<

Steven Cohen and Point72 Asset Management's 1Q 2014 positions

Part 7
Steven Cohen and Point72 Asset Management's 1Q 2014 positions (Part 7 of 9)

Cohen’s Point72 Asset Management sells its shares in Broadcom

Point72 Asset Management and Broadcom

Point72 Asset Management added new positions in BlackBerry (BBRY), Liberty Global (LBYTK), Estée Lauder Companies (EL), and Discovery Communications (DISCA). The main positions the fund sold include Foster Wheeler (FWLT) and Broadcom (BRCM). The fund’s top position increases include Yahoo (YHOO) and Baidu (BIDU).

BRCMEnlarge Graph

Steven Cohen’s Point72 Asset Management sold a position in Broadcom Corp. (BRCM) that accounted for 0.40% of the fund’s U.S. long portfolio as per its 4Q 2013 filing.

Broadcom makes semiconductors for wired and wireless communications. It provides the industry’s broadest portfolio of highly integrated system-on-a-chip solutions, or SoCs, that seamlessly deliver voice, video, data, and multimedia connectively in the home, office, and mobile environments. The company has one of the strongest IP portfolios among global fabless semiconductor suppliers. Its solutions are structured around three core platforms: Broadband Communications (Solutions for the Home), Mobile and Wireless (Solutions for the Hand), and Infrastructure and Networking (Solutions for Infrastructure). For Wireless, Broadcom offers a family of 3G and 4G baseband processors for use in cellular handsets, PC cards, and other wireless-enabled consumer electronics.

Broadcom’s results beat estimates but revenue and earnings declined

Broadcom’s 1Q 2014 revenue was $1.98 billion, a decrease of 3.9% sequentially, and a decrease of 1.0% compared to the $2.01 billion reported for the first quarter of 2013. GAAP net income was $165 million, or $0.28 per share (diluted), down from a GAAP net income of $191 million, or $0.33 per share (diluted) for the first quarter of 2013. Both the Broadband Communications and Infrastructure and Networking segments saw a revenue increase.

Broadcom continues to struggle in the mobile and wireless segment

Broadcom generates half of its revenues from mobile, with the remainder coming from network infrastructure and home products like modems and set-top boxes. 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. News reports recently cited OTR Global and said Broadcom’s 3G baseband chip sales to Samsung have seen a sharp fall.

Mobile and Wireless segment revenue for 1Q 2014 was down 15% year-over-year due to decreases in sales of wireless connectivity products and cellular SoCs. Broadcom said these decreases in revenue were driven by the trend in low-cost smartphones toward integrated platforms from single suppliers, which don’t include Broadcom’s wireless connectivity solutions. Plus, the initial ramp of LTE SoCs hasn’t offset the reduction in sales of 3G cellular SoCs, primarily due to intense price competition—particularly in low-end 3G platforms. The operating loss for the Mobile and Wireless reportable segment is also due to a significant year-over-year increase in R&D expense in cellular baseband technologies, principally related to the LTE product roadmap. Broadcom said its investments in LTE-related technologies has negatively impacted its operating results due to the lengthy product development and sales cycle for these products.

While Qualcomm (QCOM) still dominates the field in the LTE (long-term evolution) or 4G 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. Last year, Broadcom acquired LTE-related assets from affiliates of the Japanese semiconductor manufacturer Renesas Electronics for $164 million to accelerate the availability of its first multimode, carrier-validated LTE SoC platform. Other companies in the LTE space include Chinese chipmaker MediaTek, Nvidia (NVDA), Marvell Technology (MRVL), and Spreadtrum Communications (SPRD).

A Needham & Company analyst noted last month, “Broadcom’s 1Q14 results and 2Q14 outlook highlight to us that Mobile & Wireless growth is now stalling out. Management is backing away from prior expectations that its connectivity business will grow in 2014 and now acknowledges that its goal of $100MM+ of LTE baseband sales this year will be a challenge.”

BRCMh1Enlarge Graph

Broadcom seeks to expand in China

The company is also keen to expand in China, which accounts for more than half of its exports. According to Umeng, the number of active smart devices in China exceeded 700 million by the end of 2013. Broadcom’s blog noted that increasing smartphone use could have triggered the inception of the IoT market in China. The blog added that Beijing is expected to invest $800 million in the IoT industry by 2015, and that by 2020, China’s IoT market is expected to hit $166 billion.

Broadcom’s new offerings to drive growth

At Mobile World Congress 2014, Broadcom announced the industry’s first 5G WiFi 2×2 MIMO combo chip for smartphones, which doubles wireless performance while improving power efficiency and range. The company also introduced the next generation of near-field communication (or NFC) controllers designed to deliver simplified connectivity and drive the adoption of mass market smartphones and wearables. The company also announced a new single-chip millimeter wave (or MMW) system on a chip, the BCM85100 SoC, which enables easy capacity upgrades by software, making it the industry’s first cost-effective product that offers the entire range from Mbps to 10 Gbps over single antenna, single channel, and single polarization. Broadcom also recently introduced a multi-standard wireless charging SoC for smartphones. The company cited IHS forecasts, which said the number of devices shipped annually that are enabled to charge wirelessly will increase to over $50 million in 2014 and accelerate to $900 million in 2018. This is projected to drive a combined market for wireless power receivers and transmitters worth $8.5 billion in 2018.

The Realist Discussions