Broadcom Shares Fall After Contract Is Lost
Shares of semiconductor designer Broadcom Corp. tumbled 17% on Tuesday after Motorola Inc., a major customer, selected a competitor to provide additional chips for its next-generation cable modem.
Shares of Irvine-based Broadcom fell $5.22, to $24.72, in Nasdaq trading after falling as low as $24.51 earlier in the session.
The news weighed heavily on the shares, but Broadcom Chief Financial Officer William Ruehle said the agreement between Motorola and Broadcom rival Texas Instruments Inc. will not hurt his company’s revenue.
“It’s not replacing Broadcom business,” Ruehle said. “This would have no impact on our expectations going forward.”
Earlier Tuesday, Motorola said it chose Texas Instruments, the world’s largest supplier of semiconductors for mobile phones, to power its newest cable product.
Motorola is one of Broadcom’s largest customers, accounting for about 14% of sales, said Frost Securities analyst Cody Acree. The announcement raised concern that Texas Instruments could become a larger competitive threat to Broadcom, analysts said.
“It looks like they have lost a design win at Motorola’s cable business,” Acree said. “It is not an immediate impact, but over the next few quarters Motorola is going to be a major player in the cable modem business.”
Shares of Dallas-based Texas Instruments rose as much as 2.4% on the news but closed down 4 cents, to $27.51, on the New York Stock Exchange.
Ruehle said Motorola had been planning to bring on an additional supplier of chips and that an agreement with another competitor, Newport Beach-based Conexant Systems Inc., had fallen through.
Jim Liang, an analyst at Pacific Growth Equities, estimates that Broadcom gets 5% to 6% of its revenue from Motorola’s cable modem business, and that during the first quarter Motorola represented 13.9% of Broadcom’s total revenue.
The worst-case scenario, Liang wrote, is that Broadcom would lose as much as 6% in the “unlikely event” that Texas Instruments gets the entire cable modem business.
