Q: I think the general consensus among everyone in the PC industry is that 2010 is going to be a year of rebirth and growth after the downturn of the past 12 months or so. What are some of the highlights you've seen so far this year, and what is your outlook for the future?
A: In netbook and notebooks we've seen quite a bit of lift. Overall the PC market grew a little bit, even in the face of the recession, but if you look at the numbers, what happened was that desktop numbers actually declined quite appreciably, while notebooks and netbooks increased to more than offset the decline.
Total growth last year, depending on who's numbers you believe, was somewhere between 1-8%, but notebooks and netbooks, which is of course the sub-segment that affects us the most saw quite a bit of growth overall.
One of the big drivers for us was a single module solution we came up with that combines Wi-Fi and Bluetooth technology. We've seen increasing desire for Bluetooth, because of applications like Skype headsets, or wireless mice and keyboards. To leverage that we came out with our InConcert series, a family of single card/module solutions which combine Wi-Fi and Bluetooth chips on the same module, and that obviously saves our customers money and space. We've been very happy with our increased attach rate of Bluetooth in the PC sub-segment in particular.
Another highlight that is also closely related to the PC segment was in the printer segment. The printer segment as a whole seems to be flat or probably has fallen over the past three or so years, people aren't really refreshing their printers as fast as they were two or three years ago. But the attach rate of wireless is more than offsetting the decline in TAM (total addressable market), so that's been relatively surprising.
Q: Intel recently changed its branding strategy for notebooks from Centrino, which helped promote its own Wi-Fi solutions; to its new Core branding which is more about the CPU. How has this affected the wireless-for-notebooks market?
A: It has changed the market significantly. We entered the notebook wireless chip market, I believe, in early-2004, and Intel started Centrino around the middle of that year. By the end of the year, or early 2005, they had, by my estimates, something like 70% of the overall market.
I think at this moment the Intel proportion of the market is 20%, maybe lower. What's that's done is open up a huge portion of the market to players like ourselves. In addition, once you start to consider the netbook-phenomenon where Intel wireless really never had a presence, and now tablet PCs, you can see the opportunity for silicon players in the total portable space has really grown, particularly over the last 12-18 months.
Q: But do you think this is a long-term trend? Some might suggest that the recent spike is simply the result of companies trying to feel out the market, basically playing one suppliers off another to earn better quotes, now they have less of a financial incentive to stick with Intel.
A: Actually, even before Intel backed off on Centrino interest had already waned significantly. I think that the vector for Intel has been down for a while, while the non-Intel portion of the market is still growing. This means there is still opportunity of us.
Having said that, Intel may make a push again in wireless since we are hearing they are investing more in Wi-Fi and are trying to compete on a merchant basis. So the picture may change in another six months, but at least near-term we feel fairly good about the opportunity.
Q: The big thing at Computex this year seems to be tablet PCs, what does Broadcom have to offer in this segment?
A: Tablets are another great opportunity for us. What you see typically is that when it's an organization that does both handsets and computers, whether that is Hewlett-Packard (HP), or Lenovo, or Acer, or Apple, tablets are coming from the cellular side of their business. And we have a huge position of strength in the cellular market.
Also what you're seeing right now is that most of the tablets look to combine Wi-Fi and Bluetooth on a single chip combo, and that's really a position of strength for us too. We're very excited about the tablet market in general. If that portion of the market takes off it's going to be great for us.
As an aside, Broadcom as a company is also investing in the processor for tablets (snapdragon). So we believe very strongly in the market, we're investing in more than just the connectivity, and we have a pretty compelling offering. At Computex we are demonstrating tablets based on the Broadcom processor. We think we've got a roadmap to really compete and add value to OEMs in the tablet space.
Q: Do you see tablets as a new market or are they going to cut into your current wireless chip markets?
A: There are two components. I think you are right that tablets will cannibalize some portion of our current markets. I believe that will be in netbooks first, where we will see consumers purchasing either a netbook or a tablet, and there may be some cannibalization on the cellular side too, but that's probably going to be much smaller.
