Why Broadcom Will Benefit From The Digitization Drive In India

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At a conference in Shanghai earlier this year, Broadcom (NASDAQ:BRCM) announced that India and China are critical markets for the company and it is inventing a set of new architecture for these emerging countries. ((Digitization driving opportunities for us in India: Rajiv Kapur, Broadcom India, Financial Express, September 22, 2014)) Broadcom’s investments in research and development in India are probably the highest outside of the U.S. Its R&D center is Bangalore, India, is the second largest after its headquarters in California, and has grown more than four times in the past five years. [1] The company has been making deep inroads in the country, especially in the area of pay TV with technology solutions for set-top boxes that are suited for Indian conditions.

The Indian government’s initiative to connect every village with broadband and the digitization of analog cable TV provides significant growth opportunities for Broadcom. The company derives over 20% of its revenue from its Home Entertainment & Broadband business. Broadcom’s set-top box business continues to grow and the company claims to have gained market share in emerging markets in Q3 2014.  (Read Our Earnings Article)

In this article we discuss how Broadcom can benefit from the ongoing digitization in India.

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Our price estimate of $41 for Broadcom is almost in line with the current market price.

See Our Complete Analysis for Broadcom Here

Changing India TV Industry Landscape

The TV industry in India underwent significant transition over the past several years, with the Telecom Regulatory Authority of India (TRAI) mandating digitization in the country. The compulsory digitization has been one of the key factors contributing to the growth of the set-top box market in India as digitization requires a new digital set-top boxes for every digital TV set to enable viewing. The estimated market in India today is around 140 million sets and growing. The Indian government has been making digitization necessary in a phase-wise manner, with the final phase expected to be complete by 2015. ((Broadcom: More Reasons Why This Beaten-Down Stock Can Run Higher)) India has completed the transition from analog to digital with 12 million digital set-top boxes seeded and 80% of consumer application forms processed by TRAI. Broadcom’s India managing director, Rajiv Kapur, expects digitization to continue with a high momentum as phase III and IV have just begun.

The number of households with a TV in India is expected to grow from around 160 million currently to 200 million by 2017, with growth in both cable digitization and direct-to-home services. The total subscription revenue of the cable TV industry in India is expected to reach $6.4 billion by 2020, up from $4.2 billion in 2011, including broadband growth. [2] This presents a massive opportunity for companies such as Broadcom.

Broadcom Has Developed A Special Low-Cost Chip For India & Tied Up With Key Players In The Market

Broadcom is a global leader in the set-top-box market and the segment is a large focal point for the company. [3] It has a full suite of mid- and high-end set-top box platforms providing a number of solutions for operators to offer to their subscribers. These range from the very basic cost sensitive SD zappers to entry HD platforms to higher end PVR and server class solutions. It has a diverse portfolio with cable, direct-to-home (DTH), terrestrial, IPTV, cable modems, Ethernet over Coax (EoC), Wi-Fi, Bluetooth and passive optical networking (PON) leadership.

Broadcom offers a host of solutions for the cable industry and specific to emerging markets like India. The company sees huge opportunities in the digitization drive in India, and has even developed a special low-cost chip keeping in mind the low average revenue per user (ARPUs) in the country. Its turnkey solution for the low end cable TV market includes a ready hardware and software stack to go along, which is so optimized that the memory footprint is very small, thus reducing costs. ((“The country cannot afford to have tens of millions of bad STBs deployed”, Indian Television, June 20, 2014)) Broadcom claims to have a host of suppliers ready to ship as operators place future orders for the next wave of digitization in the country.

Some of Broadcom’s tie-ups in India include – TataSky, MCL and DishTV – which are key players in the Indian pay TV market. Watching higher-quality TV programs is just the beginning of digital TV offerings in India, in Broadcom’s view. Additional demand for features and applications that run on set-top boxes, including multi-room and multi-screen experiences as well as over the top content, will be made possibly by higher-end STBs in the future. [4]

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Notes:
  1. “The country cannot afford to have tens of millions of bad STBs deployed”, Indian Television, June 20, 2014 []
  2. Broadcom: More Reasons Why This Beaten-Down Stock Can Run Higher []
  3. Digitisation driving opportunities for us in India: Rajiv Kapur, Broadcom India, Financial Express, September 22, 2014 []
  4. Rajiv Kapur in CXO Today: “Digitization is Enticing Customers to Re-Think How They Watch TV”, Broadcom Blog, July 8, 2014 []