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Broadcom +10% as Street mulls baseband exit; QCOM could benefit

  • After opening up 13% on news it's weighing a sale or wind-down of its baseband chip unit, Broadcom (BRCM) has pared its gains a bit.
  • One concern: Broadcom might little to nothing in a sale, given the baseband unit has been hemorrhaging cash and (as recently noted by CLSA) companies not named Qualcomm (QCOM +0.3%) or MediaTek have had a rough time turning a profit in the R&D-intensive business.
  • Broadcom is only 9 months removed from paying $164M for Renesas' 4G baseband unit. Since then, the company has reportedly scored 4G design wins, but has also warned of top-line pressures caused by 3G weakness.
  • Goldman notes Broadcom had only 4% of the 2013 baseband market (per Gartner), a tiny fraction of Qualcomm's 62%, and is set to lose share in 2014. The firm estimates Qualcomm gets a $0.02 EPS benefit for each percentage point it gains.
  • Goldman adds Broadcom has noted its low-end/mid-range combo chip sales could be pressured as more functionality gets integrated with baseband ICs; the company had 39% of the 2013 mobile connectivity market to Qualcomm's 20%. Likewise, Wells Fargo sees a baseband exit hurting Broadcom's combo chip position.
  • Texas Instruments, Freescale, and ST-Ericsson each wound up shutting down their baseband ops rather than selling them.
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