When Broadcom (UNKNOWN:BRCM.DL) announced that it would be acquiring the cellular assets from Renesas Electronics, the deal seemed to be quite sweet. For a meager $164 million in offshore cash, it would get a carrier-certified, LTE-capable integrated system-on-chip, which, by extension, means that Broadcom gets some nice LTE Modem IP.
The upshot of this deal is that Broadcom has no LTE-related revenues today, but thanks to this deal will be able to accelerate the initial revenue ramp-up from LTE-related products. While this is by all means a positive, investors should still expect to wait until the second half of 2014 for things to become truly compelling.
What will Broadcom ship by early 2014?
Not all mobile system-on-chip technology is created equal. With highly integrated chips in fiercely competitive environments, it's not enough to simply say, "We have an LTE capable chip" and expect to gain significant market share and designs overnight. The competitive landscape is fierce, and the initial offering from Broadcom won't be particularly Earth-shattering.
To put this in perspective, note that Broadcom's first product in this market will be a dual-core ARM Cortex A9 paired with a category 4 (150Mbps downlink) LTE modem that supports both TDD-LTE and FDD-LTE -- the two major "modes" of LTE. While this certainly looks good on the cellular side of things, this isn't a particularly aggressive on the applications processor.
Qualcomm's (NASDAQ:QCOM) Snapdragon 400 comes with either dual "Krait" cores -- higher-end than the A9 -- or quad Cortex A7s, which is what Broadcom's successor chip will feature. On top of that, the chip integrates connectivity, while it appears that the Broadcom part will require discrete connectivity. NVIDIA's Tegra 4i will integrate quad Cortex A9 cores with NVIDIA's own rather potent graphics engine.
There's certainly room at the low end of the market for Broadcom to attempt to win share, particularly attractive since this is the fastest growing segment of the market. But it is important to temper expectations for the very first integrated system-on-chip with LTE from Broadcom. That being said, things do get more exciting as we look at the discrete/slim modem solutions.
Could the high end be a boon?
At the high end of the smartphone market, plenty of players tend to use discrete cellular baseband solutions rather than those integrated into applications processors. Apple, for example, is a big customer of Qualcomm's discrete Gobi modems.
It looks as though Broadcom will be fusing the best of the old internal modem with the functionality gained from the Renesas assets. Unfortunately, management indicated on the call that followed the deal announcement that the slim modem parts would be pushed out to the second half of 2014 -- a bummer.
The problem is that while it is likely that Broadcom's new LTE-Advanced slim modem will be competitive, it will be entering the ring against a potential next-generation Qualcomm modem as well as Intel's XMM 7260 -- both of which should be rather compelling solutions.
Broadcom's focus is clearly on the lower end/integrated space in a bid to protect its connectivity share. At the high end, discrete components work fine, so Broadcom's connectivity share is safe. But there is certainly plenty of money to be made at the high end, too. It will be interesting to see how aggressively Broadcom pursues these opportunities.
Foolish bottom line
The Renesas Mobile acquisition was a clear win for Broadcom and for investors, getting LTE revenue -- any LTE revenue -- is at the top of the priority list. It won't really be until Broadcom's second shot at bat on the integrated stuff with the quad A7s, and even then, competitors may have moved to quad A53s. But the first chip should win a few designs and it should be a much better margin proposition than the current 3G chips.
The company just needs to show solid, steady progress to gain back investor trust -- taking over the world overnight is neither expected, nor required.