Broadcom Ready For Earnings (BRCM, QCOM, MRVL)

Broadcom Corp. (NASDAQ:BRCM) is set to report earnings after the close today, and its shares are actually up almost 1% today north of $42.00.  The good news is that the sloppy Texas Instruments numbers did not pressure shares.  According to First Call, analysts are calling for $0.27 EPS and $929.6 million revenues this quarter and $0.31 EPS and $$991.5 million revenues next quarter.

Analysts are going to have to play catch-up if they are going to stick with the bulls.  The average price target 3% under today’s share price.  Citigroup just upgraded the stock last week to a Buy, UBS recentlyinitiated a Buy rating on it, and Wachovia recently tranfered inA.G.Edwards coverage with an "Outperform" rating.

Its 52-week high is $43.07, and this are will perhaps be quite critical (as apposed to just plain critical) for the bulls.  This stock is in a new higher trading range if you believe the chart, but from $45.00 on up each percentage gain looks like it would have more resistance up to $48 to $49.00 from early 2006. 

Options may be a bit skewed sine shares are actually 2% off of intraday highs, and there is a almost a month of time value.  But it appears that options traders are braced for a move of $1.90 to $2.15 in either direction, which would be up to 4% price changes on average in either direction.

What is perhaps the most critical issue here is the Qualcomm (NASDAQ:QCOM) patent war.  Broadcom has been winning so far, although this is far from over.  24/7 Wall St. has seen that this alone could take away up to $1 Billion in annual revenues from Qualcomm.  We aren’t going to hang our hats on that number as gospel, but what is evident is that Broadcom seems to still have the upper hand (despite fairly recent headlines about a new trial) and there may be a lot of that $1 Billion loss (discount for pricing power and adjustments) that can be added into Broadcom’s top-line.  Those numbers are not currently in the analysts’ fiscal January 2009 numbers and beyond, or at least not across the board.

Marvell Tech (NASDAQ:MRVL) has the stock to watch the closest after Broadcom’s report, although there has been a decoupling in these stocks over the last year or longer.

Jon C. Ogg
October 23, 2007