The natural rules of the fittest are applicable in any living environment. And in the business environment, the standard of good and bad, can not be separated from the interests. The last time this rule was confirmed was Intel’s mobile baseband business; Broadcom is working with Credit Suisse Group AG to find a buyer for its Radio Frequency business, the Wall Street Journal reported.
In addition, the report notes that RF’s value may be $10 billion, given that the wireless business in which THE RF division generates $2.2 billion in revenue in fiscal 2019.
Apple or for potential buyers
As soon as the news broke that Broadcom was planning to sell its RF business, manymedia and analysts speculated that Apple could be a potential buyer. Creative Strategies analyst Ben Bajarin noted on Twitter that Apple is already working on its own RF technology and could be a “candidate” to acquire Broadcom.
So what is the likelihood that Apple will take over the RF business?
In mobile terminals, the most important core is the RF chip and the baseband chip. Rf chips are responsible for RF transmission and reception, frequency synthesis, power amplification, and baseband chips are responsible for signal processing and protocol processing.
Apple and Qualcomm reached a settlement on April 17, 2019, and signed a six-year cooperation agreement on 5G baseband chips. On the other hand, Apple’s self-developing 5G base-belt chip has not stopped.
Of the layout of Apple’s self-developed baseband chips, only the Intel baseband business acquired in July, apple sits not involved in RF, which was previously supplied primarily by Broadcom.
It is worth mentioning that Qualcomm has introduced a “modem-RFFE” package in order to make more profits, which will not only bring more profits, but also more autonomy. This is a good reference for Apple, which is already on the road to self-researching the chip and is committed to reducing its reliance on Qualcomm.
On modem, Apple already has several patents for Intel’s wireless technology, and on RF, Broadcom may be a good choice. In fact, as a “semiconductor giant”, Broadcom has some advantages in the RF business, especially Broadcom’s FBAR filter, which makes signals clearer and is a common component in smartphones such as the iPhone.
However, the news that Apple will become a successor to Broadcom’s RF business is still on the speculation side, and Broadcom’s planned sale of the RF business is, according to the report, no more than ten.
Wireless business in “difficult situation”
In fact, broadcom’s planned SALE of the RF division is part of the wireless business, but it is now classified as a business outside its core semiconductor business. In a 2019 Q4 earnings conference call, Botong CEO Fuyang Chen said Broadcom’s wireless chip business is independently operated.
Photo Fangzheng Securities
It is worth noting that in terms of Broadcom’s revenue ratio, wireless is one of Broadcom’s main businesses. Until 2016, the wireless business was the largest contributor to Broadcom’s revenue.
From Broadcom’s history, Broadcom dominated the RF during the AVAGO period, and later expanded the BAW filter market share following the acquisition of Infineon’s sound wave business. In 2016, after acquiring the former Broadcom, Broadcom achieved global leadercy in wireless connectivity.
So why should Broadcom sell part of its main business?
In fact, in recent years, the semiconductor industry has become increasingly tired, and as the semiconductor industry’s head player, Broadcom inevitably faced some difficulties, most notably its wireless business. In the 2019 Q1 financial report, Chen Fuyang also personally confirmed the poor performance of the wireless business.
In wireless communication products, Broadcom’s main customers are Apple, Huawei and so on. Chip makers such as Broadcom were also affected in the first half of 2019 as the U.S. government blocked Huawei.
Broadcom’s 2019 Q2 results show revenue from its semiconductor solutions was just $4.09 billion, down 10% from a year earlier. At the earnings conference, Mr Chen said trade conflicts, including Huawei’s export ban, were creating economic and political uncertainty. He said:
How does the Huawei ban affect a company like us that sells parts and technology? In the short term, the impact is very serious because there are no obvious alternatives to purchase.
In addition, on Apple’s side, Broadcom and Apple renewed their two-year RF chip supply agreement in June. However, Apple’s mobile phone shipments are on a downward trend, according to the latest global smartphone shipments from Gartner, a research firm, and the decline in mobile phone shipments means that demand for RF chips is also falling.
It’s worth noting that Apple’s baseband chips will be primarily supplied by Qualcomm, given that Apple and Qualcomm are rebuilt. However, Qualcomm introduced a “modem-RFFE” package earlier this year, which may have partly affected Apple’s demand for RF chips.
