Broadcom Finally Ditches Cellular

Shares of Broadcom (NASDAQ: BRCM  ) closed up nearly 10% today after the company announced that it will be bowing out of the cellular baseband space. The company's hope was that it could emerge as a viable second source to market leader Qualcomm (NASDAQ: QCOM  ) in the baseband/applications processor market, although this has proved to be quite a challenge for the company. After what was likely billions burned chasing cellular, Broadcom's management has finally pulled the plug on this expensive venture. 

A rather large cost savings
According to Broadcom's press release, the company expects to save as much as $700 million in GAAP R&D and SG&A expenses (of which $100 million consisted of share-based compensation expense). While a large investment in its own right, it still doesn't hold a candle to the over $3 billion that market leader Qualcomm invests per year, making catching up to the leader very difficult.

Further, the company claims that the entire cellular business during the first half of 2014 was on track to generate between $200 million and $250 million, with gross margin in the tens of millions. This suggests that even though Broadcom will lose meaningful revenue associated with this business, the impact to raw gross margin dollars won't actually be that high (probably because most of the current revenue base consists of low-margin 3G chips). Most of that $700 million saved will flow right to the bottom line (and potentially into the pockets of shareholders via buybacks and dividends), with $50 million peeled off to bolster investments in the company's other businesses.

Does this leave connectivity vulnerable?
One of the key motivations behind Broadcom's cellular push was to defend its share in connectivity chips that provide key functionality such as Wi-Fi, Bluetooth, and NFC. At the high end of the market (think Samsung (NASDAQOTH: SSNLF  ) and Apple (NASDAQ: AAPL  ) ), Broadcom has been able to defend its share by providing better-performing parts that also topped the charts on energy efficiency. At the low end and mid-range, however, many handset OEMs prefer to get the entire platform from one company rather than incur additional R&D expenses mixing and matching components from different vendors.

This business, according to Broadcom, is worth between $500 million and $800 million of the company's total $1.65 billion-or-so mobile and wireless operating segment. The risk to this business is real, particularly as Qualcomm, MediaTek, Intel, and others already (or plan to) offer such bundled solutions for these lower-end mobile products. However, Broadcom claims that its connectivity solutions are bundled as part of some low-cost smartphone chip players' platforms (for instance, Spreadtrum), so not all is lost in this segment of the market.

Foolish bottom line
While the smartphone chip market has gained a reputation for being low-cost and low-margin, this has largely been due to the accessibility of CPU/GPU IP and a glut of companies thinking that they could cash in on this new mobile goldmine. However, as the complexity of these products have gotten much higher, and as cellular basebands have proved expensive to compete in, the reality is that even with the accessibility of core IP, R&D barriers will eventually lock all but a select few out of this market.

Broadcom is just yet another of the victims of the chase of mobile chip riches, but it certainly won't be the last. Only those that can afford to spend large amounts of money over sustained periods of time will be able to compete with market leader Qualcomm. The next question, then, is "who's next?"

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

U.S. Stocks Pare Losses: Will the Winning Streak End?

The Dow and the S&P 500 remain on track to end a five-day streak or record highs.

Granted, the benchmark U.S. stock indices have pared earlier losses, with the Nasdaq returning to green territory, rising 7.56 points, or 0.16% to 4,668.05.

But the Dow Jones Industrial Average remained in the red, slipping 10.2 points, or 0.06% to 17,603.47. The S&P 500 lost 2.16 points, or 0.11% to 2,037.82.

As the Wall Street Journal reports:

Wednesday was a slow day for U.S. economic news, and without major reports to give the market direction, strategists said investors were pausing to re-evaluate after the latest rally to all-time highs. Stocks have recently recovered from a sharp pullback in mid-September and early October. For the year, the Dow has hit 24 closing records and the S&P has closed at 40 highs… Individual-stock news took more of the spotlight than economic factors, traders said. Consumer discretionary stocks rose 0.3%, supported by gains in retailers and home builders amid an ongoing raft of earnings reports.

European shares fell Wednesday amid worries about the outlook for economic growth in the region. Also, the BofE cut its forecasts for growth and inflation and signaled an interest-rate increase is unlikely before the second half of 2015.

