Wireless Industry Analyst

[Originally for Sramana Mitra's site]

We have, so far in this series, reviewed Infineon’s financials, Qimonda and the industrial and automotive businesses. As we continue to dissect Infineon in our valuation analysis, we will now take a look at its wireline business.

[Originally for Sramana Mitra's site]

In the last two parts of this series, we looked at Marvell’s position and strategy in the wireless connectivity solutions market. These solutions serve another important purpose - to make Marvell’s cellular and handheld products competitive and complete. In this part, we will take a look at whether Marvell can successfully leverage its acquisition of Intel’s XScale business to create another line of business that will see the 20% growth that the management envisions.

Marvell offers the Monahan family of application processors based on the XScale architecture. It also offers baseband communication processors that are capable of GSM, GPRS, EDGE and WCDMA. Its solutions are part of the Motorola Q, Motorola ROKR2 and RIM Blackberry Pearl among other phones. Another notable product is the Samsung i780 that features its PXA310 application processor with Qualcomm’s MSM6200.

Marvell today commands about 25% of the mobile application processor market next to TI, but does not have as much of a play in the baseband market. The Santa Clara-based company sampled an integrated single-chip solution with HSDPA data capabilities and an application processor last year. Marvell hopes to see ramped up volume production and revenue in the second half of this year.

‘Tavor’, as this single-chip solution is code-named, will hold the key to Marvell’s ability to retain the RIMM account moving forward. Moving forward, Marvell hopes to grow with RIMM that commands around 50% of the smart-phone market share. This will be contingent on RIMM retaining its market share and also Marvell delivering competitive baseband solutions. You can read about competing baseband solutions here. ‘Tavor’ will also help Marvell retain its application processor market share as competitors move towards similar single-chip solutions.

Marvell also aims to bring smart-phones into low-cost mainstream leveraging its core competencies. CEO Sehat’s comments on the company’s GPS strategy further ratify this line of thought. The ASUS 3G smart-phones branded as Vodafone 1210, which use Marvell’s communication and application processors, is a good example. The synergy in this relationship comes from the fact that both Marvell and ASUS are committed to low-cost products. (Incidentally, this low-cost philosophy is one solution to bring the convergence movement to the emerging markets. You can view this as complementary to the elitist band of phones from Apple, RIMM or Palm like Ms. Mitra points out in her recent post here.)

At the moment, Marvell is relatively behind the leading chipset vendors in its development efforts. It may hence not get a favorable look from existing handset vendors as it seeks a meaningful baseband communication processor market share that will justify its XScale acquisition. However, it will look to establish new relationships (like ASUS) to grow with its customers’ market share gains. Much like Broadcom, Marvell has a good relationship with PC/laptop vendors like Dell. This positions the company to understand and help these vendors enter the mobile space should they decide to. Bolstered by stable application processor sales, this risky strategy has huge upsides with relatively minor downsides.

[Originally for Sramana Mitra's site]

In the previous article, I discussed what an acquisition of InterDigital can do to TI. What then will happen to the cellular industry and the 3G value chain?

If TI acquires InterDigital, I think there will be further market consolidation in the 3G space. Firstly, Nokia and Motorola will be happy that they can compete with ‘Qualcomm inside’ phones from Samsung and LG. Until Nokia and Qualcomm cool off on all their IP issues, it is unlikely that the Finnish company will get chips from Qualcomm. So, the entire Nokia business, which until now was TI’s monopoly, is now wide open. An InterDigital acquisition is one way for TI to retain this market. Also, Samsung and LG may also get a viable alternative to pursue a multiple vendor strategy.

If TI acquires InterDigital, its main competitors will feel added pressure moving forward. Qualcomm, the undisputed performance leader so far, is now being challenged by InterDigital, Infineon and Icera. The Qualcomm advantage still comes from its unsurpassed support network and the scale of operation. But TI can complement InterDigital to match Qualcomm on these two fronts as well, thereby erasing its competitive advantage.

If TI acquires InterDigital, Broadcom will take a bigger blow as its wireless strategy seemingly rests on capturing TI’s market share both in baseband and in the application processor market. Infineon, which currently has a strong alliance with InterDigital, and which I suspect has key elements of the latter’s 3G advanced receiver IP, will run the risk of being marginalized in 3G. Similar arguments can be made for Marvell, Freescale and ST Microelectronics among other chipset vendors.

