Apple-Broadcom Deal Disrupts Wireless Chip Market – EPS News
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In late May, Apple and Broadcom disclosed a deal for the semiconductor company to supply Apple with 5G modems and other wireless components. Until now, Apple has been buying those components, especially cellular modems, from Qualcomm.
Since it is not a secret that Apple has been looking to replace Qualcomm with its own chips and other components manufactured in the U.S., Qualcomm’s share price dropped over 13 percent in 30 days.
Photo credit: Matias Cruz
While Apple has successfully replaced Intel CPUs with its own Arm-based processors, designing and producing a cellular modem is much more difficult. The biggest issue is to get the model certified by cellular service providers. The iPhone, Apple Watch, and some iPads now connect to over 100 telecoms worldwide, and many require considerable testing and certification for new chipsets to access their networks.
That’s why the deal with Broadcom makes sense. As part of the deal, Apple gets access to the technology and controls the supply chain of Broadcom’s made chips in the U.S., minimizing the risk of component shortage. In return, Broadcom becomes the preferred wireless component provider for the most valued company.
Apple is known for driving tough bargains with its suppliers but it’s also one of the largest consumers of semiconductors in the world. In 2022, Apple’s expenditure on chips was $67.06 billion, according to Statista.
Under the multi-year deal, Broadcom will develop 5G radio frequency components with Apple that will be designed and built in several U.S. facilities, including Fort Collins, CO, where Broadcom has a major factory, Apple said.
“All of Apple’s products depend on technology engineered and built here in the U.S.,” said Tim Cook, Apple’s chief executive, in a statement. “We’ll continue to deepen our investments in the U.S. economy because we have an unshakeable belief in America’s future.”
Broadcom’s Hock Tan
Broadcom’s CEO, Malaysian-born Hock Tan, studied engineering at MIT and business at Harvard. He looks for companies with a large customer base and inflated running expenses, cutting costs and consolidating engineering, sales, and operations.
He started as CEO of Avago Technologies, a semiconductor company based in Singapore. It bought several other chipmakers, including Broadcom, from which it took its name.
Six years ago, Tan was on a shopping spree. In November 2017, standing next to President Donald Trump, he announced that he was moving Broadcom’s legal headquarters from Singapore to the U.S. The move, analysts argued at the time, was to seek regulatory approval for the company’s acquisition of Brocade and Qualcomm.
Last year, Broadcom and VMware announced an agreement under which Broadcom would acquire all of the outstanding shares of VMware in a cash-and-stock transaction that values VMware at approximately $61 billion. Like CA and Symantec, VMware sells infrastructure software and has the largest share of that market. According to Gartner the company holds about 72% of the server-virtualization market.
While the purchase of Brocade, a leader in fiber channel storage and other networking equipment, went without significant problems, Qualcomm’s board rejected several offers, including one of $130 billion, and President Trump used its weight in Washington to make the case that Broadcom takeover would harm U.S. national security.
And, last December, The European Commission competition authority sounded the alarm on the Broadcom-VMware deal. It announced an “in-depth” investigation of the merger between the two companies, adding that it is also concerned that Broadcom could turn off its competitors’ access to VMware.
Apple has a long history of engaging the help of semiconductor companies to co-design their own chipsets. Apple Pay, the company’s contactless payment system, was designed together with NXP at the time.
With this new agreement, Apple could ask Broadcom to help design its next-generation wireless communications components, including cellular modems.
Beyond a very few specialized components, Broadcom outsources the manufacturing of its semiconductors. Tan said he was considering Intel as a potential new foundry partner, as an alternative to TSMC, its foremost supplier.
Alongside most companies in the electronics supply chain, Broadcom is reevaluating its supply chain and manufacturing for its products after two years of shortages and disruption due to Covid-19 and the growing tensions between the U.S. and China.
Pablo Valerio has been in the IT industry for 25+ years. While primarily based in Barcelona, he has also worked in the United States, Italy, Germany, The Netherlands, and Denmark. For the past 10 years he has been a regular contributor to several publications in electronics, communications, mobility, and smart cities. His work appears in EE Times, IoT Times, InformationWeek, EBN, LightReading, Network Computing, and IEEE Spectrum, among others. Pablo holds a MS in Electrical Engineering from The Ohio State University.
Beyond a very few specialized components, Broadcom outsources the manufacturing of its semiconductors. Tan said he was considering Intel as a potential new foundry partner, as an alternative to TSMC, its foremost supplier.
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