Broadcom announced today that it will acquire privately held 4G chipset vendor Beceem Communications for $316 million. Beceem, founded in 2003, is the leading provider of WiMAX basebands and RF chips for portable and handheld WiMAX devices. The company also supplies WiMAX radio chipsets for gateways, routers and other fixed WiMAX customer premise equipment. Recently Beceem started to shift its emphasis to LTE with the announcement of its BCSM500 baseband, which will support both LTE and WiMAX. Broadcom so far hasn't announced its LTE plans publicly, and this acquisition signals that the company is looking to the future in the wake of growing competition and consolidation in the cellular baseband supplier base. Broadcom acquired GSM/GPRS/EDGE and W-CDMA technology through acquisitions, and these are now paying off, so it appears that Broadcom is repeating this strategy for LTE.
Beceem supplies basebands for all of the WiMAX USB dongles and data cards sold by Clearwire, the largest WiMAX operators in terms of subscribers. Beceem generated $43.7 million in revenue in 2009 with net loss of $17 million, but with shipments surpassing 1 million chips per quarter in Q3 '09 and sales having tripled since 2008, the company appeared headed for profitability by late 2010. Buoyed by this success, Beceem filed for an IPO initially thought to be worth more than $100 million in April '10. This would have made a nice down-payment to investors, which include Intel Capital, DoCoMo Capital, Samsung Venture Investment and NEC. Investment by all VCs in Beceem totals close to $200 million to date.
By August 2010, announcements of support for LTE by operators around the world made it clear that Beceem faced a weakening, or at best slower growth WiMAX market, cutting the value of its proposed IPO. With its new LTE-WiMAX baseband, Beceem could benefit from the launch of LTE by Verizon Wireless, AT&T Mobility, and MetroPCS in North America, however, Beceem will not ship samples of its WiMAX-LTE baseband before Q1 ’11. After shipping its first samples and getting them designed into products, Beceem would still have to go through interoperability testing (IOT) with infrastructure vendors and demonstrate support for FDD and TDD in multiple channel bandwidths. The IOT process could take 18 months or longer, pushing LTE chip production out to mid-2012 or later for Beceem. In light of this, investors evidently saw risks in continuing to support Beceem, and decided to take Broadcom’s offer.
From Broadcom's perspective, the acquisition will allow Broadcom to offer home gateway / router platforms that incorporate 4G, Wi-Fi, cable, DSL and / or fiber optics, which would allow multiple users in a household to share a single wired or wireless broadband connection, cutting the monthly price per user. Of even more potential significance, the acquisition will allow Broadcom to eventually expand into LTE mobile devices. Until then, Broadcom can draw on Beceem’s success in WiMAX USB dongles, PC data cards and handsets to help fund development of LTE chipsets.
It seems likely that merchant baseband suppliers Qualcomm, ST-Ericsson, Altair Semi, Icera, Renesas and Intel / Infineon will beat Broadcom to market in LTE, particularly in the rapidly growing “non-handset” (our term) segment of the mobile market consisting of USB dongles, PC data cards, M2M modules and related data-centric wireless modem devices. By our estimates, basebands for the non-handset mobile market accounted for about 12 percent of the total baseband market in revenue terms in 1H 2010. Currently Qualcomm, Icera, Infineon and ST-Ericsson have the leading market share in basebands for non-handsets, a market today dominated by 3G. An increasing proportion of future non-handset WWAN data modems will support LTE plus 3G, making LTE capability essential for firms to continue supplying basebands into this important segment. Note that compared to LTE + 3G, it appears that LTE + WiMAX mobile devices will at best represent a small niche market.
When Broadcom enters the LTE baseband market, we expect the company to offer chipsets with comprehensive support for legacy GSM air interfaces through W-CDMA / HSPA+, multi-mode / multi-band RF transceivers, plus optional Wi-Fi / Bluetooth / GPS, and optional ancillary chips for mobile TV and advanced video processing. Broadcom had only about 3.3 percent share of the cellular baseband market in unit terms in 1H 2010, but the company's market share in basebands is growing rapidly with design wins at top-tier OEMs.
Broadcom's acquisition of Beceem leaves other baseband start-ups Icera, Altair Semiconductor, Sequans and Wavesat as potential acquisition targets for established baseband / chipset vendors looking to expand into LTE. Of these start-ups, Altair Semiconductor, which sampled its first LTE baseband in September ’09, appears to be in the lead with LTE basebands now reaching early production status. Another firm to watch in LTE is Intel, which recently acquired WiMAX / LTE chipset start-up Comsys and announced its intention to acquire the cellular chipset product lines of Infineon. Intel Capital has a 20 percent stake in Beceem, so we can only speculate that Intel decided that acquiring Comsys and Infineon would offer better synergies and returns on investment given that Intel already ships WiMAX chipsets into the embedded laptop market.
Aside from LTE chipsets, Broadcom also has to solve is its smartphone applications processor challenges; by our estimates, Broadcom had no share in smartphone applications processors in 1H 2010. Broadcom scored design-wins in Nokia's Symbian^3 smartphones recently with its BCM2727 co-processor, but we believe that Broadcom has to integrate BCM2727 functionality into its basebands to score significant smartphone design-wins in the future.