If TI acquires InterDigital, it can potentially generate up to $10 billion of additional revenue over the next five years. The handset vendors like Nokia will be happy to see crucial 3G patents in the hands of ‘one of them.’ This will be an important factor securing TI design wins into the future. Assuming that a deal is closed at my $75 valuation of InterDigital, the sale price will be around $3.5bn. Under this condition, I will value TI between $36-$37.

Clearly, the two companies have distinct cultures and business model. But if these issues are dealt well, the combination can be explosive. What amazes me about InterDigital is the immense value it offers to companies with completely different business model. If it considers being acquired, it will be hot property. While I am not predicting an acquisition here, I think this is an option that TI should think about. Perhaps it is thinking about InterDigital, or even Icera, or has an accelerated in-house 3G/HSDPA program. Or it is just waiting out for the 4G promise, dodging the 3G curveballs thrown at it in the interim.

[Originally for Sramana Mitra's site]

In my recently completed series on Texas Instruments, I pointed out that TI was not in a great position as far as 3G is concerned. I subsequently also suggested that the company ally with InterDigital to prevent further damage. Let us take this a step further and examine what it will mean for TI to acquire InterDigital. I understand it takes much more than a 500 word essay to make an acquisition happen, but a quick look in this direction will give some new insights into the wireless industry as well.

If TI acquires InterDigital, it will have a viable path towards sustained 3G baseband market share. It will have a quicker time-to-market for advanced HSDPA products. An OMAP-Vox Solution with the 3G HSDPA baseband receiver from InterDigital and its own OMAP can be a competition killer. Even a bundle of IDCC’s SlimChip solution with OMAP will sell well. The new product can marry TI’s manufacturing excellence with the SlimChip’s proven performance. The interested reader can find a more detailed analysis on the combination product here in my blog.

InterDigital’s ASIC business is a small portion of its value. But for TI, the combination of 3G intellectual property (IP) and a competitive product is most appealing. In contrast to InterDigital, TI has never had an aggressive IP strategy. It has, however, leveraged its IP to obtain favorable cross-licensing deals with Qualcomm and the others. If it acquires InterDigital, TI can use its new-found IP position to further improve its margins by getting even better licensing deals. More importantly, it will have the handset vendors once again queuing at its gates for their next designs.

An acquisition will work well for TI. In the sequel, I will look at how the industry value chain will take it if TI made this strategic move to get InterDigital and also give some numbers for such a deal.

[Long IDCC, QCOM at the time of writing]

I value Texas Instruments at $32 per share. As we have seen in the last few weeks, the strengths are a good management, its analog strategy, the HPA growth and manufacturing efficiency. Its weakness is the wireless business. The growth drivers do not have the ammunition yet to drive the company out of the rut caused by the wireless world. This means that the share price will continue to hover around the $30 mark for quite sometime into the future.

TI has made the conscious decision to pursue analog vigorously. This has certainly paid off, especially with HPA growing phenomenally in the last few years. The company benefits further from the higher margins from HPA which I anticipate will grow at about 15% over the next few years. In keeping with this push, TI has diverted all its manufacturing capabilities towards analog slowly migrating towards the fabless model for digital manufacturing. This move away from the Integrated Device Manufacturer (IDM) model to a more hybrid strategy has allowed TI to become more nimble.

On the other hand, TI also seems to have made a conscious choice to stay away from mainstream wireless development. As I pointed out, it appears to be a miscalculated strategy that has come back to bite it. A healthy 15% CAGR in its OMAP business will help maintain stable revenue from the wireless business as it compensates the loss in digital baseband and chipset business to its competition. The company is trying hard, however, to explain that all is not lost on the 3G side claiming that its most recent Ericsson deal’s “revenue potential is very, very significant over the course of time.” But it really appears that the company has missed the 3G bus and is trying hard to catch up with a soap-box car.

Overall, I estimate that TI will have a modest 4% growth in revenue for the next five years. The $32 valuation would not have been possible without TI’s constant push for a higher margin product portfolio, manufacturing agility and the laudable margin targets. If it can somehow transform its wireless fortunes, either through partnership deals or an accelerated development effort and complement it with regained design wins, then we may see the stock inch towards the $40 mark. In the interim however, I am going to stay away from this stock for I don’t see any promising ROI here.

