A recently extended supply agreement with Apple Inc. indicates the new guard at Broadcom Ltd. will handle operations differently than the company it was named after.
The Singapore-based chipmaker will manufacture RF components and modules for the iPhone and other Apple mobile devices from its Fort Collins, Colo., production plant under the three-year deal, according to a recent filing with the Securities and Exchange Commission.
Utilizing U.S. manufacturing plants is a different strategy than Broadcom Corp. employed before the Irvine-based chipmaker was acquired in February for $37 billion by Avago Technologies Inc.
The combined company, renamed Broadcom Ltd., has its U.S. headquarters in San Jose.
The Irvine company was one of the world’s largest fabless chipmakers, essentially relying on contractors in Taiwan, Singapore, China and Germany for production.
New Strategy
Broadcom Ltd. appears intent on using its own manufacturing plants for production to “leverage” fixed costs and protect intellectual property from the rising threat of theft and espionage, primarily from China, according to regulatory filings.
The chipmaker also owns factories in Singapore and Malaysia. It leases two other plants in Singapore, one in Breinigsville, Pa., and one in Matamoros, Mexico.
The Colorado plant is adding capacity to meet growing demand in the company’s wireless communications segment, which accounted for roughly $2.5 billion, or about 37%, of Avago’s $6.8 billion in sales in the 12 months through October, according to its annual report. Broadcom’s wireless business, which also includes broadband connectivity, accounted for about 65% of its $8.4 billion in revenue in 2014, according to its annual report.
The factory manufactures nearly all of the company’s thin-film bulk acoustic resonators, which are typically used in radio frequency filters in mobile phones to remove unwanted frequencies while allowing other specific frequencies to be received and transmitted. The plant this year also added an 8-inch wafer line and started converting 6-inch wafers to 8 inches to increase capacity.
The Fort Collins campus employed about 1,300 through May 2015, trailing only its Singapore and San Jose operations, according to a Denver Post story at the time.
Broadcom recently purchased a manufacturing facility in Eugene, Ore., where it plans to develop another acoustic filter production plant in the next two or three years.
Intellectual Property Protection
The chipmaker relies on its own manufacturing plants for products utilizing innovative materials and proprietary processes, as well as to protect intellectual property and ensure its supply of certain components, the company said in a regulatory filing.
IP protection around acoustic filters became a prominent concern at Avago about a year ago when the Justice Department indicted six Chinese citizens, including three professors who studied together at University of Southern California, on charges of espionage and stealing trade secrets that benefited the People’s Republic of China.
Among the accused: Wei Pang, a former employee at Avago’s Fort Collins plant who received a doctorate in electrical engineering from USC in 2005.
Pang, who was 35 at the time, was charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, economic espionage and theft of trade secrets.
He and the other co-conspirators are accused of preparing a business plan and soliciting Chinese universities and other entities to start manufacturing the acoustic filter technology in the world’s most populous country.
Pang attended USC with co-conspirators Huisui Zhang, who received a master’s degree in electrical engineering there in 2006, and Hao Zhang, a former employee at Apple supplier Skyworks Solutions Inc. in Massachusetts and a professor at Tianjin University in Tianjin, China.Â
The indictment alleges that the men stole recipes, source code, specifications, presentations, design layouts, and other confidential and proprietary documents and shared the information with Tianjin University, which subsequently hired Pang and Huisui Zhang as professors and formed a joint venture with them to produce the filters under the company ROFS Microsystem.
Avago learned of the patent application thefts in the fall of 2011, when Pang’s old boss, Rich Ruby, visited his new lab and recognized Avago technology, according to the indictment.
Broadcom didn’t respond to inquiries for this story.
China has been linked to several incidents of IP theft and espionage regarding U.S. intellectual property in the past few years, prompting U.S. regulators to closely examine Chinese investments in U.S. technology companies and elsewhere.
A recent federal investigation into Unisplendour Corp. Ltd.’s proposed $3.8 billion investment in Irvine-based drive maker Western Digital Corp. ultimately led the Beijing-based investor to back out of the deal.
Apple has for years been a major customer of both Avago and Broadcom. The latter’s communications chips—which power Bluetooth, Wi-Fi, near-field communication and RF radio applications—often sat next to Avago’s smartphone offerings, such as radio frequency components, fiber optics, storage connectivity and power amplifiers, in Apple products.
The Cupertino-based consumer electronics giant accounted for about 10% of Broadcom Ltd.’s $1.7 billion in first-quarter revenue. Indirect sales through Apple’s main contractor, Foxconn Technology Group, which includes Hon Hai Precision Industries, coupled with direct sales to Apple, accounted for more than 20% of quarterly sales.
