Right place, right time; reinstate Buy, $53 PO

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BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 26 to 28. Analyst Certification on Page 24. Price Objective Basis/Risk on page 24. Link to Definitions on page 24.11016008

Broadcom Corp.

Right place, right time; reinstate Buy, $53 PO

Our favorite large-cap growth pick We reinstate Broadcom (BRCM) with a Buy rating and $53 price objective (22% upside), with the potential for $62/share in higher growth scenarios. The company is exposed to every major hotspot in semis (mobile, video/broadband, data center), has multiple new product cycles and is exposed to leading mobile vendors (Apple, Samsung, Nokia). The stock is not cheap, but industry leading 12% annual sales growth until 2014 justifies the premium, in our view. Our PO is based on 17x 2012 pro forma EPS.

Right place, right time, integrate, take share BRCM’s sales surged 52% in 2010, roughly 1.7x the market, as it executed on its core strategy of share gains through system-on-chip integration. BRCM went aggressively after high growth sectors – smartphone/tablets, China broadband and 10Gig Ethernet upgrades in data center. We expect these trends to continue in 2011 and beyond. While the Street is worried about competitive pressure from QCOM/Atheros in connectivity, we highlight Broadcom’s more comprehensive expertise in WiFi, Bluetooth, GPS and Near Field Communications (NFC).

Risks: peak gross margins, increasing opex Broadcom negatively surprised investors with a sharp 9% QoQ expected ramp in Q1 opex on increasing compensation and litigation expenses. Also, GM could remain under pressure as the fastest growth wireless segment carries lower margins. Margin relief could come in Q2, but we expect downward pressure on estimates and a possible lid on the stock until leverage improves.

Strong balance sheet, accelerated share buybacks BRCM has over $3.4bn (or $5.70/share) in net cash, with $1.3bn in FCF or 18.5% of sales generated in 2010. The company announced a $300mn accelerated (three-month) share buyback plan that could help support the stock near-term. Estimates (Dec)

(US$) 2009A 2010A 2011E 2012E 2013E EPS 1.32 2.72 2.83 3.11 3.23 GAAP EPS 0.13 1.99 1.89 2.21 2.36 EPS Change (YoY) -18.0% 106.1% 4.0% 9.9% 3.9% Consensus EPS (Bloomberg) 2.81 3.04 3.43 DPS 0 0.32 0.36 0.40 0.44

Valuation (Dec) 2009A 2010A 2011E 2012E 2013E P/E 33.2x 16.1x 15.5x 14.1x 13.6x GAAP P/E 336.9x 22.0x 23.2x 19.8x 18.6x Dividend Yield 0% 0.7% 0.8% 0.9% 1.0% EV / EBITDA* 22.1x 10.6x 9.5x 8.4x 7.9x Free Cash Flow Yield* 3.9% 5.3% 7.1% 7.4% 8.0%

* For full definitions of iQmethod SM measures, see page 25.

Reinstatement of Coverage BUY

Equity | United States | Semiconductors 04 February 2011

Vivek Arya +1 646 855 1755 Research Analyst MLPF&S [email protected] Aashish Rao +1 646 855 4280 Research Analyst MLPF&S [email protected]

Stock Data Price US$43.90 Price Objective US$53.00 Date Established 4-Feb-2011 Investment Opinion C-1-7 Volatility Risk HIGH 52-Week Range US$27.60-47.39 Mrkt Val / Shares Out (mn) US$23,740 / 540.8 BofAML Ticker / Exchange BRCM / NAS Bloomberg / Reuters BRCM US / BRCM.OQ ROE (2011E) 26.1% Total Dbt to Cap (Dec-2010A) 0% Est. 5-Yr EPS / DPS Growth 15.0% / NA

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Broadcom Corp . 04 February 2011

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iQprofile SM Broadcom Corp. iQmethod SM – Bus Performance*

(US$ Millions) 2009A 2010A 2011E 2012E 2013E Return on Capital Employed 18.6% 29.0% 23.3% 21.8% 19.6% Return on Equity 19.1% 31.9% 26.1% 23.9% 21.2% Operating Margin 15.5% 23.1% 21.8% 22.6% 22.2% Free Cash Flow 920 1,262 1,683 1,761 1,906

iQmethod SM – Quality of Earnings* (US$ Millions) 2009A 2010A 2011E 2012E 2013E Cash Realization Ratio 1.4x 0.9x 1.0x 1.0x 1.0x Asset Replacement Ratio 0.9x 1.4x 1.3x 1.3x 1.3x Tax Rate 0.9% 0.9% 6.6% 7.0% 7.2% Net Debt-to-Equity Ratio -35.9% -15.9% -33.3% -44.4% -52.7% Interest Cover NA NA NM NM NM

Income Statement Data (Dec) (US$ Millions) 2009A 2010A 2011E 2012E 2013E Sales 4,490 6,818 7,895 8,735 9,582 % Change -3.6% 51.8% 15.8% 10.6% 9.7% Gross Profit 2,280 3,534 4,092 4,514 4,893 % Change -6.8% 55.0% 15.8% 10.3% 8.4% EBITDA 852 1,784 1,980 2,233 2,388 % Change -15.4% 109.3% 11.0% 12.8% 6.9% Net Interest & Other Income 16 15 (2) (2) (2) Net Income (Adjusted) 715 1,548 1,706 1,933 2,072 % Change -18.9% 116.6% 10.2% 13.3% 7.2%

Free Cash Flow Data (Dec) (US$ Millions) 2009A 2010A 2011E 2012E 2013E Net Income from Cont Operations (GAAP) 787 1,706 1,770 1,997 2,136 Depreciation & Amortization 74 79 83 83 83 Change in Working Capital 304 (348) 82 (74) (68) Deferred Taxation Charge - 0 0 0 0 Other Adjustments, Net (179) (66) (145) (137) (137) Capital Expenditure (67) (109) (108) (108) (108) Free Cash Flow 920 1,262 1,683 1,761 1,906 % Change 10.0% 37.1% 33.3% 4.7% 8.2%

Balance Sheet Data (Dec) (US$ Millions) 2009A 2010A 2011E 2012E 2013E Cash & Equivalents 1,397 1,622 3,110 4,649 6,302 Trade Receivables 509 820 828 912 992 Other Current Assets 1,009 1,741 1,724 1,786 1,856 Property, Plant & Equipment 229 266 291 315 340 Other Non-Current Assets 1,984 3,495 3,495 3,495 3,495 Total Assets 5,127 7,944 9,447 11,156 12,984 Short-Term Debt 0 0 0 0 0 Other Current Liabilities 1,148 1,271 1,344 1,416 1,498 Long-Term Debt 0 697 697 697 697 Other Non-Current Liabilities 87 150 150 150 150 Total Liabilities 1,235 2,118 2,191 2,263 2,345 Total Equity 3,892 5,826 7,256 8,893 10,639 Total Equity & Liabilities 5,127 7,944 9,447 11,156 12,984

* For full definitions of iQmethod SM measures, see page 25.

Company Description Broadcom is a fabless semiconductor supplier of

wired and wireless networking semiconductors into a variety of applications including PCs, set top boxes, enterprise switches, cellular handsets, broadband modems, digital television, and portable media players.

Investment Thesis We rate Broadcom Buy on its industry leading sales

growth, consistent share gains and multiple new product cycles in the areas of mobile and wireless, broadband infrastructure and enterprise networking. While opex pressures are increasing, we expect the sales growth to offset these risk and deliver superior earnings growth over time. Chart 1: Mobile/Wireless key growth driver for Broadcom. 2010 sales $6.8bn, up 52% YoY.

Netw orking24%

Mobile & Wireless

46%

Broadband30%

Source: Company reports; BofA Merrill Lynch Global Research Estimates

Stock Data Average Daily Volume 6,668,050

Quarterly Earnings Estimates 2010 2011 Q1 0.58A 0.58E Q2 0.66A 0.67E Q3 0.74A 0.76E Q4 0.75A 0.82E


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Large-cap growth leader We reinstate Broadcom with a Buy rating and $53 price objective, about 22% upside form current levels. Under higher growth scenarios we estimate the stock could get to $62 per share. BCRM is a leader in communications chips and is exposed to most growth hotspots, including mobile (handsets), broadband (home) and infrastructure (enterprise data center). BRCM has grown sales at an industry leading 20% CAGR over the past five years (2005-2010). We look for slower but still impressive 12% CAGR from 2010-14, 40% faster than peers. Our 2011/12 pro-forma EPS estimates of $2.83/$3.11 are $0.05/$0.08 above consensus. The key risks to our call are BRCM’s peaking margins and its premium valuation.

Table 1: We forecast 12% sales growth CAGR until 2014E; higher opex in 2011 could depress EPS 2008 2009 2010 2011E 2012E 2013E 2014E CAGR Sales $4,658.1 $4,490.3 $6,818.3 $7,895.2 $8,734.8 $9,582.0 $10,549.6 12% YoY 23% -4% 52% 16% 11% 10% 10% Overall GM% 52.5% 50.8% 51.8% 51.8% 51.7% 51.1% 50.6% Product GM% (ex QCOM royalties) 50.7% 48.3% 50.2% 50.4% 50.5% 50.5% 50.5% Overall OM% 3.7% 1.2% 15.9% 15.9% 17.3% 17.4% 17.9% Product OM% (ex QCOM) 0.0% -3.8% 12.9% 13.4% 15.4% 16.5% 17.8% PF - EPS $1.61 $1.32 $2.72 $2.83 $3.11 $3.23 $3.43 6% YoY 11% -18% 105% 4% 10% 4% 6% Source: Company reports; BofA Merrill Lynch Global Research Estimates

The Bulls say Rare combination of size, proven execution (industry leading 20%+ five-year

sales CAGR), solid balance sheet, history of successful M&A and exposure to growth hotspots in broadband, mobile and cloud/data center.

Market share gainer in almost every segment in play via its integration expertise that locks out niche competitors and maintains high margins. For example, Broadcom is leader in combo chips for smart mobile devices that integrate multi-band FM/GPS/WiFi and soon NFC.

Among top large-cap ways to benefit from surge in smartphones (Apple iPhone, Samsung Galaxy) and tablets (Apple’s iPad).

