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The Growth Prospects of AVGO’s Wired Infrastructure Business

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Broadcom’s business segments

In the previous part of the series, we saw that Broadcom (AVGO) is expected to report strong earnings growth in fiscal 4Q16 driven by volume orders from Apple (AAPL). Broadcom is the largest communications semiconductor company in the world, with a broad portfolio of wired, wireless, enterprise storage, and industrial solutions.

Broadcom has undergone several business transformations through mergers and acquisitions. The last merger of Avago-Broadcom changed the combined company’s business structure, making Wired Infrastructure its largest segment at 54% of its revenue.

The wired portfolio ranges from custom networking to Ethernet switching and routing to broadband products. The segment serves companies such as Cisco Systems (CSCO), Hewlett-Packard Enterprise (HPE), and Dell.

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Wired Infrastructure’s earnings potential

As seen in the above graph, the wired infrastructure segment’s revenue rose fourfold after Avago acquired Broadcom. However, the segment’s revenue growth has been flat in the past three quarters, and it’s likely to remain flat in fiscal 4Q16.

The Wired Infrastructure segment isn’t actually a growth driver for the company but a cushion in downtime. As this segment is AVGO’s largest revenue contributor, even the slightest growth could significantly improve its revenue and profits.

Outlook of wired infrastructure market

Wired infrastructure projects are long-term in nature. Hence, their growth remains more or less stable, rising gradually.

However, the advent of IoT (Internet of Things) technology and autonomous cars could increase the need for real-time data analytics, boosting demand for data centers and strong, high-bandwidth networks. This could lead to increased demand for Ethernet switches and routers. Technavio expects the Ethernet switching and routing market to grow at a rate of 4% by 2020.

Next, let’s look at Broadcom’s Wireless segment.

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