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As someone who is slowly trying to familiarise myself with the semi industry, I am struggling to understand how Broadcom fits into the picture. Put simply (perhaps too simply), where does it have advantage over its primary competitors? Any help would be much appreciated
Broadcom is a semiconductor roll-up, similar to Valeant in pharmaceuticals or Transdigm in aerospace. In all three cases, the companies have a strategy of buying "franchise" assets in their industry that are protected by IP or some other barrier to entry and are difficult to replace, then cutting costs and exercising pricing power. The strategy can work extremely well when executed well (Transdigm) or can blow up when executed poorly (Valeant). Whether or not you like Broadcom ultimately comes down to how much you like Hock Tan and how much confidence you have in his ability to execute on the strategy.
In all three cases, the companies have a strategy of buying "franchise" assets in their industry that are protected by IP or some other barrier to entry and are difficult to replace, then cutting costs and exercising pricing power. The strategy can work extremely well when executed well (Transdigm) or can blow up when executed poorly (Valeant). Whether or not you like Broadcom ultimately comes down to how much you like Hock Tan and how much confidence you have in his ability to execute on the strategy.
Also reminiscent of Autonomy; in their case the franchise assets were all so much trash used to pump up the books. While I'm generally suspicious of anything that resembles a roll-up, would you say that Broadcom's acquisitiveness has served them well - have they got their hands on any key IP?
As someone who is slowly trying to familiarise myself with the semi industry, I am struggling to understand how Broadcom fits into the picture. Put simply (perhaps too simply), where does it have advantage over its primary competitors? Any help would be much appreciated
Broadcom's advantage is business model. Hock Tan runs a very tight ship and that is going to be the key to a chip companies survival as the transformation from fabless chip companies to fabless system companies continues. Fabless companies like NVIDIA and Xilinx will do fine but QCOM and the rest of the merchant chip companies had better take note.
Apple started it all and is now the most powerful fabless systems company. To compete with Apple the other handset makers are following suit. Now automotive is following Tesla into the chip business. Amazon, Facebook and Google are making their own chips.
I can look back at the SemiWiki analytics an see it. Tesla started hitting us 3 years ago. Apple started with us 7+ years ago. Our domain reach went from hundreds of chip companies to many thousands of systems companies in the past 3 years. More than 2.6M people have visited SemiWiki since we went online in 2011 and that number is growing daily thanks to non traditional chip companies, absolutely.
Also reminiscent of Autonomy; in their case the franchise assets were all so much trash used to pump up the books. While I'm generally suspicious of anything that resembles a roll-up, would you say that Broadcom's acquisitiveness has served them well - have they got their hands on any key IP?
I'm also suspicious of roll ups. I think Hock is a great manager and runs a very tight ship as Daniel said, but the thing about roll ups is even if you succeed you are forced to go after bigger and bigger acquisitions until you eventually run out of targets to acquire. With the failed Qualcomm acquisition, it's starting to look pretty thin out there for acquisition targets that would make a difference for Broadcom... maybe Xilinx or NXPI (assuming Qualcomm acquisition of NXPI fails) could be in play.
That said, there is some key areas where Broadcom has already acquired some pretty important IP. RF is one area where they are probably best in class, another area is wireless combo chips (wireless + bluetooth + NFC). As you can imagine, these components are fairly critical to the wireless market, both to handset makers and for base stations.
Broadcom's advantage is business model. Hock Tan runs a very tight ship and that is going to be the key to a chip companies survival as the transformation from fabless chip companies to fabless system companies continues. Fabless companies like NVIDIA and Xilinx will do fine but QCOM and the rest of the merchant chip companies had better take note.
Thanks Daniel - A very interesting point; but do you think Tan/Broadcom are truly more resilient than QCOM. I mean, for all Tan's hard-nosed hustle, presumably broadcom are still extremely vulnerable, and could be abruptly plunged into a pricing war at the whim of Tim Cook.
A lot of Broadcom's revenue doesn't come from the fickle consumer companies, it comes from telecomms infrastructure companies who aren't going to screw up a critical strategic supplier by squeezing prices to make their business unprofitable in case they pull out and leave them in the lurch.
Cheers Ian; the phrase "critical strategic supplier" is most interesting. Given what Daniel N said above about the broader structural transition - now in its incipience - from fabless chip companies to fabless system companies, my concern is that todays critical strategic supplier will soon no longer be critical.
