iPhone’s Component Ecosystem: Broadcom

In this post, we will be analyzing Broadcom as part of the series on the major players in the iPhone’s component ecosystem. A related, speculative post about Broadcom written prior to the iPhone’s release may also be worth reading.

Broadcom (NASDAQ: BRCM) is a leading fabless semiconductor company with revenues of $3.67 billion in 2006. The company owns over 2,000 U.S. and 800 foreign patents on wired as well as wireless transmission of voice, video and data.

In Apple’s iPhone, Broadcom provides the I/O controller (BCM5973) used for the video interface to the touch screen. Though as per an analysis by iSuppli, this chip fetches Broadcom about $1.15 per unit sold, the fact that Broadcom was selected ahead of major competition augurs well for the company. In fact, following the launch of iPhone and reports of its teardown analysis, Broadcom’s stock price has risen by $1.38, or 4.75 percent, to $30.63.

The credentials of being an Apple supplier will help Broadcom win more business in future. The recent award of $19.6 million in damages in a suit filed against Qualcomm (NASDAQ: QCOM) for willfully infringing on certain Broadcom patents will also help the company’s performance. The three patents dealt with cell phone technologies, such as chip architecture for video processing and network compatibility as well as the ‘walkie-talkie’ function of a cell phone. Following this verdict, the U.S. International Trade Commission imposed a ban on the import of new handsets or personal digital assistants containing Qualcomm’s 3G chips. This ban could have some impact on the iPhone’s competition.

All this should be welcome news for Broadcom whose financials did not seem healthy enough, at least in the first quarter of 2007. Its net income was down to $61 million as against $117.7 million in the first quarter of 2006. This decrease in profitability was primarily attributed to a flat net revenue as well as a $60.7 million increase in operating expenses due to an increase in the number of employees.

This segment is a part in the series : iPhone’s Component Ecosystem