Highfields Capital Management's positions in the fourth quarter

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Part 3
Highfields Capital Management's positions in the fourth quarter PART 3 OF 8

Must know: Why did Highfields Capital open a position in Broadcom?

Highfields Capital Management and Broadcom

Jonathon Jacobson’s Highfields Capital Management’s top new purchases are Air Products & Chemicals, Inc. (APD), Broadcom Corporation (BRCM), Applied Materials, Inc. (AMAT), Royal Dutch Shell (RDS.A), and JPMorgan Chase (JPM). Highfields sold out positions in CBS Corporation (CBS) and Hess Corporation (HES).

Highfields Capital opened a 1.53% new position in the chipmaker Broadcom Corporation (BRCM) last quarter. Broadcom is a global leader and innovator in semiconductor solutions for wired and wireless communications.

Must know: Why did Highfields Capital open a position in Broadcom?

Broadcom posted a decline in its 4Q earnings to $168 million, or $0.29 a share, from $251 million, or $0.43 a share, in the year-ago period. Total revenue fell to $2.06 billion from $2.08 billion in the year-ago period. Broadcom generates half of its revenues from mobile, with the remaining coming from network infrastructure and home products like modems and set-top boxes.

Broadcom’s broadband communications segment decreased roughly 3% sequentially to $548 million. Revenue from infrastructure and networking segment increased around 2% sequentially to $576 million. The mobile and wireless segment revenue was also down 7% sequentially. The company saw expected seasonal softness in the December quarter, coupled with anticipated inventory adjustments with some of its customers. Broadcom expects 1Q 2014 net revenue to be $1.9 billion to $2.0 billion. From a segment perspective, the company told analysts on a conference call that it expects broadband and infrastructure to be slightly down, and mobile and wireless to be down as well due to seasonality and continued modest channel inventory.

Last month, Broadcom announced a deal under which QLogic will acquire certain 10/40/100Gb Ethernet controller-related assets and non-exclusive licenses to certain intellectual property relating primarily to Broadcom’s programmable NetXtreme II Ethernet controller family. The total deal consideration is approximately $147 million in cash. In connection with the transaction, Broadcom and QLogic will enter into a long-term supply agreement whereby Broadcom will become ASIC supplier to QLogic in support of the NetXtreme II product line.

Must know: Why did Highfields Capital open a position in Broadcom?

The company supplies chips for the high-end smartphone market (Apple, Samsung) and has been impacted by the shift to low-end handsets in the emerging markets. While Qualcomm (QCOM) still dominates the field in LTE smartphone chips segment, Broadcom is building momentum in LTE by shipping its Category 4 dual core LTE SoC (system on a chip) for volume production. Other companies in the LTE chips space include Nvidia (NVDA), MediaTek, Marvell Technology (MRVL), and Spreadtrum Communications (SPRD).

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