Broadcom Stock Board
Broadcom Stock Board
Broadcom Stock Board
Broadcom Stock Board
Broadcom Stock Board

Broadcom Wins Contracts to Supply Wireless Components to Apple

Jan. 26, 2020
The new supply agreements with Apple, in addition to another contract worked out last year, are projected to pay out $15 billion to Broadcom into 2023. Importantly, the contracts give Broadcom a guaranteed spot in Apple products for years to come.

Broadcom said it has entered into long-term contracts with Apple to supply the Silicon Valley smartphone titan with a wide range of "wireless components and modules" into 2023, giving it guaranteed spots in Apple's products for years to come. Broadcom said the deals supplement the contract it worked out with Apple last year to supply radio frequency ICs that act as the scaffolding around the iPhone's modem.

The two supply agreements with Apple, in addition to the 2019 contract, are projected to pay out $15 billion to Broadcom over their lifetimes, the San Diego, California-based company said on Thursday. Broadcom sells integrated WiFi, Bluetooth and GPS chips and RF components used in smartphones among other consumer devices. Broadcom said the contracts apply to new products launched by Apple within the next three-and-a-half years.

The multiyear deals also reaffirm its relationship with Apple, one of the most coveted customers in the semiconductor space, even as Apple looks to lessen its dependence on other suppliers. Apple has been boosting its chip design operations in recent years to further differentiate its devices. It designed and developed the H-Series of Bluetooth chips used in AirPods and the W-Series WiFi chips used in the Apple Watch, instead of buying from Broadcom.

Apple accounted for about 20% of Broadcom's annual sales in 2019 and around 25% of its total business in 2018. Semiconductor analyst Harlan Sur estimated that Apple would buy about $10 worth of Broadcom parts per iPhone in 2018. Broadcom sells Bluetooth and WiFi chips and one of the most fundamental radio frequency front end modules crammed in the new iPhones, according to a report by market researcher iFixit.

Last year, Broadcom worked out another contract with Apple to buy radio-frequency front end components and modules for future models of the iPhone, iPad and Apple Watch into 2021. Broadcom is the market leader in mid-band and high-band FBARs that are used in smartphones to strain out transmissions and separate out signals used in 3G, 4G, and even 5G technology. Other chips can be used to condition and amplify analog radio signals.

Broadcom is fighting Qorvo, Qualcomm, Skyworks Solutions, and other players to roll out radio frequency parts in support of the 5G communications standard. Samsung, Huawei and LG Electronics, among others, started selling 5G smartphones last year, while Apply is expected to launch its first model later in 2020. New 5G networks offer far faster data transfers by broadcasting over a wide range of frequency bands, like the millimeter waves.

More than 50 frequency bands are used by 4G networks around the world. But that total could grow to between 75 and 100 bands as more 5G networks are rolled out globally. More radio frequency chips—ranging from power amplifiers and filters to switches and tuners, and all packaged into modules that link the baseband modem to the antennas—are needed to accommodate the global range of frequency bands used by 5G devices.

Broadcom is reportedly readying to sell its radio frequency unit. The new contracts could help highlight the value of the business to potential buyers. Apple, in the wake of its $1 billion buyout of Intel's 5G cellular modem operations, is considered one of the leading contenders. Broadcom's radio frequency business came to $2.2 billion over the last fiscal year. But sales of such components are projected to grow in the high single digits in 2020.

Broadcom signed the new contracts with Apple more than a month after Broadcom's chief executive officer Hock Tan said it would separate its wireless businesswhich sells WiFi, Bluetooth, GPS, RF and wireless charging components — from its core networking business, which sells server chips used in switches and routers. The company's semiconductor sales came to $17.4 billion in 2019. That represented roughly 80% of sales.

Broadcom's shares have jumped 1% to $324 since the announcement of the new supply agreements with Apple. Shares in Broadcom surged more than 40% last year.

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