I have, in the past, discussed the synergies that existed between Qualcomm and InterDigital. As I completed penning my Texas Instruments (TXN) series on Sramana Mitra’s site, I noticed that even the Dallas-based semiconductor giant could benefit immensely from an alliance with InterDigital.

TI is the market leader for 3G application processors with its OMAP product-line. But it does not currently have a standard 3G baseband solution. The company’s OMAP roadmap merely has placeholders for future merchant ICs with 3G baseband. Its mammoth market share comes from custom chips it develops for Nokia and Motorola among others. This position is, however, challenged by the multiple sourcing trend that the handset vendors are now adopting. Left behind in the 3G baseband race, not only by Qualcomm but also by Broadcom, Infineon, InterDigital etc, TI is finding itself losing mobile share. The aggressive strategy and the niche product positioning by the competition is not helping its cause either.

On the other side, InterDigital sells its SlimChip 3G solution with a fully equipped software stack both as an IC and as intellectual preperty (IP). Besides, in a recently conducted independent study by Signals Research Group, InterDigital’s SlimChip came out as one of the top performing baseband solutions along with iCera and Infineon. That InterDigital finished high among very competitive solutions establishes the company’s credibility. Also, this complements its positioning as a top choice for the smartphones segment for bandwidth intensive data services.

Now, here is a part of a recent press release from InterDigital that forms the basis for my thesis –

“InterDigital's SlimChip products feature a "slim" modem architecture where the modem - which provides core wireless connectivity - is separated from the applications processor and peripheral functions. This approach allows wireless device manufacturers to customize the pre-certified modem, in a rapid and cost-efficient manner, …”

My thesis is that if TI can negotiate a deal with InterDigital to sell a bundle of the SlimChip IC with its own OMAP, or perhaps incorporate InterDigital’s IP in an OMAP-Vox solution, then both companies can benefit. For TI, it will be a chance to retain and even grow 3G market share by marrying its manufacturing excellence to performance, an area in which it has always been behind Qualcomm. For InterDigital, any such alliance will not only imply SlimChip sales levels it can never get to otherwise but also a chance to change industry and Wall Street perceptions.

TI’s executives have mentioned that they are watching the market and are prepared in case they see a trend away from its custom IC products for 3G. They also perceive a good position if the industry does not sway from separate baseband and application processors in the chipset. If not, they suggest a quick ramp up in 3G baseband integration. While not discounting TI’s capabilities, I think that the time to market will disadvantage it considerably given the lengthy product cycles. The alternative is to go with someone like InterDigital. This will have both parties laughing their ways to the coffers.

[Long Qualcomm, InterDigital at the time of writing]

[Originally for Sramana Mitra's site]

In the last part of this series, I presented a brief analysis of TI’s 2007 Financials. As I mentioned before, the company’s semiconductor business has two pillars – namely DSP and analog. While DSP has been TI’s traditional strength, analog, which is one of the largest semiconductor markets, is fast becoming its future mainstay.

TI is the world’s largest supplier of analog semiconductor solutions. The statistic to note here is that its $5.29bn revenue represents just under 15% of the total addressable market of $36bn, presenting a huge opportunity for the company to grow.

TI has an increasingly strong presence in the high-performance analog (HPA) semiconductor market. The company has successfully grown its market share in HPA every year since 2001. HPA is driven by power management chips and precision high speed data converters and amplifiers. It contributes to 45% of TI’s analog revenues helped by stable pricing and the company’s technological acumen. Besides, as the product mix gets skewed to HPA, TI will be able to achieve its margin targets.

TI is taking steps to consolidate its position in the analog market and to have sustained growth in excess of the fragmented analog market growth. It has been investing heavily in analog since the past decade. A substantial portion of the company’s R&D expense has been spent in activities such as increasing analog field applications engineers to bolster its world-wide support network. Also, its CFO Kevin March said recently that acquiring smaller companies to grow market share was always in the cards. TI believes that this strategy will allow it to rapidly leverage its sales force and customer contacts to complement the acquisition’s product offerings. In keeping with this mindset, the company acquired integrated circuit designs and POWERPRECISE solutions last year.

