Avago Capitalizes on Digital Revolution

Friday, 09 Sep 2011 02:41 PM

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Avago Technologies (AVGO) is a leading designer, developer, and global supplier of a broad range of analog semiconductor devices with a focus on providing products that have higher electrical conductivity, enable faster speeds, and have better performance characteristics than conventional silicon in applications such as radio-frequency and optoelectronics products.

The company’s extensive portfolio includes approximately 6,500 products that it sells to four primary markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing devices.

Avago’s products are used in a broad range of applications, including mobile phones, consumer electronics, data networking and telecommunications equipment, enterprise storage and servers, renewable energy and smart power grid applications, factory automation, optical mice, printers, automotive electronics, and military and aerospace systems.

The company has an extensive portfolio of intellectual property that includes more than 5,000 U.S. and foreign patents and patent applications. It operates two design centers in the United States, four in Europe, and five in Asia.

The company also has a diversified and well-established customer base of approximately 40,000 customers throughout the world. Approximately 85 percent of its revenues are derived from sales outside of the United States. As of the fiscal year ended Oct. 31, 2010, no customer accounted for 10 percent or more of Avago’s revenue.

The company completed its initial public offering during August 2009.

Strong cash position

Although Avago’s pace of revenue and earnings increases slowed during the past two quarters, the company continued to grow its revenues and earnings at a healthy rate after increasing its revenues by 41 percent during the fiscal year ended Oct. 31, 2010. For example, during the quarter ended July 31, 2011, its net income rose 14 percent to 57 cents per diluted share from 50 cents during the same quarter a year ago on a 9.6 percent increase in the company’s revenues.

Meanwhile, like the majority of other companies that I follow, Avago is very strong financially, with its cash alone equal to 1.7 times the company’s total financial obligations.

Several investment firms have recognized Avago’s strength, with four Wall Street firms placing a buy rating on the company’s stock over the past four months.

With the company announcing on Aug. 23 that it expects to grow its revenues at a rate of between 11.8 percent and 15 percent during the quarter ending Oct. 31 in spite of the recent substantial slowdown in the demand for semiconductor equipment, my experience suggests that now is a good time to establish a position in the company’s stock.

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