5G Wi-Fi Solutions To Help Broadcom Defend Leadership In Wireless Connectivity

While Qualcomm (NASDAQ:QCOM) continues to dominate the mobile baseband and application processor market, Broadcom (NASDAQ:BRCM) leads the market in wireless connectivity, increasing its market share from 28% in 2009 to 35% in 2011. However, Qualcomm’s recent acquisition of Atheros casts doubt on Broadcom’s ability to continue enjoying the majority market share in the time to come.

Extending its lead in 5G Wi-Fi solutions early this year, combined with continued growth in advanced 3G solutions, should help the company retain its footprint in this segment. Moreover, with 5G Wi-Fi’s potential to become one of the most influential mobile and wireless technologies in years to come, the early move by Broadcom could give it an added advantage in the market. We estimate its share will increase marginally this year and stabilize thereon.

Growth in Wireless Connectivity Market

Wireless connectivity is a must-have in today’s electronic devices in the computer, consumer, communications and automotive markets with a growing need among consumers to communicate and access content at any time and place. The wireless revolution is contributing to a global boom in demand for Wi-Fi chipsets.

We estimate the wireless connectivity solutions market to increase from $7.4 billion in 2011 to around $14 billion by 2015, and almost triple from the current level by the end of our forecast period.

Broadcom Introduces The First Family of Chips Based on 5G Wi-Fi

In January 2012, Broadcom launched its first family of IEEE 802 .11 ac chips based on 5G Wi-Fi. It extended its lead with Netgear (NASDAQ:NTGR) announcing the industry’s first 5G Wi-Fi router powered by Broadcom, which is expected to be out soon. Skyworks Solutions (NASDAQ: SWKS), which manufactures high-reliability analog and mixed signal semiconductors, recently confirmed having started volume production of various RF solutions supporting Broadcom’s 5G Wi-Fi chips.

The increase in the rate of video consumption and explosion in the number of wireless devices put a vast amount of stress on networks resulting in video buffering, skipping and battery drain. Broadcom claims that its 5G Wi-Fi chips deliver Ethernet quality speed that is three times faster and six times more power efficient than the previous generation of Wi-Fi devices.  ^[1]

The company has said that it’s working closely with customers and ecosystem partners to address the growing demand for high definition quality video at fast speeds on multiple devices.

Leadership in Providing Integrated System-on-Chip Solutions

Connectivity solutions require extensive system-on-chip (SOC) design capabilities, including a vast portfolio of intellectual property. Broadcom is the leader in providing integrated SoC solutions and, so far, no company has been able to beat it in integration capabilities.

With added advantages of a broad product lineup and connectivity solutions at different price points, Broadcom has been able to score a large number of design wins in the past.

We expect Broadcom’s share in the wireless connectivity market to see a slight increase in the current year and stabilize thereon till the end of our forecast period.

Growing Competition from Qualcomm

The Atheros acquisition will help Qualcomm address the fast-growing market for tablets, giving it the opportunity to sell its chips to all types of tablets – 3G, 4G or Wi-Fi/Bluetooth. While only a few tablets have 3G or 4G connectivity that require Qualcomm’s products, most tablets have Wi-Fi capabilities that can be supported by Atheros.

Hence we expect Broadcom’s market share to stabilize in the years ahead. However, with the addition of innovative products in the future, its product offerings may turn out to be more competitive and challenging than Qualcomm’s. An increase in Broadcom’s market share to 38% will lead to a 2% upside to our price estimate. However, a 2% decline in market share will reduce our price estimate by 2%.

Our price estimate of $47.21 stands at a premium of around 47% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Skyworks starts volume production of RF solutions for Broadcom’s 5G WiFi platforms, Semiconductor-Today, May 30, 2012 [↩]