TI’s increased attention to this market has resulted in impressive financial results. Analog revenues have grown by 11% over the past two years. The corresponding HPA growth has been about 28%. The company has continued to broaden its analog portfolio to bring differentiated custom, standard and commodity analog products to the market. It is well-positioned to exploit the continued thrust towards efficient power management, especially in mobile communications. If it can continue to skew its product mix towards HPA products, TI can further the already market share in the analog space with impressive margins despite falling prices. This will also drive its future growth.

[Originally for Sramana Mitra's site.]

In the prequel, I pointed out that Texas Instrument (TXN) supplied semiconductor solutions to many markets making it one of the largest semiconductor companies in the world. Before I move on to dissect its businesses in detail, I wish to review the company’s 2007 financial results to put the rest of the series in perspective.

TI’s total revenue for 2007 was $13.83bn at a gross margin of 53% and an operating margin of 25.3%. This was a 3% decrease from the 2006 figure of $13.73bn. The company attributes this decrease to lower demand for its RISC processor, lower demand for mobile chips and DLP products. The margins, on the other hand, are certainly impressive when compared to the rest of the industry. The semiconductor industry’s gross margin average is at 50.5% while the operating margin average is at 18.6%. TI’s superior margins are due to its continued shift to higher margin products such as high-performance analog (HPA) and changes in its manufacturing strategy. The corresponding EPS was a healthy $1.83 giving it a P/E ratio of 15.41 as on March 15, 2008.

The education technology business has been a steady source of about $500mn for the past four years. This year’s $526mn amounted to 3.8% of the company’s revenues. With a fairly mature product-line the business continues to become more efficient recording its 11^th straight year of improved margins and profitability. The gross margin for this business unit was 64.6% and the corresponding operating margin was 39.4%.

The semiconductor business generated $13.31bn in 2007 at a gross margin of 53.2% and an operating margin of 29.2%. The operating profit increased by $52mn from $3.83bn to $3.88bn. The two key components of the business unit, namely analog and DSP, both yielded over $5bn in revenue. The two together accounted for 80% of the semiconductor revenues.

Analog revenues were up 1% from last year to $5.29bn driven by a 9% growth in HPA. This was offset by reduced sales in custom analog parts for mobile phones, an offshoot of its customers adapting a multiple vendor strategy. DSP revenue was at $5.07bn and also saw declines across many markets. On the other hand, TI has about 65% of the DSP market share. This business continues to remain one of TI’s fortresses. The company’s OMAP processors have substantial traction in the mobile world and will be a steady source of income moving forward.

Nokia, as TI’s single-largest customer, accounted for 19% of its 2007 revenue. With the Finnish company opting to source chips from ST Microelectronics, Infineon and Broadcom as well, this figure may go down in the years to come. However, more than 80% of TI’s revenue comes from outside the US. The fairly diverse and global nature of its customer base, coupled with the markets and applications it caters to, provides TI substantial resilience to an economic slowdown.

TI is also buttressed by sound economics. The higher profitability from its product mix and its move towards better capital efficiency has generated a cash flow of over $4bn this year. The company also managed to increase its return on invested capital for the sixth year in a row.

The continued thrust for efficiency and higher margin products are in line with TI’s goals – to grow faster than its markets, grow earning per share faster than revenue, 55% gross margins and 30% operating margins. Whether it can grow faster than the competition in all its markets is debatable, but its track record gives me the confidence that its margin goals are very attainable.

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.

We have so far looked at Broadcom’s Enterprise Networking business, Broadband Communications business, and the Bluetooth and WLAN components of its Mobile and Wireless Business. I will now look at its cellular mobile business which, in my mind, is the make-or-break component for the company.

The cellular space is Broadcom’s avenue for growth today considering that all its other businesses are mature. With these turning into flat, stable revenue streams, the move to challenge Qualcomm, TI and the others in the cellular IC market was a necessary gamble. Broadcom is approaching the mobile space rather aggressively. Just last year, it broke into the top-5 mobile merchant IC suppliers according to an iSuppli research report. It also announced a string of products including a single-chip 65 nm EDGE chip, a complete HSDPA reference design and its much publicized ‘3G-phone on a chip’. This single chip 3G-phone design, which Broadcom claims is a year ahead of competition, combines baseband and RF functionalities along with FM and multimedia processing capabilities and has been priced at $23 for early customers.

