Next year’s switch to digital broadcasting and a recent acquisition are expanding Broadcom Corp.’s business making chips for TVs and set-top boxes.
Last month, Irvine-based Broadcom said it was buying Advanced Micro Device Inc.’s digital TV chip business for $193 million in a deal set to close in the fourth quarter.
The business makes chips that handle digital signals in TVs, pick up broadcast signals and control how a picture is displayed.
It’s a deal that a grim Wall Street praised.
“We view the deal positively, as it provides Broadcom scale for accelerated growth in what has already been a successful business line for it,” Daniel Berenbaum, analyst at Cowen & Co. in New York, said in a research note.
With the Advanced Micro unit buy, Broadcom’s digital TV chip business could see more than $300 million in revenue next year, Berenbaum said.
Broadcom’s overall 2009 sales are forecast at $5.4 billion.
The expansion comes as some on Wall Street are worried about third-quarter results at Broadcom with a slowing economy. The company’s shares are down about 30% since July on concerns about lower profits.
Broadcom had a market value of about $10 billion late last week.
The AMD unit buy is expected to “solidify the company’s leadership position” in digital TV chips, including for entry level and mid-tier flat TVs with liquid-crystal display screens, said Ross Seymore, an analyst at Deutsche Bank Securities Inc. in San Francisco.
The deal also brings a big customer into the fold,South Korea’s Samsung Group.
The acquisition builds on Broadcom’s larger business making chips that handle video in TVs.
The company also makes chips for cable and satellite TV set-top boxes, a market estimated at about $775 million a year for Broadcom.
That business, one of Broadcom’s oldest, is getting a boost from a Federal Communications Commission mandate a few years ago that all broadcasters switch from analog to digital signals by 2009.
The government has been talking up the change with public service announcements and coupons for converter boxes that allow people to watch digital signals on older analog TVs.
The market for converter boxes is limited,the vast majority of Americans get their signals through cable or satellite TV and don’t need separate converter boxes.
Broadcom thinks some 30 million converter boxes will be sold by the time the deadline rolls around, based on government figures.
The market includes people with analog sets that aren’t linked to cable or satellite and extra TVs in garages, kitchens, recreational vehicles and other spots.
Broadcom has roughly 35% of the market for converter box chips.
“We are a big, big supplier,” said John Gleiter, senior director of marketing for the company’s set-top box division.
Converter boxes go for about $50. About 10 million government coupons, worth about $40 each, already have been redeemed, according to Gleiter.
More sales are likely as other countries make the switch to digital. Japan, Brazil, South Korea, Mexico, Canada and China are expected to switch by 2021.
“We anticipate that we may see the U.S. slow down, but other markets will pick up,” Gleiter said.
The boxes are made under a variety of brands, including RCA, a unit of France’s Thomson SA, and by Hong Kong’s Craig Electronics International Ltd.
The digital broadcasting mandate also required TV makers to include a digital tuner chip in sets made after 2007.
That’s what “kick-started” Broadcom’s move into the digital TV market, said Stuart Thomson, director of marketing for the company’s digital TV unit.
“That was the first opportunity that we saw as a company to get ourselves into the market,” he said.
The mandate has revived the pace of innovation for televisions,the guts of which hadn’t changed much in years.
Broadcom has released a handful of chips in the past few months that build on the analog-to-digital conversion.
One allows images to be flipped and rotated on screen, giving some TV makers a selling point in a crowded market. Other chips provide better picture and audio.
Broadcom hasn’t named any of its digital TV chip customers.
After buyers have taken TVs apart and discovered what chips are inside, it’s been reported that two of the company’s customers are Sharp Corp. and LG Group.
