A prominent analyst, Bobby Burleson of Canaccord Genuity, recently wrote an opinion on Broadcom and NVIDIA. Summing up Mr. Burleson’s opinion: Broadcom is the better investment of the two, at least right now. But I don’t think the comparison of the two businesses makes much sense.
Disclaimer: I am long NVIDIA, but do not have a current investment in Broadcom.
On January 9, 2014, Mr. Burleson was quoted by Tiernan Ray, in Barrons as stating “We expect BRCM’s recently-announced LTE win with Samsung, and mid-year sampling of their new LTE thin modem to drive multiple expansion as investors become more constructive on BRCM’s LTE and 802.11ac prospects, and as semis as a group come back into favor.” If we understand Mr. Burleson’s point, then the strong near term driver for increased sales for Broadcom is its new LTE modem.
But what will the demand be, going forward, for new handsets for the LTE 4G network protocol? If the recent price wars between the major smart phone manufacturers, here in the US, can be taken as any meaningful predictor of future demand for smart phone handsets capable of handling ultra fast 4G LTE networks — I don’t think it’s the great driver readers of Mr. Burleson’s opinion might take it to be.
Further, let’s add to this assessment two other pieces of important information for investors to consider: 1) The FCC has recently required cellular data vendors to provision “recyclable” handsets to customers. In other words, these handsets must include some type of re-programmable interface (likely a SIM card), to permit porting from one carrier to another. So if I can bring my handset with me, then why do I need to buy a new one?
The second point for investors to consider is the recent decision by Verizon (the largest cellular data carrier here in the U.S.) to sell bandwidth. If cellular data is the cash cow investors have assumed it to be, then Verizon’s decision doesn’t make sense. The right conclusion, in my opinion, is the proliferation of hardware clients (tablets, smart phones, etc) capable of using these networks, together with an explosion of graphics rich content requiring very high speed data communications, have caught the carriers in the middle. In sum, they may even be losing money, right now, on cellular data.
NVIDIA on the other hand has a lot of absolutely blue sky ahead of it, whether in terms of Microsoft’s Surface 2 tablet platform (which is likely not to be a strong driver), which is built around the Tegra 4, or, of much more importance and packed with much more potential, the “smart car”. Unless I’m missing something, I didn’t see any competitive products to these offerings in Broadcom’s product list.
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