Broadcom’s Strategic Collaborations In China Better Positions It To Leverage Growth In The Chinese TV Market

In the last few years, Broadcom (NASDAQ:BRCM) has taken a number of steps to increase its penetration in China. China accounts for more than 90% of Broadcom’s exports; these exported semiconductors are shipped to China both for re-export and national sale. ^[1] The company aims to become the best semiconductor solutions provider in the Chinese market, making the region its largest market outside America. The issuance of 4G licenses, the promotion of the Broadband China project, and the popularization of HD video provide significant growth opportunities in the region. Given that China is the world’s most populous country and the fastest growing economy in the world, Broadcom seems to be investing its resources in the right direction.

Underlining its growing commitment in China, Broadcom announced signing a series of Memorandum of Understanding (MOU) agreements with several Chinese companies, including H3C, Inspur and StarTimes, at its annual Asia Media Summit last week. The agreements aim to drive further innovation in home entertainment and the digital home in the region.

– Broadcom’s collaboration with leading IT infrastructure products and solution provider, H3C Technologies, will focus on the integration of cloud and Internet services to  promote continuous innovation in multiple applications, including the smart home.

– The agreement with systems integrator Inspur Group aims to drive continued innovation in 4K Ultra HD set-top box offerings for China.

– The deal with Beijing-based pay TV operator StarTimes is an effort to jointly define and develop set-top box offerings in Africa. Both sides will invest engineering resources to develop a series of low-cost set-top boxes and high-end Ultra HD home gateways.

Broadcom believes that it is an exciting time for the Chinese electronics market as it transitions from a manufacturing base to a global leader in design and development. This fast-growing and evolving industry represents an important element in Broadcom’s ongoing strategy for continued growth in existing markets and diversification into new areas.

Our price estimate of $44 for Broadcom is almost 15% lower than the current market price.

See Our Complete Analysis for Broadcom Here

Growing Digitization Drive In Emerging Markets

Digital cable TV is gaining popularity amongst TV viewers in the Asia-Pacific region, with approximately 40 million homes having migrated from analog to digital TV. A jump in cable and satellite set-top box shipments in the Asia-Pacific markets is being driven by cable digitization in China and India, as well as China’s rollout of digital satellite boxes to its rural households.

Backed by the ongoing digitization drive, the share of set-top-boxes shipped to emerging digital TV markets, such as India, China, Russia, and Latin America, is estimated to account for over 45% of the global set-top box shipments in 2015. ((Set-Top Boxes: Cable Digitization Driving the Market)) Some analysts expect the Asia Pacific region to add 420 million new pay TV households by 2018. Most telecom operators in China are actively deploying technologies to deliver these services in key markets. ^[2]

According to Digital TV Research, China, India and Japan will jointly account for two-thirds of the region’s $42 billion pay-TV revenues by 2020. China overtook Japan to become the most lucrative pay TV market in 2012, and is expected to have 323 million pay-TV households by 2020. ^[3] Ultra HD TV sets shipments in China stood at 2.6 million in Q1 2015, growing substantially from a year ago. Even though some reports suggest that the Chinese set-top box market will slow down in the next few years, the country will continue to export set-top boxes in big numbers to less developed countries, according to a China Electronics Supply Chain topical report from IHS. ^[4]

The cable industry in China is expanding because of the following reasons – 1) the expected change in administration in the country, which is likely to boost the economy and increase capital spending on infrastructure, 2) a sweeping Next-Generation Broadband initiative and a nationwide transition from analog to digital broadcast, and 3) the building momentum for the China Data over Cable Systems Interface Standard, which promises to bring interoperability and quality of service to cable TV and broadband.

Broadcom Has Developed A Low-Cost Platform To Cater To Emerging Markets

Broadcom is a global leader in the set-top-box market and the segment is a large focal point for the company. ^[5] 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. Broadcom offers a host of solutions for the cable industry and specific to emerging markets

At a conference in Shanghai last year, Broadcom announced that India and China are critical markets for the company and it is inventing a set of new architecture for these emerging countries, keeping in mind the low average revenue per user (ARPUs) in these regions. ((Digitization driving opportunities for us in India: Rajiv Kapur, Broadcom India, Financial Express, September 22, 2014)) Broadcom announced a number of new products for the Chinese cable and set-top box market at the 23rd China Content Broadcasting Network exhibition, a few months back. The company has also developed a low-cost chip for India and Latin America, and tied up with key players in these markets.

We believe Broadcom is well positioned to benefit from the rising digital penetration in emerging markets, as well as a ramp to richer features, including multi-stream transcoding, more tuners and a stronger mix of MoCA-enabled platforms.

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1. Broadcom CEO Briefs Members on China’s Technology Market, AMCHAM News, March 24, 2014 [↩]
2. China’s Inspur Selects Broadcom’s Set-Top Box, Zacks, March 24, 2014 [↩]
3. APAC pay-TV market revenues to grow by USD 10 bln by 2020, telecompaper, March 10, 2015 [↩]
4. China Set-Top Box Market to Slow Down in Years Ahead, IHS Technology, January 15, 2014 [↩]
5. Digitisation driving opportunities for us in India: Rajiv Kapur, Broadcom India, Financial Express, September 22, 2014 [↩]