Broadcom Leaps Ahead

Broadcom (Nasdaq: BRCM) has been aggressively going after the market for chips that power cell phones, and it has a stated goal of 10%-15% market share by 2009. The company took a big step yesterday with its announcement of a new chip that integrates most of the functionality needed for a feature-filled 3G mobile phone and is at least a year ahead of the competition, according to Broadcom.

You may be wondering what the big deal is, so allow me to explain.

One way that semiconductor manufacturers have been able to reduce the cost of electronic devices over the years is by adding functions to their chips. If a single chip can be made to take over several necessary chores rather than doing just one, it isn't hard to imagine that the cost of building an electronic gadget drops.

Manufacturers of chips for cell phones have been playing this game lately. Texas Instruments (NYSE: TXN) has a chip named LoCosto which handles most of the functionality that people expect for a low-end cell phone, and Silicon Labs (Nasdaq: SLAB) also had a single-chip solution for less expensive cell phones, although it sold it to NXP. Several other chip manufacturers also have single-chip solutions. The difference with Broadcom's new chip, however, is that it's the first intended for use in sophisticated smartphones. In other words, this new chip offers the bells and whistles that no other single chip does.

So, what are the advantages of a single chip over using several chips to do the same job?

Well, as mentioned above, lower cost is one advantage. Smartphones should be available at much lower price points once manufacturers introduce models based on the new Broadcom chip. Also, a reduction in the number of chips means phones can be more compact and will use less power.

We don't know yet what kinds of limitations the use of this chip will place on OEMs (companies like Nokia (NYSE: NOK) and Motorola (NYSE: MOT)) that design phones around it -- there will certainly be smartphone designers who go ahead and use multichip solutions. Nevertheless, it wouldn't surprise me if this chip manages to capture a meaningful share of the market.