UPDATE 2-Broadcom shares tumble after margins disappoint
* Share fall wipes $1 billion off market cap
* Price targets raised on strong revenue outlook
(Recasts, adds analyst comments)
July 24 (Reuters) - Broadcom Corp (BRCM.O) shares fell as much as 11 percent on Friday, wiping more than $1 billion off the chipmaker's market value, a day after it reported weak gross margins in its quarterly results.
While the company's second-quarter revenue topped analysts' expectations, its product gross margin of 46.3 percent came in below the company's forecast. [nN23391190]
JMP Securities analyst Alex Gauna downgraded the stock to "underperform", saying its combo products -- WiFi, Bluetooth, FM and GPS technology -- are subject to intense average selling price pressure individually, and eventually together, with limited opportunities for differentiation.
"We continue to wonder about what holes are left unplugged by the failure to pick up Emulex," Guana said in a note to clients.
Broadcom withdrew its $912 million bid for Emulex Corp (ELX.N) on July 9 after the storage technology company rejected the bid as too low.
At least seven brokerages, however, raised their price targets on Broadcom's stock after the company issued a revenue outlook above Wall Street expectations and sounded positive notes about demand.
"While we are concerned about product margins, we see attractive longer-term growth from increasing mobile and wireless sales and a rebound in enterprise spending," S&P Equity analyst Clyde Montevirgen said in a note.
Goldman Sachs analyst James Schneider said he expects Broadcom's growth through 2010 to be mainly driven by the ramp of baseband shipments to Nokia (NOK1V.HE) and Samsung (005930.KS) and continued share gains in the core business.
Differentiated combo products, the baseband ramp, LCD TV and an enterprise switch recovery set Broadcom up for revenue growth twice the industry average over the next few years, positioning it as a compelling large-cap growth story, Caris & Co analyst Craig Ellis wrote.
Shares of Broadcom were trading $2.65 lower at $26.53 at midday Friday Nasdaq.
Brokerages Price Target ($)
New Old
Barclays 30 24
S&P Equity Research 32 29
Lazard Capital Markets 33 30
Jefferies 35 30
Stifel Nicolaus 32 25
RBC Capital Markets 33 30
Caris & Co 34 30
(Reporting by Mansi Dutta in Bangalore; Editing by Mike Miller)
((mansi.dutta@thomsonreuters.com; within U.S. +1 646 223 8780;outside U.S. +91 80 4135 5800; Reuters Messaging: mansi.dutta.thomsonreuters.com@reuters.net)) Keywords: BROADCOM/RESEARCH
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