to do business with Broadcom because they had the best product. This eventually led to 3Com severing its ties with National Semiconductors, the leader in the field in 1993, and giving all of its business to Broadcom.

5. Repeat Profitability When my hubby and I moved into our first home, we said we could get by with no satellite TV or Digital Subscriber Line (DSL) internet access. Who were we kidding? The minute Chick Jana got her DSL, we had to have ours. Aside from the end-user satellite dish watcher of the repeat profitability BRCM has to offer, Broadcom will continue to make chips, getting them smaller and faster everyday. Remember the first microwaves? They were the size of a dishwasher. Remember the first cell phones? Holy bulky, Batgirl! Chips are going into more and more products everyday, and will continue to. especially if the chips get faster and smaller. So, as long as Broadcom stays on top and product availability and competition increase, everyone will continue to buy into "broadband."

NOTE: Figures for the following equations were found at Marketguide.com using the financials for the quarter ending 12/31/00. All figures are in millions.

6. Gross Margins

(Sales - Cost of Goods Sold) / Sales

(376.1 - 159.9) / 376.1 = 57.48%

7. Net Margins

Net Income / Sales

(768.6) / 376.1 = -204.36%

8. Cash vs. Long Term Debt

Cash* / Long Term Debt

601.6 / 0 = No Debt

*Plus Marketable Securities

No debt is a good thing (especially in today's market)!

9. Flow Ratio

(Current Assets - Cash*) / (Current Liabilities - Short Term Debt)

(875.7 - 601.6) / (202.6 - 0) = 1.35

*Plus Marketable Securities

This meets our Chicks Dozen too!

10. Increasing Growth

(Sales Quarter 4) - (Sales Quarter 3) = X

X / (Sales Quarter 3) = Y

Y X 100 = %

376.1 - 319.2 = 56.9

56.9 / 319.2 = .1782

.1782 X 100 = 17.82%

11. Strong Management and Operating History Chick Karin touted the expert leadership of one Dr. Henry T. Nicholas, Broadcom's Chief Executive Officer (CEO). What's that? You've read it you say? Great, but for those of you who haven't, click here.

12. Buy on Sale

52 wk High = $274.75

52 wk Low = $64

52 wk Avg. = 274.75 + 64 / 2 = $169.38

Current Price = $67

Generally speaking, BRCM meets a majority of the Chicks' criteria. But, you might want to use the worksheet and judge for yourself. I've done most of the work for you. Now it's up to you to plug in the numbers -- get Chicky.