Will Broadcom Lose Apple's Wi-Fi Business?
DEMAND TRIVIA
The potential loss of Apple as a customer for Broadcom's Wi-Fi chips could have significant repercussions for Broadcom's business. But Broadcom has been preparing for such a day.
Apple, which accounts for roughly 20% of Broadcom's revenue, has announced plans to develop its own Wi-Fi chip by 2025. This move aligns with Apple's broader strategy of transitioning to in-house silicon, as seen with its M-series processors and A-series chips. If Apple succeeds in developing a proprietary Wi-Fi chip, it could reduce its reliance on Broadcom (AVGO), leading to a substantial revenue loss for the chipmaker.
The impact on Broadcom would be multifaceted. Firstly, the company would need to find alternative customers to replace the revenue generated by Apple. This could involve diversifying its product offerings or expanding into new markets. However, finding customers of similar scale and profitability to Apple could be challenging. Additionally, Broadcom would need to reassess its supply chain and production strategies to adapt to the reduced demand from Apple.
Comparatively, Qualcomm faced a similar situation when Apple decided to develop its own baseband chips. Apple's decision to build its own modems was a significant blow to Qualcomm, as the iPhone maker accounted for nearly 20% of Qualcomm's revenues. Despite this setback, Qualcomm managed to diversify its business by focusing on automotive and Internet of Things (IoT) semiconductors, which helped mitigate the impact of losing Apple's business.
Similarly, Intel experienced a significant loss when Apple transitioned from using Intel CPUs to its own M-series processors for Macs. This shift not only affected Intel's revenue but also highlighted the importance of innovation and adaptability in the semiconductor industry. Intel's response to this challenge has been to invest heavily in research and development to regain its competitive edge. However, as the most recent history has shown, Intel has not fully recovered and is losing its leadership position in the semiconductor market.
Broadcom perhaps has been preparing for such outcome, because it has taken several initiatives to diversified its revenue in recent years:
Acquisition of VMware: In November 2023, Broadcom acquired VMware, a leading player in cloud computing and virtualization. This acquisition significantly expanded Broadcom's presence in the infrastructure software segment, contributing to a projected revenue of $50 billion for fiscal year 2024.
Expansion in Semiconductor Solutions: Broadcom has invested in accelerators and network connectivity for AI by hyperscalers, driving growth in its semiconductor solutions segment. Generative AI revenue, for instance, represented 20% of semiconductor revenue in Q4 2023.
Focus on Subscription-Based Services: The company's infrastructure software segment, which includes CA, Symantec, and Brocade, has seen a 7% year-on-year revenue growth. The recurring nature of over 90% of renewal value via subscription and maintenance has provided a stable revenue stream.
Diverse Product Portfolio: Broadcom's extensive range of products spans multiple high-growth markets, including data centers, networking, broadband access, telecommunications, smartphones, and industrial applications. This diversity reduces dependency on any single market or product line, mitigating risks and ensuring steady revenue streams.
Also, don’t forget: Apple may not succeed in its in-source effort. Broadcom may have enough breathing room to make it up for revenue loss from Apple.