Qualcomm movement into Broadcom markets is behind acquisition battle

In the ongoing feud between Broadcom and Qualcomm and the former’s attempt to use a hostile takeover to acquire the latter, we have seen commentary, press releases, letters from the board, and countless TV interviews from leadership on both sides. But recent announcements and product reveals from the San Diego-based mobile chip giant continue to paint a picture that differs greatly from the one being presented by Broadcom and CEO Hock Tan.

While Broadcom would have the market believe that it is Qualcomm that desperately needs the leadership, management, and direction that it can provide, I believe that recent movement in a couple of key product areas from Qualcomm indicate instead that it is Broadcom that views the acquisition of Qualcomm as necessary to avoid significant disruption to its market leadership in both consumer Wi-Fi and cellular radio technology segments.

These product advancements and initial market traction from Qualcomm have the potential to shift the balance in these important ecosystems and may provide an answer to the question of why Broadcom is pursuing this acquisition despite considerable push-back from Qualcomm and lack of support from the majority of external analysts and the mobile industry.

Though Broadcom is a leader several semiconductor technology markets including wired and wireless networking, and the less understood segment for radio receiver components, often called the “RF front-end.” A basic explanation of an RF front-end is that it represents the hardware between the modem chip and antenna on a smartphone or any connected device. This includes filters, multiplexers, amplifiers, transceivers, and other complex hardware that allows for high-speed, reliable wireless data transfer to occur at the amazing speeds we have today, breaching 1.2 Gigabits per second.

Broadcom RF front-ends have been included in key flagship devices through 2017 including the Samsung Galaxy S8 and the current iPhone models.

Though Qualcomm has been talking about advancements and progress in creating a high-quality RF front-end designs of its own, this week at Mobile World Congress we are witnessing the fruits of that labor as significant design wins and market adoption. Sony unveiled its new Xperia XZ2 that incorporates both the Qualcomm Snapdragon 845 mobile processor and a “comprehensive modem to antennae” RF front-end provided by Qualcomm. Sony claims that the Qualcomm integration allows it to provide superior performance and power efficiency since all components are built by the same provider and can be tuned optimally.

Qualcomm also announced that the next flagship-class smartphone from ASUS will use the same Snapdragon 845 mobile chip and Qualcomm RF front-end design, as will an upcoming ASUS Windows 10 PC. Coupling these announcements with the reveal from CES that Qualcomm had come to RF front-end agreements with Google, HTC, LG, and Samsung, it appears that the company is making inroads to this important segment. I expect we will find that the new Samsung Galaxy S9 and future Google Pixel phones will utilize a similar level of integration, as may many initial 5G smartphones. Full details from these OEMs on the designs are still forthcoming, but it seems clear at this point that Qualcomm is taking the high-end RF front-end market from several competitors, Broadcom included.

The RF front-end market is complex and esoteric but still provides considerable revenue growth opportunity for Qualcomm. As a part of its investor disclosures at the outset of the Broadcom takeover bid, Qualcomm stated it was planning for a $2B-$3B impact on fiscal year 2019 revenue, aggregate across all OEMS, for this segment. And this number is expected to increase with the transition to 5G as the added complexity of radio functions ratchets up significantly.

Qualcomm is also encroaching on Broadcom’s territory with progress in the retail Wi-Fi space with mesh networking. Mesh networks replace a single router with a multi-device approach that evenly distributes reliable and high-speed connectivity throughout a home or office. Mesh networks now represent more than 40% of yearly consumer retail router shipments, up from just 5% only 18 months prior. Qualcomm has stated it plans for roughly a $1B impact on revenue for FY19 from the Wi-Fi space.

Qualcomm technology is at the heart of nearly all mesh networking systems including the most popular systems from Google, Linksys, Samsung, Netgear, Ubiquiti Networks, and others. Qualcomm also believes mesh networking will be at the heart of the 5G cellular transition as it can help bridge the gap from external carrier networks to your home environment, helping overcome difficulties millimeter-wave 5G will have penetrating walls and even windows.

Qualcomm partners have also started to integrate hardware for mesh networking in smart home devices, like the ASUS Lyra Voice. It utilizes voice-assisted technology from Amazon Alexa into a smart speaker while also acting as a dedicated mesh networking node to extend and supplement the local network.