SAN JOSE, Calif. — In a sign of the maturing semiconductor industry, Avago Technologies Ltd. announced plans to acquire LSI Corp. for $6.6 billion in cash and loans. The deal creates a bigger, broader communications chip designer that expects slower revenue growth but higher profits.
Overall, the combination is a wise move that Wall Street is already giving a thumbs-up with increased stock prices for both companies. It also is a sign of slowing growth and increasing risk aversion in the maturing market for semiconductors.
The two companies have little product overlap and some potential for product and technology synergy. LSI brings a significant business in storage, primarily hard-disk-drive chips, storage networking boards, and solid-state drive controllers. Avago does about half its business in various handset and base-station RF chips and the rest in a mix of mainly optical components.
The net result is a company with a significantly broader product portfolio that aims to save as much as $200 million a year by rationalizing so-called Selling, General, and Administrative expenses. Avago chief executive Hock Tan praised the LSI product line and said it was premature to comment on any potential of product-line cuts or other cost savings.
There's "some overlap in ASIC and SerDes, so I'd expect reduction in force for greater efficiencies, but the combined company will have more IP for ASICs, too," says Jag Bolaria, senior analyst with market watcher The Linley Group of Mountain View, Calif.
"LSI is currently riding high," Bolaria told us. "It has managed to expand its ASIC footprint because of limited competition in traditional ASSP markets -- so it's a good time for an exit."
Overall, Avago estimates its annual revenue growth could slow from its current level of as much as 12 percent down to as little as 6 percent due to the deal. However gross margins, earnings per share, and cash-flow will all increase.
The deal also gives both companies bigger shock absorbers. For example, Avago will reduce its exposure to volatile wireless markets, shifting that portion of its business from 50 to 25 percent of its sales.
"Avago has not been a player in enterprise storage until now... [but the deal] makes us a leader overnight," said Tan on a call with analysts.
The two companies could see synergies by increasing collaboration with shared customers in datacenter, carrier, and business network systems. The move plays into the trend of chip buyers' increasing interest in working more closely with fewer key vendors. In addition, the combination of Avago and LSI optical, silicon, and SerDes capabilities could fuel work in complementary products in and around their network processor products.
Avago hopes to close the deal before July. The merger promises to create a company with "greater scale for investment and a broader product portfolio in a larger, more diversified organization," said Abhi Talwalkar, chief executive of LSI on the analyst call.
The deal will be financed using $1 billion in cash at the combined companies along with a $4.6 billion loan from a group of banks and a $1 billion loan from private equity firm Silver Lake Partners. The deal represents a 40 percent premium over LSI's stock price on Friday.
For the HP Discover event in Barcelona, John Furrier and Dave Vellante, theCUBE co-hosts, broadcast wall-to-wall coverage of today’s hot topics, getting the angles on infrastructure, software, services, HP’s overall strategy, server and connectivity, storage and networking.
For this segment, Vellante sat down with Greg Scherer, VP of Server and Storage Strategy with Broadcom, and Jerome Riboulon, HP Server Business Development Manager, asking for input on what’s happening in the European and EMEA Region with HP services.
“We’ve recently made big announcements across the networking and the I/O side, leveraging some of the unique Broadcom capabilities. Broadcom became the standard adaptor for the chipset technology that we have across the board,” revealed Riboulon.
“Certainly good news for Broadcom,” agreed Vellante, who asked Scherer to elaborate on the importance of the Ivy Bridge.
“Ivy Bridge is just the next sequential launch from the Intel perspective, but it does provide the tremendous amount of more compute capabilities. The trend, in terms of virtual servers, enables a whole new avenue: you have a whole lot more cores, the speed of the overall systems is a lot greater and, in addition to that, there’s the flexibility capability of HP,” replied Scherer.
Vellante couldn’t hide his curiosity regarding the two entities’ collaboration, especially with the differences in the technical lingo from the service providers and the needs expressed by the customers.
