Should You Invest in Broadcom?
Broadcom Incorporation is a semiconductor company. The company produces components for digital infrastructure, chips for wireless devices like phones, components for servers, and other products They acquired Symantec and CA Technologies as well as several other companies.
Why You Should?
- Broadcom offers a very high dividend of 13 dollars a share to its investors. A dividend is a payment to investors that a company makes every quarter.
- Broadcom has seen strong growth. Some of its largest segments saw over 20% growth from the previous year of operation. This is mainly because the company keeps acquiring others. This strong growth comes to show that Broadcom is the best in its business and will benefit the company in the long term.
- Broadcom has the cash on hand to make several large acquisitions. It has acquired companies like Symantec and CA Technologies which has further increased the growth is this chip behemoth. This will further benefit the company in the future as it will grow its revenues and profits to later continue acquiring more companies.
- Another way that the company shows that its the best chip manufacturer is because it supplies Apple with chips. Apple has reviewed several other companies but has stayed with Broadcom over the years. Apple is growing at a good rate which will benefit Broadcom’s business as well.
- Broadcom has seen strong revenue growth over the past couple of financial years due to the high demands of its products. This will benefit the company in the future as it can further grow out because of this. In the financial year of 2019, the company reported revenues of 22.6 billion and profits of around 2.7 billion. In the financial year of 2018, the company reported lower revenues at around 209 billion but way more profits at around 12.3 billion. One of the largest reasons why profits fell from the period between 2018 and 2019 is because of reinvesting back into the company due to a string of acquisitions. This will only be temporary until the Broadcom fully acquires the companies. After that, the company should be back to having a strong 66% profit margins.
Why You Should Not?
- One of the largest reasons to stay away from the company is that it is heavily reliant on Apple to bring in a good amount of revenue. Companies like Intel have lost a lot of revenue when Apple starts to make its chips in-house. If this happens, Broadcom will need to find another company to be its cornerstone in the chip market.
In my opinion, the pros definitely outweigh the cons when investing in Broadcom. Strong demand for its products as well as growing revenues have aided this company to be one of the best in its industry. However, reliance on a few companies to generate the bulk of its revenue might hurt the stock in the future.