Qualcomm Challenges Broadcom’s Rein in Wi-Fi Chip Market

Broadcom Corp. (BRCM)’s leadership in the market for Wi-Fi chips is under threat as Qualcomm Inc. (QCOM) uses technology from last year’s Atheros Communications Inc. deal to create a competing product that connects handsets to hot spots.

Qualcomm is dueling with Broadcom to get a head start in making chips for a new type of Wi-Fi, which enables data downloads at three times the speed of the existing standard.

Atheros, purchased for $3.1 billion last year, gives Qualcomm an advantage as it steps up an attack on the $2.8 billion market for Wi-Fi chips, which let phones access close- range wireless networks in homes and coffee shops. Broadcom may have a harder time eroding Qualcomm’s lead in the types of chips that connect handsets to cellular networks, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.

“Qualcomm’s going to have an easier time scaling that wall than Broadcom,” Rasgon said.

Broadcom, based in Irvine, California, had 28 percent of the market for stand-alone Wi-Fi chips in 2010, the last year for which the figures are available, according to Gartner Inc. Atheros had a 26 percent share. Before the acquisition, San Diego-based Qualcomm was an also-ran in Wi-Fi.

Qualcomm has a wider lead in the $9.7 billion market for so-called baseband chips, which connect handsets to sprawling wireless networks. Qualcomm had 38.7 percent of the market, compared with 6.2 percent for Broadcom, according to researcher Forward Concepts Co.

Broadcom’s more immediate priority is staving off Qualcomm in the new, faster flavor of Wi-Fi known as 802.11ac, which is capable of moving data at speeds as fast as 1 gigabit per second, or three times the speed of the existing technology.

5G Wi-Fi

To stay ahead, Broadcom plans to be the first to sell chips that work with 802.11ac, Broadcom Executive Vice President Bob Rango said.

“I don’t see how anyone could be ahead of us,” said Rango, whose company refers to the new technology as 5G Wi-Fi. “When we announce something, we have samples in hand or we’re shipping it to customers.”

Qualcomm has already demonstrated a cell-phone processor that can handle the new Wi-Fi technology, according to Craig Barratt, president of Qualcomm’s Atheros unit.

Products that include chips from either company probably won’t hit store shelves until next year. Still, Qualcomm has a leg up in mobile phones, compared with Broadcom’s leadership in such devices as modems and routers, said Mark Hung, an analyst at Gartner.

“Just based on their announcements, it seems like Broadcom does have a lead on the router platform, and Qualcomm has a lead in mobile,” said Mark Hung, an analyst at Gartner. “This does represent a serious challenge for Broadcom.”

TVs to Tablets

The number of devices using Wi-Fi will triple by 2015 to more than 3 billion, according to Gartner. That growth is being fueled by manufacturers weaving Wi-Fi into a widening range of electronics, including TVs, tablets and smartphones.

Broadcom dominates the market for so-called combination chips that help devices connect with multiple technologies, including so-called Bluetooth. It has 70 percent share of that market, according to Gartner, and has won combination-chip orders from such customers as Apple Inc. (AAPL), maker of the iPad.

If Qualcomm can build those functions into its cellular baseband products, the chips that turn radio signals into voice and data, it may steal orders in the biggest single segment of the Wi-Fi market -- mobile phones, Hung said.

Many wireless devices now use both companies’ chips for different functions. For example, the latest version of Apple’s iPad tablet has a Qualcomm modem for connecting to cellular networks. It also boasts a Broadcom chip that provides the device’s Wi-Fi, Bluetooth and other radio functions.

Broadcom’s Faster Growth

The two chipmakers have profited from the surge in mobile Internet use, racking up more than 50 percent sales gains from 2009 to 2011 while focusing on separate parts of the wireless chip market. Though Broadcom’s revenue has risen faster, with growth of 65 percent since 2009 to $7.4 billion last year, that run may be threatened by Qualcomm, a competitor that has $16.3 billion in annual sales for the last calendar year and $22 billion in cash and investments, more than any other company in the semiconductor industry.

Broadcom shares have gained 31 percent this year, compared with a 22 percent increase for Qualcomm.

The Broadcom-Qualcomm clash may accelerate with the advent of 802.11ac, which may gain widespread adoption more quickly than past iterations. Mobile-phone service providers, which regarded previous generations as a threat to their ability to charge customers hefty fees for sending and receiving data, are now throwing their weight behind it as they seek ways to offload traffic from overburdened networks.

Wireless Carrier ‘Lifeline’

“Wi-Fi has gone from being an apparent threat to the services providers into a lifeline,” said Barratt.

The new Wi-Fi will shake up home networking for consumers, Broadcom said. For the first time, in-house wireless networks will be capable of streaming the highest quality video files to multiple devices simultaneously. A person watching Netflix Inc. (NFLX) movies in the living room won’t be forced to sit through a halting stream, for instance, while someone else is using Microsoft Corp. (MSFT)’s Skype two rooms over.

As well as being able to take advantage of a new range of frequencies, the standard will use new innovations, including so-called beamforming. This technology lets routers pinpoint the location of a connected computer or tablet, and concentrate the Wi-Fi signal in that direction only, eliminating the waste of the current broadcast method.

Broadcom won’t cede share without a fight, Rango said.

“We’re clearly the leader in this right now,” he said. “This market will be big for Broadcom, and we’ll continue to be No. 1.”

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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