Meanwhile, financial stocks took a hit, as six banks— HSBC Holdings PLC (HSBC), Royal Bank of Scotland Group PLC (RBS), UBS AG (UBS), Citigroup (C), J.P. Morgan Chase Co. (JPM) and Bank of America (BAC) —reached a settlement to resolve allegations that they had worked together to try to manipulate the foreign-exchange market to boost their profits.

For more on that, read this post by my colleague Chris Dieterich on the Focus on Funds blog.

Glidera CEO: What Bitcoin Needs To Overcome Its Decline

In the second half of 2013, Bitcoin made an unprecedented jump from the $70 level and passed $1140 from July to December, an increase of more than 1000 percent.

And then, it dropped. Not as drastically as it popped, but the crypto-currency has been on a steady decline since that all-time high. While some will argue that Bitcoin was in a bubble that has now burst, there are still many who believe that there is a lot of potential growth in the crypto-currency.

David Ripley is the founder and CEO of Glidera, a digital wallet for Bitcoin. Ripley was nice enough to take the time to answer a few questions for Benzinga on what Bitcoin needs to overcome this decline.

Related Link: What Is Bitcoin? Just Ask Robocoin CEO Jordan Kelley

Reasons For The Decline

BZ: What has caused the steady decline in Bitcoin since December 2013? Why is this happening? Are people losing faith in Bitcoin because of news events surrounding it?

DR: This price movement pattern has actually repeated itself several times over the history of Bitcoin. By that I mean, a substantial price increase over a short period of time followed by a longer period of decline. Each time, the high reached during the price increase typically exceeds the previous high and the low reached during the decline stays above the previous lows.

Despite the current period of price decline, real Bitcoin adoption races forward. We have seen significant adoption from new individuals and businesses this year. This growth yields a Bitcoin ecosystem that is substantially larger based on any metric you chose. We’re now at over 6.5 million wallets vs. just over 1 million a year ago. We’re on our way to 100,000 merchants, and we were just at 10,000 last year with many $1 billion-plus revenue merchants adopting all in 2014.

Potential For Growth

BZ: What will it take for Bitcoin to grow?

DR: Bitcoin offers a significantly compelling set of benefits relative to the existing financial services industry. Further, the core technology underlying Bitcoin’s distributed ledger allows the ability to store and transmit data without the need for trust in a third party. This can have an even greater impact beyond just financial services.

Despite the potential, Bitcoin and distributed ledger technologies are still in their infancy. The consumer and business software and services that surround Bitcoin must continue getting easier and more secure. These new tools will provide a more compelling case for use by real users, which will ultimately drive even greater adoption.

Show Me the Money: More Businesses Accepting Bitcoin as Currency - See more at: http://t.co/5L9g6rKnUV #bitcoin

— Glidera (@GlideraInc) August 21, 2014

BZ: Is it possible for a crypto-currency to become mainstream? Why is Bitcoin different than other crypto-currencies?

DR: Yes. Given crypto-currencies are still incredibly nascent, the reality of mainstream adoption is very much long term. However, crypto-currencies inherently possess the necessary properties to achieve mainstream adoption. Currency and money in general benefit from extremely powerful network effects, thus overcoming the network effect of legacy fiat currencies presents a significant challenge. Yet, if crypto-currencies continue along the current trajectory, it’s possible to see a path.

Over 500 crypto-currencies exist. Some of the alternatives offer different properties than Bitcoin, such as different security algorithms or different transaction confirmation times. Yet, the majority of the alternative currencies are more similar than different. In these cases, Bitcoin’s greater adoption or network effect is actually what drives its differentiating value. Right now, the combined market capitalization of all alternative currencies is just one tenth the size of Bitcoin’s market cap. Down the road, the new “Bitcoin 2.0” decentralized networks, which offer more flexible platforms for application development, may offer differentiated benefits that allow them to succeed alongside Bitcoin.

Challenges For The Future

BZ: What challenges does Bitcoin face in its growth?

DR: A number of challenges exist for Bitcoin as it continues to grow. As mentioned previously, better software and services for consumers and businesses must continue to evolve. Users must have several options for highly secure products and services that also have incredibly easy user interfaces.

