Broadcom Corporation Wins the LG G3

Allaying fears that rivals could take high-end connectivity combo chip share, Broadcom has won the LG G3's connectivity socket.

May 28, 2014 at 10:00AM

The high-end "hero" smartphones that matter these days come from Apple, Samsung, LG, and HTC. While this smartphone market has seen growth slow considerably over the last several years as cheaper phones add functionality and performance, the high end is still crucial to both handset vendors and component suppliers. Broadcom (NASDAQ:BRCM), which supplies connectivity chips into handsets, appears to be holding its high-end connectivity share position quite well.

Broadcom wins another high-end score
The Samsung Galaxy S5, iPhone 5s, HTC One (M8), and now the LG G3 all sport high-end Broadcom connectivity solutions. This is a particularly noteworthy validation of the strength of Broadcom's connectivity solutions given that Qualcomm (NASDAQ:QCOM)

The good news is that Broadcom's position at the high end of the connectivity combo chip space is probably secure. Not only do the vendors of "hero" devices prefer the flexibility of a discrete component (Qualcomm offers parts with integrated Wi-Fi), but they are also concerned with both power consumption and performance. Broadcom claims to have a significant performance and power advantage with its connectivity solutions, and given that the company keeps winning the high end, there's little reason to doubt that assertion.

Broadcom's connectivity business seems viable even without cellular
Most of Broadcom's mobile and wireless revenue comes from the sale of connectivity products. However, the profitability of this division has been hit dramatically (last quarter, Broadcom's mobile business posted a loss) as a result of the company's attempt to move into cellular modems/apps processors. This move is intended not just as an offensive play -- to grow sales and profits meaningfully -- but as a defensive strategy to protect the company's connectivity share at the low and midrange.

In the high-end space, the handset players pick and choose the components that go into their designs, but in the midrange and value space, the vendors want the complete platform. Without a credible modem/apps processor story, Broadcom has a difficult time competing for connectivity share in lower-end phones. However, given the trends currently in place, and Broadcom's strength at the high end, the company's "problem" is seemingly a lower rate of growth if it doesn't get into cellular rather than a collapse of its mobile and wireless business.

Foolish takeaway
With this round of high-end phones all being powered by Broadcom connectivity, it looks clear that even without a cellular story, the company's connectivity business will be viable. Would it be nice for Broadcom to increase its content share in handsets and drive substantial revenue growth from there? Of course. However, is this a "sink or swim" proposition in which Broadcom face a long-term risk if it doesn't win its connectivity share in cellular? Probably not. 

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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