Can Broadcom’s Connectivity Business Survive?

Broadcom made a splash by announcing that it's pulling out of the cellular baseband business. But how will this affect its connectivity business, which forms the bulk of Broadcom's mobile and wireless segment?

Jun 17, 2014 at 4:05PM

Over the last several years, semiconductor maker Broadcom (NASDAQ:BRCM) has invested a lot of money in trying to catch up to baseband industry leader Qualcomm (NASDAQ:QCOM), which is estimated to control 95% of the emerging LTE market. As a result, Broadcom's largest segment, mobile and wireless, reported stagnating revenue in 2013 and a $32 million operating loss in the first quarter of 2014. Since the rest of Broadcom's business is doing very well, investors and analysts were calling for Broadcom to reconsider its mobile strategy, which included providing baseband modems as well as connectivity solutions.

Then, in the beginning of June, Broadcom did exactly that, announcing that it will exit the mobile baseband business. This is estimated to result in an annual reduction of expenses of roughly $700 million, and Broadcom's share price responded accordingly, rising over 20% in the days following the announcement. But what will become of Broadcom's connectivity business, which formed the bulk of the mobile and wireless revenue?

Three buckets of connectivity
Broadcom's CEO Scott McGreggor has described the connectivity business as comprising three buckets. The first of these is high-end mobile phones and tablets. The second is mid-range and low-cost phones. The third is non-cellular, such as printers and Internet of Things appliances.

Broadcom has traditionally been strong in the high-end handset connectivity market, supplying both Apple and Samsung, who can afford to pick and choose among the best components. As for the non-cellular connectivity bucket, McGreggor called it "a very rich environment" in which Broadcom has a very good position. Since neither of these segments were associated with Broadcom's baseband business, it's to be expected that they will continue to develop and won't be affected by Broadcom's exit from baseband.

To protect and increase
Broadcom entered the baseband market for two main reasons. The first was to increase revenue, since baseband, and LTE in particular, is currently one of the largest growth opportunities in technology. Broadcom's second reason was an attempt to protect its connectivity business in low- and mid-tier phones, and it's here that the connectivity business is likely to suffer.

In low- and mid-tier phones, one supplier usually provides both the baseband and the connectivity solutions. According to the management of Marvell (NASDAQ:MRVL), which has had more success than Broadcom in entering the LTE market and is now in the No. 2 position, there is a 100% attach rate of connectivity solutions to baseband sales. Marvell CEO Sehat Sutardja described this colorfully by saying that if there's "anything wrong with the handset, [customers] just want one supplier to choke."

Broadcom estimates revenue from this part of its connectivity business at $500 million-$800 million per year. Management has stated that some of the losses might be offset by baseband partners such as Spreadtrum, who might win baseband sockets and take Broadcom's connectivity with them. However, if Marvell's Sutardja is right, this part of Broadcom's connectivity business will see some major losses in the coming year.

Where next?
Several analysts have recommended that Broadcom exit all wireless-handset related segments, but it doesn't look like that's going to happen. McGreggor stated that connectivity remains a healthy business, and that the company is not interested in selling it off. Instead, Broadcom plans to merge its connectivity and broadband segments, citing strong synergies between the two as justification.

And maybe that points to the conclusion of this story. Management has said that unlike its baseband business, connectivity is modular, in that parts can be taken out or replaced without affecting the whole. Broadcom's low- and mid-tier handset connectivity segment, which was tied most closely to the baseband program, will likely suffer now that Broadcom is out of baseband. But the other two segments will continue, and might even prosper within a smaller, more profitable Broadcom.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.


Srdjan Bejakovic has no position in any stocks mentioned. The Motley Fool owns shares of 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers