Broadcom Corp. is getting out of cellular broadband but will keep going with connectivity ICs, which wrap up multiple short-range radio standard and find use both inside and outside the cellular business.
Scott McGregor, president and CEO of Broadband, told an analysts' conference call that "Broadcom has decided to exit the cellular broadband business and is exploring strategic alternatives for the business. Should no buyer be found we expect to wind down the baseband business and exit." The connectivity team is being merged into the broadband group and the company will focus on infrastructure, broadband and connectivity markets, McGregor added.
The move was not entirely unexpected as Broadcom had said it was holding business units to account on achieving milestones and had exited the Ethernet business (see Broadcom Pushes On in Wireless, Sells Ethernet Line). But it also comes not long after Broadcom spent approximately $164 million in cash to acquire LTE-related assets from affiliates of Renesas Electronics Corp. The acquisition was expected to accelerate availability of Broadcom's first multimode, carrier-validated LTE SoC platform in 2014.
The company said that the successful sale or wind-down of the cellular baseband business would result in a saving of about $700 million in R&D, selling and administrative annual expenses and stock-based compensation. Broadcom said it expects to reinvest roughly $50 million of these savings on an annualized basis into projects in the broadband, infrastructure and connectivity businesses.
McGregor: "It's been a hard decision for us because the engineering team and the product team have done a great job and the products we have are really quite good. But the challenge, I think, in the market is there's a high-end of the market where is an opportunity for margin profile and making some money and there is the lower part of the market which we see as fairly crowded. The low end is crowded and it's hard to make money there and the high end depends on a couple of customers. We didn't see enough traction there."
The connectivity business was described as falling into three buckets. The high-end cell phone where Broadcom has a good position; the low-to-mid cellphone, where despite $500 million to $800 million of annual business the company is dependent on design wins with platform partners such as Spreadtrum; and the non-cellular business which is set to show high-growth from Internet of Things applications.
With regard to the sale process for the baseband business McGregor told analysts: "It's not something we're going to drag out. I think we can move expeditiously."
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