In addition, in the RF business, while Broadcom’s FBAR has an advantage in RF wireless chips, this segment of the business is under “threat” from companies such as Qorvo and Skyworks. Qorvo has developed a new filter technology that can replace traditional FBAR. This is undoubtedly a huge challenge for Broadcom.
Broadcom’s approach to business
Although wireless has been in a bottleneck in recent years, it doesn’t seem appropriate for a company committed to long-term growth to sell if it’s not profitable. However, focusing on Broadcom’s business development is in line with Broadcom Style.
From the development of Broadcom, Botong can become the semiconductor industry’s head player, in addition to its own technical strength, but also can not be separated from its series of mergers and acquisitions, and in this behind the trader, is Botong CEO – Chen Fuyang.
Photo Source: Bigorange Media Owner: bigorange media
Since 1992, Mr. Chen has worked for Integrated Circuit Systems, a semiconductor solutions company, and IDT, a chip company, and took over AVAGO (the predecessor of Broadcom) in 2005. However, unlike other semiconductor-born managers, Chen Fuyang is more focused on business. In his public statements, there is one saying that stands for his business ideas:
I’m not a semiconductor, but I know how to make money and run business.
After taking over AVAGO, Chen Fuyang took the company with him to start the road to mergers and acquisitions and sales. In his early days, Mr. Chen sold his printer-specific chip business to Marvell for $245 million. The image sensor business was then sold for $53 million.
For the remaining division, Chen Fuyang has set a tough profit target, which is at risk of being sold if it fails two or three times. AVAGO’s core business and profitability have been strengthened through a series of aggressive restructurings and divestitures.
Today, however, Broadcom can grow into a giant in the semiconductor industry, without Chen Fuyang’s nearly decade-long acquisitions. Public information shows that:
In 2008, AVAGO acquired Nemicon to enrich the sport control product portfolio;
In October 2008, infineon’s body sonic business was acquired, giving it a 56% market share in BAW Filter;
In April 2013, AVAGO acquired CyOptics, strengthening its leadership position in fiber optic products;
In 2013, the acquisition of Javelin Semiconductor strengthened its presence in wireless communications;
In 2014, plX Technology was acquired for $300 million, strengthening areas such as storage.
In March 2015, it strengthened its enterprise-class storage business by acquiring Emulex, an IC company, for $609 million.
In May 2015, it acquired the semiconductor company, formerly Broadcom, for $37 billion, forming what is now Broadcom.
In November 2017, it acquired network equipment maker Boco for $5.9 billion.
In November 2018, it will acquire CA Technologies, a U.S. commercial software company, for $19 billion;
In August 2019, symantec corporate security business was acquired for $10.7 billion.
It is not difficult to see that Broadcom is in the acquisition of the continued expansion of their own business. And for the poor profit business, in Chen Fuyang’s business approach, will become eliminated role. As a result, the sale of the RF business is not surprising.
In addition, broadcom seems to be moving toward software in terms of its acquisitions in recent years. According to Thomas Krause, Broadcom’s chief financial officer, the company sees an opportunity for similar consolidation in infrastructure software areas such as hybrid cloud computing.
Unusually, Chen Fuyang has also responded to this transformation initiative. In a statement, Chen Fuyang said:
The acquisition played a central role in Broadcom’s development strategy and the acquisition of Symantec was the next logical step in our strategy following the acquisition of Bocco and CA Technologies.
Pictured is the change in revenue share of Broadcom’s 2018 Q1-2019 Q4 infrastructure software business
In fact, from Broadcom’s recent financial results can also be seen, infrastructure software business revenue share is on the rise. At a time when the semiconductor market is booming, it is the software business that is filling in the short, slowing down revenue. In a 2019 Q1 conference call, Mr. Chen said:
Despite the expected decline in the wireless business, strong results in the network business supportour our semiconductor solutions division. In addition, our infrastructure software division has been particularly strong as good progress has been made in integrating CA business with Broadcom. We maintain our FY2019 earnings outlook unchanged.
It is not difficult to see that the software business is becoming more and more the focus of Broadcom’s development. By contrast, the wireless business and its RF division, which were spun off from the semiconductor solutions business, were more likely to be “knocked into the cold.”
In fact, in the semiconductor industry, acquisitions and sales are common tricks, which are related to the limitations of semiconductors’ own development. The semiconductor industry relies heavily on the industrial chain, and if one of the links in the chain goes wrong, it will increase the instability of the semiconductor business development.
Broadcom’s plan to sell RF is a true picture.