“We are long time partners, we’ve been working together not only working for product qualification standpoint, but the entire life cycle of the products, from engineering to supply, production and deployment, trying to work together in order to deliver high quality products, with the highest level of integration while, at the same time, providing flexibility and choice for our customers, not locking them down in any specific architecture. We do leverage Broadcom specific features, like storage offload, like the Converged Network Adapter (CNA), like the 10GBASE-T and we ad HP innovation on top so we can drive benefits to our customers. Everything is based on industry’s standards and we a bringing a lot of intelligence a lot closer to where the applications run, making sure the servers become more self-sufficient, and that is something that we are doing together,” explained Riboulon.
“What was the development cycle like?” asked Vellante. “In your world, a lot of time you have to decode what the customer really wants,” he told Scherer.
“Once upon a time Broadcom’s focus was working with internal development teams, exclusively at HP, and it’s been a terrific relationship, but we’d found out from time to time that we’ve missed things,” admitted Scherer. “Jerome and his team is getting direct feedback from the customers. We’ve been really fortunate to have such a great working relationship with them because some of the EMEA needs are different than North America needs.”
Vellante was also interested in those differences mentioned by Scherer, and asked his guests to elaborate on those needs.
“In Europe we have very fragmented type of markets, different countries with different types of requirements. For example Spain is very small and medium businesses oriented, far less corporations, and that requires a lot of simplification. It’s country-specific requirements, impacted by the big trends like cloud, mobility, security, Big Data,” observed Riboulon.
What Scherer wanted to add was that “HP has a great technology and has this view of staying ahead but, in addition to staying ahead of the market, it’s giving away the technology so there isn’t a vendor lock-in.”
The struggle so far
LTE has been a struggle for every player not named Qualcomm. While Qualcomm has been shipping LTE chipsets since 2011 and sweeping just about every mid-range and high-end phone in existence, Broadcom and Intel (NASDAQ: INTC ) were running late. Now, both of these competitors have stepped on the gas in order to get credible solutions out in the 2014 time frame, and both appear to have succeeded -- Intel with XMM 7160/7260 discrete modems and Broadcom with its integrated SoCs, with discrete modems coming later. However, only Broadcom has handset designs from a major player announced.
Yes, Broadcom wins a Samsung design
Love it or hate it, Samsung is the world's largest handset vendor, and the fates of component vendors is non-trivially linked to their ability to win content share over at Samsung. The design that Broadcom won with its SoC isn't the flashiest, highest-end design by any means -- given the specifications of Broadcom's SoC here, it is probably aimed for the "value" segment of the market.
However, given that Broadcom is selling Samsung the entire platform -- modem, RF, connectivity, apps processor -- and given that the low end of the market is where all of the really attractive growth is, this design could open the doors to many more design wins and, therefore, very nice top- and bottom-line growth for Broadcom.
Quantifying this win -- 2014 estimates too low
Broadcom's CEO noted that the company expected "nine digits of revenue" from LTE next year. According to CEO Scott McGregor, this correlates to "tens of millions of phones". Most, if not all, of this revenue is incremental to the current revenue.
Given that the company's other businesses, like networking, home, and connectivity, are actually set to grow, it is puzzling that the sell-side revenue consensus for Broadcom next year comes in at a mere 4% growth. The LTE volume platform shipments alone, assuming $15 per platform and 20 million units, should do it, with the rest of the businesses' growth acting as proverbial icing on the cake.
How's the competitive landscape look?
While the initial win at Samsung is good, Broadcom will be up against many players going forward. While Broadcom seems to be the No. 2 player in integrated LTE SoCs, the No. 2 player in discrete LTE modems appears to be Intel. To illustrate, Broadcom is sampling its LTE-Advanced, category 6 modem during the first half of 2014 -- likely in the second quarter.
That implies that volume shipments won't happen until late 2014/early 2015. Intel, on the other hand, claims that its own modem with similar specifications is on track for launch in handsets during the first half of 2014. Fortunately for Broadcom, Intel's integrated LTE SoC won't hit the market until early 2015, giving Broadcom a nice head start.
By REINHARDT KRAUSE, INVESTOR'S BUSINESS DAILY
Posted 10:15 AM ET
Intel (INTC) might acquire Broadcom (BRCM) to speed up its expansion into wireless and communications networking, speculates Nomura Securities in its 2014 semiconductor outlook.
Nomura analyst Romit Shah also upgraded Micron Technology (MU) and Xilinx (XLNX) to buy ratings and downgraded Texas Instruments (TXN) and SanDisk (SNDK) to sell. He upgraded Intel to neutral.
