Irvine-based Broadcom Corp. is winning new business from low-cost smartphone makers in India, China and other Asian markets with “turnkey” baseband chips, a segment long dominated by rival Qualcomm Corp.
It’s a new front for Broadcom, which for years has reaped rewards on the high-end of the smartphone market with the escalating competition between Apple Inc. and Samsung Electronics Co., its two largest customers for communications chips that power Wi-Fi, GPS and Bluetooth applications.
A recent design win with Thailand-based phone maker K-Touch Mobile underscores Broadcom’s efforts to downscale, and it highlights new trends playing out in the hypercompetitive smartphone market.
“It’s definitely a flagship win for us,” said Rafael Sotomayor, Broadcom’s vice president of Mobile Platform Solutions. “They have developed a brand in China.”
Opportunities
K-Touch has strong ties to China Mobile and China Unicom, the country’s largest mobile providers, and is known regionally for quality products, according to Sotomayor.
China Mobile is the world’s largest wireless carrier, with more than 700 million subscribers. China Unicom is No. 3 with 250 million.
K-Touch sold more than 3.7 million smartphones in China in the first quarter for a 4.1% market share, according to Beijing-based Analysis International. That was good enough for the No. 7 rank in China, although still far from leader Samsung, at 17.3%, and No. 2 Lenovo, at 13.1%.
Several economic and technological factors are boosting demand for less costly smartphones in emerging countries, ranging from the rise of the middle class to the push for 3G networks.
New York-based ABI Research forecasts that smartphones priced under $250 before carrier subsidies will comprise 46% of all international smartphone shipments by 2018, up from 28% last year.
The changing dynamic has created plenty of opportunity for Broadcom, which is “heavily investing” to supply a burgeoning group of low-cost Asian smartphone makers with its chips, according to Sotomayor. More recently that has meant providing turnkey offerings, with communications chips stacked with processors―the technical guts of a cellphone.
For newer customers such as Taiwan-based Compal Communications and Indian telecom Idea Cellular, everything has to be cost effective and efficient for the companies to survive. That includes research and development, employee count and production cycles.
“That’s how these companies make a living,” Sotomayor said.
A Broadcom-chip-packed smartphone from a low-cost Asian brand might take only three months to make, with some 50 engineers working on the product. Top-of-the-line models from Samsung and Apple can take more than 18 months to develop, with as many as 500 programmers dedicated to software alone.
The changing landscape isn’t just an Asian phenomenon, as smartphone sales are on the rise in Europe and Latin America, as well.
Broadcom’s recent design win to supply 3G combo chips with connectivity applications for TCL Communication Technology Holdings Inc.’s J310 Android-based smartphone highlights that point.
The China-based company, which operates under the Alcatel One Touch and TCL brands, sells phones in more than 120 countries.
Sotomayor estimates that customers in Russia accounted for some 20% of TCL’s 37 million-plus phones sold in 2012, a number that gave the company the No. 7 ranking in global mobile phone sales according to Gartner Inc.’s annual tally.
“What’s happening in China is happening across geographical regions,” he said. “This isn’t a China phenomenon anymore.”
The shift has led to low-cost manufacturers increasingly opting for Broadcom’s baseband chips, or processing chips, stacked with GPS, Wi-Fi, Bluetooth, radio-frequency tuners and other applications, according to Christopher Rolland, an analyst in the New York office of Arlington, Va.-based FBR & Co.
“Big Push”
“Broadcom has these commando-like design teams that are able to integrate new technology into a single platform faster and better than probably any other semiconductor company in the world,” he said. “Broadcom has made a huge push into Qualcomm’s market.”
The chipmaker’s late entrée into baseband chips allowed San Diego-based Qualcomm, MediaTek Inc. in Taiwan, and Dallas-based Texas Instruments Inc. to get out to a big lead in the segment, but Broadcom is gaining ground quickly.
Rolland expects the company to grow baseband chip sales in the next few years to $300 million to $500 million, up from virtually nothing a few years ago.
“We think Broadcom could be the second-largest baseband supplier behind Qualcomm,” Rolland said.