A classic tactic that many technology companies try to employ when they don't have much to deliver these days is to talk up next-generation products like there's no tomorrow. Broadcom (UNKNOWN:BRCM.DL), a very well respected company with a solid track record in executing in multiple fronts, did just that on its most recent call.
Broadcom makes big baseband promises
Back in 2010, Broadcom acquired Beceem Communications with the intent of accelerating to market next-generation 4G LTE capable basebands. After a couple of years went by, Broadcom demonstrated its then-upcoming BCM21892, which was touted as one of the first LTE-Advanced modems on the planet with category 4 (150 Mbps uplink/50Mbps downlink) support. It was a discrete, high-end-focused modem that was sampling in early 2013, with volume production expected in early 2014.
Of course, midway through 2013, Broadcom realized that the efforts of the Beceem team that it acquired weren't going so well (there were likely significant difficulties in getting this modem certified on the various carriers) and went ahead and acquired the mobile division of the failing Renesas Mobile unit. This team had a carrier-certified LTE category 4 modem integrated with a low-end SoC ready to go (and Broadcom claims to have shipped some of these to customers in Q1). This is a good milestone and encouraging to hear on the call – but then things got a little bit too "forward looking."
Promises are easy; delivery isn't
On the call, CEO Scott McGregor promised investors that between Q1 and the summer, the company will have achieved the following:
- A new family of LTE-Advanced products with at least Category 6 support.
- SoCs with multi-core, 64-bit processors that clock at least 2GHz, with integrated LTE-Advanced modems, advanced multimedia subsystems, and so on.
- Leadership products that will enable Category 7, 9, and 10 support.
McGregor was also quick to highlight that its competitors hadn't even talked about Category 9 and 10 support yet. However, this is hardly an achievement, given that anybody can talk about the future wireless standards that they plan to implement -- there's no doubt that Qualcomm's (NASDAQ:QCOM) and Intel's (NASDAQ:INTC) R&D teams have these technologies in the pipeline for release at some point.
Where does Broadcom really stand?
Let's look at where the three top cellular baseband competitors stand with respect to baseband.
- Qualcomm -- has been shipping Category 4 LTE-Advanced integrated with its highest-end Snapdragon 800 since May 2013. The company is currently sampling a Category 6 LTE-Advanced modem, with shipments likely in the second half of 2014.
- Intel -- has been shipping Category 4 LTE (not LTE-Advanced) as a discrete modem (XMM 7160) since August 2013 and will be shipping its XMM 7260 discrete LTE-Advanced Category 6 discrete modem this quarter.
- Broadcom -- is currently shipping a Category 4 LTE (TDD and FDD -- Intel's XMM 7160 solution is quite crippled in comparison, with only FDD support and no TD-SCDMA support; XMM 7260 remedies these deficiencies), integrated into a SoC, with plans to sample a Category 6-capable LTE-Advanced discrete modem by mid-2014.
Realistically, the timeframe between sampling and production shipments can be anywhere from six months to a year, with one of the biggest hurdles in the whole process being the certification of these modems on carrier networks. If all goes well and product samples in mid-2014 and carrier certification don't prove to be a deal-breaker, Broadcom will be fighting for designs that launch in the Mobile World Congress 2015 timeframe.
The bevy of SoCs that the company tapes out this year will, again, probably be fighting for 2015 designs, so while the company will be able to generate meaningful LTE revenue from its dual-core and quad-core SoCs that were basically brought over from the Renesas acquiition, the heav -hitters that could have a shot at giving Qualcomm, Intel, and MediaTek a headache are really a 2015 story.
Foolish bottom line
Broadcom isn't a newbie to the semiconductor markets, nor it is it new to wireless. Further, the massive R&D that the company is putting into this market is very real. In the most recent quarter, Mobile & Wireless posted a loss, giving investors some idea of the investment.
If the company can succeed in delivering leadership app processors and modems time and again to the handset market, then it could see a pretty material revenue uptick, and this could lead to a nice upward repricing of the stock. However, this is a long-term game, and investors looking to buy in on the LTE opportunity need to understand that. The good news, though, is that Broadcom's core business is so nicely profitable that it can afford to keep putting more coins into the slot -- for now.