But there's also an additive component. What we're seeing at least near-term with products like the iPad, is that demand is mostly additive, that is consumers are buying tablets to go alongside their current PCs and devices since they are something new.
Q: What's your outlook for the router/modem segment?
A: In the telco space we recently launched a single chip that combines DSL and 2x2 8082.11n. As a company we believe we should try to integrate as many of these technologies as possible. I think you'll see more of that in the future, where we're combining DSL, or some of our TV or set-top box (STB) offerings with Wi-F.
In general we've seen a very nice uptake in our telco business, the attach rates for Wi-Fi in both DSL and cable modems are increasing. For DSL modems right now, some analysts are saying the attach percentage for Wi-Fi is greater than 50%, and we certainly subscribe to that number. In fact in our estimation, closer to 60% of DSL CPEs have wireless.
For cable modems the adoption of wireless is a bit slower, it's in the 10% range, but DOCSIS 3.0 is bringing about a big change in the industry, and with that we're seeing customers (that is the service providers) start asking for Wi-Fi as a specification of their new cable modems. We expect the attach rate of Wi-Fi in these new DOCSIS 3.0 modems approach 50% by the end of 2011.
Finally, in this segment there are retail routers, or home routers, the products from companies like Cisco, Buffalo, Belkin, Netgear etc. That market has declined a bit over the past few years, but recently we have seen a nice revitalization.
Companies have changed their messaging so that rather than talking about "speeds and feeds" they're repositioning to try and target the segment of the market today that has a broadband connection but doesn't have wireless in the home. The router companies believe that in order to communicate to that segment of consumers they need to talk about routers in more familiar terms, for example, "music routers", "video routers", and "data routers". The result has been a significant lift in the overall market. We've seen some nice growth over the last quarter or two quarters.
Q: It has only been a couple of year since you started shipping products for the mobile sector, how are things progressing there?
A: The truly mobile products, that is handheld products: handheld games, handheld entertainment devices, and obviously the cellular phone market has exploded over the last two years. We had our first shipments into the portable market, what we call the mobility business, in the middle of 2008, and now in 2010 this is one of the most important businesses, not only for us in Wi-Fi, but really for Broadcom as a company.
One of the key things that we've done in this particular segment is we combined Wi-Fi and Bluetooth into a single chip. We found that the attach rate in the cellular market means that any phone that's going to ship with Wi-Fi, will also by default have Bluetooth.
We decided to enter this market with a family of combination chips and that's really catalyzed the entire market. When we entered the attach rate for Wi-Fi in cell phones was in the very low single-digits. Now, some market estimates have it as much as 20%; we think it's probably in the 15%-20%, but obviously it's growing.
Market analysts are predicting that the attach rate for Wi-Fi will approach that of Bluetooth (which is currently 60%) over the next few years. What that trajectory means is that around 2013-2014 greater than 50% of handsets will have Wi-Fi.
Handsets is obviously a critical market for us, in our last earnings call we talked about shipping now on all five of the top-five major handset makers. We have a very strong position with High Tech Computer (HTC), and we're doing very well with Apple. We feel like our cellular phone business is really a position of strength for us, and is something we expect to leverage going forward. It's a key area of investment for us.
The other sub-segment of the mobile market is mobile gaming. It's a category that's probably not growing as much, but it's still an important segment. Wi-Fi is nearing a 100% attach in the portable games consoles like the Nintendo DS and PlayStation Portable, so we see opportunity there. And for portable entertainment devices whether it be the iPod, or a mobile video player of some variety, again Wi-Fi is becoming nearly ubiquitous there, and so this represents another significant opportunity for us as we're nearing the point we every device has Wi-Fi.
Q: Does that mean to say they all have Broadcom Wi-Fi?
A: Unfortunately no. In the portable gaming category we're not doing too well there, neither of the two main SKUs have our Wi-Fi. In the portable entertainment segment it's a mixed bag. We've done very well with Apple and that represents a nice proportion of the market. But for other products from Sony, Panasonic and other makers in Japan, some of those we have, others we don't. Our success rate you could say in this segment is a bit more checkered than the cellular segment, but then that means there is plenty of opportunity for us in the future.
