Broadcom shares gain despite analyst cut

The Irvine, Calif.-based company's stock price rose $1.06, or 6.2 percent, to $18.26 in afternoon trading.

The shares gained ground despite a research note by Caris & Company analyst Betsy Van Hees lowering her firm's price target on Broadcom's shares to $19 from $28. The firm also cut its profit forecast for Broadcom to 21 cents per share in the fourth quarter, on $1.29 billion in sales, and 67 cents per share for the 2009 fiscal year, on $5.15 billion in sales.

Previously, the analyst had expected a per-share profit of 23 cents on $1.3 billion in sales for the fourth quarter, and a 2009 profit of 81 cents on revenue of $5.19 billion.

Van Hees said she expects Broadcom's fourth-quarter guidance to be "muted" because her firm's checks with suppliers suggest that order rates are below seasonal patterns because of weakening end-user demand. The market for cell phone chips, where Broadcom competes with Qualcomm Inc. and Texas Instruments Inc., is suffering from fierce price-cutting and product-saturation in some markets that are cutting into the chip suppliers' earnings.

"We continue to recommend investors remain on the sidelines until we have better visibility into growth rates for (Broadcom's) core businesses," Van Hees in a note to clients Tuesday.

Meanwhile, another analyst, Gary Mobley with Piper Jaffray & Co., was more optimistic.

Mobley said in a note to clients that he expects Broadcom's profit to benefit from what appears to be a key shift in suppliers for its chips that will lower costs.

Broadcom's business is "stronger than what is reflected in current share price," he wrote. Piper Jaffray has a "Buy" rating and a $32 price target on the stock.

Semiconductor stocks as a whole strengthened Tuesday, recovering some of the ground they lost Monday after the House rejected a $700 billion bailout package for the country's ailing banks and financial institutions.