Broadcom is a top-ten semiconductor firm that designs, develops, and sells system-on-a-chip and software solutions to manufacturers of wired and wireless communications products. Broadcom's diversified catalog of products is used in digital cable, satellite and IP set-top boxes, media servers, high definition televisions and HD-DVD players, cable and DSL modems, wireless local area networks, cell phones, and mobile multimedia devices such as video iPods. One of Broadcom's specialties is chip integration, the placement of multiple functions on one chip, providing end-to-end solutions for its customers. Only a few companies possess the ability to create integrated chips.
Broadcom operates as a fabless semiconductor company. ("Fabless" means the firm designs, develops and supplies semiconductors, but outsources the actual manufacture and packaging of its semiconductors to other companies called semiconductor foundries that specialize in semiconductor production.) Broadcom holds the number two position in the fabless semiconductor industry, behind only Qualcomm.
Broadcom is on the cutting edge of the highly competitive semiconductor industry, facing competition from other fabless firms as well as semiconductor manufacturers like Texas Instruments. Broadcom and the other semiconductor companies often experience difficulties because of the cyclicality of the semiconductor industry. Broadcom's sales are also heavily dependent upon the health of the end-markets in which Broadcom's products are used.
One advantage Broadcom possesses in the semiconductor industry is the breadth of its technological experience and its ability to draw from its extensive tech patent portfolio (ranked fifth most valuable in the entire technology industry). This knowledge allows Broadcom to successfully place multiple functions into single chips in order to offer unique, integrated solutions to its customers; Broadcom's chip integration ability is matched by few competitors. Other important industry trends for Broadcom include the shift towards 3G in cell phone technology and the growing sales of HDTVs and HD-DVD players.
Broadcom is one of the world's leading semiconductor companies. Broadcom also has the fifth most-valuable patent portfolio in the technology industry worldwide, topped only by tech giants Intel (INTC), Hewlett-Packard Company (HPQ), International Business Machines (IBM) and Micron Technology (MU). In order to protect itself from changes in individual product markets, Broadcom provides a wide array of semiconductor solutions to a range of customers, as is detailed below.
In 2009, Broadcom generated a net income of $65.3 million on revenues of $4.27 billion. This represents a 69.6% drop in net income on a 4.7% decrease in revenues from 2008, when the company earned $214.8 million on $4.49 billion in revenues.
Broadcom is a fabless semiconductor firm; it designs, develops and sells its semiconductors but outsources the actual production of its semiconductors to manufacturing companies called foundries. Being a fabless company brings several key advantages and disadvantages for Broadcom:
Broadcom has been increasing its emphasis on sales to the mobile phone industry which has become one of the largest industries in the US. The standard technology in mobile phones is changing to third-generation or 3G technology. 3G is a superior type of wireless technology allowing for high-speed data transmission that enables mobile Internet-browsing, downloading, and media usage. Broadcom is one of the leading producers of 3G semiconductor solutions and as 3G technology becomes the new standard, Broadcom has the opportunity to win over new customers in the cell phone manufacturing industry. An example of such activity recently occurred as Verizon Communications (VZ) agreed to use Broadcom's 3G technology in its mobile phones. Broadcom also has deals with Samsung and Motorola. The market opportunity for Broadcom with 3G is huge and more deals with cell phone providers would significantly fatten Broadcom's revenues and profits.
The growing demand for expensive, high-tech products for home entertainment is contributing significantly to sales of semiconductors for Broadcom. Broadcom is one of the companies pushing the envelope in home entertainment by enabling the convergence of digital entertainment with its semiconductors. Broadcom provides key components for high definition televisions and high definition DVD players (for both Blu-Ray players and HD-DVD players), and digital cable, satellite and IP set-top television reception equipment. As more consumers decide to upgrade their home entertainment systems and purchase HDTVs, high-def DVD players, and digital television service, Broadcom's products will rise in demand.
One major risk Broadcom faces is its reliance on the demand for the end-market products that use Broadcom's semiconductors. The demand for products such as HDTVs and wireless LAN equipment drives the demand for Broadcom's products. If the demand for one of Broadcom's major customers' products were to fall significantly, possibly if replaced by a new technology released by a competitor, the demand for Broadcom's semiconductors would fall and substantially affect revenues. As the technology industry is fast-paced and highly competitive, such scenarios could feasibly occur, although they are unlikely to be large enough to seriously harm Broadcom.
Broadcom is the number two ranking fabless semiconductor company in terms of revenue (ranked only behind Qualcomm) and one of the top ten semiconductor companies when compared across fabless and in-house manufacturers. Broadcom has a first or second place in market share for most of its product portfolio, but one of its biggest markets, cell phones, is highly competitive and Broadcom is just beginning to gain ground as a player in the market. It faces heavy competition in the mobile phone market from industry leaders Texas Instruments and Qualcomm. Also, one of Broadcom's main products is television set-top boxes, a market which is becoming more competitive as Conexant has begun encroaching upon Broadcom's past customers in the market. Overall, because Broadcom's product and solutions portfolio is so diverse, it faces various competitors in different markets across the globe: