Broadcom Had a Good Quarter

It's never easy to play turnaround stories, and although Broadcom  isn't in need of a turnaround, its cellular modem/mobile apps processor efforts have been less than inspiring over the last year. Indeed, the company has been through a number of rough patches, including a writedown on its NetLogic purchase and increasing fears of Qualcomm and Marvell gaining connectivity share. Did the most recent quarter do anything to assuage these fears?

The not-as-bad-as-expected syndrome
While Broadcom actually beat expectations in the most recent quarter, its guidance of $1.9 billion-$2 billion for Q1 wasn't exactly inspiring against a sell-side consensus of $1.97 billion. What's interesting is that peer Qualcomm actually performed similarly, yet its shares saw a nice rally on the back of the report.

Naturally, Broadcom's shares rallied as a result and actually managed to top the $30-per-share mark for a brief period before moving back down into the $28-$30 range. Truth be told, stocks really only move out of fairly well-defined trading ranges on meaningful catalysts, so what will it take to get Broadcom moving again?

Fears of connectivity share loss haven't gone away
On Qualcomm's most recent call, management stated in no uncertain terms that it had won over 200 designs for its 802.11ac (the latest and greatest Wi-Fi standard) connectivity solutions. When Broadcom was questioned about this, management was careful to point out that it really only targeted the high end of the market, and that its share position would still be in good shape. However, this does not preclude the notion of share loss in a growing market.

More troubling, when pressed about whether its connectivity business would actually grow in 2014, CEO Scott McGregor was quick to point out that connectivity combo chip sales would be loaded toward the second half of the year, and seemed to suggest that growth would be driven by a mix-shift upward (i.e., Apple's next-generation iPhone 6 using 802.11ac, rather than 802.11n, as it did in the iPhone 5s).

The key will be to watch tear downs of other flagship devices throughout the year to see if Qualcomm took any big ticket share, or if its wins are simply the result of 802.11ac being pushed into mid-range (and perhaps even lower-end) phones. The difference, while subtle, is an important one.

The cellular story gets interesting
While the connectivity story is getting tenser, the good news is that Broadcom is finally making some progress with its LTE solutions. Even with a fairly modest dual-core ARM Cortex A9 and an integrated category 4 LTE modem, the company does expect "nine digits" of LTE revenue this year. Broadcom's CEO was also quick to point out that its LTE design wins were across multiple customers and included multiple designs within each customer. This, while not yet game-changing, is highly encouraging, given the turbulence that Broadcom has faced to get here.

Foolish bottom line
While it's too early for Broadcom bulls to declare victory (especially because this story really needs to play out), the longer-term signs are encouraging, even in light of the numerous fears surrounding the company's connectivity business. That said, it's myopic to only focus on mobile and wireless, but given that both infrastructure and broadband are humming nicely, the focus really is on the more exciting (and volatile) mobile and wireless business.