Broadcom Goes Hostile for Qualcomm

Broadcom Limited has gone hostile in its bid for Qualcomm Incorporated. Digital communications products maker Qualcomm turned down the Broadcom’s initial proposal, and the suitor has now proposed its own slate of 11 directors to replace the current Qualcomm board. It could be a long battle, as Qualcomm’s 2018 annual shareholder meeting will not be held until March 6.

Broadcom, which supplies a wide range of semiconductors for many global applications, and QCOM are among the top five holdings of the iShares PHLX Semiconductor ETF. Together, they make up 16.44% of the fund’s holdings; Intel Corporation, at 8.95%, is the largest.

The Philadelphia Semiconductor Index (SOX) closed Tuesday at 1,227.74, up 35.4% year to date and solidly in bull market territory at 51.1% above its post-election low of 812.33 set on Nov. 10, 2016. The SOX is an economic indicator, as almost every product we buy contains computer chips – from our motor vehicles to our hand-held devices. The SOX set its all time high of 1,342.05 on Nov. 24 and is down 8.5% since then, which could be an early sign of economic weakness. (See also: SOX Semiconductor Index at 17-Year Resistance.)

Broadcom stock closed Tuesday at $261.65, up 48% year to date and in bull market territory at 62.9% above its post-election low of $160.62 set on Dec. 12, 2016. The stock is down 8.4% since its all-time intraday high of $285.68 set on Nov. 27. Meanwhile, Qualcomm stock closed Tuesday at $64.69, down 0.8% year to date and in bull market territory at 32.2% above its post-election low of $48.92 set on Sept. 8. The stock is down 7.9% since its all-time intraday high of $70.24 set on Dec. 13, 2016.

Analysts expect Broadcom to post earnings per share between $4.52 and $4.61 when it reports results after the closing bell on Dec. 6. Some analysts say that the chipmaker will benefit from the sale of components for the Apple Inc. iPhone X. Others have earnings estimates as low as $4.40 per share. Adding to the earnings confusion, Susquehanna Financial reiterated its positive rating for Broadcom stock with an increased price target of $325.00.

Broadcom, which is not cheap with a P/E ratio of 201.49, wants to buy Qualcomm, with its reasonable P/E of 24.76. …read more

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