"Intel's guidance seems doable for the first time in a while," wrote Shah in a research report. "The PC market is stabilizing and (its) data center group could be more impactful than investors realize."
Shah said an Intel acquisition of Broadcom could be 2014's M&A surprise.
"We believe Broadcom's acquisition not only brings diversification to Intel's existing revenue stream, which is heavily weighted toward PCs (60% of sales); it is also highly strategic in several areas where Intel is trying to expand (such as wireless and networking)," he wrote. "In addition to the strategic rationale, an acquisition at a 50% premium to Broadcom's stock price is 20% accretive to Intel's fiscal 2014 estimated EPS."
Shah raised his price target on Qualcomm (QCOM) to 85 from 78 per share, saying the mobile chipmaker should benefit from 4G smartphone sales in China. Qualcomm stock was down a fraction in early trading in the stock market today, near 73.
Intel stock was up 1% in early trading Thursday, near 25, while Broadcom stock was down 2%, near 28.
"A deal between China Mobile (CHL) and Apple (AAPL) is forming, which is interesting as (Qualcomm) estimates don't bake in a ramp from China," Shah said.
UPDATE: Deutsche Bank Raises PT on Broadcom Following Analyst Meeting
by Dwight Einhorn13 hours ago
In a report published Wednesday, Deutsche Bank analyst Ross Seymore reiterated a Buy rating on Broadcom Corporation (NASDAQ: BRCM), and raised the price target from $31.00 to $34.00.
In the report, Deutsche Bank noted, “BRCM's analyst meeting focused on the co's strategy to take its successful platform-driven approach in Broadband/Networking and apply it to Mobile. We are encouraged with the co's LTE initial traction (showed Samsung LTE design win; pulled roadmap ahead by a qtr), but continue to believe ‘hero-phone' wins will eventually be necessary to economically justify the high level of investment. Overall, we continue to view BRCM as undervalued given its solid core biz and the optionality in Mobile. Maintain Buy.”
Broadcom Corporation closed on Tuesday at $28.51.
So back to platform control. Platform control is very important. Our customers want us to deliver a complete platform to the marketplace. And great mobile and wireless technology allows us to complete many different platforms, and I'm just citing a few here, starting with the Hand set-top box or cable modem or DSL gateways, okay. The IP that he needs are -- is LTE, WiFi, Bluetooth and NFC, all technology that allows us to complete the set-top platform.
Moving to IoT and wearables. Great WiFi, Bluetooth, NFC, GPS and touch are all needed to complete that platform. Let me just make a reference that just yesterday, we announced the latest generation of our GPS technology that can receive signals from 5 different satellite constellations, 88 different satellites in all, and provide the best positioning solution to all of the apps that we all use every day that rely on position to give you the best information. That's the kind of IP that's necessary to make a success in the IoTs and the wearables.
So in summary, we have made a lot of progress on our complete platform solutions with the addition of our 4G LTE IP and the acquisition we completed 71 days ago. Our customer relationships are strong. We services about every leading handset company with our connectivity solutions, and we have more and more engagements on our cellular platform, okay.
And now, what I'd like to do is to talk about one more thing, okay. Scott mentioned some very aggressive goals for us to achieve in 2014. And I'm very happy to announce, because of our intense focus on execution, our first LTE phone from the world's largest smartphone manufacturer, Samsung, I'm holding it in my hand, and there's a picture of it on the screen, okay. This is a phone that's based on Broadcom's M320 or the EOS2 platform that was referred to previously, Category 4 with a global launch coming in early 2014. So this phone will go to production in early Q1 2014, based on Broadcom's LTE solutions. So again, pulling in th
And then finally, graphics. Again a 5 to 10x improvement in our graphics performance, support of the latest graphics libraries, like OpenGL ES [ph] and GP GPU, okay? We're going to maintain our advantage in graphics, where we're smaller sized and lower power. So we're going to pay attention to all of this IP. When you consider this kind of IP added to the new modem IP we have, this will be a very exciting set of cellular SoCs that will emerge in 2014.
3x the performance to improve the quality of the images that you take because everybody wants a good camera in their smartphone.
