LAS VEGAS — If you had to guess one product category conspicuously absent from Broadcom's CES booth this year, would you name smartphones?
If you did, you were right.
The Irvine, Calif.-based chip giant, who couldn’t hack its way into the global baseband modem market, decided to bag it all together last year. The smartphone modem market, locked up by Qualcomm for years, is now under fresh attack by a number of “must-win-at-all-cost” chip companies in Asia, according to Scott McGregor, CEO of Broadcom.
Noting that his company was losing about $2 million a day in the modem business, McGregor, who looked almost relieved, proudly pointed to the Broadcom booth and bragged, “We have no cell phones.”
The company’s focus is now on the broadband and connectivity businesses. “Our broadband is an extremely strong and valuable business. Our connectivity business is also very strong, and is focused more on the Internet of Things now,” he said. “Frankly, these are better businesses to be in and invest in.”
The company is broadening its technology and businesses. These include connected homes, and more recently, automotive. McGregor called the automotive segment “a great business we are sort of tiptoeing into” and finding it “very interesting.”
EE Times caught up with McGregor last week during CES and asked him how the company's decision to not participate in the baseband business is likely to affect Broadcom in the future. Here’s an excerpt of our conversation.
EE Times: Broadcom got out of the baseband modem business. Could you explain how you reached the decision?
McGregor: It was a very painful decision. The reason for doing that was a couple of fold. One was that we saw the deteriorating condition in the economics of that business in terms of pricing and margins. There were a number of players in the space who didn’t care whether they made money or not. And they had imperatives to be in that business at all costs. It’s a little different from how we run Broadcom as a for-profit company.
We also felt that to be successful in that market, the economics necessitated that you have an extremely high market share. So, you can't be successful by being the number four or five player. You had to be either in the top two or three, or you're not going to make any money.
We reflected on that, and thought, gee, there are a lot of other things we can do with that money. You don’t have to be in a bad economic business. You choose to be in the bad economic businesses.
We decided not to be in the business. But again, it was a painful decision, because we laid off quite a few people. We terminated about 2,500 people, of which 500 people found jobs elsewhere in Broadcom. But the net was about 2,000 people who left the company. Many of them were very good people. So, you never feel good about that.
On the other hand, since we've done that, we've seen the profitability of the company dramatically increase. I mean, we were losing about $2 million a day in that [baseband] business …so now, we are able to invest more in the products you see here.
EE Times : We understand that broadband and connectivity are Broadcom’s bread-and-butter, and you guys are doing a great job.
But I always thought the whole reason for Broadcom’s entry into the baseband business was that you wanted to become a chip supplier for the entire smartphone system, including baseband and apps processors. Now that you’re out of the baseband modem business, where will that leave you in the smartphone business in the future?
To read more of this interview go to the external content at: “Life after LTE, 5G, cellular exit.”