Strong beneficiary of data center upgrades; only provider of 10GbE multiport switches and controllers, well positioned for 10GbE transition

One of the few players that can integrate mobile baseband and apps processor for low-end, high volume smartphones.

The Bears say At 15x pro forma and 22x GAAP PE, the stock is too expensive. Stock

compensation expense substantially dilutes earnings.

Limited gross or operating margin leverage from current peak levels, as the highest growth wireless area carries the lowest margins.

Qualcomm’s Atheros acquisition enhances competitive risks in Broadcom’s highest growth mobile connectivity space.

The highest margin enterprise segment is showing sluggish trends (flat for three quarters), while the mobile baseband segment has not managed to diversify customer base outside of Nokia and Samsung,

Popularity of cloud based (online) video services reduces demand for traditional cable/satellite set top boxes and video recorders.


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Valuation: $53 PO, 22% upside Consistent, industry leading growth justifies premium We assign a $53 PO to Broadcom, about 22% upside from current levels. Our PO is based on 17x forward (CY2012) PE, which is below Broadcom’s five-year median 19x forward PE, though above median comparables trading at 15x PE.

Our multiple reflects the company’s industry leading sales growth, but offsets it by the slower than historical growth rate and the finite benefit of a royalty stream (until Q1 2013) from Qualcomm that adds about 20-23c (7%) annually to the diluted EPS.

In our view, Broadcom’s industry leading growth rate, solid balance sheet that can stimulate additional inorganic growth, large-cap growth scarcity premium and solid execution can continue to support higher multiples. We forecast Broadcom to grow sales by 16% YoY / 11% YoY in 2011/12, which is substantially ahead of comparables at 9%/9%, respectively. Our EPS growth projection of 4%/10% YoY in 2011/12 is also in line to slightly ahead of comparables at 9%/9% YoY, respectively. Also, Broadcom’s dividend of about 1% is small, but positive, when the majority of its comparables do not pay any dividends.

The stock could be under pressure in the near term due to high opex levels in Q1, but we expect support from management’s short-term $300mn share buyback plan.

Table 2: Broadcom trades in line with comparables, but is expected to grow sales much faster at 16%/11% YoY in 2011/12 vs. 9%/9% at comps PE EV/EBITDA Div Yield Sales YoY EPS YoY Ticker Mkt Cap 2010 2011 2012 2010 2011 2012 2011 2012 2011 2012 QCOM $88.6 20.3x 17.7x 16.4x 14.9x 12.9x 1.4% 23% 6% 14% 8% TXN $41.2 13.4x 13.5x 12.7x 6.9x 7.1x 6.9x 1.5% 3% 3% 0% 6% MRVL $12.7 11.8x 11.5x 10.6x 8.2x 7.5x 7.2x 0.0% 8% 9% 3% 8% NVDA $14.9 41.3x 25.6x 20.9x 22.6x 15.9x 12.9x 0.0% 7% 9% 62% 22% ALTR $12.3 15.8x 15.9x 15.1x 11.2x 10.7x 10.2x 0.6% 9% 9% -1% 5% STM $10.9 16.7x 13.1x 11.8x 4.0x 3.5x 3.3x 1.9% 6% 8% 28% 11% XLNX $8.6 14.5x 15.6x 14.3x 5.6x 5.9x 5.4x 1.9% 2% 7% -7% 9% ATML $6.7 24.8x 22.5x 18.8x 21.8x 13.7x 11.6x 0.0% 13% 11% 10% 19% SWKS $6.0 22.9x 18.1x 15.7x 6.8x 4.8x 3.9x 0.0% 20% 15% 26% 16% LSI $3.9 12.3x 12.4x 10.5x 7.6x 6.9x 5.4x 0.0% 4% 8% 0% 18% NETL $2.3 22.9x 24.1x 20.1x 13.9x 12.5x 10.3x 0.0% 12% 17% -5% 20% PMCS $1.9 11.1x 12.5x 10.8x 7.6x 8.9x 8.1x 0.0% 9% 12% -11% 16% CAVM $1.9 48.1x 34.1x 26.2x 29.7x 21.2x 14.6x 0.0% 41% 27% 41% 30% Median 16.7x 15.9x 15.1x 8.2x 8.9x 7.6x 0.0% 9% 9% 3% 16% BRCM (BofAMLe) $20.0 16.1x 15.5x 14.1x 9.8x 8.9x 7.9x 0.7% 16% 11% 4% 10% BRCM (Cons) $20.0 16.1x 15.7x 14.4x 9.9x 9.3x 8.5x 0.7% 15% 10% 2% 9% Source: First Call; BofA Merrill Lynch Global Research.

BRCM has traded historically at 20% premium to S&P 500 Over the past five years Broadcom stock has traded at a median forward multiple of 19.2x, and in a range of 10x to 40x. During this time the stock has maintained about a 20% premium to the forward S&P 500 multiple. Our choice of 17x PE to derive the PO is within these historical parameters, in our opinion.


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Scenario analysis We estimate upside potential to $62 (42% upside) and downside risk of $38 (14% downside), versus our published PO of $53 (22% upside). Our scenarios vary the expected sales growth, operating margins and PE multiples. We use 2012 pro forma estimates, which is the norm for growth companies. While some could complain about the use of pro forma (ex options expense) estimates, we note the offsetting factor of 10% pro forma tax rates while Broadcom pays only 2-3% cash taxes.

Broadcom’s baseline expectations is 10-15% annual sales growth, relatively flattish 24% pro forma operating margins and a slightly above market multiple of 17x to reflect the growth exposure. Upside could come from the mobile and wireless area where Broadcom is part of every major tablet and smartphone opportunity, with design wins locked in and good visibility for 2011. A 19x multiple on this trajectory would be rich but in line with Broadcom’s five-year 19x median multiple. Downside risks could come from weak sales in broadband, where the company is starting the year with excess inventory at some customers. We use 200bp lower operating margins (22%) and a lower 14x multiple in this scenario.

Table 3: Broadcom scenario analysis indicates attractive risk reward potential Downside Baseline Upside FY10A FY11E FY12E FY11E FY12E FY11E FY12E Sales $6,818 $7,500 $8,250 $7,895 $8,735 $8,182 $9,409 YoY 52% 10% 10% 16% 11% 20% 15% Op. Mgn 25.0% 22.0% 22.6% 24.0% 24.6% 24.0% 24.0% Op. Income $1,706 $1,652 $1,866 $1,897 $2,150 $1,966 $2,261 Fin income $15 ($2) ($2) ($2) ($2) ($2) ($2) Pretax Income $1,721 $1,650 $1,864 $1,895 $2,148 $1,964 $2,259 Tax rate 11.2% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Net Income $1,548 $1,485 $1,677 $1,706 $1,933 $1,768 $2,033 Sharecount 569 602 622 602 622 602 622 PF EPS $2.72 $2.47 $2.70 $2.83 $3.11 $2.94 $3.27 YoY 105% -9% 9% 4% 10% 8% 11% PE 16.1x 14.0x 17.0x 19.0x Implied Target $38 $53 $62 Upside/Downside -14% 21% 42% Source: BofA Merrill Lynch Global Research Estimates

Chart 2: BRCM has outperformed SOX index, but has been in line with S&P 500 performance over the past five years

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Source: Factset; BofA Merrill Lynch Global Research

Chart 3: The stock has traded at an median 18x forward PE and at a 20% premium to S&P 500 index

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BRCM Fw d PE (left) Relativ e to SPX (right)

Source: Factset; BofA Merrill Lynch Global Research


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Key investor concerns/debates While investors are generally positive on Broadcom stock, we believe there remain some lingering concerns. In general, our views are in line or slightly more positive than consensus.

Connectivity strength is temporary Broadcom is the market leader in connectivity (aka combo chips) that integrate GPS, WiFi, FM and Bluetooth onto a single chip that is used for a range of consumer electronics, such as wireless handsets, printers, game consoles and the like. The business contributed about $2bn in sales in 2010, surging nearly 50% YoY. Per iSuppli, Broadcom leads this market with 33% share, up from 29% in 2009 and 21% in 2006.

Competition is growing Investors respect Broadcom’s R&D capabilities, but are concerned that the competitive risks have increased. For example, key rival Atheros was recently acquired by wireless leader Qualcomm, which is not in a strong position to integrate Atheros WiFi chips into its 3G chips. Another rival, TI, has a strong position as well. Asian rivals are also nipping at the heels with cheaper solutions.

But investors could be underestimating market size While we acknowledge these concerns, we believe the Street underestimates the TAM expansion of connectivity products, as WiFi and Bluetooth is embedded in a wide range of consumer electronics outside of handsets/smartphones. For example, DVD players, TVs and game consoles are all being connected to the Internet for more real-time content. Remote controls, keyboards and other peripherals are being outfitted with Bluetooth capabilities. There is increasing GPS capability on smartphones and tablets to enable e-commerce and social networking applications. New Near Field Communications technology is being adopted in handsets for authentication and secure e-commerce activities.

Even within wireless handsets, WiFi penetration is only around 20%, while NFC is just getting started and could get a major push when launched on Google’s new Android software (Ver 3) and in Apple’s iPhone 5.

Table 4: More things are being connected 2008 Attach Rate 2014E Attach Rate Category WiFi GPS Bluetooth WiFi GPS Bluetooth NFC Smartphone Low Low High High High High Medium Tablet High High High Medium Notebook High Medium High Medium High Medium Game Console High High Low TV High High Low Camera Medium Medium Low Blu-Ray/DVD Player High High Car Low Low Low Medium Medium Source: Company reports; BofA Merrill Lynch Global Research


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Do not underestimate BRCM’s integration skills Broadcom has increased its market share in handset connectivity chips to 33% from 29% in 2009 and 21% in 2006. The company’s sales nearly tripled to $2bn in the past five years, while the market “merely” doubled in this timeframe.

In our view, a key reason for Broadcom’s success has been 1) best of breed technical solution and time to market in innovating in the individual components –Bluetooth, GPS, WiFi, FM and soon, Near Field Communications; and 2) integrating the individual components into space and power saving combo chips. This integration is inherently tough due to management of the multiple radios, and packaging at scale is even tougher.

Integrated solutions play a critical role in enabling the fast cycle times required in smartphone design. Broadcom’s integration skills and combo chips (such as BCM4329) are making it an indispensable part of leading handsets including Apple’s iPhone 4/iPad and Samsung’s Galaxy S smartphones/tablets.