We're going to improve the speed of the pixel processing, and we're going to make sure we have these advanced features, things like signal, smart imaging for things like beautification [ph] and augmented-reality apps, okay? So our imagining IP is going to improve significantly. Now keep in mind that Broadcom's ISP technology was in the first Nokia 42-megapixel phone, and Broadcom's ISP technology was the first ISP to make it through the Samsung image labs in 2013 -- in 2012, okay? So our ISP is only going to get better from here.
And then on video, of course, strength of Broadcom. Obviously, video permeates every part of the company, 2x to 4x improvement. We're going to be able to support UltraHD configurations, increased frame rates to 120 frames per second in certain configurations and implement more efficient codecs like the H.265 codec, which is 2x the efficiency -- I'm sorry, about 50% the efficiency of the prior version, which is H.264 [ph], so better video compression, okay? So our video IP is going to improve.
And we're spending a lot of time and paying a lot of attention to CPU and graphics in this new SoCs that are going to tape out in 2014. We're going to do SoCs with more application processors. We're not going to say how many more, but certainly more than 4. And we're going to increase the performance by 3x. Where Rajiv can put 20 cores [ph] on a chip in the mobile and wireless space, we need to have a very careful tradeoff of power and performance, and we're going to do the right thing here. But I do want to make mention that Broadcom is an early access partner to ARM for their 64-bit class of processor and their V8 [ph] instruction set. So we announced that over a year ago, and that process -- that new processor will be a part of our new roadmap in 2014.
Now let me continue because, last year, we talked about a Fin [ph] modem. This year, we're going to embellish that Fin [ph] modem with more features and sample it in mid-2014. Category 6 LTE, which is now 300 megabits per second, this will include carrier aggregation for the carriers that don't have contiguous spectrum. This will be our first chip with TD-SCDMA for China Mobile. So we've been working on TD-SCDMA now for a number of years, and that technology will port over to the new modem architecture. All of these chips are complemented by Broadcom's RF subsystem, which can do quad-band 2G, peta-band 3G and as many bands on LTE as you could want, okay? Voice over LTE, LTE broadcast, advanced transmit technology like Envelope Tracking, okay?
So you might ask, what makes you -- why should you believe that Broadcom could deliver a chip like this. Here is the reason. The modem team that we acquired was working on this technology when we acquired them. The modem architecture is very modular. Unlike some of the new implementations on LTE, the way our team architected this thing is in a very modular fashion, so the 4G category 4 will [ph] not need to be changed in order to put Cat6 [ph] on top of it. And we've already taped [ph] out a chip with a significant amount of this category 6 IP. We think this chip is going to compare very well with anybody else's modem out there in 2014. So that product will be available and sampling in mid-2014.
And then, of course, there's going to be more chips that are coming. I talked to you about the SoC roadmap, which really will hit the sweet spot of the LTE marketplace, phones from $100 to $300, different screen sizes, different IDs. And there's another series of cellular SoCs coming. And Scott mentioned the tape-out of these chips are things we're measuring very closely. The team is very focused on execution. So within these new series of SoCs, we're going to improve the ISP, the image signal processing IP, 3x the performance to impr
places in China, Europe and of course, Nokia, okay? So this modem IP is -- has a long legacy of history, and the team really knows what they're doing. I'm very happy to report that integration is going very well. The team is very motivated to make sure that this thing is a success. In fact, the team thinks that this is the best partnership for them. Our connectivity and their modem technology is going to be a very formidable force in the marketplace.
Now complement that with all these quantitative things we just talked about, ready today with VoLTE, ready today with carrier qual. We've already got carrier qual on many of the most difficult networks like AT&T, like NTT docomo, like SoftBank in Japan and a lot places in Europe, including Vodafone and Orange and EE, okay? The 2 most prevalent types of LTE supported with this chip at Cat4 rates complemented with our complete platform. So these are the reasons that our customers are very happy with us right now because they really like what we've done with this 4G LTE story.
reuse on both the hardware and the software platform. We've done it for 3G already, with 4 different turnkey designs that you can see proliferated to over 100 handsets now in places like China, and we'll do it for the 4G family of products you just saw, okay? So the turnkey -- fifth-generation turnkey. We've learned a lot about the first 4 turnkeys we've produced for all of our 3G designs. We've optimized it. We've optimized the cost. We've optimized the design, and now we're going to apply all that knowledge to our 4G turnkey.
