By Senad Karaahmetovic
Broadcom (NASDAQ:AVGO) shares closed nearly 2% lower yesterday after Bloomberg News reported that Apple (NASDAQ:AAPL) is working on an in-house Wi-Fi/Bluetooth chip. The Cupertino-based tech titan is reportedly looking to switch to its own chips in 2025.
Apple is Broadcom’s largest customer as it accounts for about 20% of the latter’s revenues. Qualcomm (NASDAQ:QCOM), which generates 22% of its annual sales from Apple, is another chipmaker affected by Apple’s plans.
The report also notes that Apple is working on a follow-up version that will combine cellular modem, Wi-Fi, and Bluetooth capabilities into a single component.
Here is what some analysts have to say about the latest rumors.
Citi: “We are not entirely surprised by the news and have long held the view that Apple will likely look to in-source RF chips sometime after moving to in-house modem… We view the news as a headline negative for Neutral-rated RF semis SWKS/QRVO with ~59%/~33% Apple sales exposure in FY22/FY21 respectively.”
BofA: “While any loss of business at a prominent customer such as Apple is not a positive, we do note that Apple/smartphone exposure tends to depress trading multiples (smartphone vendor trading at 12x NTM PE versus rest of semis at 16x). Even with the socket loss, AVGO would still be left with a sizeable ~12-15% Apple exposure, though lower than 20% currently… We maintain our Buy rating on one of our preferred cloud semi vendors, supported by leading FCF generation (~50% margins) and a 3%+ dividend yield.”
Deutsche Bank: “The news around QCOM should not come as a surprise to investors as Apple’s insourcing efforts of cellular modems for its iPhone have been well known and even QCOM has signaled the possibility of losing Apple share as early as FY24 during its Analyst Day event.”
Oppenheimer: “In our view, the reports (if correct) are more incremental for AVGO… Developing a high-performance combo chip could present more hurdles vs. baseband considering the acquisition of Intel’s wireless business provided a working 4G and in-development 5G baseband solution. We like AVGO’s dominant franchise-driven model led by DC/Cloud, Wireless, and Software.”