Low risk from connectivity/baseband integrated rivals We often hear about risks that baseband vendors such as Qualcomm could start including connectivity chips as part of their chipset (eg, through its recent acquisition of Atheros). This remains a long-term risk, but 1) connectivity standards often move faster than baseband standards; 2) managing the technical

Chart 4: Handset connectivity units expected to grow at 15% CAGR until 2014E, including 28% CAGR for WiFi and 44% CAGR for NFC

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Source: iSuppli; BofA Merrill Lynch Global Research

Chart 5: Penetration in handsets; WiFi only 20% and NFC just getting started; Broadcom well positioned as a WiFI leader

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Chart 6: Broadcom connectivity share grew 400bp last year

33%29%

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10%15%20%25%30%35%

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Broadcom CSR Intel Atheros TI


Table 5: Broadcom leads connectivity market 2006 2007 2008 2009 2010E Broadcom 700 805 1,155 1,328 2,070 CSR 704 847 696 663 796 Intel 475 504 465 562 733 Atheros 256 377 423 495 780 TI 352 295 337 423 602 Others 834 1,000 1,331 1,130 1,262 Market $3,321 $3,828 $4,407 $4,601 $6,243 YoY 15% 15% 4% 36% BRCM Share 21% 21% 26% 29% 33% Source: iSuppli; BofA Merrill Lynch Global Research


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complexity of the vast number of radios (2G, 3G, GPS, Wifi, BT) just exacerbates complexity and cost of the chip; and 3) if the trend accelerates, even Broadcom could do such integration, as it is among the primary vendors of baseband chips (others include Qualcomm, Infineon, Marvell, Mediatek and ST Ericsson).

Inability to gain baseband share After many years of investments Broadcom has managed to finally kick-start its baseband (handset modem) business by selling to 2G and 3G modems Nokia and Samsung. Per Gartner, Broadcom’s baseband sales surged five-fold to $248mn in 2009, although it remains only 2% of the global baseband market (vs. Qualcomm at nearly 40%). However, investors remain concerned that Broadcom has not done enough to gain share outside of Nokia and Samsung, at a time when competition is getting bigger (e.g., Intel/Infineon) and tougher.

We acknowledge this concern, but note that:

Broadcom has not managed to gain baseband share outside of Nokia and Samsung, but collectively these two account for over 55% of global handset production. We estimate Broadcom has less than 6% market share at these vendors, with every additional 100bp share representing an additional $95mn, or 20% growth in 2011 baseband sales volume.

We expect Nokia to use Broadcom for greater 3G handsets next year, which should help Broadcom gain market share.

While Broadcom’s baseband sales could double YoY in 2010 to $500-600mn, it would still only represent about 4% global market share in the $14.5bn total market.

Sluggish trends in high-margin enterprise With roughly 31% market share, Broadcom is the market leader in supplying silicon for Ethernet switches and other wired communication systems. This also happens to be the company’s most profitable business, with 36% operating margins versus 18% in mobile/wireless and 21% in broadband. However, sales in this infrastructure and networking segment were relatively flattish in Q2 and Q3, and grew only 3.5% QoQ in Q4. We believe investors are concerned that slow growth in this segment and higher growth in others could not just be a drag on overall sales, but also be a major headwind to margins.

Table 6: Broadcom is a second tier player in baseband sales SALES ($mn) MKT SHARE 2008 2009 YoY 2008 2009 YoY (bps) Qualcomm $5,533 $5,384 -3% 39% 40% 107 MediaTek $1,379 $1,939 41% 10% 15% 476 STMicroelectronic $1,704 $1,787 5% 12% 13% 130 TI $2,516 $1,766 -30% 18% 13% (464) Infineon $935 $989 6% 7% 7% 78 Freescale $895 $401 -55% 6% 3% (336) Broadcom $40 $248 520% 0% 2% 158 Marvell $319 $138 -57% 2% 1% (123) NEC $125 $103 -18% 1% 1% (12) Spreadtrum $103 $95 -8% 1% 1% (2) Others $487 $447 -8% 3% 3% (11) Total $14,036 $13,297 -5% 100% 100% - Source: iDC; BofA Merrill Lynch Global Research

Table 7: But, is exposed to the right customers NOK and Samsung 2G GSM 2G/2.5G EDGE 3G WCDMA 3G CDMA Nokia TXN, IFX TXN, IFX, BRCM TXN, ST-E, BRCM na

Samsung IFX, ST-E IFX, BRCM, ST-E QCOM, IFX, BRCM, ST-E QCOM

Motorola TXN, MTEK,

SPDR FSL TXN, QCOM, FSL TXN, QCOM,

FSL Sony Ericsson TXN TXN ST-E, TXN, QCOM

LG TXN, IFX,

MTEK IFX, MTEK QCOM, ST-E, IFX QCOM RIM FSL MRVL QCOM Apple IFX IFX HTC QCOM QCOM Sharp ST-E ST-E ST-E QCOM Source: BofA Merrill Lynch Global Research


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We largely agree with this concern and, as a result, model below corporate average 11% and 9% YoY growth in Broadcom’s infrastructure and networking segment (includes enterprise) for 2011 and 2012 (vs. overall 16% and 11% YoY, respectively). However, there could be upside, as Broadcom is exposed to benefits from broadband (GPON/EPON) rollouts and adoption of 10GE standards in enterprise data center. We also note upside from opportunistic acquisitions such as Dune Networks and time to market in rolling out the industry’s first 64 port, 10GbE switch.

Chart 7: Broadcom has gained roughly 500bp of share in past three years. (share is among the top 10 vendors of semis going into wired communications market)

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Financial analysis We forecast about 16% YoY revenue growth in 2011 and a 12% revenue CAGR until 2014 for Broadcom. We expect growth in 2011 to be primarily led by mobile & wireless (+29% YoY) from wireless connectivity (combo chips of WiFi, BT, FM radio, GPS, NFC), baseband (Nokia, Samsung EDGE/3G) and apps processors (low and mid-end smartphones), with 11% YoY growth in enterprise networking (10Gb Switches and PHYs) and a more modest 3% YoY growth in broadband communications.

We forecast a more modest 6% EPS CAGR over the next four years due to the ending of the Qualcomm license payments in 1Q13, given limited gross/operating margin leverage from growth being led by the mobile & wireless division, which operates in the ultra competitive handset IC vendor market.

Table 8: We forecast Broadcom revenue and EPS CAGR of 12% and 6%, respectively 2008 2009 2010 2011E 2012E 2013E 2014E CAGR Sales $4,658.1 $4,490.3 $6,818.3 $7,895.2 $8,734.8 $9,582.0 $10,549.6 12% YoY 23% -4% 52% 16% 11% 10% 10% Overall GM% 52.5% 50.8% 51.8% 51.8% 51.7% 51.1% 50.6% Product GM% (ex QCOM royalties) 50.7% 48.3% 50.2% 50.4% 50.5% 50.5% 50.5% Overall OM% 3.7% 1.2% 15.9% 15.9% 17.3% 17.4% 17.9% Product OM% (ex QCOM) 0.0% -3.8% 12.9% 13.4% 15.4% 16.5% 17.8% PF - EPS $1.61 $1.32 $2.72 $2.83 $3.11 $3.23 $3.43 6% YoY 11% -18% 105% 4% 10% 4% 6% Source: Company reports; BofA Merrill Lynch Global Research


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Gross and operating margins Broadcom’s product gross margins (GAAP) have decreased modestly since 2008, when the mobile & wireless became the primary driver of top-line growth; while higher gross margin enterprise/broadband grew more modestly. Overall, gross margins have been buffered by payments from Qualcomm related to the IP licensing dispute, which began in 2Q09 and are expected to last until 1Q13. GAAP operating margins were 13% and non-GAAP were 25% in 2010. We expect GAAP operating margins to expand to 15% by 2012 as stock compensation expenses (as a % of revenues) and prior options begin to vest.

Balance sheet and cash flow Broadcom maintains a strong balance sheet with cash balance of $4.1bn (18% of market cap) and net cash position of $5.70 per share (as of December 2010). In October 2010 Broadcom issued $700m in debt ($300m in 2013, $400m in 2015) to ensure a more optimal capital structure. In 2010, free cash flow per share was $1.3bn, which represents a FCF yield of 5%.

Table 9: Broadcom has a solid balance sheet with cash representing $5.70 per share 2005 2006 2007 2008 2009 2010 2011E 2012E Total Cash/investments $1,876 $2,802 $2,404 $1,898 $2,368 $4,058 $5,534 $7,062 Total debt $0 $0 $0 $0 $0 $697 $697 $697 Net cash $1,876 $2,802 $2,404 $1,898 $2,368 $3,361 $4,837 $6,365 Net cash/share $3.36 $4.60 $4.02 $3.46 $4.38 $5.70 $8.04 $10.23 Cash from Ops $447 $887 $825 $920 $987 $1,371 $1,778 $1,858 Capex ($42) ($92) ($150) ($83) ($67) ($109) ($108) ($108) Free Cash Flow $405 $795 $675 $837 $920 $1,262 $1,670 $1,750 FCF/Dil Share $0.73 $1.31 $1.13 $1.52 $1.70 $2.22 $2.77 $2.81 Source: Company Reports, BofA Merrill Lynch Global Research

QCOM impact subsides by Q1’2013 In April 2009, after many years of litigation, Qualcomm and Broadcom entered into a multi-year settlement and patent cross license. Qualcomm agreed to pay Broadcom $891m over a four-year period from 2Q09 to 1Q13. With payments running at quarterly run-rate of $51.7mn in 2011, it contributes to $0.31 in EPS (or 11% of total). In 2012 payments from Qualcomm drop to $46.5mn per quarter, followed by one final lump sum payment of $86.4mn in 1Q13. In 2013, our forecast calls for $0.12 EPS contribution from this settlement (or 4% of total EPS).