Okay. So let me go and talk about why would customers pick us for LTE, okay? Well, we have a compelling roadmap. We just showed you that. We have a turnkey that's ready to go. But let's talk about again some of those quantitative advantages that we have over the competition. So our power consumption is 20% to 30% lower than our competition, and our die size is more efficient. It's smaller than our competition by 25% to 30%. Again, you might ask, "How could Broadcom make such a bold claim in terms of both power consumption and die size?" In order to substantiate this, you need to look at the legacy of the modem team we just acquired.
The modem team we just acquired is the Nokia modem team located in Europe and in Finland, and they've been working on modem technology for 15 years. In fact, they've sold billions of 2G and 3G modems. They were there when the 4G LTE standard was created. They were probably 1 of 2 semiconductor companies at the table when the LTE standard was defined in 2004 and in 2005. So they were at the table, they've had a number of years to work on this and to optimize it. In fact, their IP is also very portable. Their IP, their modem IP found its way, of course, into a lot of TI ASICs that were done for the Nokia phones that many of us carried 7 or 8 years ago.
And that same IP then went into an STE device called the U8500, and that U8500 was already qualified at places like Samsung, HTC, Sony, Yulong, Antim [ph], places
which improves the CPU speed by 25%, so a dual core running at 1.5 gigahertz, which will sell for a slightly higher ASP than the dual core. So we're already creating a family of LTE solutions for 2014, 1.2 gig dual core, 1.5 gig dual core and then, of course, the quad-core version of that same device called the M340 [ph], okay?
So for those companies that need to go quad core for the retail marketplace, we also have a solution. And as Scott mentioned, this chip now we feel confident sampling in first half of 2014, okay? So all this stuff is on track. So I feel good about 2014. And I want to make sure that everyone understands, our customers are reacting very well to this -- creation of this roadmap. Our customers really want an alternative supplier on LTE.
So let's talk about that turnkey design. So 71 days after the acquisition, I can hold up our turnkey design for the M320 or the EOS2, and this is a picture of the design on this slide, okay? What makes a turnkey different than a reference design? This turnkey is ready to go to production. A customer could change the ID, but we've already optimized the bill of materials. We've optimized the bill of materials with suppliers that our China handset partners like to use in China, okay? And we've gotten further to preserve their investment. I mean, the turnkey is all about making it easy for our handset partners to adopt the Broadcom complete solution. It's all about investment preservation and ease of adoption.
So I just mentioned, the family of LTE solutions, the M320, the M320+ [ph], the M340 [ph], okay? We made it even easier by making all these 3 chips pin compatible, same motherboard to support all 3 of these chips. And then we've gone further than that. We have also done software investment preservation. Once a customer or we port a customer's UI to our framework, the first handset gets done. We can quickly move to handset #2 and handset #3, a lot of reuse. And that's where the leverage is going to come from,
So let's switch back to 4G for a moment. Let's go into a little more detail on those 2 SoCs I showed you earlier. We're going to switch to a 3-digit part numbering scheme because I think a lot of the communities, both the customers and the financial community, thought our 5-digit part numbering scheme was too complicated. So we're simplifying our part numbering scheme and going to 3-digit part numbers. So EOS2 will now be referred to as the M320 design, M320 SoC. And hopefully, our 3-digit part numbers will be much easier for you to understand moving forward.
Let's talk about the M320. Available now, it's ready to go to production. This device is a 28-nanometer SoC, dual core that supports the 2 most popular implementations of LTE today, FDD and TDD. Recently, you heard that the China carriers were granted frequency spectrum using TDD. Most of the U.S. carriers are using FDD. This chip can support both. It also supports backward compatibility to all the relevant 3G standards, and most importantly, it supports new features that are coming in the marketplace as opposed to features that have already been deployed. Two examples of that: category 4 LTE. Most of today's networks that are deployed are using Category 3, which is 75 megabits per second. The world is moving right now to category 4, which is 150 megabits per second, and these chips will support that. Voice over LTE or VoLTE as we refer to it, again, a feature that hasn't been deployed yet, but will be deployed, and these chips support voice over LTE, with SRVCC fallback, by the way, which is the only type of VoLTE that could be deployed into the network, okay, dual-core A9 at right at 1.2 gigahertz.
