Wednesday, February 27, 2008
In the last part of this series, I talked about Broadcom’s aggressive campaign to become a leading vendor in the cellular IC market. In this piece, I will talk about the plan, the challenges and the need to execute these plans in style.
So what is the plan? CEO Scott McGregor said in his Q4 2007 conference call, “Our goal in cellular baseband is to reach a 10% unit market share by the time we exit 2009. The plan remains the same -- 2007 was a year to win designs; 2008 is the year to get products and phones done; and 2009 is the year to grow share and generate significant revenue.”
I like the plan. I also think that the execution has gone quite well so far. Broadcom announced a design win with Nokia last year for its single-chip EDGE chip. Nokia’s dominating market share in this space, coupled with the fact that there will be over 400 million EDGE phones for 2009 augers well for Broadcom. These factors imply that even the design wins for ‘selected future EDGE phones’ translates to large unit shipments instantly getting it closer to the target envisioned. Add to this the 3G business with Samsung, the 10% target looks very reasonable.
The catch, however, is this. 2008-2009 are the peak years for EDGE. Later, these phones will give way to faster phones using WCDMA/HSDPA. I also estimate that the per-unit cost for the EDGE chips will be much lower than the $23 price for the 3G chips. Broadcom has also not won any substantial designs for its 3G solution. While we may see some design win announcements later this year, my worry is two-folds. For data-centric phones, cost advantages apart, performance becomes a key criterion for design wins. Broadcom purchased Zyray in 2004 but is yet to deliver in the 3G space. This makes me think that Broadcom is battling basic performance issues. Secondly, the engineering challenges associated with the complicated design and the level of integration in the new product may push the delivery and in some cases, also lose customers.
Broadcom has a good track record of delivering on its promises. So, despite the odds, I am willing to give it the benefit of doubt. If the execution is good, then we will see 3G design wins this year resulting in significant revenue contributions in 2010. I anticipate that in the long-term, pending delivery, Broadcom is positioned to capture around 20% of the 3G market. This will help it to about 15% market share in 2012. The drivers will be its continued relationship with Nokia, its complete solution and its aggressive pricing. Most of these gains will come from TI and the other smaller vendors as I expect Qualcomm to retain its engineering leadership, and hence also grow its market share, in this space.
In summary, the cell-phone market appears promising for Broadcom. In the next piece, I will complete the picture with a synthesis of the various revenue streams in its Mobile and Wireless business.
Disclaimer: These are my perspectives on Broadcom and does not necessarily reflect the views of Atheros Communications or Tensorcomm.