Chart 8: Product gross margins have decreased modestly

52.5%

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48.3%

46%47%48%49%50%51%52%53%

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Ov erall GAAP GM% Product GAAP GM%

Source: Company Reports, BofA Merrill Lynch Global Research

Chart 9: Non-GAAP operating margins were 25% in 2010

20.8% 20.7% 21.9% 20.0%25.0% 23.9% 24.5%

17.3%

0.0%5.0%

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Source: Company Reports, BofA Merrill Lynch Global Research


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Table 10: Qualcomm agreed to pay Broadcom a total of $891m from 2Q09 to 1Q13 2009 2010 2011E 2012E 2013E 2014E Total Sales $4,490 $6,818 $7,895 $8,735 $9,582 $10,550 QCOM Payments $171 $207 $207 $186 $86 $0 Sales ex QCOM $4,320 $6,612 $7,689 $8,549 $9,496 $10,550 PF - EPS $1.32 $2.72 $2.81 $3.09 $3.21 $3.42 QCOM Benefit $0.29 $0.36 $0.31 $0.27 $0.12 $0.00 PF EPS ex QCOM $1.04 $2.36 $2.50 $2.82 $3.09 $3.42 Impact on: Sales 4% 3% 3% 2% 1% 0% PF -EPS 22% 13% 11% 9% 4% 0% Source: BofA Merrill Lynch Global Research

BRCM has a proven track record of successful acquisitions Over the past 5 years Broadcom has made 13 small tuck-in acquisitions, primarily to extend its product and IP portfolio across its three primary end-markets: mobile & wireless, networking infrastructure and broadband communications. The largest of these acquisitions was Beceem for $320mn in October 2010.

Table 11: Broadcom's five-year acquisition history Date Company (or Division) Value ($m) Technology Description

22-Nov-10 Gigle Networks 83 Home networking 26-Oct-10 Percello 97 Femto cells (low power, cellular basestations) 13-Oct-10 Beceem Communications 316 4G wireless multi-mode platforms 17-Jun-10 Innovision 47 Near Field Communications (NFC) 03-Feb-10 Teknovus 123 Ethernet Passive Optical Network (EPON) for Asia FTTx 30-Nov-09 Dune Networks 178 Enterprise network switches 25-Aug-08 AMD - Digital Television 193 Digital television platforms 29-Feb-08 Sunext Design 48 Optical storage 12-Jun-07 Global Locate 226 GPS chips and software 03-May-07 Octalica 31 Multimedia over Coax (MoCA) 29-Nov-06 LVL7 Systems 62 Networking software 23-Jan-06 Sandburst 81 Enterprise network switches

Source: FactSet, Bank of America Merrill Lynch Global Research Estimates

4Q10 Ahead, 1Q11 EPS missed expectations on higher opex Broadcom reported 4Q10 results on 1 February with revenues of $1.95bn (+8% QoQ), above December analyst day guidance of $1.9bn. Growth was led by mobile & wireless (+14% QoQ). Networking grew +4% QoQ and broadband grew +3% QoQ. Pro forma EPS of $0.75 was two cents ahead of consensus at $0.74. Pro forma gross margins fell by 60bp to 50.3% on acquisition related inventory accounting, warranty charges and mix shift toward lower margin mobile & wireless chips.

Broadcom guided for 1Q11 revenues for $1.75-1.85bn (down 5-10% QoQ) with product gross margins flat q/q net of step-up and amortization charges of roughly 60bp. Opex was guided up $50mn, or 39.3% of revenues (vs. 37.1% in 4Q), on employee merit increases, higher fringe benefits, stock compensation and legal expenses. Broadcom expects the increase in opex to moderate beyond 2Q11.


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Table 12: Broadcom 4Q10 results vs. expectations Yr-Ago Q-Ago Est delta Actual 4Q09 3Q10 4Q10E 4Q10 QoQ YoY Sales $1,342.7 $1,806.0 $1,899.3 $46.3 $1,945.6 7.7% 44.9% Overall GM% 53.1% 51.7% 51.0% (15)bps 50.9% (84) (218) Product GM% 50.9% 50.1% 49.5% (9)bps 49.4% (73) (148) GAAP R&D Expense 396.3 447.6 477.6 (5.3) 472.3 5.5% 19.2% GAAP SG&A Expense 84.4 145.8 163.8 4.9 168.7 15.7% 99.9% GAAP Opex 653.7 599.6 647.6 74.1 721.7 20.4% 10.4% GAAP Operating income 58.8 334.5 321.5 (53.4) 268.1 -19.8% 355.8% GAAP Overall Op. Margins 4.4% 18.5% 16.9% (315)bps 13.8% (474) 940 GAAP Product Op. Margins 0.0% 15.8% 13.9% (270)bps 11.2% (464) 1,124 Pro-forma Operating income 360.0 463.9 463.6 26.8 490.4 5.7% 36.2% Pro-forma Overall Op. Margins 26.8% 25.7% 24.4% 80 25.2% (48) (161) Pro-forma Product Op. Margins 24.7% 24.1% 22.9% 86 23.8% (36) (92) Net financial income 2.3 2.1 1.4 2.3 3.7 80.9% 64.7% GAAP Pretax Income 61.1 336.5 322.9 (51.0) 271.8 -19.2% 345.0% GAAP Tax Expense 1.9 9.4 32.3 (26.6) 5.7 -39.7% 199.6% GAAP Tax Rate 3.1% 2.8% 10.0% (792)bps 2.1% (71) (101) GAAP Net Income 59.2 327.1 290.6 (24.4) 266.2 -18.6% 349.6% GAAP Diluted EPS $0.11 $0.60 $0.51 ($0.05) $0.47 -22.1% 315.0% Assumed Pro-forma Tax Rate 10% 10% 10% 0 10% 0 0 Pro-forma Net Income 326.0 419.4 418.5 26.2 444.7 6.0% 36.4% Pro-forma Dil EPS $0.59 $0.74 $0.71 $0.04 $0.75 2.2% 27.3% Source: Thomson Reuters, Company Reports, BofA Merrill Lynch Global Research

Background Broadcom is the leading vendor for semiconductor solutions to the wired (networking, broadband) and wireless (handset) communications industry. The company has a leadership position in the fastest growing markets, including smartphones, tablets, home broadband, data center and digital TV. We estimate 2010 sales were a record $6.8bn, up over 50% YoY. We model double digit sales growth of 18%/11% for 2011/12, which is the fastest among the semiconductors sector, and nearly 2x the average growth in semi shipments.

Sales are divided among three segments, depending on the end-market.

The “Hand” segment (mobile & wireless) contributed 43% of 2010 sales and is the largest and highest growth, leveraged to mobile handsets, smartphones, tablets and consumer electronics. We look for the segment to deliver strong 30%/14% YoY sales growth in 2011/12, with upside potential.

The “Home” segment (broadband communications) contributed to 31% of 2010 sales. It includes chips for cable modems, DSL modems, cable set top boxes, digital TVs, Blu-ray/DVD players etc. We look for this segment to grow 3-4% YoY in 2011/12 driven by strong growth in emerging markets partially offset by weaker trends in developed markets.

The “Infrastructure” segment (infrastructure & networking) contributed to 23% of 2010 revenues and includes for network routers & switches, 3G/4G wireless infrastructure, servers and workstations. We look for this segment to grow 11%/9% in 2011/12 driven by increasing adoption of 10GbE in enterprise networks.


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Mobile and Wireless Group Growth leader The Mobile and Wireless Group is Broadcom’s largest, contributing 43% of total sales in 2010. Operating margins have been steadily improving, and touched a high of roughly 21% in 3Q10, versus only 2% back in 2008. Products include cellular baseband, application processors and connectivity (WiFi, Bluetooth, GPS and FM) chipsets. The group primarily serves the wireless handset market, although products are steadily finding a home in other consumer electronics.

Mobile and wireless sales surged 66% YoY in 2010, and we expect over 30%/14% YoY growth in 2011/12 with upside potential.

Within the roughly $2.9bn in mobile and wireless sales in 2010, we estimate 75% came from wireless connectivity, including WiFi, Bluetooth and GPS chips. Mobile platforms including 2G (GPRS/EDGE) baseband, 3G (WCDMA) baseband, and sales of media co-processor chips contributed the remaining 25%.

Table 13: Mobile and wireless revenue trends 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 2008 2009 2010E 2011E 2012E Sales $298.9 $398.5 $520.6 $502.0 $554.3 $630.1 $797.4 $907.5 $825.8 $883.6 $972.0 $1,040.0 $1,528.2 $1,720.0 $2,889.2 $3,721.4 $4,367.4 QoQ -19% 33% 31% -4% 10.4% 13.7% 26.6% 13.8% -9.0% 7.0% 10.0% 7.0% 0.0% 0.0% 0.0% 0.0% 0.0% YoY -8% 5% 14% 36% 85.5% 58.1% 53.2% 80.8% 49.0% 40.2% 21.9% 14.6% 28.1% 12.6% 68.0% 28.8% 17.4% Op. Margin -14% 5% 15% 12% 11.0% 16.5% 20.7% 21.6% 2.2% 6.8% 18.2% Source: Company reports; BofA Merrill Lynch Global Research

Growth drivers Increasing attach rate of connectivity solutions. We expect more

consumer electronics to embed WiFi, Bluetooth, GPS and NFC functionality.

Connectivity growth in existing flagship Apple/Samsung products. Broadcom has $8-10 worth of content in Apple’s iPhone 4, iPad and Samsung’s Galaxy S range of smartphones and tablets. The rapid growth in these devices and their next-gen incarnations should drive Broadcom’s sales in 2011/12 (Table 14).

Chart 10: Revenues by product mix

Mobile and Wireless

43%

Broadband Comms

31%

Licencing & Roy alties

3%

Infrastructure and Netw orking

23%

Source: Company reports; BofA Merrill Lynch Global Research

Chart 11: Revenues by product segment

$0$2,000$4,000$6,000$8,000

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Chart 12: Mobile & wireless revenue breakout

2G Baseband11%

3G Baseband3%

WiFi47%

Bluetooth22%

GPS5%

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Media processor

8%

Source: IDC; BofA Merrill Lynch Global Research


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Table 14: Broadcom opportunity by product Device Product 2011 Opportunity

Apple iPhone 4 BCM4329 (BT, Wifi, FM), BCM 4750 (GPS)

~$8/device, 66mn devices 2011, $528mn opportunity

Apple iPad Bluetooth, GPS, Wifi, Touch conyroller


Samsung Galaxy Tab Bluetooth, GPS, Wifi, GPS ~$9/device, 10mn devices 2011, $90mn opportunity

Samsung Galaxy smartphones Bluetooth, GPS, Wifi, GPS



Baseband share gains at Nokia and Samsung. Broadcom’s two largest baseband customers account for over 5% of global cell phone production. We estimate Broadcom currently has less than 6% share of their handsets, with every additional 100bp of share driving $95mn in incremental revenues. Share gains should come as Nokia transitions out of TI’s basebands into solutions from Broadcom and ST.

