Broadcom Strengthens Its Wireless Portfolio With NFC Quad-Combo Chips

Broadcom (NASDAQ:BRCM), a global leader in wired and wireless technology, introduced two new Near Field Communication (NFC) solutions to be showcased at the 2013 consumer electronics show earlier this week. The NFC technology enables any two devices (smartphones and other similar devices) to establish radio communication by simply bringing them in close proximity to each other. With the introduction of the two chips later next year, the company targets growth in mass market mobile phones as well as high-end mobile phones and devices.

NFC will enable new applications  such as mobile payments, which is estimated to grow to $100 billion in 2016, from the current level of $4.2 billion in completed transactions in 2012, according to ABI Research. ^[1] Additionally, the expansion of NFC will increase adoption in additional consumer electronic devices such as TVs, game controllers, headsets, printers, etc. NFC will enable a user to instantly see a video taken from a smartphone on a smart TV by tapping the devices together and also offer additional features such as tap to print, tap to share data, etc.

We estimate the “wireless connectivity and baseband applications” division to contribute over 50% to our price estimate of $44.95 for Broadcom. With leading integrated SoC capabilities, 5G Wi-Fi solutions and strong OEM relationships, we believe that Broadcom has the capability to retain its foothold in the wireless market.

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Broadcom Is Well Leveraged To Tap The Billion Dollar Opportunity In The NFC Market

Broadcom launched the industry’s first quad-combo chip which integrates NFC, bluetooth, Wi-Fi and FM solutions. Combining several functions on a single integrated circuit, the combo chips will not only take up less space within a mobile device but are slated to be cheaper compared to multi-chip options.

However, the development of the technology requires significant upfront investment. But Broadcom is of the view that the move will help it establish a stable footing in the NFC enabled smartphone market, which is estimated to reach 3.5 billion devices over the next five years. ^[2] Currently, the NFC technology is only used in around 100 million wireless phones. ^[3]

In addition to the quad-combo chip, Broadcom also introduced a single card solution combining its first 5G Wi-Fi combo chip with its standalone NFC chip. The tap-to-pair functionality of NFC along with the speed, coverage and performance benefits of 5G Wi-Fi could help raise Broadcom’s performance in the high-end smartphone and tablet market.

Accounting for close to 35% of the wireless connectivity market, we feel that Broadcom is well-positioned to retain its market share for the rest of our forecast period. Nevertheless, the increasing threat from Qualcomm (NASDAQ:QCOM) and the recent acquisition of CSR’s handset technology by Samsung (NASDAQ:SSNLF) could serve as major roadblocks for Broadcom in the wireless communication segment. However, even a 3-4% drop in Broadcom’s share in the wireless communication market by the end of our forecast period would only lead to a marginal downside to our current price estimate of $45.95.

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

1. Broadcom Releases All-In-One Bluetooth, Wi-Fi, NFC, and FM Chip-NFC Coming to the iPhone 5s?, iPhonehacks.com, December 12, 2012 [↩]
2. Broadcom Launches Industry’s First Certified NFC Quad-combo Wireless Connectivity Solution, Broadcom Press Release, December 11, 2012 [↩]
3. Broadcom chips integrates NFC, other wireless technology, Network Asia, December 12, 2012 [↩]