Broadcom announced during its 2019 fourth quarter earnings announcement that it no longer regards wireless as its core business, but rather “stand-alone in nature due to their unique customers, technology and supply chain characteristics” as stated by CEO Hock Tran. Broadcom defines its core semiconductor businesses and high growth areas as networking, broadband and storage connectivity products where it enjoys economies of scale and synergies in terms of sales, R&D and supply chain efficiencies.
The wireless business segment in Broadcom’s portfolio consists of RF, WiFi/Bluetooth/GPS combo chipsets and a mixed signal custom product line (presumably for Apple). Soon after the earnings announcement, news broke of Broadcom’s sale of its RF unit, which brought in $2.2 billion in FY 2019. The RF unit is primarily known for its FBAR (film bulk acoustic resonators) filter technology used in LTE RFFEs.
RF filters play a vital role in the next wave of 5G mobile phones designs in that there will be an ever-increasing combination of bands that the RF Front End (RFFE) will need to manage. More components will be required, primarily filters & antennas, to select the correct frequency to exchange data.
Broadcom comes from an M&A heritage; the company is made up of 14 companies which have been integrated well due to management’s strong understanding of both engineering and finances.
Broadcom’s offer to buy Qualcomm in 2018 speaks to its all or nothing power play. Although this deal was halted by the US executive branch due to security concerns, Broadcom did proceed rather aggressively to take charge in a high area of growth where they could leverage their other business units as well. After the CFIUS halt on the bid to acquire Qualcomm, Broadcom pivoted its M&A strategy that took them into the software realm of the industry in their quest for high growth businesses.
In the years leading up to and post failed Qualcomm acquisition, Broadcom did not reinvest in R&D in the filter business thereby experienced slowed growth in this area. With the arrival of 5G transition, Broadcom was not positioned to take advantage of the technology transition – they were banking on Qualcomm to address that. The company later shifted its focus to software and over the past 3 years the company has built its infrastructure software unit, first with the acquisition of Brocade (storage area networking switch), then CA (mainframe tools), and most recently Symantec, the leading (enterprise security). These strategic acquisitions have led to debt increases. Off loading the RF unit for a rumored $10 billion would put the company in a better financial position.
There are several contenders for Broadcom’s RF unit:
- Qorvo? Already in the BAW market and have a smaller footprint offering than FBAR. However, it would be a defensive play against Skyworks.
- Qualcomm? Not likely. Qualcomm is already providing OEMs with chipset reference designs and have an offering integrating their RF into the SoC. Buying Broadcom's RF unit would not help their financials and only dilute their revenues.
- Apple? Doubtful that Apple would jump into this endeavor without having the systems in place to manufacture large quantities of filters in the immediate future. Apple already is a customer of Skyworks. However, if Skyworks becomes too dependent on them, they could pigeonhole themselves in a situation where Apple can dictate the terms and eventually buy them (Skyworks) out at a later date. Apple already uses FBAR but smaller more advanced options from Qorvo are more attractive.
- Skyworks? Well positioned to make the acquisition as they have operational expertise, have a complementary TC SAW filter offering and their WiFi RF is already in the Broadcom connectivity module. Skyworks need to diversify and broaden their customer base as they are too dependent on Apple. Most importantly, they own GaAs fabs where they can scale and package/test filter requirements accordingly.
Broadcom sees the writing on the wall and they are focusing on what they view as growth opportunities in networking and infrastructure software. A year ago imaging that Broadcom would move on from wireless would have been absurd but it takes risks to reap reward and to know when to cut your losses. Broadcom could have remained in the game had they continued to invest in RF. It will be interesting to see who will gain from Broadcom’s strategic choice to regard wireless as “non core” to their business.