Broadcom to exit cellular baseband chip business

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BY LEHAR MAAN AND SOHAM CHATTERJEE Chipmaker Broadcom Corp said it was looking to exit its cellular baseband business, and forecast current-quarter margins to beat or be at the high end its estimate.

The company’s shares rose as much as 13 percent on Monday.

The cost-intensive cellular baseband business has been losing share and has weighed on Broadcom’s margins.

The business was “significantly unprofitable,” FBR Capital Markets analyst Christopher Rolland said.

Broadcom on Monday said it would sell or wind down the business as soon as it could, saving some $700 annually.

“It’s overdue, but definitely good news,” Ascendiant Capital Markets analyst Cody Acree said.

“We have said 2014 wireless was or break for Broadcom — either they share some proven or get the business, or it probably cost the CEO his job.”

Broadcom’s chips integrating Wi-Fi and Bluetooth technology are used Apple Inc’s iPhone and other top-tier smartphones and tablets.

But its chips for low-cost smartphones have lost share to MediaTek Inc. the 4G long-term evolution (LTE) chip , the company has been battling Qualcomm Inc’s domination.

Stiff competition has already forced big names such as Texas Instruments Inc, STMicroelectronics NV and Ericsson the cellular baseband chip business.

Broadcom, which has been spending on baseband technology research and development, has seen operating profits fall at its mobile and wireless business.

Sales at the business, which fetches almost half of the company’s , fell 15 percent to $846 in the first quarter ended March 31.

Broadcom said it expected to save $600 in research and development and administrative costs annually by exiting the baseband business, excluding an estimated $100 reduction in stock-based compensation.

The company had reported operating costs and expenses of $1.88 billion for last year.

Broadcom said it now expects both GAAP and non-GAAP product gross margins to be at or above the high end its forecast.

The company had estimated in April that non-GAAP product gross margin would rise by 75-175 basis points for the second quarter ending June 30 from the first quarter’s 52.2 percent.

Some analysts said finding a buyer for the baseband business be difficult.

“Those that want to be in the business are already there and are more successful than Broadcom,” Ascendiant’s Acree said.

“Intel Corp be a possible acquirer but it has similar intellectual property.”

Broadcom’s technological roadmap had fallen behind peers like Qualcomm, MediaTek and Marvell Technology Group Ltd, FBR’s Rolland said. (Reuters)