In July, Broadcom said it's getting out of the baseband business, where it was losing money, to focus on its Wi-Fi-only chips. Broadcom's Chief Executive Scott McGregor said on Wednesday that he is confident high-end devices will continue to need his company's Wi-Fi chips, even as it stops pursuing 4G modem technology.
Qualcomm dominates the 4G technology market right now thanks to the smart integration of cellular modems into SoCs, which the company's been doing for a few years now. Other companies that are making dedicated cellular chips have been struggling since then because OEMs prefer to buy Qualcomm's integrated chips. It's easier for them to use those chips in their devices, it's more cost-effective, and it reduces the time to market for their products.
Broadcom believes that getting out of the baseband chip business will reduce costs. The company was paying $600 million in research and administration costs every year. Investors also seem happy with this move and have rewarded Broadcom with a 26 percent increase in share price since the company made the announcement early this summer.
At the same time, although right now it's mainly lower-end devices taking advantage of integrated cellular and Wi-Fi solutions, it might not be long until companies like Apple and Samsung (who are currently utilizing Broadcom's Wi-Fi chips) see the value of such integration. That could let Qualcomm, Intel and others take what's left of Broadcom's Wi-Fi chip business. Broadcom remains skeptical about this possibility, thinking its customers will continue to prefer cutting-edge Wi-Fi technology over a more integrated solution.
"We're definitely at risk of that but the reality of it remains to be seen," McGregor told Reuters. "The higher-end smartphone space is most likely to stay with Broadcom because that's where they care most about the features and capabilities we offer."
Broadcom seems to be doing better in other areas, including a fast-growing networking business. The company is selling improved chips for directing traffic in cloud data centers.
“This chip will go into high-end mega-data centers, typically the cloud providers. All the name brands of search and social media are primary users of this," McGregor said.
Cloud computing is a growing and profitable market for many companies right now, so it seems smart of Broadcom to try and grow its business there, regardless of what happens in the mobile market.