For all the lamenting I do about stocks that are just not cheap enough, Broadcom (Nasdaq:BRCM) is a welcome antidote. While this leading wireless chip company has lost none of its edge or appeal, a short-term burp in guidance has some investors selling the shares. Unless people believe that the move to smartphones and greater connectivity is suddenly over, this is a serious candidate to buy for a rebound.

Tutorial: How To Analyze Earnings

Q1 Results - So-So ... But So What?
Broadcom did not deliver great results for the first quarter, but there was no particular expectation that it would. Revenue did fall 7% from the fourth quarter (although up 24% from the year-ago period), as broadband (down 15% sequentially) really fell off and mobile/wireless dropped almost 6%. Though there are many moving parts to consider, it looks like weakness in the cellular baseband business, largely a problem with Nokia (NYSE:NOK), was part of the sales decline. (For more, see The Rest Of The Earnings Story.)

There is a lot of operating leverage in Broadcom's business model, but that cuts both ways. GAAP gross margin slid about 20 basis points from the fourth quarter and close to two full points from the year-ago level. Operating income fell about 16% sequentially - and rose 16% from the year-ago level - while the operating margin contracted.

Guidance Looking Iffy
Compounding the problem, Broadcom guided for flat quarter-to-quarter revenue and that was at least $100 million shy of what analysts expected to hear. The problem seems to be some weakness in business at Nokia and, to a lesser extent, Samsung. While it is true that Nokia is a fading power in the cellphone space, the reality is that Nokia still makes up a considerably larger amount of Broadcom's volume than the faster-growing Apple (Nasdaq:AAPL). In other words, Nokia still matters.

The thing is, Broadcom's guidance just does not seem all that surprising. Qualcomm (Nasdaq:QCOM), Texas Instruments (NYSE:TXN) and STMicroelectronics (NYSE:STM) all provided fairly weak guidance themselves, so this is looking more and more like an industry-wide phenomenon. Moreover, analysts have been calling for a decline in the semiconductor market for so long now, it seems strange that they're reacting with surprise now that they're getting it.

Still Reasons for Optimism
Looking past one quarter, this seems like a good opportunity to buy these shares. The company still has the opportunity to benefit from growth at Cisco (Nasdaq:CSCO), Juniper (Nasdaq:JNPR) and DIRECTV (NYSE:DTV), and 3G is still a growth opportunity in China. What's more, there are more and more slots opening up in connectivity for products like printers, TVs, DVDs and other consumer electronics. Even better, the iPhone5 is still on the way, as well as new phones from Samsung and HTC, and it seems reasonable to expect the smartphone hype machine to get going as those launch dates approach.

Sure, Broadcom faces a lot of competition and it will likely face future share loss in combo chips. It also looks as though Qualcomm has taken the early lead in new markets like LTE products. But Broadcom didn't become the second-largest fabless chip company because it won a raffle; this is a company with good technology and extensive R&D efforts.

The Bottom Line
As a category, semiconductor stocks are looking more interesting. Investors thinking about putting new money to work here certainly have other options to consider like ON Semiconductor (Nasdaq:ONNN), Silicon Labs (Nasdaq:SLAB), Fairchild (NYSE:FCS) and Altera (Nasdaq:ALTR), to say nothing of Texas Instruments or Qualcomm.

Still, Broadcom has emerged as a top player for a reason and investors should not forget about that just because growth over the next quarter or two is not going to be very strong. With the stock looking underpriced by at least 30%, investors should seriously consider taking advantage of this "disappointing" result and buying in ahead of the rebound. (For more, see 5 Earnings Season Investing Tips.)

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