Any regulatory challenges will mostly impact where Bitcoin grows as opposed to affecting the end game. The volatility is also a challenge in the near term, but solutions will evolve to address that challenge as well. In the end, none of these challenges are insurmountable. The only true challenge for Bitcoin is whether or not it can remain fully decentralized. All of Bitcoin’s benefits depend upon its decentralized nature, so this must remain true regardless.

BZ: Why is the path for Bitcoin less certain right now? What changed?

DR: The path for Bitcoin does contain uncertainty given how ‘new’ it is. In some ways, the future may seem more uncertain now given the price decline over the past several months. However, the true certainty for Bitcoin is greater today than it was one month, one year, or two years ago. This is true due to the advancements in infrastructure and real adoption. We see Bitcoin making clear progress on many dimensions. There are still variables out there, but the certainty of Bitcoin’s success continues to grow.

Image courtesy of Google Finance

Posted-In: Bitcoin crypto-currency currency David RipleyTop Stories Markets Tech Interview Best of Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Markets Mostly Lower As Americans Head To Vote, Oil Continues To Tumble

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U.S. stocks mostly closed slightly lower a day after major indices hit record all-time highs.

Americans are heading to the ballots today in a congressional election. The Republican party is expected to increase the number of seats it controls in the House and Senate.

The CBOE Volatility Index rose 3.7 percent to 15.26 as Brent crude continued to trade lower after Saudi Arabia lowered lowered the price of oil to the U.S. while increasing the price of oil it sells to Asia and Europe.

In economic news, the European Union issued light guidance for Eurozone growth through 2016 while the U.S. trade gap expanded in September.

The Dow gained 0.10 percent, closing at 17,383.84. The S&P 500 lost 0.28 percent, closing at 2,012.10. The Nasdaq lost 0.33 percent, closing at 4,623.64. Gold lost 0.25 percent, trading at $1,166.90 an ounce. Oil lost 2.02 percent, trading at $77.19 a barrel. Silver lost 1.15 percent, trading at $16.01 an ounce. News Of Note

ICSC Retail Store Sales rose 1.8 percent year over year after rising 2.8 percent last week.

September Trade Balance fell to -$43 billion (versus expectations of -$40.7 billion) from -$40.0 billion in August. Imports totaled $238.6 billion while Exports totaled $195.6 billion.

Redbook Chain Store Sales rose 3.9 percent year over year after rising 4.4 percent last week.

The European Union Commission expects the Eurozone's economy to expand 0.8 percent in 2014, 1.1 percent in 2015 and 1.7 percent in 2016.

Equities News Of Note

Analysts at Sterne Agee initiated coverage on Wal-Mart (NYSE: WMT) with a Neutral rating and $70 price target. Shares gained 1.28 percent, closing at $77.26.

Alibaba (NYSE: BABA) reported its third quarter results this morning. The company earned $2.79 per share, beating the consensus estimate of $2.74. Revenue of $2.74 billion beat the consensus estimate of $2.64 billion. Shares hit new 52-week highs of $106.36 before closing the day at $106.07, up 4.19 percent.

CVS (NYSE: CVS) reported its third quarter results this morning. The company earned $1.15 per share, beating the consensus estimate of $1.13. Revenue of $35.02 billion beat the consensus estimate of $34.73 billion. Shares lost 0.75 percent, closing at $85.47.

Priceline Group (NASDAQ: PCLN) reported its third quarter results this morning. The company earned $22.16 per share, beating the consensus estimate of $21.14. Revenue of $2.84 billion beat the consensus estimate of $2.83 billion. Shares lost 8.41 percent, closing the day at $1,097.70 after the company issued light fourth quarter guidance.

The NHTSA announced it will investigate Honda Motors (NYSE: HMC) over its 7.8-million vehicle recall last month. Shares lost 4.24 percent, closing at $31.02.

SandRidge Energy (NYSE: SD) disclosed that the company may need to restate nearly two years of quarterly results following an SEC inquiry. Shares hit new 52-week lows of $3.50 before closing the day at $3.56, down 6.56 percent.

