There haven't been too many semiconductor earnings reports over the past few months where investors came away happy, but Avago (Nasdaq:AVGO) seems like a real exception. But then, exceptional performance is not really a new feature of the Avago story. While even more exposure to the Apple (Nasdaq:AAPL) roller coaster could introduce more volatility into these shares, the combination of solid technology, proprietary products, market share gains and potential margin leverage make this a name worth watching, if not buying outright.

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A Pretty Solid Fiscal Second Quarter
Although growth has been a little hard to come by in the tech sector, Avago bucked the trend. Even more encouraging, the company seems to see more strength in its core markets than many of its rivals.

Revenue rose about 3% on an annual basis and about 2.5% sequential basis this quarter. Not unlike Analog Devices (Nasdaq:ADI), Avago saw its best sequential performance in industrial/auto (up 9%), while wireless revenue was the winner on the year-on-year comparison (up 26%).

Margin performance was also pretty good. While the company did lose about 90 basis points (BPS) of gross margin from last year, the company added 20 BPS from the last quarter. Operating income was basically flat with last year's level, while up about 4% on a sequential basis.

SEE: A Look At Corporate Profit Margins

Guidance Shows the Good Is Better and the Bad Isn't Bad
Avago's guidance also seemed pretty positive. While neither Analog Devices, nor Linear Technology (Nasdaq:LLTC) or Texas Instruments (Nasdaq:TXN), were exactly down on the industrial market, Avago seems to be seeing even more strength there. Given how strong (relatively speaking) Avago has been through the cycle, it seems safe to say that the company has been grabbing share; an interesting development as some of these products are sold more on the basis of performance than price.

Avago also seemed relatively positive about the wireless business. It was widely known that Qualcomm's (Nasdaq:QCOM) supply issues were going to impact the Apple business, but the impact seems better than feared. As Avago has been seeing strength in front end modules and apparently adding CAPEX with the expectation of winning more FBAR filter business, this sounds pretty positive to me.

Not Just Apple, but Apple Matters
It seems like Apple is all that many analysts want to talk about in relation to Avago. I can understand that to a point; wireless is more than 40% of the company's revenue base and winning business in the upcoming iPhone and iPad (its first tablet win with Apple) is a big deal. While this is going to introduce some volatility into the numbers as Apple goes through its order-up/launch/anticipation cycles, that is on balance a good problem to have.

It's not that I don't like the Apple business, it's just that there's more to Avago than that. I think investors haven't paid enough attention to the progress that the company has made in its industrial/auto business, nor in other communications markets ((like its growing SerDes business with Cisco (Nasdaq:CSCO) and Juniper (NYSE:JNPR)). Likewise, for all of the significance of Apple, don't forget that the company is in good position to gain some real traction in 4G LTE phones with its FBAR filters ((though Skyworks (Nasdaq:SWKS) and RF Micro (Nasdaq:RFMD) will have something to say about that)).

SEE: A Primer On Investing In The Tech Industry

The Bottom Line
Normally anything tied to Apple in a good way is too popular to be much of a value, but Avago may be the exception. With mid-to-high single digit cash flow growth, these shares should trade in the low $40s. Moreover, with the possible exception of industrial, all of the company's addressed markets ought to be getting better from this point on (and Avago management says industrial is getting better too).

If there's a downside to Avago it's that the company has to prove it has more margin leverage. Relative to companies like Analog Devices and ON Semiconductor (Nasdaq:ONNN) (which aren't straight apples-to-apples comparisons), there doesn't seem to be as much leverage. That said, Avago's operating performance today is considerably better and I'm not sure how bearish anyone can be on the basis that a good company has less room to improve.

Accordingly, I would definitely check out Avago in greater detail as a possible buy candidate today.

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.