updated 08:31 pm EDT, Mon June 2, 2014
Cellular division loses to blame, cash savings will go to other chip projects
Today, Broadcom has announced it is looking for an exit from the baseband chip market. The company released a statement saying that they are "exploring strategic alternatives for its cellular baseband business, including a potential sale or wind-down." Leaving the baseband business could mean a large cost savings for the company, as well as moving out of a market dominated by Qualcomm.
Broadcom estimates that it could see a reduction of $700 million spent on research, development, selling and other administrative costs related to its baseband business if it sells or shuts down the wing. Of that amount, $100 million is related "to estimated reductions in stock-based compensation." The numbers wouldn't reflect any money Broadcom would need to spend reorganizing or impairments brought on by a shutdown.
In an attempt to refocus their efforts, $50 million of the $700 million saved would be reinvested into broadband, infrastructures and connectivity business projects in the company. The company hopes these investments would build on other areas of chip-making, including low power connectivity, embedded processing and small cells. This could mean that Broadcom is focusing its efforts on the chips that is has more success with, such as models for Bluetooth and Wi-Fi.
Information from the latest Broadcom quarterly financial report shows that unloading the division may not be a bad move for the company. In the quarter that ended March 31, revenues were counted as $1.9 billion, but the mobile and wireless revenues realized a loss of $32 million. This is a reverse from the previous quarter, which saw a gain of $32 million. The report points to development cycles for LTE products as the problem.
"The operating loss for our mobile and wireless reportable segment in the three months ended March 31, as compared to prior periods presented above, resulted primarily from a broad-based decline in revenue along with a significant year-over-year increase in research and development expense in cellular baseband technologies, principally related to our LTE product roadmap," reads the report. "Due to the lengthy product development and sales cycle for LTE products, our ongoing investment in LTE-related technologies negatively impacted our operating results and may continue to do so until we realize significant revenue."
By comparison, Qualcomm had $6.3 billion in revenues for the quarter that ended in March, but $1.1 billion dollars were spent on research and development. Revenues for the company were up four percent compared to the previous year, but down four percent from the quarter ended December 2013.
Broadcom did indicate that it still expects revenues between $2.0 and $2.1 billion by the end of the quarter in June. However, no mention is made if this would include the sale of the baseband division.