Recommended: Deloitte: Holiday Sales Will Rise As Much As 4.5%, Shopping Malls Still Relevant

Foot Locker's (NYSE: FL) CEO Ken Hicks says he plans to retire and leave the company on December 1. Shares lost 4.52 percent, closing at $53.63.

Microsoft (NASDAQ: MSFT) announced a partnership with Dropbox to integrate Office's PC, mobile and cloud apps within Dropbox's platform. Shares hit new 52-week highs of $47.73 before closing the day at $47.57, up 0.27 percent.

A U.S. District Court ruled that Valeant Pharmaceuticals (NYSE: VRX) and Bill Ackman's Pershing Square could vote at Allergan's (NYSE: AGN) special shareholder meeting on December 18. Shares of Valeant gained 0.57 percent, closing at $133.61 while shares of Allergan hit new 52-week highs of $196.54 before closing the day at $195.12, up 1.03 percent.

Amgen (NASDAQ: AMGN) disclosed its TRINOVA-1 ovarian cancer drug failed to meet primary endpoints in a Phase 3 trial. Shares lost 0.71 percent, closing at $160.41.

Google (NASDAQ: GOOG) announced in a blog post further price cuts for its cloud infrastructure lineup. Shares lost 0.20 percent, closing at $554.11.

Quote of the Day

"Nobody will ever deprive the American people of the right to vote except the American people themselves and the only way they could do this is by not voting." - Franklin D. Roosevelt, 32nd U.S. President

Posted-In: Alibaba AllerganNews Econ #s Economics After-Hours Center Markets Movers Best of Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Why your home is not a good investment

I've come to believe that for millions of Americans, a house is a large liability masquerading as a safe asset.

Not just because of the recent housing crash, although what an eye-opener that was.

But because after watching real estate implode last decade, the average American still believes their home will make a great long-term investment. The best long-term investment, even.

As my colleague David Hanson wrote last week, a recent Gallup poll shows that Americans now believe housing is the best long-term investment, beating out stocks, bonds, and gold.

They might be right, only because the average stock investor does so poorly that a home may indeed be their best investment. But housing has historically been a terrible bet for people who think it will return more than inflation. To show you what I mean, I have to tell you about my visit to Yale economist Robert Shiller's office a year ago.

Shiller -- who won the Nobel Prize last year -- is regarded as the world's foremost housing expert. He has married historical data with deep insight into human psychology to offer some of the best housing analysis anyone's ever produced.

Not only is Shiller brilliant, but he's one of the nicest guys I've ever met, easy to talk to and puts things in clear, easy-to-understand language. As we sat in his office eating donuts and drinking coffee, I asked him, in the broadest terms I could, what homeowners should expect out of their homes in the long run.

"The housing boom in the early 2000s was driven by a sense that housing is a wonderful investment. It was not informed by good history," he said. Most people now agree on that much.

"If you look at the history of the housing market, it hasn't been a good provider of capital gains. It is a provider of housing services," he explained.

By that, he means a home gives you a place to live, a place to sleep, a place to store your stuff.

But that's it. Americans believed -- and still believe -- that the value of their home! will increase above the rate of inflation.

And that, Shiller says, is wrong.

"Capital gains have not even been positive. From 1890 to 1990, real inflation-corrected home prices were virtually unchanged."

Shiller -- a pioneer of behavioral finance and one of the calmest, levelheaded economists I know -- becomes animated at this point, almost irritated. Debunking the notion that housing is a great investment is one of his favorite topics.

Housing prices, he argues, could decline over long periods of time -- decades, even.

"Why is that?" he asks me. I really don't know.

"Well, I think you have to reflect on the fact that it's done it before. Home prices declined for the first half of the 20th century [adjusted for inflation]. Economists discussed that back then. Why are they going down? The conclusion was ... of course home prices go down. There's technical progress. They are a manufactured good. Back in 1900, homes were handmade, you know, craftsmen. But now, in 1950, we can get all kinds of power tools and prefab. And [construction workers] were just better in 1950 than we were in 1900. So of course prices will go down."

