Broadcom - Bluetooth today and tomorrow

Sunday, February 24, 2008


I have, so far in this series, looked at Broadcom’s Enterprise Networking business and also its Broadband Communications business. In the next few articles, I will present a discussion of the various components of its mobile and wireless business unit before proceeding to its valuation. This piece focuses on Bluetooth.

Broadcom is a leading Bluetooth semiconductor vendor with 25-30% market share. The company’s solutions are used in mobile phones, PCs, notebooks, gaming devices and headsets among other gadgets. I also estimate that about $500 million of Broadcom’s 2007 revenues came from its Bluetooth solutions primarily driven by the cellular market. The company has also been the ‘first-to-market’ here with products such as its integrated FM plus Bluetooth solution. Besides, it has been helped by new-found traction with the headset OEMs.

Bluetooth, with its rapid adoption as the low-power wireless standard, presents a good opportunity for Broadcom. I estimate that the total addressable market (TAM) of Bluetooth will grow at a CAGR of 10% from about $1.7 billion for 2007 to $2.7 billion in 2012. This corresponds to around 2 billion Bluetooth chips sold in 2012. This growth will benefit from the 50% growth in Bluetooth penetration in mobile phones. About 75-85% of future phones are expected to be Bluetooth-enabled. Also, hands-free driving legislations will provide a boost to the sale of headsets and embedded Bluetooth-units for cars. Gaming devices (Nintendo Wii, Playstation, X-Box, etc.) and portable media devices (iPod, Zune) which are looking to embrace Bluetooth will also be key drivers accounting for almost 20% of the Bluetooth semiconductors in 2012. Finally, these devices also provide good opportunities for high-quality Bluetooth stereo headsets.

Broadcom’s position in this lucrative market has to be seen in the context of some future trends.

Firstly, there is a trend towards consolidated devices and chips. Broadcom is looking to expand its leadership here through its triple play product with a 65 nm FM, WLAN and Bluetooth chip.

Another key development in recent times is the announcement of the BT3 AMP (Alternate MAC/PHY for next-generation Bluetooth). This allows Bluetooth to piggyback on the high-data rate capabilities of WLAN. This will allow Broadcom, one of the WLAN leaders, to consolidate its hold in the Bluetooth space potentially taking market share away from CSR, the current leaders.

The market, however, is extremely competitive. Companies such as Marvell and Qualcomm have plans for integrated products as well. Atheros has also made recent strides in this space. Along with Marvell, Atheros is perhaps better positioned to exploit BT3 AMP. Both of them have lower power WLAN solutions that are more suited for all mobile and gaming devices. So, though 65 nm looks a jazzy proposition along with the integrated solutions, Broadcom will have to work on low-power WLAN chips to effectively tackle the growing competition. Besides, a substantial portion of its mobile Bluetooth sales will also be dependent on its own success as a cellular mobile chipset vendor. This component adds to the risks associated with this business.

In summary, it appears that while this business is a shining star today for Broadcom, it comes with inherent risks and a more aggressive competitive landscape. If Broadcom works on the ‘right’ innovations (not necessarily the ‘eye-catching’ ones), then it will continue to maintain its market share while the competition will encroach into CSR’s market share, especially if BT3 AMP takes off. This, in my mind, is a reasonable assumption despite the fluidity of the company’s mobile chipset business.

Disclaimer: These are my perspectives on Broadcom and does not necessarily reflect the views of Atheros Communications or Tensorcomm.

Posted by Vijay Nagarajan at 9:00 AM  

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