The company has also been involved in an extended legal battle with Qualcomm over intellectual property. From Broadcom’s standpoint, wins here will reduce the pricing advantage that Qualcomm has in the 3G business. Also, it helps project the company as the new champion in the mobile world. If we add the extensive PR campaign through the last two years, it is easy to appreciate the strides Broadcom has made in this space recently.

Broadcom also spent a substantial portion of last year’s revenues directed to this business. This includes its migration to 65 nm (the process technology employed by leading IC vendors in the mobile space) and its purchase of Global Locate for GPS capabilities. Both these are seen as imperatives for the company to stay amongst the top vendors each of whom have a complete portfolio of wireless products to complement their mobile chipset solutions. With these moves and the product announcements, Broadcom is targeting 10% market share by the end of 2009.

While the product and marketing strategy cannot be faulted, it now boils down to execution. In the sequels, I will take a brief look at what this means and also on the expected revenue growth from this division.

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

Broadcom series continues on Sramana Mitra's site.

In the last article, I talked about Broadcom’s Bluetooth business and its co-dependent relationship with Wireless Local Area Network (WLAN). In this article, I will take a deeper look at the WLAN market and Broadcom’s position in it.

Broadcom is a leader in the WLAN market as well with around 25% of the market share. In 2007, WLAN accounted for around $500 million in revenue for the company due to the penetration in notebooks/laptops, and the strength of its 802.11g line of products. Broadcom’s WLAN devices are found in non-Centrino laptops, gadgets like Nintendo Wii and various wireless access points found in your local Fry’s store.

The total addressable market (TAM) for WLAN is expected to double to $4 billion in the year 2012. This growth will be driven by a variety of factors. Firstly, the migration to the faster data-rate 802.11n standard will enable more wireless applications and networking. Secondly, the convergence devices movement will result in a steady increase in WLAN-enabled handheld devices, growing to over 20% penetration. Thirdly, portable consumer electronics devices will also offer WLAN as a value-add. This in turn will be driven by the rapid adoption of WLAN in Portable Media Players. Microsoft Zune and Apple iPod Touch are good examples of where the industry is headed. Similarly, WLAN will have a 100% penetration in the gaming devices market. Fourthly, stationary consumer electronics gadgets like printers are increasingly becoming wireless. Finally, the current market for Access Points, Routers etc. will also grow in strength with the increasing number of applications.

The WLAN market is fairly mature and so the leaders will retain their shares in the future. With mobile devices being important growth drivers, the key to sustained leadership will be integration, smaller form-factor and lower power. Broadcom is working on integrated products. It is leveraging its 65 nm migration towards smaller form factor (though this relationship is not straightforward). Its combined Bluetooth, WLAN and FM chip, if found hassle-free, is a sure winner. However, I am not as confident about its push towards low power. As I mentioned in my previous article, Marvell and Atheros are way ahead in terms of low-power designs. As a result, the company may not be able to exploit the penetration of cellular and portable devices optimally. This situation is accentuated by the flux surrounding the company’s cellular mobile business.

Overall, the WLAN business is yet another strong revenue stream for Broadcom. It will grow to yield a billion dollars in revenue for the company early next decade growing at a CAGR of 15%.

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

In the previous articles in this series, we looked at the strengths and weaknesses of Broadcom. We also looked at the pros and cons of its broad portfolio of products and its growth by acquisition. Going forward, I will start to dissect the company’s enterprise networking products business.

The enterprise networking business is driven by the stability of the Ethernet market and the company’s insurmountable leadership position in it. Broadcom is the leading Ethernet semiconductor vendor with about 30-35% market share. Its nearest competitors, Marvell and Intel have less than 20% of the market share each. Broadcom’s well-integrated and low-power switching and Ethernet controllers are part of various computers, VoIP phones, wireless access points and network infrastructure products.

2007 saw the overall revenues for the enterprise networking business drop slightly. The revenues decreased 5% from the 2006 figure of $1.18 billion to $1.12 billion. The revenue from this business represents about 30% of the total. However, the revenue drop also signifies a reversal of trends for this business which grew 11.2% between 2005 and 2006. The prime reason appears to be a loss of market share in the Gigabit Ethernet controller product-line attributed to some aggressive marketing and pricing strategies by its competitors.