Shiller also mentions that certain homes go out of style over time, dragging down prices. "What kind of houses will they be building in 20 years?" he wonders aloud. "They may have lots of new amenities. They will be computerized or something in some way that we can't anticipate now. So people won't want these old homes."

His animation peaked with a line I'll never forget.

"To me, the idea that buying a home is such a great idea is just wrong. They may very well decline for the next 30 years in real terms."

Real home prices may decline for the next 30 years.

The best thing about Shiller, and what sets him apart from your typical pundit, is that he has data to back up every point he makes.

In the early 2000s, Shiller wanted to see what nationwide home prices looked like over the long term. He was shocked to learn that! no one h! ad ever actually put that data together.

He dug around in libraries, crunched the numbers, and came up with an index that measured nationwide home prices going back to the 1890s.

This was a first. "The strange thing is, nobody else had ever made a plot like that. I can tell you, no one had ever seen that picture," he told me, shaking his head in disbelief. "People plot all kinds of data. Why wouldn't someone have done that? I still haven't figured it out."

From 1890 -- just three decades after the Civil War -- through 2012, home prices adjusted for inflation literally went nowhere. Not a single dime of real growth. For comparison, the S&P 500 increased more than 2,000-fold during that period, adjusted for inflation. And from 1890 to through 1980, real home prices actually declined by about 10%.

The reason Shiller warns that home prices could fall going forward is the simple observation that, heck, they've done it in the past. It's what history tells us to expect out of our homes. The entire idea that home prices increase in real terms over time is a figment of the 2000s housing bubble.

It's important to reiterate what a home does do: It provides a place to live. A place to raise your kids. A place to spend the holidays with your family. A place to barbecue with your neighbors. Even a place to rent out. That has tremendous value, of course. Shiller owns a home. He'd buy another if he needed one. "Basically, if I were in the market right now because I wanted a house, I would buy a house," he said.

The problem is that Americans expect more out of their homes than just a place to live. In 2010 -- years after the housing bubble burst -- Shiller's surveys showed Americans still expected their home to appreciate by more than 6% a year over the following decade. If history is any guide, that's probably about twice as fast as they'll actually appreciate by. Despite the housing crash, people still expect stock-like returns out of their homes.

Since a home is most Amer! icans' la! rgest asset, you can see how this becomes a problem. When you have inflated expectations about the largest asset you own, you walk down the path of financial disappointment. The value of American homes fell by nearly $7 trillion from 2007 to 2011. People who thought their homes would return enough to pay for retirement learned that Mr. Market carries a sledgehammer and takes no prisoners.

Everyone should live in a home they can afford and provides the lifestyle they desire. But assuming it's a superior long-term investment, one to rival stocks, is dangerous. There's just no evidence backing it up.

I think people run into two problems when thinking about the value of their house.

A home is typically the asset people hold the longest. They sell stocks after a few months, but keep a home for years, or decades. When you own something for that long, the returns you think you earned can be overwhelmingly due to inflation. The Consumer Price Index has increased six-fold since 1970. If you bought a house for $30,000 in 1970 and it's worth $180,000 today, you've earned nothing after inflation. You think you've made a fortune, but you haven't gone anywhere. Add in property taxes, insurance and repairs, and you're down.

Yes, you got to live in the house. That's huge. But it doesn't make living free.

If you have a mortgage, you're paying interest. If you own outright, or have a lot of equity, there's an opportunity cost of having money tied up in an asset that barely keeps up with inflation when you could have had it in something else, like stocks.

Say you and I both have $250,000. I buy a house for $250,000 cash, and you rent a house across the street for $1,000 a month and put $250,000 in the S&P 500. After 20 years, I'll have a house worth $200,000 in real terms, and you'll have a portfolio of stocks worth $330,000 adjusted for inflation (assuming the market's average real rate of return, and a 2% inflation rate on my rent payments). The difference between those two amount! s is the ! opportunity cost of owning a house (and I didn't even include taxes, repairs, or insurance). In reality, it's hard to rent the same house for 20 years straight, and a lot of regions don't offer attractive rentals at all, so this probably isn't feasible. But it shows that the decision to own can be more about lifestyle and stability, not financial returns.

So, by all means, own a home. Just keep your expectations in check.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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