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Why This Broadcom Ltd. Rumor Is Probably False

By Ashraf Eassa – Mar 18, 2016 at 8:30AM

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Recent management commentary contradicts this report.

Image credit: Broadcom. 

In a pre-publication note in DIGITIMES, it's claimed that Broadcom (NASDAQ: BRCM), a very broad-based semiconductor company that's known for -- among other things -- its successful mobile Wi-Fi chip business, is planning to "phase out" its Wi-Fi chip business. The note claims that this move would be in a bid to "streamline its workforce and product offerings" following the acquisition of Broadcom Classic -- as management now refers to it -- by Avago, to form the new Broadcom Limited.

Here's why I don't think this report is accurate.

An analyst actually asked about this on the last earnings call
On Broadcom's most-recent earnings call, one analyst actually asked management the following question about its Wi-Fi chip business:

But one thing we often hear is that companies are trying to essentially balance the amount of exposure they have to the smartphone market. And I understand your FBAR business is doing extremely well. You're seeing the content gains. But when I look at the connectivity business, I don't see the same potential for content gains. So is that a fair assessment? And if it is, then do you think that perhaps there is the potential for divesting the business and perhaps focusing on other areas, whether it's wired or storage or others?

Broadcom CEO Hock Tan gave a rather unambiguous response (emphasis mine):

No, we definitely highlight it. It's definitely not in discontinued ops, obviously. And we believe it is a sustainable franchise is how we would classify this business. It is one of our sustainable franchises, as is FBAR. And evolution of the technology of next-generation Wi-Fi in particular keeps coming in, improvement of performance issues of coexistence within Wi-Fi, Bluetooth, and now cellular band, it's a major, major issue that Broadcom classic are very good at addressing. And as we especially start going to 5G Wi-Fi next-generation, and that is already starting to happen, and we start seeing those high-end smartphones run multiple channels simultaneously, we start to see that our expertise, our unique technology in FBAR would actually come to bear in even improving Wi-Fi modules that can surpass performance of anything else in the marketplace to date. So that to us is a very, very complementary product line to our cellular FBAR business. So no, it's a sustainable franchise.

It would appear from the above quote -- and in particular the bolded bits -- that Broadcom is not only interested in staying in the mobile Wi-Fi business, a business that was a significant portion of Broadcom Classic's total revenue, but that it expects to continue to develop leadership products for it.

Broadcom expects content increases in next generation tier-1 phones
(NASDAQOTH: SSNLF) has generally used the latest Wi-Fi combo chips from Broadcom, and even Apple (AAPL 1.99%) -- which had traditionally chosen to "hang back" a generation or two (probably for cost reasons) -- is now adopting fairly cutting-edge Wi-Fi chips.

"Classic Broadcom's combo Wi-Fi, Bluetooth, GPS, and custom analog solutions will further add significantly to our content in these tier-1 OEM-leading smartphones," Tan said. "By the same token, of course, we expect the classic Broadcom wireless products to also benefit from the launch of new generation of phones later this year."

It sure doesn't sound to me like Broadcom is planning to "phase out" this business. I call this rumor categorically false.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. We Fools may not 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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