Broadcom could sell cellular baseband unit, but buyers are not apparent

Broadcom is exploring whether to sell off or wind down its cellular baseband business, an acknowledgement of the difficulties it has had in catching up in the LTE market and the dominance of rival Qualcomm (NASDAQ:QCOM) in the baseband market.

Broadcom said in a statement that a sale or wind-down of the baseband unit could result in around $700 million in savings on annualized research and development, and selling, general and administrative expenses. Of those savings, $100 million would be related to estimated reductions in stock-based compensation, the company said.

The chipset vendor said it expects to reinvest roughly $50 million of these savings annually into projects in its Broadband, Infrastructure and Connectivity businesses. That could accelerate the company's plans in small cells, embedded processing and low-power connectivity.

Although Broadcom is looking to exit the baseband business, it has made strides on LTE, especially after it acquired LTE-related assets from affiliates of Renesas in September 2013. Broadcom's M320 dual-core LTE System-on-a-Chip was shipped in one Samsung Electronics tablet in the first quarter. The chip supports LTE Cat 4, with speeds of up to 150 Mbps.

Yet despite that win, the company still has "a big problem," according to Forward Concepts analyst Will Strauss. He said the Samsung win was essentially too little, too late.

"No. 1 is they are at least two years and maybe three years behind in getting to the LTE modem market," he told FierceWireless. "And by the time they got to the market, Qualcomm had already filled most" of the device design wins.

In 2013, according to research firm Strategy Analytics, Qualcomm dominated the baseband market with 64 percent revenue share, followed by MediaTek with 12 percent revenue share and Intel with 8 percent revenue share.

Strauss noted that Broadcom hasn't been able to get any design wins in the U.S. market, which is dominated by Samsung Electronics and Apple (NASDAQ: AAPL). And overseas, Broadcom faces stiff competition from Qualcomm, Intel, Marvell and MediaTek, among others.

In terms of a potential sale, Strauss said that Broadcom's LTE unit is the only part of its baseband business that is truly valuable, and that it could be a target for MediaTek or maybe even a private equity firm. "I cannot think of a single cell phone chip company that needs them at the moment and could afford them," he said.

"This announcement leaves Qualcomm, Intel, MediaTek, Spreadtrum and Marvell as the key players in the baseband market," Strategy Analytics analyst Sravan Kundojjala wrote in a blog post. "It remains to be seen whether Broadcom will find a buyer for its baseband business as historically Freescale, ST-Ericsson, TI and Renesas Mobile all struggled to find buyers for their baseband businesses when they put them up for sale. ST-Ericsson and Renesas Mobile, however, found a buyer for a piece of their baseband business and we expect Broadcom's attractive LTE roadmap could attract a player with market share expansion plans."

Despite its plans to offload its baseband business, Broadcom continued to stick with its revenue forecast for the second quarter of $2 billion to $2.1 billion, and said it expects product gross margin to be at or above the high end of its previous forecast range.

For more:
- see this release
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this Reuters article
- see this NYT article
- see this Strategy Analytics post

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