Why Broadcom May Be Intel's Next Foundry Customer

With Broadcom's commanding grip on the Ethernet switching market, perhaps Intel would be better served partnering with Broadcom as a foundry rather than competing with it.

May 31, 2014 at 11:05AM

Back in 2011, Intel (NASDAQ:INTC) picked up a small, fabless semiconductor company called Fulcrum Microsystems. Fulcrum developed Ethernet switches for data-center applications, so this was a natural acquisition for Intel as it sought to capture more content within the data-center space. While Intel has a nontrivial market share in merchant switch silicon today, its best offerings still lag those from market leader Broadcom (NASDAQ:BRCM) in a number of key ways and its revenue share is much smaller. This suggests Intel and Broadcom could enter into a very interesting foundry collaboration for these types of products.

Intel's FM6764 faces Broadcom's Trident II
Intel launched its FM6764 Ethernet switch In the first quarter of 2013. This switch silicon offered a maximum port bandwidth of 640 G (with support for 64 x 10 GbE ports or 16 x 40 GbE ports). The part is built on a 65 nanometer process (likely external foundry given the Fulcrum legacy) and is rated at a max thermal design power of 195 watts. The switch is targeted toward data center, high-performance computing, and financial services.

Broadcom's latest and greatest is a beautiful piece of silicon known as Trident II. This is built on a 28-nanometer manufacturing process (which gives Broadcom density and power advantages), and the highest-end SKU offers maximum port bandwidth of twice that of the Intel solution at 1280 G. This allows the Broadcom silicon to support up to 104 x 10GbE ports or 32 x 40GbE ports. In fact, the absolute lowest SKU in the Trident II family offers 720 G maximum port bandwidth (which means either 72 x 10GbE ports or 18 x 40GbE ports) -- still well ahead of the latest that Intel appears to offer.

The market-share picture
Broadcom offers leadership in the industry, which is reflected in this chart on market share (as of the end of 2012):


Source: Broadcom.

Broadcom's revenue here was well ahead of any of its competitors. Marvell (NASDAQ:MRVL) was in second place (albeit at about a third of Broadcom's revenue), but a glance over at the feature sets offered by its switch silicon suggests that Broadcom is well ahead there. Broadcom has done a tremendous job maintaining and extending its lead with the Trident II family of products.

Broadcom a potential Intel foundry customer?
Now let's look at Broadcom as a potential Intel Custom Foundry customer. While Intel has its own in-house solution and would probably like to capture as much of this content as it can organically, there may be a case here for Broadcom as an Intel foundry partner. While Intel and Broadcom do compete in a number of areas (and with Broadcom's success with multicore network processors, this hits closer to home), these kinds of large, high-margin pieces of silicon are exactly the kinds of products that Intel should be looking to get into its factories.

Broadcom's broader portfolio -- which contains knowledge-based processors, network processing unit, microwave backhaul, and much more -- would very much benefit from a strategic partnership with Intel. Not only does Intel capture more of the data-center and network infrastructure market as a foundry, this is one of the key high ASP markets in which Intel's manufacturing lead could be worth paying a premium for, from Broadcom's perspective.

Foolish bottom line
It'll be interesting to see how competitive Intel's switch silicon becomes over time, particularly as the company presumably moves those products to its leading-edge manufacturing technology. However, given the sheer dominance of Broadcom in this area in terms of both technology and revenue share, a foundry partnership may be an option that ultimately delivers better return on investment for Intel than trying to outgun Broadcom.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee 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 claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers