Broadcom Strengthens Its Baseband Portfolio With New Quad-Core Chips

Earlier this month, Broadcom (NASDAQ:BRCM) introduced a new quad-core HSPA+ processor designed for the mid-range smartphone market. The quad-core BCM23550 chip is optimized for the Android 4.2 Jelly Bean operating system and offers high-end features like 5G WiFi, globally certified NFC technology, and advanced indoor positioning technology. While quad-core chips are common in high-end smartphones, there is a growing demand for their use in high-performance entry-level smartphones as well with mobile phones increasingly being used as computing devices. The chips are currently in a sampling stage and will be ready for production by the end of this year. ^[1] (For additional feature details read Broadcom’s press release)

Broadcom provides baseband solutions for EDGE, 3G and 4G systems as well as multimedia and application processors for mobile phones and handheld devices. Though it remains the leader in the mobile wireless market, the company accounts for only 3.4% of the baseband and application processors market. The two divisions combined account for approximately 50% of Broadcom’s valuation, as per our estimate.

With the continued improvement in its product portfolio and its success in the low-end Android smartphone segment, Broadcom’s share in the baseband and application processor market has slightly increased in the last few years. In addition to its expanding footprint in the fast growing low-cost smartphone market, we think that Broadcom’s increasing focus on the fast growing mid-range smartphone space will help increase its penetration in the overall mobile market.

See Our Complete Analysis for Broadcom Here

How Big Is the Mid-Range Smartphone Market?

With rising global demand, smartphones and tablets are slated to drive growth in the semiconductor industry going forward. Here are certain estimates that support the view:

– Smartphone shipments increased by 43% in 2012 ($675 million), accounting for nearly 40% of the mobile phone market. ^[2] Research form IDC reports that smartphones comprised more than half of all phones shipped globally for the first time in Q1 2013. ^[3] It forecasts mobile phone shipments to climb to 2.2 billion units by 2016, and we estimate smartphones to account for 60% of the shipments. This translates into a CAGR of 13.3% between 2013-2016.

– IDC estimates the global tablet shipments to have reached 117 million units in 2012, a 65% increase from 2011, and forecast the market to rise to over 260 million units by 2016. ^[4] This implies that the tablet market will grow at a CAGR of 16.4% through 2016.

Assuming that the growth rate remains constant for all the years, we arrive at the following estimates.

Source: Gartner, IDC and Trefis Estimate

The mid-range mobile market is estimated to exceed the number of premium smartphones and tablets by 2015. The mid-range smartphones and tablets shipments combined is projected to more than double to 580 million units in 2015. ^[5] If we assume that the percentage contribution of tablets and smartphones in total shipments is the same as that projected for 2015, we get an estimate of 487 million (=1180/1405*580) mid-range smartphones shipped in 2015.

Broadcom’s Focus On The Mid-Range Market To Increase Its Competitiveness

Though Qualcomm (NASDAQ:QCOM) remains the leader in the baseband & application processor market, it faces an increasing threat from Broadcom’s success in the low-end Android smartphone segment which has increased its competitiveness in the market. Broadcom continues to improve its product mix and ranked fourth in the cellular baseband market in the first half of 2012. Its 3G baseband shipments marked an over 600% y-o-y growth in the first half of 2012. ^[6]

Despite stiff competition in the market, Broadcom managed to expand its market share from 3.2% in 2009 to 3.9% in 2012, as per our estimate. Broadcom claims that its new platform offers device manufacturers a flexible and cost-effective path to address the affordable smartphone segment. With significant improvement addition to its mobile product portfolio we think that the company can manage to expand its footprint in the baseband and application processor market in the future as well.

In addition to Qualcomm, Broadcom faces threat from MediaTek and Intel which are also targeting growth in the mid-range smartphone market. According to research form IHS, Qualcomm is the leading player in the baseband chips market with a 52% markets share followed by MediaTek and Intel (8.4% market share). ^[7]

While the low-cost handset market is increasing at a rapid pace, users are demanding a better mobile experience over time. We believe that by leveraging its technology Broadcom can play an important role in delivering low-cost affordable smartphones.

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. Broadcom launches new BCM23550 quad-core CPU for mid-range smartphones, Minipute, June 14, 2013 [↩]
2. Gartner Says Worldwide Mobile Phone Sales Declined 1.7 Percent in 2012, Gartner Newsroom, February 13, 2013 [↩]
3. Broadcom Introduces Quad-Core Platform with 5G WiFi, NFC, GPS and Indoor Positioning, Broadcom Press Release, June 13, 2013 [↩]
4. IDC Raises Its Worldwide Tablet Forecast on Continued Strong Demand and Forthcoming New Product Launches, IDC Press Release, September 19, 2013 [↩]
5. ARM introduces the new Cortex-A12 core for upcoming mid-range smartphones, Talk Android, June 3, 2013 [↩]
6. Qualcomm, MediaTek and Intel Together Held Three-Fourths of Cellular Baseband Revenue Share in 1H 2012, Strategy Analytics Press Release, October 31, 2012 [↩]
7. Broadcom unveils quad-core HSPA+ processor for entry-level smartphones, taking on MediaTek, Telecom Lead, June 13, 2013 [↩]