Please ensure Javascript is enabled for purposes of website accessibility

Here's What Broadcom's New Wi-Fi 6 Chip Means for Investors

By Ashraf Eassa - Updated Apr 16, 2019 at 4:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The chip specialist is rounding out its Wi-Fi 6 portfolio to address lower price points.

When Samsung (NASDAQOTH: SSNLF) announced its Galaxy S10-series of premium smartphones, wireless chipmaker Broadcom (AVGO -1.61%) announced, in tandem, that its latest BCM4375 Wi-Fi/Bluetooth connectivity combination chip is powering those new flagship smartphones. That chip was the company's first to support the latest Wi-Fi 6 standard, which promises significant performance improvements over previous-generation Wi-Fi technology.

The BCM4375 is a high-end part aimed at premium smartphones, meaning that it's designed for maximum performance, but its cost structure (as well as final selling price) is designed for pricier devices that can handle relatively pricey chips.

A person with computer code projected over them.

Image source: Getty Images.

On Feb. 25, Broadcom announced a new Wi-Fi 6-capable chip known as the BCM43752. This chip, unlike the BCM4375, is aimed at so-called mass-market smartphones. 

Let's take a closer look at the announcement and why investors should care. 

Cost cutting all around

Broadcom explains that the BCM43752 "significantly reduces smartphone bill of materials by integrating [radio frequency] components such as power amplifiers (PAs) and low-noise amplifiers (LNAs) into the device."

The idea here is simple: Since these components are integrated in the chip that smartphone makers are buying from Broadcom, those smartphone makers won't need to buy those components separately.

In the press release, Broadcom quoted Phil Solis, research director at the market research company IDC, as saying that this chip "reduced costs by going down to single core, 2X2 MIMO for Wi-Fi, integrating the PAs and LNAs, and offering flexible packaging options while keeping the same functionality as their flagship combo chip." 

Broadcom explains that this chip is targeted at "the broader smartphone market where high performance and total solution cost are equally important design decisions."

The rationale for Broadcom

The bulk of Broadcom's wireless business comes from sales to Apple. In the former's most recent 10-K filing, the company explained that sales to Apple "accounted for approximately 25% of our net revenue for fiscal year 2018."

Now, also consider that 31.1% of the company's revenue in its fiscal 2018 came from its wireless-chip business. Since Broadcom's Apple-related revenue is likely concentrated entirely in Broadcom's wireless segment, Apple appears to have made up north of 80% of Broadcom's entire wireless business. 

As you might be aware, Apple's iPhone sales are in decline -- iPhone revenue dropped 15% last quarter. (Sadly, Apple no longer breaks out unit shipment trends, which are arguably more relevant to a component maker like Broadcom.) It's not surprising, then, that Broadcom would be looking to cultivate additional smartphone-related revenue streams to fortify its wireless business in the face of Apple's weakness. 

Broadcom's wireless business should benefit from the secular shift toward more advanced Wi-Fi chips, as well as advancements in cellular technology (Broadcom is a key provider of radio frequency chips that make up a smartphone's cellular subsystem), but it's smart for the company to try to build products targeted at a broader swath of the smartphone market. That's what the company is doing with this new Wi-Fi 6 chip.

Time will tell if Broadcom's efforts to grow its smartphone business beyond premium models (where the company's strength in developing cutting-edge Wi-Fi technology is valued) will be successful, but if it is, then this could help fuel growth in the company's wireless business even in the face of a declining smartphone market (since the company would be taking share). 

Check out the latest Broadcom earnings call transcript.

Investor takeaway

Broadcom has a best-in-breed mobile Wi-Fi business that, today, largely serves Apple and, to a much lesser extent, Samsung for the latter's premium Galaxy S-series and Note-series devices. And, for the foreseeable future, I expect the bulk of the company's Wi-Fi business to come from premium smartphones. 

Nevertheless, I'm encouraged to see Broadcom working to broaden its product portfolio to ultimately address a bigger portion of the smartphone market. Even though the overall market is stagnant, Broadcom can still grow its wireless business through content gains in the premium portion of the market and, potentially, unit share gains in the so-called mid-tier of the market. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Broadcom Limited Stock Quote
Broadcom Limited
AVGO
$490.41 (-1.61%) $-8.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
319%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.