Wireless, broadband, industrial segments and infrastructure software complete the repertoire: Broadcom also counts wireless, broadband, industrial and infrastructure software as its core business. For the wireless segment, Broadcom is the major supplier of radio frequency semiconductor components to Apple. With higher semiconductor content in smart devices as well as newer 5G and Wi-Fi 6 technologies, there are scope for Broadcom to expand its customer base. For the industrial segment, Broadcom could extend its market share into factory automation, renewable and automotive segments over time as these end markets grow due to secular demand trends. Finally with infrastructure software segment, Broadcom is amassing a portfolio of infrastructure type software services that include mainframe services, storage area networking and cybersecurity. Broadcom cross sells these services to its enterprise customers and this segment helps to drive group margin, free cash flow generation and shareholder returns.
Strong M&A track record points to optionality to enhance growth: Broadcom has a strong track record in executing M&A with the most recent in software companies. Its major acquisitions have strengthened its growth outlook and extracted synergies that enabled margin expansion. Consequently, it has driven better shareholder returns and normalized free cash flow generation. This unique capability suggests a growth optionality that Broadcom could explore during cyclical downturn. Given its prior track record, market is also likely to welcome such opportunities.
Risks
Slower than expected demand from key customer Apple could have a larger than expected negative impact on investor sentiment and share price. Broad slowdown in global economy and enterprise demand will likely lead to slowdown in demand growth. R&D failures could lead to Broadcom missing a major product cycle and reducing its growth outlook. Looks like the downside risks are growing as seen from Micron. I would avoid dabblingInto semiconductors for now.
DYODD
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