Broadcom (AVGO - Free Report) is reportedly looking for a potential buyer to offload its radio-frequency or RF unit, per a WSJ report. The wireless-chip business, which the company intends to sell, offers filters utilized in cellphones to clarify signals.
The company is working with Credit Suisse Group AG regarding the matter and the deal is likely to rake in $10 billion. At the moment, it is difficult to state anything concrete as the terms of the deal might change.
Markedly, Broadcom extended supply deal with iPhone maker, Apple (AAPL - Free Report) , for two years. Per the terms of the contract, Broadcom will provide Apple the required RF “front end components and modules” that can be utilized across iPhones, Apple watches, and iPads.
The company dominates RF-based film bulk acoustic resonator (FBAR) filter market with Qualcomm (QCOM - Free Report) . FBAR technology expertise allows Broadcom to enable smartphones to function more efficiently in congested RF spectrum. Notably, Broadcom competes with Skyworks (SWKS - Free Report) and Qorvo (QRVO - Free Report) in the RF semiconductor market.
In this backdrop, it makes sense to judge that Apple, Qualcomm, Qorvo and Skyworks will look forward to gain from this development.
Apple is utilizing Broadcom’s filters in iPhones and can strengthen its 5G iPhones portfolio with Broadcom’s proven expertise in the field. It is important to note that, Apple recently completed the acquisition of majority of Intel’s 5G smartphone business for $1 billion. The company is sitting on a pile of cash and is well positioned to benefit from the deal.
Qualcomm can gain a lion’s share in the FBAR market, if it takes the deal seriously. This will also aid the company to enhance competence in the 5G infrastructure market.
Qorvo and Skyworks can benefit if they pursue the deal and strengthen their respective 5G businesses.
Further, increasing clout of 5G, owing to connected devices are fueling growth in RF devices market of which FBAR technology is an indispensable component, is likely to help Broadcom bargain strongly. Notably, per a report from GrandViewResearch, RF components market is projected to hit $45.05 billion by 2025, witnessing a CAGR of 14%.
Moreover, IDC expects worldwide IoT spending to hit $1.1 trillion in 2023, at a CAGR of 12.6% between 2019 and 2023.
Key Takeaways for Broadcom in 2020
Whether Broadcom emphasizes on a single buyer or settles for sell off in fractions, for its RF-business remains to be seen. Nonetheless, the company seems to be on a good bargaining position on its proven expertise in smartphone filters with FBAR technology capabilities.
In case the deal leads to fruition, 2020 will mark the company’s departure from core semiconductor business. In fact, this will help it focus on infrastructure software market.
We believe that the company is well positioned to benefit from synergies from the CA buyout. In fact, CA’s strength in enterprise software offerings and substantial customer base is anticipated to enable Broadcom to explore the infrastructure software market and expand TAM.
Moreover, the company is banking on contribution from the acquisition of Symantec’s enterprise security business of approximately $1.8 billion in fiscal 2020.
Broadcom currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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