June 2 (Bloomberg) -- Broadcom Corp., struggling to make a dent in Qualcomm Inc.’s lead in chips that connect smartphones to mobile networks, said it’s giving up on that business.
The company hired JPMorgan Chase & Co. to help explore options for its cellular baseband unit, including a possible sale. Exiting the business would reduce annual expenses by about $700 million, Irvine, California-based Broadcom said today in a statement. The shares surged 9.3 percent, the biggest one-day gain since 2011.
Broadcom is the latest company to say it won’t try to compete in baseband with Qualcomm, whose chips connect the majority of smartphones to high-speed, Internet-capable networks. Texas Instruments Inc. and Freescale Semiconductor Ltd. have already dropped out of the industry, and Intel Corp.’s latest quarterly report showed that its losses exceeded revenue in the mobile-chip business.
“It’s a tough decision, but it’s the right decision,” said Chris Rolland, an analyst at FBR Capital Markets in New York, who has the equivalent of a buy rating on Broadcom stock. “They were behind in their technology road map.”
The company would be freed up to invest in and profit from its computer-networking chip business, Rolland said. Shares of Broadcom stock slipped 11 percent last year amid delays introducing baseband chips, hurting its ability to gain orders from smartphone makers such as Apple Inc. and Samsung Electronics Co.
Broadcom shares jumped $2.97 to $34.84 at the close in New York, leaving them up 18 percent this year.
“We’ve concluded the commercial and economic opportunity is not sufficient to justify the continued investment,” Chief Executive Officer Scott McGregor said on a conference call today. “Should no buyer be found, we expect to wind down the baseband business and to exit.”
Sales in Broadcom’s mobile division slumped 15 percent to $846 million in the first quarter. Qualcomm has more than 90 percent of the market for baseband chips that are built into processors to run phones connected to LTE networks, according to market researcher IDC.
Broadcom said it will probably record an impairment charge related to the sale or wind-down of the business, and it plans to reinvest about $50 million of the savings on an annualized basis into projects in the broadband, infrastructure and connectivity businesses.
Last year, Broadcom announced to plans to cut as many as 1,150 jobs. A third of the cuts were among workers gained from its acquisition of a Renesas Electronics Corp. business unit.
Separately today, Broadcom reiterated its revenue forecast for the quarter ending June 30. Second-quarter revenue will be $2 billion to $2.1 billion, Broadcom said. Analysts on average predicted revenue of $2.05 billion, according to data compiled by Bloomberg.
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