As 5G Wi-Fi Proliferates Broadcom Munches On More Market Share

Broadcom (NASDAQ:BRCM) launched its first family of chips based on 5G Wi-Fi in January last year. Since then the company has been working closely with customers and ecosystem partners to address the growing demand for high definition quality video at fast speeds on multiple devices. With the introduction of a number of new chips in the last few months, Broadcom became the first company to offer 5G Wi-Fi technology across all platforms.

Broadcom claims that its 5G Wi-Fi chips deliver Ethernet quality speed three times faster and are six times more power-efficient than the previous generation of Wi-Fi devices. ^[1] With its increasing adoption in a number of devices, 5G Wi-Fi chips are expected to be included in over 50% of total wireless integrated circuits (IC) by the end of 2014. ^[2]

Wireless connectivity is a must-have in today’s electronic devices in the computer, consumer, communications and automotive markets with a growing need among consumers to communicate and access content at any time and place. The wireless revolution is contributing to a global boom in demand for Wi-Fi chipsets which benefit Broadcom as it is the leader in the wireless connectivity market.

With added advantages of a broad product lineup across various markets and connectivity solutions at different price points, Broadcom has been able to score a large number of design wins in the past. We expect the company to retain its dominance in the connectivity market for years to come. Here are two recent developments that reiterate our belief.

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New 5G Wi-Fi Chips To Target Growth In The Entry Level Consumer Market

Earlier last month, Broadcom introduced its first 5G Wi-Fi combination chips for low-cost consumer devices including PCs, notebooks, tablets and smartphones. The new chips promise to help manufacturers lower their costs and deliver strong performance, speed and power. Broadcom is already shipping silicon for laptops and routers based on the 802.11 ac Wi-Fi technology and has extended the same to smartphones and tablets.

The continued momentum around the 5G Wi-Fi ecosystem saw new product announcements in 2012 including access points from Cisco (NASDAQ:CSCO), Netgear, Belkin, Buffalo and D-Link and the industry’s first 5G Wi-Fi router from Asus. Broadcom’s 5G technology is also being used in the recently launched Samsung Galaxy 4 and HTC One smartphones. The new chips are currently in the sampling process, and the company will start volume production later this year.

Broadcom’s new WiFi chips will help original equipment manufacturers (OEMs) leverage growth in the fast growing low-cost mobile device market. According to ABI Research, smartphones with a price point of $250 and below (before carrier subsidies) will account for 46% of global smartphone shipments by 2018 compared to 28% in 2012. ^[3]

Accounting for a majority share in the mobile wireless market, Broadcom is the market leader in mobiles and tablets, with a presence in the Apple iPad, Samsung Tab and Motorola Zoom. Its wireless connectivity solutions grew faster than its overall mobile and wireless business in 2012. ^[4]

Offering performance, range and power of 5G WiFi in a single-chip design places Broadcom in a strong position to capitalize on the technology’s growing adoption.

Extending 5G Wi-Fi In Home Devices To Extend Broadcom’s Leadership Position

This week Broadcom introduced a new set of 5G Wi-Fi chips that deliver speed, range and power required for connected home devices – PCs, tablets, set-top boxes, TVs, and retail routers. The company offers both a standalone chip with 5G Wi-Fi and a combo chip combing the technology with Bluetooth 4.0. The chips enables consumers to stream more high-definition content across various home devices.

Broadcom shared the top slot in the worldwide set-top box integrated circuit (IC) market with STMicroelectronics in 2012. While both companies shipped between 85-86 million video SoCs for set-top boxes last year, Broadcom earned higher revenues as it accounted for significantly larger value design wins within the North American and Western European cable and satellite markets. ^[5]

Witnessing 15% higher set-top box sales in 2012, Broadcom gained additional market share and delivered strong growth and profits throughout the year. It benefits from strong demand for advanced set-top boxes in developed countries as service providers aggressively transition their subscribers to advanced services, and the emerging markets continue to increase their digital transition.

We believe that the extension of 5G Wi-Fi technology to the home division adds strength to Broadcom’s leadership in conductivity solutions.

Our price estimate of $44 for Broadcom is at a significant premium to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Skyworks starts volume production of RF solutions for Broadcom’s 5G WiFi platforms, Semiconductor-Today, May 30, 2012 [↩]
2. Broadcom Announced First 5G WiFi Combo Chips for Entry Level Market, Broadcom Press Release, May 23, 2013 [↩]
3. China’s TCL Communication Adopts Broadcom 3G Android Platform, Broadcom Press Release, May 23, 2012 [↩]
4. Broadcom CEO Discusses Q4 2012 Results – Earnings Call Transcript, Seeking Alpha, January 29, 2013 [↩]
5. Broadcom and STMicro Tie for Top Slot in Set-top Box IC Market as Ali Technology Gains Ground, ABI Research, April 25, 2013 [↩]