Table 15: Mobile handset mix by phone type 2009 2010 2011E 2012E 2013E 2014E CAGR Mid-High Smartphone 178 236 298 342 385 417 15% Low-End Smartphone 4 11 24 48 68 90 70% Feature Phone 631 710 797 849 887 919 7% Low-end Phone 337 328 283 247 212 181 -14% Total 1,151 1,285 1,403 1,486 1,552 1,608 6% Source: iSuppli; BofA Merrill Lynch Global Research

Rise of low and mid-range smartphone market. We expect the smartphone market will bifurcate into the high-end – which requires discrete applications and baseband processors – and the mid-range/low-end or mass market that will be based on a single chip that integrates the baseband and apps processor. In our view, Broadcom is likely to focus on the latter market as it is one of the few players (besides Qualcomm, Marvell and Mediatek) that has both in-house baseband and apps processor capabilities. As shown in chart 13, the low/mid range smartphone market is forecast to grow at a 70% CAGR for the next five years, much faster than the high-end market.

Broadband Communications Group Set top boxes, broadband drives growth The Broadband Communications Group (BCG) contributes about a third of sales and operating income to Broadcom. Key end-markets include video set top boxes (cable, satellite, IPTV), residential Broadband Access (modems for cable, xDSL and passive optical network or PON), digital TV and blue-ray players. Key customers are Cisco, Echostar, Motorola, Pace, Thomson and Samsung. BCG has recently been very active, acquiring Parcello to enter the femtocells market and Gigle Networks to enter the home Powerline market.

Table 16: BCG revenue and operating margin trends 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 2008 2009 2010E 2011E 2012E Sales $317.3 $363.8 $394.9 $449.2 $463.8 $532.1 $561.5 $577.0 $519.3 $545.2 $567.0 $567.0 $1,722.7 $1,525.2 $2,134.4 $2,198.6 $2,252.1 QoQ -28% 15% 9% 14% 3.2% 14.7% 5.5% 2.8% -10.0% 5.0% 4.0% 0.0% YoY -13% -21% -14% 2% 46.2% 46.2% 42.2% 28.4% 12.0% 2.5% 1.0% -1.7% 22.0% -11.5% 39.9% 3.0% 2.4% Op. Margin 3% 7% 13% 21% 18.2% 23.1% 20.9% 21.2% 22.1% 11.8% Source: Company reports; BofA Merrill Lynch Global Research

Chart 13: Handset mix by phone type

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BCG can grow at a roughly 8-10% annual growth rate We expect BCG sales to grow at a 8-10% annual pace for the next two years, driven by:

The move to more high-def from standard-def video set top boxes. Per Broadcom, only about 36% of the 200 million video set top boxes sold in 2010 had high-def capabilities. This ratio is expected to get to over 50% by 2014, for an average annual growth rate of 9%. This compares to the -3% annual decline in standard-def set tops. Broadcom’s exposure is primarily to the faster growth HD set top market. This is not just a developed market phenomenon. In China, for example, the government is working with service providers to basically get HD set top boxes free to subscribers.

Emerging markets broadband growth. The chart below shows the secular growth in broadband subscribers, with emerging market (BRIC) adoption expected at a 15% annual pace, versus only 10% rate for the rest of world. (per Infonetics).

Growth in over the top video. We see increasing demand for high quality streaming video (Hulu, Netflix, VOD) delivered through the broadband pipe, which drives greater investment in cable (DOCSIS 3) and telco technology (Passive Optical network or PON).

Chart 14: Higher margin HD STBs expected to grow as % of mix

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Source: Infonetics; BofA Merrill Lynch Global Research

Chart 15: BRICs expected to drive strong broadband subs growth

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Infrastructure Networking Group Slower growth but very profitable Broadcom’s Infrastructure and Networking group contributed $1.6bn, or 23% of total sales in 2010, with very strong 35%+ segment operating margins. Sales were up nearly 50% YoY, although that sequential sales growth flattened toward 2H 2010. Products include Ethernet transceivers, Ethernet controllers, Ethernet switches, Optical Physical layer (PHY) devices, security processors and Broadband processors.

End markets include Service Provider/carrier (40%), Enterprise (30%), Data Center (20%) and SMB/Home (10%). Cisco is among the largest customers in this division. Interestingly, even though Carrier sales contribute nearly 40% of the total, this segment is commonly (though erroneously) seen as leveraged to only enterprise sales.

We conservatively model 7-8% annual sales growth for this segment in 2011/12, with downside risk if enterprise stays sluggish and upside potential from data center upgrades and greater emerging market broadband. The segment delivers the highest operating margins (about 36% in 2010), which we believe can be sustained due to Broadcom’s aggressive integration expertise.

Table 17: Infrastructure networking revenue and operating margin trends 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 2008 2009 2010E 2011E 2012E Sales $218.4 $210.4 $287.0 $339.8 $392.3 $390.6 $395.4 $409.4 $409.4 $429.9 $460.0 $469.2 $1,258.0 $1,055.6 $1,587.8 $1,768.5 $1,929.3 QoQ -21% -4% 36% 18% 15.4% -0.4% 1.2% 3.5% 0.0% 5.0% 7.0% 2.0% YoY -29% -36% -17% 23% 79.7% 85.7% 37.8% 20.5% 4.4% 10.1% 16.3% 14.6% 10.4% -16.1% 50.4% 11.4% 9.1% Op. Margin 19% 18% 30% 36% 38.3% 35.3% 35.6% 36.5% 31.0% 27.3% Source: Company reports; BofA Merrill Lynch Global Research

Key growth drivers: tech upgrade cycles Broadcom expects 10-20% annual growth in its served addressable market (SAM) from 2010-2013, which is more optimistic than our 7-8% forecast and creates some upside risk to our estimates. In 2007 the company’s SAM in infrastructure networking was about $2.3bn, growing to $2.7bn in 2010, partly driven by underlying market growth (TDM-> Ethernet transition and Gigabit to 10 Gigabit Ethernet transition) and the acquisitions of Teknovus (EPON) and Dune (high-end network fabrics). By 2013 Broadcom anticipates its SAM to grow at a 19% CAGR to over $4bn, led by underlying market growth as well as expansion into new areas, such as wireless infrastructure (the only major telecom area Broadcom does not participate in currently), Client virtualization, embedded processing, optical transport, automotive, switch ASICs and storage.

Here we outline the growth drivers in the current portfolio.

Carrier migration from legacy (TDM) to next-gen (Ethernet). About 40% of Broadcom’s Infrastructure Networking segment revenues are exposed to service provider or carrier (telco, cable, satellite) spending. Carriers are undergoing a major transition in their networks as bandwidth demand is exploding, but their revenues are not, so the only way to protect margins (ie, bend the cost curve) is to upgrade from legacy, voice oriented TDM technology to more data aware Ethernet technology. Since Broadcom only plays in the Ethernet side, it has the benefit of these upgrades. Ethernet is being used in both wired and mobile backhaul applications.

Chart 16: Broadcom infrastructure group end-market exposure

Carrier40%

Data Center20%

Enterprise30%

SMB/Home10%


Chart 17: Broadcom is increasing its market share in an expanding market

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Virtualization/cloud drive DC upgrades from 1G to 10G Ethernet ports. Data centers accounts for about 20% of Broadcom’s Infrastructure Networking sales. Data centers are a major hotbed of innovation, as the computing model changes from traditional client-server (distributed) to more virtual or cloud computing (centralized) built on high performance multi-core x86 servers. Per Broadcom, these servers will make the transition from 1 Gigabit Ethernet (1GE) to 10 Gigabit Ethernet (10 GE) over the next few years, driven by increases in server and storage input/output (I/O) speeds and the additional throughput needed for the aggregation of 1GE links. Infonetics expects 10GE data center ports to grow at a 43% CAGR until 2014, to account for over 50% of all ports versus only 13% of ports in 2010. This is roughly 8-10x the growth rate of the underlying servers. Broadcom was recently the first to launch a 64-port 10GE chip called Trident, based on 40nm technology. The company is targeting terabit chips at 28nm over the next few years.

Enterprise upstream upgrades as link utilization increases. Enterprise sales are about 30% of the infrastructure segment, with growth driven by increasing link utilization, increasing adoption of Power over Ethernet, growth in wireless access points and security/encryption requirements.

Chart 18: 10GE ports expected to grow to 12 million units, or at 43% CAGR until 2014, accounting for majority of total

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Investment risks Like any cyclical growth company, Broadcom faces a wide range of macro and micro investment risks. In addition to the general risks involving semiconductor industry cyclicality and low long-term visibility, we highlight the following company specific risk factors that could have a material impact on our estimates and valuation.

Premium valuation. Broadcom trades at a significant premium to the market (S&P 500) and to its sector, which makes the stock susceptible to a sharp correction if high expectations are not met.

Qualcomm contribution will disappear by 2013. Broadcom will receive $206.7mn (2011), $186mn (2012) and $86.4mn (March 2013) in licensing income from Qualcomm. This is expected to disappear by March 2013. Some investors may chose to remove this income stream while valuing Broadcom.

Competitive risks. High-growth sectors naturally invite competition, and we note the increasing risks that Broadcom faces from Qualcomm/Atheros, Texas Instruments, Intel, ST Micro, Mediatek, Mstar, Marvell and others.

Stock options expense exclusion inflates earnings. There is a substantial difference between GAAP and pro forma EPS for Broadcom (about 70c of the company’s $2.74 in 2010 pro forma EPS was due to factors such as the exclusion of stock compensation expense.) Stock comp specifically is running at about 7% of sales ($472mn in 2010) and while down substantially from 14% of sales in 2007, it still runs at a very high level. Most analysts value Broadcom using pro forma (non-GAAP) measures, and any change to GAAP could inflate Broadcom’s implied PE and make the stock look more expensive.

