By now Mad Money viewers must know that Cramer is bullish on tech. But not just any tech. He’s been particular about the semiconductors names, recommending these smaller, speculative stocks on the idea they offered more upside. On Friday, he stuck with the semis but made the switch back to big.
Cramer still endorses tech’s leaders, such as Apple , Google , Research in Motion and Amazon , but he thought big money managers – the people who buy in bulk and set share prices – would look for under-the-radar plays in hopes of big returns. He knew the hedge and mutual funds would try to capitalize on tech’s momentum, but Apple and the like only offered so much. Buy a spec name like ON Semiconductor instead, and there was still plenty of room to move higher.
Well, Broadcom may not be small, but it is a play on the voracious demand for chips. Almost every semi that this company makes is used for broadband Internet or wireless phones, two constantly growing markets. A good chunk of the potential upside here comes from Broadcom’s plan to push into the wireless space, where the company gets just 5% of its revenues. Already, though, the Bluetooth and Wi-Fi in Apple’s iPhone use Broadcom chips, and so do handsets made by Nokia and Samsung.
In terms of broadband, Broadcom is the market leader in Ethernet chips, holding a 42% share. The company is number-one chip provider for cable set-top boxes and wireless local area network (LAN) equipment, and it is number two in satellite set-top boxes.
Combination chips are what really give Broadcom its edge. This technology allows Bluetooth, FM radio, Wi-Fi and a global positioning system, which would normally require separate chips, to be placed on just one. This is a huge money-saving proposition, and it hasn’t yet been widely adopted. Broadcom’s management said that only 5% of smartphones use combo chips for Bluetooth, wireless LAN and FM but expects that to reach 75% in the next three to four years.
Emulex, maker of cards that connect computers to data storage networks, blocked Broadcom’s attempted hostile takeover, but Cramer thinks a deal will still be reached. This just means even more upside for the company.
The bottom line? Broadcom’s a buy, Cramer said.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? madmoney@cnbc.com
Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com