SAN FRANCISCO (Reuters) - Broadcom Corp Chief Executive Scott McGregor said on Wednesday he is confident that high-end smartphone makers will keep using his company’s wifi chips even though it is no longer pursuing 4G cellphone technology.
Broadcom said in July it was winding down its money-losing cellular baseband chip business after struggling to compete against larger rival Qualcomm, which has a major lead in 4G cellphone technology increasingly used in smartphones.
Getting out of baseband reduces costs and lets Broadcom concentrate on its better-performing networking and broadband businesses, but it may leave the chipmaker at a competitive disadvantage selling its wifi chips in the smartphone market.
“We’re definitely at risk of that but the reality of it remains to be seen,” McGregor told Reuters. “The higher-end smartphone space is most likely to stay with Broadcom because that’s where they care most about the features and capabilities we offer.”
The Irvine, California company supplies wifi chips for Apple’s iPhones, Samsung Electronics’ Galaxy S5 and other high-end handsets. But without baseband technology, Broadcom’s wifi chips may be less attractive to low-end smartphone makers, who typically choose platforms that integrate both wifi and baseband in order to save money.
Some on Wall Street believe Apple and other manufacturers making top-tier phones could also eventually opt to combine wifi and baseband as technology improvements make it possible to squeeze more and more features onto single pieces of silicon.
Asked whether that was likely to happen, McGregor said steady improvements in Broadcom’s wifi technology, like increasing range, reducing interference and using wifi to determine precise locations, were reasons for manufacturers to keep buying Broadcom’s chips.
“A lot of people think of this as a static space but it’s not. We’re constantly evolving the technology,” he said.
Despite the risk to its wifi chip business, shares of Broadcom have surged 26 percent since the company said in June it was deciding how to get out of baseband technology, which was costing about $600 million a year in research and administration costs.
Broadcom plans to unveil steps to return some of that freed up cash to shareholders when it holds an analysts’ meeting in December. The company has already doubled its share buyback plans to $800 million over the next year.
Underscoring Broadcom’s focus on its fast-growing networking business, the company on Wednesday said it was shipping improved chips for directing traffic in cloud data centers.
“This chip will go into high-end mega-data centers, typically the cloud providers. All the name brands of search and social media are primary users of this,” McGregor said.
Reporting by Noel Randewich; Editing by Cynthia Osterman