Management profile In our view, Broadcom has a very strong and experienced management team with the right mix of industry vision and financial prudence. The company has generally made the right moves from both an organic growth perspective to grow share in almost every market that is participates in. Acquisitions have also been used wisely to complement the organic growth.

Scott McGregor, president and CEO Mr. McGregor joined Broadcom in January 2005 after serving as president and CEO of the Philips Semiconductors division of the Netherlands-based Royal Philips Electronics since 2001. At Philips, Mr. McGregor oversaw one of the world's largest semiconductor suppliers, with 34,000 employees in over 50 countries and nearly US$6bon in sales in 2004. He joined Philips Semiconductors in February 1998 as head of its Emerging Business unit, focusing on fast growing markets for smart cards, RFID, networking, digital media processing and computing, and leading the group to profitability and nearly US$1bn in sales. Before joining Philips, Mr. McGregor served in senior positions at Santa Cruz Operation Inc. (SCO), Digital Equipment Corporation (now part of HP), Microsoft, and Xerox Corporation's Palo Alto Research Center (PARC). Mr. McGregor received a B.A. in psychology and a M.S. in computer science and computer engineering from Stanford University.


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Eric Brandt, executive vice president and CFO Mr. Brandt joined Broadcom in March 2007. From September 2005 to March 2007, Mr. Brandt served as president and CEO of Avanir Pharmaceuticals, a developer of novel therapeutic products for the treatment of chronic diseases. Prior to Avanir, Mr. Brandt was EVP – Finance and Technical Operations and CFO of Allergan Inc., a global specialty pharmaceutical and medical device company where he also held a number of other senior positions following his arrival there in 1999. Mr. Brandt spent 10 years with The Boston Consulting Group, a privately-held global business consulting firm, most recently serving as vice president and partner and as a senior member of the firm's heath care practice. Mr. Brandt received a B.S. in chemical engineering from the Massachusetts Institute of Technology and an M.B.A. from Harvard Business School.

Dr. Henry Samueli: co-founder & Chief Technical Officer Dr. Samueli has over 30 years of experience in the fields of communications systems engineering and digital signal processing. He served as CTO from the company's inception in August 1991. Dr. Samueli was the chief scientist and one of the founders of PairGain Technologies, Inc., a telecommunications equipment manufacturer in the digital subscriber line (DSL) industry, and he consulted for PairGain from 1988 to 1994. From 1980 until 1985 Dr. Samueli was employed in various engineering management positions in the Electronics and Technology Division of TRW, Inc., where he was responsible for the development of military broadband communications systems. Dr. Samueli received a B.S., M.S. and Ph.D. in electrical engineering from the University of California, Los Angeles. He is a named inventor in 59 U.S. patents.

While we do not list individual biographies here, we highlight the strong operational line of division managers including Scott Bibaud (EVP/GM, Mobile Platforms Group), Dan Marotta (EVP/GM, Broadband Communications Group), Rajiv Ramaswami (EVP/GM Infrastructure and Networking Group), and Robert Rango (EVP/GM, Wireless Connectivity Group).

04 February 2011

Broadcom Corp.

20

Table 18: Broadcom pro-forma (non-GAAP) income statement model. $mn 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E FY09 FY10E FY11E FY12E FY (Dec) Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-09 Dec-10E Dec-11E Dec-12E Product Sales $1,404.3 $1,547.1 $1,748.7 $1,889.1 $1,749.8 $1,854.0 $1,994.3 $2,071.5 $1,929.9 $2,070.5 $2,236.0 $2,293.4 $4,272.7 $6,589.3 $7,669.6 $8,529.8 Licensing/Other Sales $58.0 $57.4 $57.3 $56.4 $56.4 $56.4 $56.4 $56.4 $51.2 $51.2 $51.2 $51.2 $217.6 $229.0 $225.7 $205.0 Total Sales $1,462.3 $1,604.4 $1,806.0 $1,945.6 $1,806.2 $1,910.4 $2,050.7 $2,127.9 $1,981.1 $2,121.8 $2,287.2 $2,344.7 $4,490.3 $6,818.3 $7,895.2 $8,734.8 QoQ 8.9% 9.7% 12.6% 7.7% -7.2% 5.8% 7.3% 3.8% -6.9% 7.1% 7.8% 2.5% YoY 71.3% 54.3% 44.0% 44.9% 23.5% 19.1% 13.5% 9.4% 9.7% 11.1% 11.5% 10.2% -3.6% 51.8% 15.8% 10.6% Cost of Goods 695.3 761.2 872.0 955.7 883.6 917.7 987.2 1,015.0 964.9 1,024.9 1,106.8 1,123.8 2,210.6 3,284.2 3,803.6 4,220.4 R&D Expense 420.8 421.6 447.6 472.3 502.3 508.3 521.3 532.3 543.3 554.3 565.3 576.3 1,534.9 1,762.3 2,064.0 2,239.0 SG&A Expense 132.9 143.1 145.8 168.7 188.7 180.7 173.7 166.7 169.7 172.7 175.7 178.7 479.4 590.6 709.9 696.9 Total Opex 559.6 571.3 599.6 721.7 707.0 705.0 711.0 715.0 729.0 743.0 757.0 771.0 2,223.7 2,452.2 2,838.0 3,000.0 Operating Income 207.3 272.0 334.5 268.1 215.6 287.7 352.5 397.9 287.2 353.9 423.4 449.9 56.1 1,081.9 1,253.7 1,514.4 Financial income (expense), net 5.2 4.5 2.1 3.7 (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) 16.1 15.5 (2.0) (2.0) Pretax Income 212.5 276.5 336.5 271.8 215.1 287.2 352.0 397.4 286.7 353.4 422.9 449.4 72.2 1,097.3 1,251.7 1,512.4 Tax Expense 2.3 (1.9) 9.4 5.7 21.5 28.7 35.2 39.7 28.7 35.3 42.3 44.9 6.9 15.5 125.2 151.2 Net Income 210.2 278.3 327.1 266.2 193.6 258.5 316.8 357.7 258.0 318.0 380.6 404.5 65.3 1,081.8 1,126.5 1,361.2 GAAP Diluted EPS $0.40 $0.52 $0.60 $0.47 $0.33 $0.44 $0.53 $0.59 $0.42 $0.52 $0.62 $0.65 $0.13 $1.99 $1.89 $2.21 YoY -312.6% 1859.2% 270.5% 315.0% -17.6% -15.8% -12.0% 26.6% 28.9% 19.0% 16.3% 9.5% -68.9% 1460.4% -4.9% 16.9% GAAP Diluted Shares 527 538 544 569 589 594 599 604 609 614 619 624 513 545 596 616 Pro-forma adjustments Amortization/other (14.4) (23.8) (21.0) 54.0 14.3 15.1 15.1 15.1 15.1 15.1 15.1 15.1 153.1 (17.0) 59.6 60.4 Stock compensation expense 126.6 118.6 113.2 124.6 135.9 127.9 127.9 127.9 127.9 127.9 127.9 127.9 496.3 483.0 519.6 511.6 Pro-forma Net Income 322.4 373.1 419.4 444.7 343.8 401.5 459.8 500.7 401.0 461.0 523.6 547.5 714.7 1,547.8 1,705.8 1,933.2 Pro-forma EPS (inc. stock comp) $0.38 $0.47 $0.56 $0.56 $0.37 $0.48 $0.57 $0.63 $0.47 $0.56 $0.65 $0.69 $0.50 $1.96 $2.06 $2.37 Pro-forma EPS (ex. stock comp) $0.58 $0.66 $0.74 $0.75 $0.58 $0.67 $0.76 $0.82 $0.65 $0.74 $0.84 $0.87 $1.32 $2.72 $2.83 $3.11 YoY 586.6% 156.6% 85.7% 27.3% -0.4% 1.5% 3.1% 8.9% 12.9% 11.1% 10.2% 5.9% -17.6% 105.4% 4.3% 9.7% Pro-forma Dil Shares 555 565 568 589 594 599 604 609 614 619 624 629 540 569 602 622 Margin Trends (% of Sales) Product GM% 50.5% 50.8% 50.1% 49.4% 49.5% 50.5% 50.5% 51.0% 50.0% 50.5% 50.5% 51.0% 48.3% 50.2% 50.4% 50.5% Total GM% 52.5% 52.6% 51.7% 50.9% 51.1% 52.0% 51.9% 52.3% 51.3% 51.7% 51.6% 52.1% 50.8% 51.8% 51.8% 51.7% R&D Expense % 28.8% 26.3% 24.8% 24.3% 27.8% 26.6% 25.4% 25.0% 27.4% 26.1% 24.7% 24.6% 34.2% 25.8% 26.1% 25.6% SG&A Expense % 9.1% 8.9% 8.1% 8.7% 10.4% 9.5% 8.5% 7.8% 8.6% 8.1% 7.7% 7.6% 10.7% 8.7% 9.0% 8.0% Total Opex % 38.3% 35.6% 33.2% 37.1% 39.1% 36.9% 34.7% 33.6% 36.8% 35.0% 33.1% 32.9% 49.5% 36.0% 35.9% 34.3% Product Op. Margin % 10.6% 13.9% 15.8% 11.2% 9.1% 12.5% 14.8% 16.5% 12.2% 14.6% 16.6% 17.4% -3.8% 12.9% 13.4% 15.4% Total Op. Margin % 14.2% 17.0% 18.5% 13.8% 11.9% 15.1% 17.2% 18.7% 14.5% 16.7% 18.5% 19.2% 1.2% 15.9% 15.9% 17.3% Pretax Income % 14.5% 17.2% 18.6% 14.0% 11.9% 15.0% 17.2% 18.7% 14.5% 16.7% 18.5% 19.2% 1.6% 16.1% 15.9% 17.3% Tax rate (GAAP) 1.1% -0.7% 2.8% 2.1% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 9.6% 1.4% 10.0% 10.0% Tax rate (Pro-forma) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.1% 10.0% 10.0% Net income % 14.4% 17.3% 18.1% 13.7% 10.7% 13.5% 15.5% 16.8% 13.0% 15.0% 16.6% 17.3% 1.5% 15.9% 14.3% 15.6% Stock comp expense 8.7% 7.4% 6.3% 6.4% 7.5% 6.7% 6.2% 6.0% 6.5% 6.0% 5.6% 5.5% 11.1% 7.1% 6.6% 5.9% Source: Company reports; BofA Merrill Lynch Global Research estimates

04 February 2011

Broadcom Corp.

