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Broadcom Faces Stiff Competition in Semiconductor Industry

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Broadcom exited cellular baseband market last year

In the previous part of this series, we covered Avago Technologies’ (AVGO) acquisition of Broadcom (BRCM) for $37 billion. The semiconductor industry is undergoing a state of consolidation because it’s becoming increasingly difficult for smaller players to remain profitable.

Last year, Broadcom had to exit the cellular baseband market, citing stiff competition in this industry as the main reason. Another casualty was Texas Instruments (TXN), which also exited this business in 2012. Qualcomm (QCOM) continues to be the dominant player in the cellular baseband market. Apple (AAPL) further hurt these companies when it began developing its own processors for the iPhone and iPad.

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Qualcomm continues to lead cellular baseband market

Broadcom is quite an interesting story in the cellular baseband market. Up to 3Q13, Broadcom was the fifth-ranked player in the cellular baseband market after Qualcomm, MediaTek, Intel (INTC), and Spreadtrum Communications. In fact, in 2013, Broadcom acquired Renesas Mobile’s LTE assets to boost its LTE chipset offerings. However, in spite of this, Broadcom exited this business because it continued to lose money.

Currently, the situation in the cellular baseband market is different. According to a report from Strategy Analytics and as the above chart shows, Qualcomm leads the worldwide cellular baseband market with a 66% share as of 2014. This is followed by MediaTek, Spreadtrum, Marvell (MRVL), and Intel.

If you want to take a diversified exposure to Broadcom, you can invest in the VanEck Vectors Semiconductor ETF (SMH). SMH invests 4.6% of its holdings in Broadcom.

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