Broadcom Eyes Low-Cost Smartphones To Gain Market Share In Mobile

Broadcom (NASDAQ:BRCM) is looking to expand its footprint in the global baseband and application processors market in order to tap the growth potential in the low-cost smartphone market where those components are used.  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, it accounts for less than 3% of the baseband and application processors market.

With a significant improvement in its product portfolio, Broadcom’s share in the baseband and application processor market increased to 4% in 2010 but dropped down to 3% in 2012. The company is focusing on expanding its customer base as well as the number of models which it designs and expects new products to accelerate its growth momentum in the smartphone market. (Read – Broadcom Can Defend Market Share With iPhone 5S Deal & LTE Asset Purchase)

In this article, we discuss the growth potential in the low-cost smartphone segment and list recent product wins which reiterate our belief of Broadcom’s rising strength in emerging markets where low-cost smartphones are in high demand.

Our price estimate of $38 for Broadcom is at a significant premium to the current market price of $27.

See Our Complete Analysis for Broadcom Here

Growing Demand For Low Cost Phones

With the rising adoption of mobile devices globally, smartphones and tablets are slated to fuel growth in the semiconductor industry, going forward. 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. ^[1]

A recent report by the GfK Group estimates the sale of smartphones in Southeast Asia to have increased by 61% in the last one year, with much of the growth being driven by affordable smartphones priced between $100 to $200 US dollars. ^[2]

Much of the low-cost smartphone growth is being driven by rising demand from emerging economies including China and Asia. According to research form IDC, India’s y-o-y smartphone shipment is expected to be the highest among emerging markets with shipments expected to climb to 155.6 million units in 2017 from 27.8 million in 2013, accounting for 10% of the global smartphone market. ^[3]

Affordability is the primary driver for smartphone growth in China, which accounted for approximately 27% of global smartphone shipments last year. ^[4]

Focus On Low-Cost Smartphones Could Increase Broadcom’s Market Share

Broadcom’s success in the low-end Android smartphone segment has increased its competitiveness in the mobile market over the years. Android accounts for a majority share in the low-cost smartphone market and 75% of the smartphones run on the Android OS. ^[5]

The low-cost smartphone market is currently dominated by MediaTek, which along with Spreadtrum accounted for more than one-third of the smartphone applications processor market (volume share) in Q3 2013. ^[6]

Broadcom, which did not feature in the top five vendors of smartphone application processors in Q3 2013, is focusing on the budget smartphone segment in emerging economies to regain its share in the mobile market. 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.

In Q2 2013, Broadcom introduced a new quad-core HSPA+ processor designed for the mid-range smartphone market. The new chip 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.

In the last one month, three smartphone manufacturers in emerging markets have selected Broadcom’s turnkey smartphone platform for their new models:

1. XOLO, a premium smartphone manufacturer and one of the fastest growing mobile handset companies in India is using Broadcom’s platform for its new Q1000 Opus smartphone.

2. Chinese cellphone manufacturer K-Touch is using Broadcom’s quad-core turnkey platform for its new W98 and W96 Android-based smartphones.

3. G’Five, a leading consumer electronics company and OEM in China, has selected Broadcom’s quad-core HSPA+  smartphone platform for its new WG5701 Android smartphone.

Broadcom claims that it has tripled its number of customers in China and its reference and turnkey designs are gaining traction in the market.

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

1. China’s TCL Communication Adopts Broadcom 3G Android Platform, Broadcom Press Release, May 23, 2012 [↩]
2. G’Five Selects Broadcom Quad-Core Turnkey Platform for New Android Smartphone, Broadcom Press Release, December 2, 2013 [↩]
3. Broadcom puts high-stakes bet on Indian smart phone markets with affordable chip solutions, iTersNews.com, November 19, 2013 [↩]
4. Canalys Q2: 68% Of All Smartphones Shipped Were Android; China’s The Biggest Market By A Wide Margin, Tech Crunch, August 2, 2012 [↩]
5. Android Marks Fourth Anniversary Since Launch With 75% Market Share in Third Quarter, IDC Press Release, November 1, 2012 [↩]
6. Chip news this week, RCR Wireless, October 18, 2013 [↩]