21

Table 19: Broadcom detailed segment model. 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E FY09 FY10E FY11E FY12E Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-09 Dec-10E Dec-11E Dec-12E SALES ($mn) Broadband 463.8 532.1 561.5 577.0 519.3 545.2 567.0 567.0 521.7 558.2 586.1 586.1 1,525.2 2,134.4 2,198.6 2,252.1 Mobile/Wireless 554.3 630.1 797.4 907.5 825.8 883.6 972.0 1,040.0 967.2 1,044.6 1,149.1 1,206.5 1,720.0 2,889.2 3,721.4 4,367.4 Infrastructure 392.3 390.6 395.4 409.4 409.4 429.9 460.0 469.2 445.7 472.5 505.6 505.6 1,055.6 1,587.8 1,768.5 1,929.3 Other 51.9 51.7 51.7 51.7 51.7 51.7 51.7 51.7 46.5 46.5 46.5 46.5 189.6 206.9 206.7 186.0 Total $1,462.3 $1,604.4 $1,806.0 $1,945.6 $1,806.2 $1,910.4 $2,050.7 $2,127.9 $1,981.1 $2,121.8 $2,287.2 $2,344.7 $4,490.3 $6,818.3 $7,895.2 $8,734.8 QoQ Change Broadband 3.2% 14.7% 5.5% 2.8% -10.0% 5.0% 4.0% 0.0% -8.0% 7.0% 5.0% 0.0% 0.0% 0.0% 0.0% 0.0% Mobile/Wireless 10.4% 13.7% 26.6% 13.8% -9.0% 7.0% 10.0% 7.0% -7.0% 8.0% 10.0% 5.0% 0.0% 0.0% 0.0% 0.0% Infrastructure 15.4% -0.4% 1.2% 3.5% 0.0% 5.0% 7.0% 2.0% -5.0% 6.0% 7.0% 0.0% 0.0% 0.0% 0.0% 0.0% Other 0.5% -0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -10.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 8.9% 9.7% 12.6% 7.7% -7.2% 5.8% 7.3% 3.8% -6.9% 7.1% 7.8% 2.5% 0.0% 0.0% 0.0% 0.0% YoY Change Broadband 46.2% 46.2% 42.2% 28.4% 12.0% 2.5% 1.0% -1.7% 0.5% 2.4% 3.4% 3.4% -11.5% 39.9% 3.0% 2.4% Mobile/Wireless 85.5% 58.1% 53.2% 80.8% 49.0% 40.2% 21.9% 14.6% 17.1% 18.2% 18.2% 16.0% 12.6% 68.0% 28.8% 17.4% Infrastructure 79.7% 85.7% 37.8% 20.5% 4.4% 10.1% 16.3% 14.6% 8.9% 9.9% 9.9% 7.7% -16.1% 50.4% 11.4% 9.1% Other 173.7% -23.2% 0.0% 0.0% -0.5% 0.0% 0.0% 0.0% -10.0% -10.0% -10.0% -10.0% 27.0% 9.2% -0.1% -10.0% Total 71.3% 54.3% 44.0% 44.9% 23.5% 19.1% 13.5% 9.4% 9.7% 11.1% 11.5% 10.2% -3.6% 51.8% 15.8% 10.6% % of Sales Broadband 31.7% 33.2% 31.1% 29.7% 28.7% 28.5% 27.7% 26.6% 26.3% 26.3% 25.6% 25.0% 34.0% 31.3% 27.8% 25.8% Mobile/Wireless 37.9% 39.3% 44.2% 46.6% 45.7% 46.3% 47.4% 48.9% 48.8% 49.2% 50.2% 51.5% 38.3% 42.4% 47.1% 50.0% Infrastructure 26.8% 24.3% 21.9% 21.0% 22.7% 22.5% 22.4% 22.0% 22.5% 22.3% 22.1% 21.6% 23.5% 23.3% 22.4% 22.1% Other 3.6% 3.2% 2.9% 2.7% 2.9% 2.7% 2.5% 2.4% 2.3% 2.2% 2.0% 2.0% 4.2% 3.0% 2.6% 2.1% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% OP. INCOME Broadband 84.2 122.8 117.3 122.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 180.4 446.6 0.0 0.0 Mobile/Wireless 60.9 104.2 165.0 196.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 116.9 526.2 0.0 0.0 Infrastructure 150.2 137.8 140.8 149.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 287.8 578.2 0.0 0.0 Other (88.0) (92.9) (88.7) (199.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (529.0) (469.1) 0.0 0.0 Total 207.3 272.0 334.5 268.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 56.1 1,081.9 0.0 0.0 Operating Margin Broadband 18.2% 23.1% 20.9% 21.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.8% 20.9% 0.0% 0.0% Mobile/Wireless 11.0% 16.5% 20.7% 21.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.8% 18.2% 0.0% 0.0% Infrastructure 38.3% 35.3% 35.6% 36.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 27.3% 36.4% 0.0% 0.0% Other -169.4% -179.8% -171.6% -386.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -279.1% -226.7% 0.0% 0.0% Total 14.2% 17.0% 18.5% 13.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.2% 15.9% 0.0% 0.0% Source: Company reports; BofA Merrill Lynch Global Research estimates

04 February 2011

Broadcom Corp.

22

Table 20: Broadcom Balance Sheet trends. 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E FY09 FY10E FY11E FY12E Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-09 Dec-10E Dec-11E Dec-12E Assets: Cash and cash equivalents 1,507.9 1,403.6 1,245.9 1,622.4 2,042.5 2,332.2 2,710.9 3,110.3 3,484.3 3,816.5 4,203.2 4,649.1 1,397.1 1,622.4 3,110.3 4,649.1 Short-term marketable securities 536.2 644.7 1,148.1 1,035.3 1,035.3 1,035.3 1,035.3 1,035.3 1,035.3 1,035.3 1,035.3 1,035.3 532.3 1,035.3 1,035.3 1,035.3 Accounts receivable 607.2 688.2 798.3 819.6 702.4 742.9 797.5 827.5 770.4 825.1 889.5 911.8 508.6 819.6 827.5 911.8 Inventory 403.4 490.0 534.9 598.0 543.8 564.8 564.1 580.0 551.4 585.7 632.5 642.2 362.4 598.0 580.0 642.2 Work in progress 213.6 225.1 157.1 Finished goods 189.8 264.9 205.3 Prepaid/other 107.3 108.1 105.7 108.2 108.2 108.2 108.2 108.2 108.2 108.2 108.2 108.2 113.9 108.2 108.2 108.2 Total Current Assets 3,162.0 3,334.6 3,832.9 4,183.5 4,432.2 4,783.4 5,216.0 5,661.3 5,949.6 6,370.8 6,868.7 7,346.6 2,914.3 4,183.5 5,661.3 7,346.6 Property and equipment, net 227.6 238.7 253.3 266.3 272.4 278.6 284.7 290.8 297.0 303.1 309.2 315.4 229.3 266.3 290.8 315.4 Long-term marketable securities 310.9 441.1 520.3 1,400.7 1,400.7 1,400.7 1,400.7 1,400.7 1,400.7 1,400.7 1,400.7 1,400.7 438.6 1,400.7 1,400.7 1,400.7 Goodwill 1,372.7 1,369.1 1,410.5 1,677.1 1,677.1 1,677.1 1,677.1 1,677.1 1,677.1 1,677.1 1,677.1 1,677.1 1,329.6 1,677.1 1,677.1 1,677.1 Purchased intangible assets, net 217.0 197.1 205.2 365.8 365.8 365.8 365.8 365.8 365.8 365.8 365.8 365.8 150.9 365.8 365.8 365.8 Other assets 63.9 55.2 50.8 50.9 50.9 50.9 50.9 50.9 50.9 50.9 50.9 50.9 64.4 50.9 50.9 50.9 Total Assets 5,354.0 5,635.7 6,273.0 7,944.3 8,199.1 8,556.5 8,995.2 9,446.7 9,741.1 10,168.4 10,672.4 11,156.5 5,127.2 7,944.3 9,446.7 11,156.5 Liabilities/SE Equity: Accounts payable 479.2 537.9 567.8 604.4 589.1 611.8 658.1 676.7 643.3 683.3 737.9 749.2 437.4 604.4 676.7 749.2 Wages and related benefits 148.2 152.9 193.2 207.6 207.6 207.6 207.6 207.6 207.6 207.6 207.6 207.6 190.3 207.6 207.6 207.6 Deferred revenue and income 77.9 68.4 59.2 55.1 55.1 55.1 55.1 55.1 55.1 55.1 55.1 55.1 87.4 55.1 55.1 55.1 Accrued liabilities 467.9 343.7 404.3 404.1 404.1 404.1 404.1 404.1 404.1 404.1 404.1 404.1 433.3 404.1 404.1 404.1 Short term debt Other Current liabilities Total Current Liabilities 1,173.2 1,103.0 1,224.5 1,271.2 1,255.9 1,278.6 1,324.9 1,343.5 1,310.1 1,350.1 1,404.7 1,416.0 1,148.4 1,271.2 1,343.5 1,416.0 Long-term deferred revenue 0.6 0.7 0.8 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.6 1.0 1.0 1.0 Other long-term liabilities 85.8 80.2 85.2 149.0 149.0 149.0 149.0 149.0 149.0 149.0 149.0 149.0 86.4 149.0 149.0 149.0 Convertible notes 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 Total shareholders’ equity 4,094.5 4,451.9 4,962.5 5,826.1 6,096.2 6,430.8 6,823.3 7,256.1 7,584.0 7,971.3 8,420.7 8,893.4 3,891.8 5,826.1 7,256.1 8,893.4 Total liabilities/SE Equity 5,354.0 5,635.7 6,273.0 7,944.3 8,199.1 8,556.5 8,995.2 9,446.7 9,741.1 10,168.4 10,672.4 11,156.5 5,127.2 7,944.3 9,446.7 11,156.5 Total cash 2,355.0 2,489.5 2,914.4 4,058.4 4,478.5 4,768.1 5,146.9 5,546.3 5,920.2 6,252.4 6,639.2 7,085.1 2,368.0 4,058.4 5,546.3 7,085.1 Short-term debt Long-term debt 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 Total debt 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 697.0 Net Cash 2,355.0 2,489.5 2,914.4 3,361.4 3,781.5 4,071.2 4,449.9 4,849.3 5,223.3 5,555.5 5,942.2 6,388.1 2,368.0 3,361.4 4,849.3 6,388.1 Net Cash/dil. share $4.24 $4.41 $5.13 $5.70 $6.36 $6.79 $7.36 $7.96 $8.50 $8.97 $9.52 $10.15 $4.38 $5.70 $8.06 $10.27 Days Sales Outstanding (DSO) 34.3 36.3 37.0 37.4 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 Days Payables Outstanding (DPO) 59.3 60.1 57.1 55.2 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 Inventory Turns 6.9 6.2 6.5 6.4 6.5 6.5 7.0 7.0 7.0 7.0 7.0 7.0 Days of Inventory (DIO) 52.9 58.7 56.0 57.1 56.2 56.2 52.1 52.1 52.1 52.1 52.1 52.1 Cash conversion days (DIO+DSO-DPO) 28.0 34.9 35.9 39.3 31.2 31.2 27.1 27.1 27.1 27.1 27.1 27.1 Source: Company reports; BofA Merrill Lynch Global Research estimates

04 February 2011

Broadcom Corp.

