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Broadcom (UNKNOWN: BRCM.DL ) , a leading vendor of connectivity combo chips and an aspiring player in the upper tier of the cellular baseband market, announced at its analyst day that it had won a Samsung (NASDAQOTH: SSNLF ) LTE design with its latest integrated apps processor and LTE baseband.
This is but the first step in the company's journey in becoming a viable second source -- along with Qualcomm (NASDAQ: QCOM ) -- in handset modems and integrated products. But it is encouraging to see the company finally make meaningful progress here after struggling for so long. Broadcom's wireless and cellular future looks a whole lot brighter today than it did a week ago.
The struggle so far
LTE has been a struggle for every player not named Qualcomm. While Qualcomm has been shipping LTE chipsets since 2011 and sweeping just about every mid-range and high-end phone in existence, Broadcom and Intel (NASDAQ: INTC ) were running late. Now, both of these competitors have stepped on the gas in order to get credible solutions out in the 2014 time frame, and both appear to have succeeded -- Intel with XMM 7160/7260 discrete modems and Broadcom with its integrated SoCs, with discrete modems coming later. However, only Broadcom has handset designs from a major player announced.
Yes, Broadcom wins a Samsung design
Love it or hate it, Samsung is the world's largest handset vendor, and the fates of component vendors is non-trivially linked to their ability to win content share over at Samsung. The design that Broadcom won with its SoC isn't the flashiest, highest-end design by any means -- given the specifications of Broadcom's SoC here, it is probably aimed for the "value" segment of the market.
However, given that Broadcom is selling Samsung the entire platform -- modem, RF, connectivity, apps processor -- and given that the low end of the market is where all of the really attractive growth is, this design could open the doors to many more design wins and, therefore, very nice top- and bottom-line growth for Broadcom.
Quantifying this win -- 2014 estimates too low
Broadcom's CEO noted that the company expected "nine digits of revenue" from LTE next year. According to CEO Scott McGregor, this correlates to "tens of millions of phones". Most, if not all, of this revenue is incremental to the current revenue.
Given that the company's other businesses, like networking, home, and connectivity, are actually set to grow, it is puzzling that the sell-side revenue consensus for Broadcom next year comes in at a mere 4% growth. The LTE volume platform shipments alone, assuming $15 per platform and 20 million units, should do it, with the rest of the businesses' growth acting as proverbial icing on the cake.
How's the competitive landscape look?
While the initial win at Samsung is good, Broadcom will be up against many players going forward. While Broadcom seems to be the No. 2 player in integrated LTE SoCs, the No. 2 player in discrete LTE modems appears to be Intel. To illustrate, Broadcom is sampling its LTE-Advanced, category 6 modem during the first half of 2014 -- likely in the second quarter.
That implies that volume shipments won't happen until late 2014/early 2015. Intel, on the other hand, claims that its own modem with similar specifications is on track for launch in handsets during the first half of 2014. Fortunately for Broadcom, Intel's integrated LTE SoC won't hit the market until early 2015, giving Broadcom a nice head start.
Foolish bottom line
It looks like Broadcom's acquisition of Renesas Mobile was a success. It is moving much more quickly with this freshly acquired IP than many had expected. It'll be interesting to watch for more wins -- and sell-through of the wins -- over the next year. It'll be even more interesting to see if Broadcom can really beat the current, rather pessimistic, revenue growth estimates that Wall Street expects for next year.
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