Looking ahead, the Ethernet semiconductor market will grow at around 5.5-6% CAGR. This modest growth number will be driven by the continued transition to Gigabit Ethernet across all product lines like switches and network interface cards. This being said, the competitive landscape has also widened. While Marvell, Vitesse and Agere continue to make Broadcom work to maintain its leadership here, Atheros, its chief WLAN competitor has also made strides in this market. In its first year in the Ethernet business, Atheros, announced the industry’s smallest PCIe Gigabit Ethernet controller last November. Then there are the smaller players and startups stacking further pressure on Broadcom by reducing the price-points and giving the OEMs more options.

Despite the stiff competition, Broadcom continues to innovate ahead of its competitors. It is leveraging its 65 nm migration as the key to its future success. In Q4 2007, it announced multiple 65 nm products – a Gigabit controller, a Gigabit switch and a 10-Gigabit switch. By integrating WLAN and security features and by also offering customer value-add features, the company has sought to differentiate itself from the smaller players.

As Broadcom takes measures to counter the new entrants who threaten to rock the boat, I anticipate that Broadcom will continue to maintain an average of around 30% market share over the next few years. Its positive spin on its 65 nm move is expected to help. However, with the Ethernet market itself growing rather modestly, I estimate that the Enterprise Network business revenue will grow only at a CAGR of about 3.85% over the next five years. In summary, this business will offer a steady but relatively flat revenue stream for Broadcom.

In the sequels, we will dissect the Broadband Communications and the Mobile and Wireless businesses, followed by a valuation analysis.

Over the last two parts of this series, we discussed the advantages and disadvantages of Broadcom’s wide portfolio at length. It is also illustrative to look at a key strategy that the company has been following for a while now: Growth by acquisition.

The breadth of Broadcom’s offerings comes from the various strategic acquisitions that it has invested in. Between 1999 and 2007, Broadcom acquired 36 companies spanning its three target markets. Broadcom has used these acquisitions to fill gaps in its product-lines, to reduce time to market, to carve a niche and also perhaps, to eliminate competition. These acquisitions have also allowed rapid enhancement of the company’s engineering expertise efficiently.

The 2005 acquisition of Sandburst Corporation is a good example of how Broadcom has rounded up its product portfolio through this strategy. The Massachusetts-based company’s semiconductor solutions for enterprise core and metropolitan Ethernet networks have helped Broadcom offer complete end-to-end Ethernet switching products.

Among its other ventures, Broadcom acquired Zyray wireless, a company that developed WCDMA baseband co-processors, in June 2004. The San Diego-based company came at a reasonable $96 million (paid in stock). Not bad considering that its SPINNER chip was Broadcom’s entry-point into 3G. At the time, Zyray’s product complemented Broadcom’s GSM/GPRS/EDGE capabilities and enabled the Irvine-based company to have a cost-effective WCDMA solution. Zyray’s solution, engineering team and its intellectual property have been important value-additions to Broadcom, whose future rests on its delivery and design wins in the mobile space.

Broadcom’s most recent acquisition, Global Locate also deserves a mention. Global Locate, acquired for around $146 million, developed GPS and Assisted-GPS (A-GPS) semiconductor solutions and software. Given its foray into 3G and mobile wireless which is migrating towards convergence devices or highly integrated communication devices, I was expecting Broadcom to make the GPS move much earlier. On the other hand, I am glad it has done it before the impending 3G boom. Adding GPS capabilities to its portfolio not only enables stand-alone solutions but also provides a path towards integrated Bluetooth, WLAN and GPS chips that can go into Personal Navigation Devices and mobile chipsets. Besides, GPS and location-based services are quickly becoming integral to tomorrow’s mobile-phones. Broadcom, through this acquisition, hopes to tap its System-on-Chip (SoC) capabilities to obtain design wins for its now-complete mobile portfolio.

Perhaps the best thing about these acquisitions is that they are well-calculated, strategic moves that did not dent its cash coffers outrageously. While most of these acquisitions have contributed to Broadcom’s mainstream product-line, their relatively cheap price tags allows the company to shed them off if found superfluous. Of course, this is not a desirable outcome. But the point I am making is that Broadcom should not hesitate on tough decisions, since it will provide more focus, and as Michael Kanazawa puts it, lesser corporate A.D.D.

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