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Broadcom seeks to retire its cellular base band business

Posted: 04 Jun 2014 ?? ?Print Version ?Bookmark and Share

Keywords:Broadcom? cellular base band? broadband? connectivity?

Broadcom Corp. said it is exiting its non-performing cellular base band businesslooking to either sell it or turn the lights out on it completelyin an effort to accelerate its initiatives in broadband, infrastructure, and connectivity markets.

As part of the strategic move, Broadcom's connectivity team will be merged with its broadband communications unit, forming the Broadband and Connectivity Group, which will be headed by Daniel Marotta. Rob Rango will oversee the base band processor transition process.

Scott McGregor, Broadcom's president and chief executive, told analysts in a conference call that the cellular base band business "executed well technically" following last year's acquisition of Renesas LTE assets. Nevertheless, the management team concluded that the "economic opportunity is not sufficient to justify the continued investment when compared to other opportunities within our portfolio."

Broadcom's tough decision to exit the cellular base band business was based on the challenges it has been facing in garnering revenue, particularly in the low-end and middle base band markets, which are saturated with chip suppliers, McGregor said. There is potential to make money in the high-end base band market, but there it is vying for the business of just a couple of customers. "We don't see enough traction there on the order of 3,000 engineers."

Will Strauss, an analyst with Forward Concepts in Mesa, Ariz., said Broadcom is nearly three years late in providing a working LTE modem to the market. "Now Qualcomm has taken most of the quality sockets."

Broadcom had been touting an upcoming LTE modem at least a year before it acquired Beceem Communications in late 2010. The Renesas Mobile chip "had a real socket in the Samsung Galaxy Tab 3 7" tablet... along with Marvell's LTE modem in some countries," Strauss said.

Eric Brandt, Broadcom's chief financial officer, said the cellular base band business revenue run rate for the first half of 2014 is between $200 million and $250 million, with gross margins of just "tens of millions of dollars."

The company didn't offer any timeframe for winding down the business if it can't find a buyer. However, McGregor said that it will move "expeditiously." When the cellular base band business is divested, Broadcom expects to reduce expenses by $700 million. It plans to reinvest $50 million of the savings in its infrastructure, broadband, and connectivity businesses, citing small cells, embedded processing, and low-power connectivity as its major areas of focus.

"The only desirable Broadcom mobile properties are their connectivity (combo) products and the LTE/Renesas modem," Strauss said. "The connectivity products (WiFi, Bluetooth, GPS, FM, etc.) are very good and profitable. Nobody will want the older 2G/3G only modem business," except at a fire-sale price.

During the conference call, management segmented connectivity into three buckets: high-end cellular, which is differentiated; mid/low-range cellular, which is highly competitive; and non-cellular connectivity, which offers solutions for various sectors, including the Internet of Things and printers. McGregor said that the high-end smartphone sector is healthy for Broadcom, but it has suffered some share loss in the price-driven low and midrange segments, where it expects to generate between $500 million and $800 million in annual revenue.

"We will fight to hang on to that," McGregor said. "That's an area where we are most at risk."

The company's revenue guidance for the second quarter of 2014 is unchanged at $2 billion to $2.1 billion.

- Ismini Scouras
??EE Times

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