Handset-Component Market Becomes Brutal Battle: A Wall Street Transcript Interview with Christopher Rolland, Semiconductor Specialist in the Technology, Media and Telecom Research Group of FBR Capital Markets

Wall Street Transcript

67 WALL STREET, New York - July 29, 2014 - The Wall Street Transcript has just published its Wireless Communications & Telecom Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Increased Competition in Wireless Space - Mobile Trends in Emerging Markets - China LTE Market - Hypercompetitiveness in Handset Market - Emerging Market Volumes

Companies include: Broadcom Corp. (BRCM); NVIDIA Corporation (NVDA); QUALCOMM (QCOM); MEDIATEK INC TWD10 (2454.TW); Marvell Technology Group Ltd. (MRVL); Intel Corporation (INTC); China Mobile Limited (CHL); RF Micro Devices (RFMD); TriQuint Semiconductor (TQNT); Skyworks Solutions (SWKS) and Avago Technologies Limited (AVGO) and many others.

In the following excerpt from the Wireless Communications & Telecom Report, an expert analyst discusses the outlook for the sector for investors:

TWST: We have had some fairly big news in terms of your wireless coverage just yesterday. Can you talk about the important announcement that is getting your attention at the moment?

Mr. Rolland: You are absolutely right. The big news in terms of the space is Broadcom's (BRCM) decision to sell, or exit, their wireless business.

TWST: Tell us a little bit more about that. Why is that such a major announcement, and what are the likely ramifications of that move?

Mr. Rolland: The wireless industry right now is in an interesting dynamic. For some of the smaller players, bad news is good news, and what I mean by that is that investors are looking past the bad news to look at a company under an optimal structure, and typically that optimal structure is a semiconductor company that is not involved in cellular. So the cellular divisions or units of these companies are just bleeding money.

Broadcom, for example, I think would be lucky to get let's say $300 million for this business right now because of where things are. Maybe they can get a little bit more from the right bidder, but they were spending as much as $700 million a year in R&D and development, which is an enormous expense. You add on to that R&D number added acquisition costs as well, for companies like Renesas that they bought, or Beceem that they bought prior to the Renesas acquisition. For Broadcom, this was an exercise in value destruction, which is clearly not where they wanted to go. And it is not just Broadcom that is suffering from this situation; it is the same scenario for many of these guys.

We are seeing the same situation with NVIDIA (NVDA), for example. NVIDIA, when asked about their cellular operation, admitted that they were thinking about "de-emphasizing" that part of the business. I don't think you are going to see them gain a lot of traction with their Icera product, and they initially spent $350 million on that acquisition. When you take that $350 million and add in all of their additional R&D expenses, which were probably running $300 million plus a year, it is hard to see how this can be lucrative for them. Instead, by the time you are done adding up all the expenses, you are seeing another exercise in value destruction.

TWST: So if companies like Broadcom and NVIDIA are looking at exiting the cellular business, who is going to pick up the slack?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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