Could Apple Get Broadcom's Cellular Business on the Cheap?

With Broadcom's cellular chip business on the chopping block, could Apple get it on the cheap?

May 22, 2014 at 7:28PM

A little while ago, I penned a piece claiming that it would probably not make sense from a cost-savings and risk-management perspective for Apple (NASDAQ:AAPL) to move cellular baseband in-house. However, there is a strong likelihood that if Apple were to build a viable baseband and integrate it onto the same piece of silicon as its applications processor, it could realize a cost, performance, and power advantage over a discrete solution. With Broadcom's (NASDAQ:BRCM) cellular business on the proverbial chopping block, is Apple likely to be a contender to buy this business?

Sounds better than Beats
Apple certainly has a lot of cash in its coffers and has been using quite a bit of it to buy back its own stock. In addition, it's been rumored that Apple is interested in buying headphone maker Beats Electronics for $3.2 billion. While some believe that this is a good strategic move, others -- including yours truly -- think it would be puzzling at best. Apple is better off bolstering its technological capabilities and bringing more silicon capability in-house, and picking up Broadcom's cellular business would be an interesting way to do that.

That said, if Apple wanted baseband, why didn't it buy Renesas Mobile?
Most of Broadcom's mobile roadmap and product pipeline today seems to be built upon a merger of its own internal efforts and the assets acquired from Renesas Mobile in late 2013. In particular, Broadcom probably scrapped its own internal modem efforts and used the Renesas modem roadmap as the heart of the current efforts. As far as the rest of the IP blocks go, Broadcom is licensing ARM Holdings (NASDAQ:ARMH) CPU cores and probably Imagination Technologies (LSE: IMG) GPUs, and then the rest of the SoC is either of Renesas Mobile or Broadcom heritage.

It seems likely, then, that if Apple wanted to do its own modem, it could have picked up Renesas Mobile for itself. Remember that Broadcom paid a mere $164 million for the Renesas Mobile assets, and Broadcom's CEO noted shortly after the acquisition was announced that Renesas had a very difficult time shopping around that business. Apple could have easily afforded to pick these assets up (along with anything else that it needs), yet it didn't bother to pick it up.

Could it simply be that Apple isn't interested in building its own cellular platform?

Renesas Mobile went for $164 million
At this point, it's interesting to think about how much Broadcom could get from selling the assets related to its cellular efforts. Surely over the past several years this has been a money sink, with the losses likely in the hundreds of millions or even the low billions at this point. However, while it would be nice for Broadcom to be able to recoup its development efforts here, it probably won't in full.

Further, the big problem with trying to sell such an asset is that the "expense" isn't really going to be in the upfront cost of the business and assets, but in how much it will cost to actually maintain those R&D efforts. A company like Apple already has a world-class SoC team, so it would really only be interested in the modem IP. While Broadcom could sell to Apple the modem team or teams, the rest of its cellular and SoC business would probably be of minimal value to Apple at this point.

It's tough to imagine that Apple would need to pay an obscene multiple of the $164 million that Broadcom paid for Renesas Mobile. 

Foolish bottom line
It's interesting that Apple still hasn't made too much of a public fuss about building its own modems. While the financial benefit from building its own discrete modem is unlikely to be worthwhile, there would probably be performance and power benefits (as well as potentially cost benefits) in moving that IP onto the same piece of silicon as the apps processor. Time will tell what becomes of Broadcom's cellular efforts as well as what Apple ultimately does vis-a-vis modem technology, but it's clear that this space is never boring.

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Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Ashraf Eassa owns shares of ARM Holdings. The Motley Fool recommends Apple and owns shares of Apple and Imagination Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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