Wednesday, April 23, 2008

Broadcom Shares Soar on Results

IMPORTANT UPDATE: 4/23/08 - Broadcom® shares closed up more than 16% today, at $27.39 on the NASDAQ.

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Broadcom® Corporation (NSDQ:BRCM) executives sure gushed with optimism during yesterday's conference call. Their product stream is flowing fast and their pipeline only expanding. Orders from Nokia® (NYSE:NOK) and other huge handset makers, especially for 3G equipment, is really helping the chip-maker turn a substantial profit. 9% gains in post-market trading in Broadcom shares on April 22 point to the strong possibility of more gains in the trading days ahead.

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The two "Hanks" must be very pleased with all this*. Last year around this time Dr. Nicholas was celebrating as his Anaheim Ducks paraded around with their Lord Stanley Cup. Broadcom's market capitalization may soon exceed Orange County neighbor Allergan (NYSE:AGN), adding even more icing to the Hank's sweet cake. Now they get another fine reason to strut around those fabless Irvine barnyards!

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The success of Broadcom adds credence to some economist's notions that the U.S. can continue to generate, protect, and sell ideas to the global market while the most of the manufacturing takes place overseas. With so many financial firms floundering, great ideas seem to be last hope for economic growth in 2008.

One important key to Broadcom's recent success was how they "protected" their technology patents. Intellectual property tends to get "shared" without royalty when it hits the shores of Asia. Broadcom fought several major legal battles that contributed to these results. The apparent victory over Qualcomm's (NSDQ:QCOM) patent violations was important. Settling with the FCC should also allow management in Irvine to focus more on developing new products.

Unlike Intel® and other microchip makers, Broadcom's industry-leading chips are designed in Irvine, Silicon Valley, or Bangalore but they are manufactured in Asia. This runs contrary to the more expensive old school Silicon Valley approach to chip-making. The same is true for Apple® Computer Inc.(NSDQ:AAPL), Nike (NSDQ:NKE), and many other very successful global brands.

Fabless darling! Simply fabulous!

The author owns Broadcom shares as well as shares of Broadcom's major customers.

*Dr. Henry T. Nicholas III and Dr. Henry Samueli

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