Broadcom - Wireless Revenue

Thursday, February 28, 2008

My article re-printed from Sramana Mitra's site.

In the last few articles, I dealt extensively with the Mobile and Wireless business of Broadcom. It is time we take a look at what this means from a revenue point of view for the company.

The strength of the Irvine-based company’s Bluetooth and WLAN product lines will drive the revenues for 2008. If we add the revenues from its GPS and Cellular divisions as well, I estimate that the Mobile and Wireless business will account for about 37% of the company’s revenue this year. This will be on par with the revenue from the Broadband Communications business.

With the Nokia design win starting to show material gains in 2009, the revenues from the wireless division look to double up contributing about 53% of Broadcom’s revenues. If the company sustains this momentum, we will see this business generating around $6 billion in 2012 accounting for almost two-thirds of its revenues. Consequently, the company’s overall revenues will grow at about 20% over the next five years. So, the business clearly will serve as Broadcom’s license to future growth.

The risk, as I alluded to in my last article, is that Broadcom is unable to deliver on its rather aggressive stance in the cell-phone space. Timing is important here - if ‘3G phone on a chip’ does not materialize before the other vendors catch up, Broadcom will lose its ‘first-to-market’ advantage. Besides, the future of its other wireless product lines is also tied to its success as a cell-phone IC vendor. Its revenues from the GPS division, for example, will primarily come from its chips being sold in tandem with its mobile chipsets.

As an example, if Broadcom ends up with low single-digit 3G market share for the next few years, its outlook will drastically change. While the Mobile and Wireless business will still contribute to about 50% of the company’s revenues, the overall revenues will grow only at a CAGR of 13% over the next five years.

In summary, the synthesis of the revenues from Broadcom’s Mobile and Wireless business reinforce the fact that it is the company’s future champion. Moving ahead, in my final installment in this series, I will use all the tools that we have acquired over the past several articles to come up with my valuation of Broadcom.
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 PM  

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