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Table 21: Broadcom Cash Flow statement. 1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E FY09 FY10E FY11E FY12E Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-09 Dec-10E Dec-11E Dec-12E Net income 210.2 278.3 327.1 266.2 193.6 258.5 316.8 357.7 258.0 318.0 380.6 404.5 65.3 1,081.8 1,126.5 1,361.2 D&A 20.0 18.3 19.7 20.8 20.8 20.8 20.8 20.8 20.8 20.8 20.8 20.8 74.4 78.7 83.0 83.0 Stock options 35.4 28.1 23.6 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 159.8 121.3 136.8 136.8 RSUs 91.2 90.5 89.6 90.3 90.3 90.3 90.3 90.3 90.3 90.3 90.3 90.3 336.6 361.7 361.4 361.4 Amortization 9.9 14.4 11.8 22.5 30.7 58.6 Goodwill impairment - - 1.8 17.3 18.9 19.0 Non-cash reversals, net - (0.3) (1.9) (0.3) Accounts receivable (94.3) (81.0) (108.8) (2.6) 117.2 (40.5) (54.5) (30.0) 57.1 (54.7) (64.3) (22.3) (131.7) (286.7) (7.9) (84.3) Inventory (33.8) (86.5) (44.8) (43.0) 54.2 (21.0) 0.7 (15.9) 28.6 (34.3) (46.8) (9.7) 12.0 (208.1) 17.9 (62.1) Prepaid expenses and other assets 13.2 10.3 11.6 (8.3) 8.7 26.8 Accounts payable 44.2 58.0 26.8 16.8 (15.3) 22.7 46.3 18.6 (33.4) 40.0 54.6 11.3 123.0 145.8 72.3 72.5 Def rev/incom (9.5) (9.3) (9.1) (3.9) 71.8 (31.8) Accrued costs (0.9) (162.5) (3.0) 44.1 170.5 (122.3) Other (17.8) 37.5 109.4 (0.4) 49.9 128.7 Cash Flow Operations 267.8 195.8 455.7 451.5 495.0 365.0 454.6 475.6 455.7 414.4 469.4 529.0 986.9 1,370.8 1,790.1 1,868.5 Investing activities PP&E purchase (18.2) (29.3) (34.6) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (66.6) (108.9) (107.6) (107.6) Acquisitions (102.5) - (47.9) (449.1) (165.3) (599.5) Strategic investments (5.0) (3.0) 4.5 (2.0) (3.5) Marketable secs (65.2) (418.0) (933.5) (1,517.0) (1,138.7) (2,933.7) Proceeds from securities 189.4 181.4 351.7 745.1 871.2 1,467.6 Cash Flow Investing (1.4) (269.0) (664.3) (1,243.3) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (26.9) (501.4) (2,178.0) (107.6) (107.6) Financing activities Stock repurchase (154.0) (121.5) (4.9) (421.9) (280.3) Dividends (39.6) (40.2) (40.9) (42.8) (48.0) (48.4) (48.9) (49.3) (54.8) (55.3) (55.8) (56.3) - (163.4) (194.7) (222.1) Debts obligations - - 691.4 - 691.4 Dent payments (14.6) - - (14.6) Stock proceeds 82.2 163.7 125.8 564.6 227.2 936.3 Taxes (29.6) (33.1) (34.0) (40.1) (84.4) (136.9) Cash Flow Financing (155.6) (31.1) 50.9 1,168.3 (48.0) (48.4) (48.9) (49.3) (54.8) (55.3) (55.8) (56.3) (279.1) 1,032.5 (194.7) (222.1) Free Cash Flow 249.7 166.5 421.1 424.6 468.1 338.1 427.7 448.7 428.8 387.5 442.5 502.2 920.3 1,261.9 1,682.5 1,760.9 Trailing 4Q Free Cash Flow 1,091.7 944.3 1,151.4 1,261.9 1,480.3 1,651.9 1,658.5 1,682.5 1,643.2 1,692.6 1,707.4 1,760.9 Trailing FCF as % of sales 21.4% 16.7% 18.5% 18.5% 20.7% 22.1% 21.5% 21.3% 20.4% 20.4% 20.0% 20.2% 20.5% 18.5% 21.3% 20.2% Source: Company reports; BofA Merrill Lynch Global Research estimates


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Price objective basis & risk Broadcom Corp. (BRCM) Our $53 PO on BRCM based on a 17x forward (CY2012) PE which is below Broadcom's 5-year median 19x forward PE, though above median comparables trading at 15x PE reflecting its industry leading sales growth from being exposed to multiple product cycles in handsets/smartphones, video/broadband and data centers. Investment Risks: 1) Broadcom trades at a premium to the S&P 500 and to its sector, which makes the stock susceptible to a sharp corrections if high expectations are not met, 2) Revenue and EPS boost from the settlement with Qualcomm end in March 2013, 3) Competitive risks from fast paced product cycles in the mobile handset semi industry, 4) Stock options expense exclusion inflates earnings, 5) Increased R&D spending to meet maintain edge versus competition. Link to Definitions Technology Click here for definitions of commonly used terms. Analyst Certification I, Vivek Arya, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

US - Semiconductors Coverage Cluster Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst BUY Broadcom Corp. BRCM BRCM US Vivek Arya NVIDIA Corporation NVDA NVDA US Vivek Arya Texas Instruments Inc. TXN TXN US Vivek Arya NEUTRAL Advanced Micro Devices, Inc AMD AMD US Vivek Arya Intel INTC INTC US Vivek Arya Marvell Technology Group Ltd. MRVL MRVL US Vivek Arya

http://research1.ml.com/C?q=pUTUTcoEaKNO0mUeI5xLrw__


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iQmethod SM Measures Definitions Business Performance Numerator Denominator Return On Capital Employed NOPAT = (EBIT + Interest Income) * (1 - Tax Rate) + Goodwill

Amortization Total Assets – Current Liabilities + ST Debt + Accumulated Goodwill Amortization

Return On Equity Net Income Shareholders’ Equity Operating Margin Operating Profit Sales Earnings Growth Expected 5-Year CAGR From Latest Actual N/A Free Cash Flow Cash Flow From Operations – Total Capex N/A Quality of Earnings Cash Realization Ratio Cash Flow From Operations Net Income Asset Replacement Ratio Capex Depreciation Tax Rate Tax Charge Pre-Tax Income Net Debt-To-Equity Ratio Net Debt = Total Debt, Less Cash & Equivalents Total Equity Interest Cover EBIT Interest Expense Valuation Toolkit Price / Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified) Price / Book Value Current Share Price Shareholders’ Equity / Current Basic Shares Dividend Yield Annualised Declared Cash Dividend Current Share Price Free Cash Flow Yield Cash Flow From Operations – Total Capex Market Cap. = Current Share Price * Current Basic Shares Enterprise Value / Sales EV = Current Share Price * Current Shares + Minority Equity + Net Debt +

Other LT Liabilities Sales

EV / EBITDA Enterprise Value Basic EBIT + Depreciation + Amortization iQmethod SMis the set of BofA Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls. iQdatabase ® is our real-time global research database that is sourced directly from our equity analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for companies covered by BofA Merrill Lynch. iQprofile SM, iQmethod SM are service marks of Merrill Lynch & Co., Inc.iQdatabase ®is a registered service mark of Merrill Lynch & Co., Inc.


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Important Disclosures BRCM Price Chart

US$0

US$10

US$20

US$30

US$40

US$50

US$60

1-Jan-09 1-Jan-10 1-Jan-11BRCM

B : Buy, N : Neutral, S : Sell, U : Underperform, PO : Price objective, NA : No longer valid, NR: No Rating

4-Feb:BPajjuri

PO:US$3222-Oct

PO:US$20

5-JanDhanda

PO:US$2730-Jan

PO:US$24

21-JulPO:US$35

24-JulPO:US$38

12-OctPO:US$40

28-AprPO:US$42

Review Restricted No Coverage

Prior to May 31, 2008, the investment opinion system included Buy, Neutral and Sell. As of May 31, 2008, the investment opinion system includes Buy, Neutral and Underperform. Dark Grey shading indicates that a security is restricted with the opinion suspended. Light grey shading indicates that a security is under review with the opinion withdrawn. The current investment opinion key is contained at the end of the report. Chart is current as of December 31, 2010 or such later date as indicated. Investment Rating Distribution: Technology Group (as of 01 Jan 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 128 54.01% Buy 53 46.49% Neutral 48 20.25% Neutral 21 46.67% Sell 61 25.74% Sell 16 27.59% Investment Rating Distribution: Global Group (as of 01 Jan 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 2011 53.86% Buy 874 48.31% Neutral 925 24.77% Neutral 444 52.30% Sell 798 21.37% Sell 276 36.75% * Companies in respect of which BofA Merrill Lynch or one of its affiliates has received compensation for investment banking services within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.

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Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30%

Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

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Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-888-ML-CHART to have them mailed. MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report: Broadcom Corp. MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: Broadcom Corp. The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Broadcom Corp. MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: Broadcom

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MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: Broadcom Corp.

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Documents

Right place, right time; reinstate Buy, $53 PO