Early next year, Intel (NASDAQ:INTC) is expected to launch its next-generation 300-series PCH chips for use with its upcoming Coffee Lake processors. These chips, as previous leaks have indicated, will integrate USB 3.1 Gen2 along with connectivity (Wi-Fi and Bluetooth), eliminating the need for stand-alone chips to implement this functionality.
Per DigiTimes, citing "sources from the upstream supply chain," this integration will negatively affect the following three companies: Realtek Semiconductor, ASMedia, and Broadcom (NASDAQ:AVGO), which currently supply such chips for personal computers.
The biggest loser
Broadcom is a highly diversified business, and wireless connectivity is just one of the company's several businesses, making up just 28% of its total revenue in its fiscal second quarter. Moreover, Broadcom's wireless business isn't dominated by sales of Wi-Fi/Bluetooth combo chips into personal computers. Rather, much of its wireless business is driven by sales of Wi-Fi/Bluetooth combo chips, as well as RF components, to Apple and Samsung.
While Intel's move will serve to reduce Broadcom's total addressable market within the wireless chip market, it's not the sort of thing that will meaningfully affect its financial performance.
ASMedia doesn't sell Wi-Fi chips, but it does sell stand-alone USB chips that motherboard makers use to augment the capabilities Intel provides in its PCH chips. That augmentation is done to allow for more USB ports than what Intel's chip natively provides, and/or to provide USB ports implementing the latest USB standards. (Intel's built-in USB ports are often a generation behind the latest standard.)
DigiTimes says that, to cope with this upcoming challenge from Intel, ASMedia "has also begun development of USB 3.2-related products, to differentiate from Intel's products" -- or in other words, what ASMedia has traditionally done.
The final company that will reportedly be affected -- and this is a big one -- is a chip company called Realtek. Realtek built a lot of stand-alone components that are included on personal-computer motherboards including Ethernet connectivity, Wi-Fi connectivity, audio codecs, and other technologies. Intel's integration of Wi-Fi/Bluetooth into future PCH chips could dramatically impact Realtek's Wi-Fi/Bluetooth chip business as a result.
"Realtek is expected to be seriously hurt by Intel's decision, as its PC product line contributes a major proportion of its overall revenues," DigiTimes explained.
What's next on the integration menu?
Intel recently indicated that it plans to make its Thunderbolt 3 technology into an open standard, allowing other chipmakers to develop stand-alone Thunderbolt 3 chips. Currently, Intel is the only supplier of Thunderbolt 3 chips.
On the surface, it appears Intel might be opening itself up to additional competition, but in practice, competing Thunderbolt 3 chips shouldn't hurt Intel, as the chip giant also plans to integrate Thunderbolt 3 functionality into future processors. It's not clear if Intel plans to integrate Thunderbolt 3 into the processor dies themselves or into the PCH -- I suspect it'll be the latter -- but either way, that integration should substantially erode the value proposition of stand-alone chips, either from Intel or third parties.
Intel is much more likely to benefit from opening up the Thunderbolt 3 standard -- potentially driving up adoption -- and then selling chips with integrated Thunderbolt 3 connectivity (the benefit of this, perhaps, manifesting as increased average chip selling prices for Intel) than it would from keeping the technology closed, thus limiting adoption.