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Analysts Bet on Broadcom Cell Chip Push

Irvine-based Broadcom Corp. has picked up some backers on Wall Street as it seeks to rival Qualcomm Corp. in mobile phone chips.

Broadcom’s range of chips for mobile phones, its focus on product development and its ties to top phone makers have some predicting the company could become a leader in baseband chips—the communications brains of mobile phones.

“We believe Broadcom remains positioned to someday be the world’s second-largest baseband supplier,” Craig Berger, an analyst at Arlington, Va.-based FBR Capital Markets Corp., wrote in a recent note to investors.

The analyst and others see the market for baseband chips becoming a two-horse race between Qualcomm and Broadcom.

That would be a big shift from the way the market is ordered now.

San Diego-based Qualcomm now leads in baseband sales, according to Newton, Mass.-based market tracker Strategy Analytics Inc.

Next are Taiwan’s MediaTek Inc., Dallas-based Texas Instruments Inc., Switzerland’s ST-Ericsson and Santa Clara’s Intel Corp., which bought the wireless chip business of Germany’s Infineon Technologies AG last year.

Broadcom now ranks lower in the top 10.

At stake is the next big market in computer products as smartphones and tablets start to eclipse PCs.

Analysts are bullish on Broadcom despite the company’s short history and minimal star power in baseband chips.

That’s in part because of Broadcom’s strong position in other types of chips for mobile phones.

Other Chips

Much of Broadcom business for mobile phones comes from connectivity chips, which are used to link phones and tablets to TVs, PCs, printers and other devices.

The company also makes chips that handle power use, video processing, navigation, radio and TV signals and other phone and tablet functions.

The winner in mobile phone chips will be the chipmaker with the broadest portfolio of connectivity, baseband and application processors, according to Harlan Sur, a chip analyst in the San Francisco office of New York-based JPMorgan Chase & Co.

“That’s only two guys—Broadcom and Qualcomm,” he said. “It should really be viewed as Qualcomm and Broadcom versus everyone else.”

Some Broadcom chips handle several functions in one.

• Headquarters: Irvine

• Business: chips for computers, consumer electronics

• Market value: $17 billion

• Projected 2011 sales: $7.5 billion

• Estimated yearly baseband sales: $500 million

The company’s ability to integrate more functions into a single chip has analysts betting on Broadcom’s growth.

“We believe there’s opportunity to gain even greater share as products get replaced by combo chips,” Broadcom Chief Executive Scott McGregor said at a recent conference in New York.

Annual baseband sales at Broadcom now are pegged at about $500 million, according to Berger.

Broadcom has overall projected 2011 sales of $7.5 billion.

Baseband Projection

The company’s baseband revenue could grow to $5 billion in coming years as the market ramps up and Broadcom extends its push into the most advanced wireless networks, Berger said.

“Cellular remains a very large opportunity for Broadcom over the next five years,” the analyst said.

Broadcom finds itself in a unique position as the underdog in baseband chips.

The company dominates in other chip markets, including for high-speed modems, corporate networking gear and other products.

Five years ago, Broadcom had virtually no baseband sales.

Today it counts the two largest mobile phone makers—Nokia Corp. and Samsung Corp.—as customers.

“That’s a pretty big accomplishment,” analyst Sur said.

Market

Global baseband chip sales topped $13.2 billion in 2010, up 20% from a year earlier, according to Strategy Analytics.

Broadcom saw “triple-digit” gains in baseband shipments last year with sales to Nokia and Samsung, according to Strategy Analytics.

As Broadcom picks up wins and makes advances into chips for more advanced networks, “We’ll see revenue grow significantly and, consequently, profitability as well,” McGregor said.

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