As investors await Broadcom Corp.’s quarterly earnings results on Tuesday, shares in the Irvine communications chipmaker have enjoyed a heated run-up that has surmounted losses from spring’s technology sector meltdown.
Analysts credit much of the boost to Broadcom’s June 30 inclusion in the Standard & Poor 500 index, which set in motion a buying spree from investment funds that mirror the index.
The shares also have gained ahead of the release of Broadcom’s results for the second quarter. Other chipmakers such as Advanced Micro Devices Inc. have risen on expectations of good quarterly results as well.
Analysts polled by First Call Corp. expect Broadcom to post a profit of 19 cents a share, vs. 10 cents in the year-ago quarter. The unofficial whisper number for Broadcom’s second quarter profit is 23 cents.
“The stock clearly has gone up in anticipation of good earnings,” said Lauren Landfield, research analyst with Chase H & Q; in San Francisco.
Broadcom shares have risen 90% in the past seven weeks to 250 on Friday, not far from their March 23 intraday high of 253 and above their 52-week closing high of 243 on March 10. The gain exceeds that of the S & P; 500, up about 5% for the same period, the Nasdaq, up 25%, and semiconductor stocks in general, which gained about 37%.
The stock also has outshined cross-town rival Conexant Systems Inc., whose shares have risen about 50% in that time to 53.
For Broadcom founders Henry Nicholas and Henry Samueli, their stakes in the company now are worth some $8 billion apiece. That’s nearly double the $4.5 billion the two Henrys’ individual stakes were worth at Broadcom’s recent low of 125 on May 25.
Broadcom makes chips used in a variety of high-speed communications devices, including cable and digital subscriber line modems, digital cable set-top devices and computer networking equipment.
Though the segment is expected to mushroom in the next few years as faster networks become the norm, the sector suffered along with other technology areas in the March and April market downturn.
Broadcom was added to the S & P; 500 after telecommunications company GTE Corp. was acquired by Bell Atlantic Corp. The move led index fund managers to buy Broadcom shares to keep their funds in sync with the makeup of the S & P; 500. That pumped up demand and, ultimately, the stock price.
Because S & P; shares are weighted by market capitalization,meaning index funds add more of a stock as it grows to represent a bigger portion of the total valuation of all S & P; 500 stocks,Broadcom’s already high share price has gained further momentum.
Share price multiplied by the number of outstanding shares determines a company’s market capitalization, or market value. Broadcom’s $54 billion market cap puts the company well into the top 100 companies on the S & P; 500.
Broadcom’s recent rise also solidifies it as OC’s most highly valued company. Conexant’s $11 billion market cap is a distant second. Broadcom also has surpassed San Diego-based Qualcomm Corp. with $45 billion in market cap.
Between the June 19 announcement that Broadcom would be added to the S & P; 500 and its addition on June 30, the company’s shares rose from 147 to 218, a 48% jump.
Broadcom’s also been boosted by an upturn in the semiconductor sector overall. Between March and June, Broadcom’s ups and downs closely mirrored shares of semiconductor makers as a whole, slightly under-performing in the week before S & P; announced its was adding Broadcom to the index.
Even so, Broadcom has continued to climb, gaining more than 10% since its S & P; debut. In addition to its S & P; listing, Broadcom is part of the AMEX Internet index. n
