Apple Doesn't Seem Interested in Broadcom's Cellular Division

With rumors flying that MediaTek or the Chinese government will be picking up Broadcom's cellular division, it seems unlikely that Apple will be interested.

Jun 28, 2014 at 8:00PM

I have long been interested in seeing Apple (NASDAQ:AAPL) acquire cellular IP in order to integrate it into its custom-designed A-series of processors for the iPhone and iPad. Qualcomm (NASDAQ:QCOM) -- which supplies most of the world's smartphone applications processors -- provides many of Apple's competitors (such as Samsung, HTC, and LG) with integrated processor and modem solutions, which means a potential efficiency edge over the Cupertino-based smartphone giant.

That said, though there is a pretty strong cellular team and IP available for sale, Apple still doesn't look like it wants to bite. 

There's value in designing custom processors
When Broadcom (NASDAQ:BRCM) threw in the proverbial towel on its cellular efforts, a pretty strong argument could have been made that Apple was a likely buyer, as it has shown a tendency to want to keep as much non-trivial silicon as possible in-house. 

Keep in mind that the reason Apple builds its own A-series processors is that it can optimize the design of the system on a chip to deliver maximum performance to the end user, because Apple knows what software runs on iOS devices and can tailor its micro-architectures to that software.

Cellular is a different animal
When it comes to cellular basebands and RF, there's no chip vendor out there today with more know-how and experience than Qualcomm. As a result, Apple buys standalone cellular modems exclusively from Qualcomm. Though many companies have hoped to be a second source, none of these contenders has been able to deliver.

If Apple were to build its own cellular modem, it would do so with the intention of differentiating beyond what an off-the-shelf Qualcomm modem could provide.

How realistic is it that Apple would be able to do a product that is even equal to -- let alone better than -- what Qualcomm offers today? With the Broadcom assets along with a lot of money, Apple could eventually do it, but it would be expensive and difficult.

So, no cellular for Apple, it seems
Although it seems likely that Apple would benefit from a power efficiency boost if it were to integrate a cellular baseband into its A-series chips, this baseband would need to be best-in-class for Apple to actually go ahead and do that.

So, given that Qualcomm is well ahead of what any vendor on the market has technologically, any benefits of integration would probably be more than offset by IP that just isn't yet up to snuff. 

Foolish bottom line
The mystery of what will eventually happen to Broadcom's cellular business should be answered pretty soon -- expect an update at the company's late-July earnings call. However, given the various rumors that have been flying around (MediaTek and, more recently, the Chinese government as buyers), it doesn't look like Apple is interested.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple and owns shares of Apple and Qualcomm. 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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