When Scott was up here, he talked about our ability now to wring out some of the conservativism in the numbers we cited at the time of our acquisition. Now that we're in production with the M320, we're able to see some of the early yields. And now we're able to announce a new product called the M320+ [ph], which
which I'll go through in just a moment, and you can see some of the companies on the chart, okay? Companies like K-Touch, G'Five and then some leading India brand names like Karrbon and Micromax; carrier-branded phones from places like Idea Cellular, which is one of the top 4 cellular carriers in India.
So single-core, dual-core and quad-core phones all coming from servicing the developing regions of the world. And I anticipate that this trend will continue because our turnkey, as I'll show you in a moment, has progressed quite a bit from the early days of our turnkey design.
So let's talk a little bit more about some of this. Let me start with what we were able to do, proving that point about roadmap and roadmap leverage, having a customer start with one of our chips and then proliferate the roadmap. Let's talk about Samsung, the biggest smartphone company in the world, roughly with 1/3 of the smartphone market today. We now have multiple models in production from Samsung, single core, dual core and quad core; screen sizes ranging from 3-inch to 5.8-inch, okay? So I think this partnership with Samsung is very strong. And you can see, again, that roadmap leverage in this slide, okay, where having more than 1 product in the roadmap really makes a big difference and allows our handset partners to proliferate our technology across a range of handsets.
And let me talk beyond Samsung and what's happening with our 3G business. So right now, we have 2 Tier 1 companies we claim as our customers, ZTE, which is shipping the phone you see, our single-core HSPA platform, into places like T-Mo U.S.A.; and TracFone in the U.S.A., which is this largest MVNO, which is a virtual mobile operator; and Samsung, which we just discussed. What I'd like to announce today is our third Tier 1 OEM customer, HTC. And I'm holding in my hand and you could see on the screen, a picture of the Desire 601, which uses Broadcom's quad-core HSPA+ SoC, plus quad-core or quad-combo chip that I mentioned earlier, okay? So HTC is going to be our third, what I would consider, Tier 1 customer.
But then, beyond the Tier 1 customers that we're supporting with our cellular platform, we have been able to proliferate our technologies in places like China and emerging markets, okay? So if you look at the chart below, you'll see the number of handsets has extended. Last year, when I was here I talked about 44 different handsets from companies in places like China. This year, that number has exceeded 100, okay? So 100 different handsets from Broadcom, enabled by our turnkey design, whi
So for the dual-core shipping, in early 2014 it's now early Q1. And why do we have confidence to say that? We have a customer ready to go. We have a customer who's given us production orders, so we're in the process of building these phones, and Bob will say a little bit more about that. The quad-core we had for the middle of 2014, we now have that in the first half. So we've moved that up by roughly a quarter. Sample leadership LTE Advanced, we've moved that up by roughly a quarter as well, now looking to have that in mid of next year. Why are we able to do this? Two things: One, the integration of the acquisition is going extremely well. The team is integrated, hard-working, doing well, number one; number two, our engineers are executing on track or better, and so some conservative forecast we've been able to bring in, reflecting the quality of that work. So I'm pleased to say that the milestones we've shown you previously we're doing as well, or better than what we previously told you.
Mobile. Clearly, a lot of discussion in mobile about our position here, and I think we have a very strong position going forward, especially in the LTE space with the recent completion of the acquisition of Renesas. Here is an example of our LTE reference design platform; clearly, has world-class connectivity IP. I don't think there's any dispute about that. Again, you'll hear more about that from Bob. There are more chips on the back side of the board, so it's not obvious from looking at the front side where all those chips are. But we have WiFi, GPS, Bluetooth, NFC, all the connectivity on that platform. World-class power management and RF capability, and through, now world-class AP multimedia and through the recent acquisition, now world-class cellular modem IP. So all of the pieces in place for a complete LTE platform with world-class technology in each of the segments of that platform. And you, again, will hear a lot more about that from Bob.
Relative to the use of INTC on the foundry side, it left this open as a very real possibility and, in fact, our work indicates these two are already working together for I&N (not yet M&W).
