Broadcom looks to exit cellular baseband chip business

By Lehar Maan and Soham Chatterjee

(Reuters) - Chipmaker Broadcom Corp said it was looking to exit its cellular baseband business, and forecast current-quarter margins to beat or be at the high end of its estimate.

The company's shares rose as much as 13 percent on Monday.

The cost-intensive cellular baseband business has been losing market share and has weighed on Broadcom's margins.

The business was "significantly unprofitable," FBR Capital Markets analyst Christopher Rolland said.

Broadcom on Monday said it would sell or wind down the business as soon as it could, saving some $700 million annually.

"It's overdue, but definitely good news," Ascendiant Capital Markets analyst Cody Acree said.

"We have said in 2014 wireless was make or break for Broadcom — either they share some proven success or get out of the business, or it probably cost the CEO his job."

Broadcom's chips integrating Wi-Fi and Bluetooth technology are used in Apple Inc's iPhone and other top-tier smartphones and tablets.

But its chips for low-cost smartphones have lost market share to MediaTek Inc. In the 4G long-term evolution (LTE) chip market, the company has been battling Qualcomm Inc's domination.

Stiff competition has already forced big names such as Texas Instruments Inc, STMicroelectronics NV and Ericsson out of the cellular baseband chip business.

Broadcom, which has been spending on baseband technology research and development, has seen operating profits fall at its mobile and wireless business.

Sales at the business, which fetches almost half of the company's revenue, fell 15 percent to $846 million in the first quarter ended March 31.

Broadcom said it expected to save $600 million in research and development and administrative costs annually by exiting the baseband business, excluding an estimated $100 million reduction in stock-based compensation.

The company had reported total operating costs and expenses of $1.88 billion for last year.

Broadcom said it now expects both GAAP and non-GAAP product gross margins to be at or above the high end its forecast.

The company had estimated in April that non-GAAP product gross margin would rise by 75-175 basis points for the second quarter ending June 30 from the first quarter's 52.2 percent.

Some analysts said finding a buyer for the baseband business may be difficult.

"Those that want to be in the business are already there and are more successful than Broadcom," Ascendiant's Acree said.

"Intel Corp may be a possible acquirer but it has similar intellectual property."

Broadcom's technological roadmap had fallen behind peers like Qualcomm, MediaTek and Marvell Technology Group Ltd, FBR's Rolland said.

Irvine, California-based Broadcom's shares were up 9.6 percent at $34.92 on the Nasdaq, making them one of the top percentage gainers on Monday.

(Reporting By Lehar Maan and Soham Chatterjee in Bangalore; Editing by Joyjeet Das and Simon Jennings)