Highfields Capital exits its position in Broadcom

Highfields Capital started new positions in Enbridge Inc. (ENB), Time Warner Inc. (TWX), and Michaels Companies Inc. (MIK). It sold positions in Broadcom Corp. (BRCM) and MetLife Inc. (MET). It increased its positions in Dollar Tree Inc. (DLTR) and Family Dollar Stores (FDO). It reduced its stake in Canadian Natural Resources (CNQ) and Eli Lilly & Co. (LLY).

Highfields Capital sold its position in BRCM in the third quarter. The position accounted for 1.66% of the fund’s 2Q14 portfolio.

Broadcom makes semiconductors for wired and wireless communications. It offers the industry’s broadest portfolio of highly-integrated system-on-a-chip, or SoC, solutions. The company has one of the strongest IP portfolios among global fabless semiconductor suppliers.

Its solutions are structured around two core platforms:

1. Broadband and connectivity—solutions for the home
2. Infrastructure and networking—solutions for infrastructure

BRCM supplies chips to Apple (APPL). BRCM reported revenue of $2.26 billion. This is 10.7% more than the last quarter and 5.3% more year-over-year, or YoY. Net income was $98 million—compared to net loss of $1 million in 2Q14. The sequential increase was mainly due to a double-digit revenue increase. Also, the gross profit margin improved by 150 basis points. Net income decreased YoY due to the impairment of intangible assets and restructuring cost.

BRCM acquired NetLogic in 2012. The company recorded impairment charges of $200 million this quarter. This was mainly driven by a downward revision of the revenue forecast for NetLogic’s product line.

BRCM started to wind down its cellular baseband business. It doesn’t see much potential opportunity in this segment. It said that winding down the business and other cost-saving initiatives will help it save $650 million. The company is expecting to invest $50 million of the savings on an annualized basis “to strengthen and accelerate its plans in the area of small cells, embedded processing and low-power connectivity.”

BRCM’s broadband and connectivity segment posted revenue of $1.5 billion. This is 16% higher than the last quarter. Sales increased for its wireless connectivity products, broadband modem solutions, set-top box, or STB, solutions, and other broadband and connectivity technologies.

The company also announced the Wireless Internet Connectivity for Embedded Devices, or WICED, platform for Internet of Things, or IoT. This high-end and cost-effective kit will help its connectivity business grow in the future. BRCM announced the industry’s first dual-band Wi-Fi audio chip in its WICED portfolio.

This segment reported revenue of $651 million. This is 1% higher sequentially. BRCM launched Tomahawk—a kind of switch product that provides higher data rates.

Recently, BRCM raised its fourth quarter total net revenue forecast to $2.075–$2.150 billion. It also increased its 2015 quarterly dividend by 17% YoY to $0.14 per share.

The next part of this series will explore Highfields Capital’s position change in MET.