And Oppenheimer & Co.’s Rick Schafer also reiterates an Outperform rating, and a $37 price target, writing that the company trumpted the virtues of its high level of integration:
BRCM repeatedly stressed the importance of platform leadership across each segment. BRCM will differentiate LTE with full (SoC) benefit of connectivity leadership.
Later in the day, the stock got a thumbs up from Jefferies & Co.’s Mark Lipacis, who reiterated a Buy rating and raised his price target to $36 from $32, writing that indeed, LTE-based smartphones will “translate to positive sentiment” in 2014, and help the stock’s P/E multiple expand. He offered a summary of remarks from Bob Rango, the company’s head of its mobile and wireless business, regarding the product outlook:
Mr Rango made the case that Broadcom connectivity solutions have 2x better throughput and 35% lower power consumption than competitive solutions, and that would enable Broadcom to maintain its market share leadership position in connectivity (Bluetooth + WiFi) chips in handsets. BRCM also announced that its M320 dual-core LTE SoC would ship into a Samsung phone in early 2014. Broadcom’s strategy is to provide a comprehensive best-in-class solution set including the LTE modem, application processor, imaging, video and graphics to its OEM
customers. In the emerging market, Broadcom now has a turn-key, cost effective LTE handset solution that emerging market OEMs could put into the market with minimal development cost and time.
Cowen & Co.’s Timothy Arcuri also today sounds a positive note on LTE:
Timelines accelerated across the board by ~1Q w/initial revenue now expected in Q1:14, while it officially announced Samsung as the first 4G LTE volume customer. Mgmt indicated “10’s of Millions” of units at implied platform ASP in the $18-20 range, i.e. very consistent w/our $400MM model and above many on Street thinking more like $150-200MM. Note this would imply ~5% global LTE share for ’14.
Arcuri thinks that the company is already partnering with Intel (INTC) to use the latter’s foundry capabilities to fab Broadcom’s next chips:
Touching on similar themes to last year’s meeting, BRCM will focus on design and less on shrinking to the next node with a majority of products staying at 28nm for next few years. Relative to the use of INTC on the foundry sid
7:31 am Broadcom raises its Q4 revenue guidance at its Analyst day (BRCM) : Co issues upside guidance for Q4 (Dec), sees Q4 (Dec) revs of $2.00-2.05 bln vs. $1.98 bln Capital IQ Consensus Estimate and above its prior guidance of $1.95-2.03 bln. The raised outlook was due to better-than-expected revenue in each reportable segment, particularly in Infrastructure & Networking.
Product Gross Margin: Improved the guided range for Q4'13 to down ~50 -- 75 bps on both a GAAP and non-GAAP basis.
R&D Plus SG&A Expenses: Reduced guided sequential growth range for Q4'13 to up ~$30-50 mln on both a GAAP and non-GAAP basis due to tighter expense management..
Global Equities Research‘s Trip Chowdhry today writes that he has been approached by clients asking him what he makes of the rumored iPhone deal between Apple (AAPL) and China Mobile (CHL). As I mentioned this morning, The Wall Street Journal reported China Mobile will start taking pre-orders for the iPhone this week, the first time the carrier has ever officially offered the phone.
Chowdhry, who has an Overweight rating on Apple shares, and an $800 price target, opines that details of the deal “are still sketchy,” and it remains to be seen what the price will be when the devices do go on sale.
But he thinks Apple can sell a large number of units at China Mobile, and that the sales may pull in users of Apple’s iPad and its Mac Computers, based on the following calculations:
a) iPhone is the Anchor product that brings the customers into the Apple Family; b) Depending on the geography 40% to 60% of iPhone users also become an iPad user; c) And about 20% of iPad users become Mac user. So the incremental opportunity based only on China Mobile only can be thought as follows: a) First 12 months iPhone Sales = 15 mil to 20 mil; b) First 12 months iPad Sales (40% to 60% of iPhone Sales) = 6 mil to 7 mil; c) First 12 months Mac Sales (20% of iPad Sales) = 1.2 million; d) Since, these all devices are manufactured in China, and the customer is also in china, their is ZERO Air-freight charges of Shipping, as it happens for USA customer. So we guess the Selling price of all the devices in China can be 10% less than in USA, while maintaining the same margins.