Q: In an interview with Digitimes last year you talked a lot about the over the top (OTT) video segment. How is that progressing?
A: The OTT segment, just to refresh, is typically Internet content, things like movie services (Netflix, Amazon.com Direct Online, etc.), YouTube, and widgets, for example the weather, or a stock ticker, coming to a consumer electronics device. What we are seeing for this category is a surprising attach rate. With televisions now, almost every vendor I can think of has Wi-Fi in some portion of their product lineup. We announced recently that Mitsubishi has both our Bluetooth and Wi-Fi in their products. The trend is one of very high growth.
If you think about a Blu-ray player, which is a key end-device we're attempting to serve with OTT, we're expecting to see the attach rate of Wi-Fi reach greater than 50% going into the 2010 holiday season based on trajectory and the designs we see in the pipe.
The TV attach rate is lower today, it varies by vendor to vendor, for some Wi-Fi is only seen in the high-end, while there's others like Visio that have Wi-Fi almost top-to-bottom across their range. Overall, there is a very strong trend of having networking built directly into the TV for these kinds of OTT services.
I think we've done very well as a company in this business. Of course Broadcom has TV chipsets, and Blu-ray chipsets, which gives us a platform on which our Wi-Fi can ship, but because our solution is very well geared to OTT, we've also done well on non-Broadcom TV or Blu-ray platforms. No CE customers I can think of are shipping a device without Broadcom Wi-Fi.
Q: Why is wireless becoming so popular, can't people just use Ethernet?
A: OTT services can be provided by LAN, but the issue we see is that the presence of an Ethernet jack near a Blu-ray player or television set is not common. So what we are seeing is wireless SKUs far outselling wired-only SKUs.
An example of this is last holiday season there were basically three flavors of Blu-ray player: very cheap models costing less than US$100 with no networking at all, an Ethernet flavor that was US$129-US$149, and then higher-end models that were close to US$179-US$199 which included both Ethernet and Wi-Fi.
What we saw was that the high-end SKU typically accounted for 40%-50% of overall sales, the cheap, non-networked SKU was on the order of 30%-40% of overall sales, and then the mid-range SKU had 10%-20% of overall sales.
What's interesting about this is that you normally expect that the higher the dollar value, the lower the percentage of overall sales, but what we saw was the wireless networking SKUs doing better. This was because most people wanted these OTT services when they bought their Blu-ray players, but most also didn't have an Ethernet jack nearby and so they were buying the full wireless version, even though it was often US$50 more expensive.
Q: What's next for your unit? Are there any new opportunities on the horizon?
A: We're obviously looking now at markets that are emerging. One people are talking about is using Wi-Fi in SmartPower or SmartGrids. There are a lot of initiatives throughout the world in terms of energy usage, and networking in appliances such as refrigerators, washing machines etc., to control energy usage. In the US, and I think also in Taiwan and other parts of Asia, a rollout of SmartMeters has begun that provides information back to the utility companies relative to a consumer's energy usage. The next phase is for the utilities to provide information back to the house, such as rates, or for example providing information to the consumer that a rolling blackout is about to occur so they can prepare to shut down their appliance, or even do it automatically.
We're also seeing opportunity in user interface devices such as remote controls, mice and keyboards. These days a lot of these devices use a proprietary wireless signal or sometimes Bluetooth, but we see a very strong opportunity for Wi-Fi to expand into this area too.
So the general message is that we see a new trend for super small devices that include a simple processor on the chip to host the OS and control the Wi-Fi. This market could be as big, if not bigger than the markets I've mentioned already.
Q: We've talked a lot about wireless communications, but your unit also covers GPS. What's your outlook for the GPS market?
A: Obviously GPS is an important business for us. In fact it's one of the fastest growing businesses for the company. GPS is interesting for us because it spans a lot of different applications. One of the most interesting has been the PC segment, we've recently seen SKUs that include GPS in the notebook enter the market and do very well, and as a result other PC makers are following quickly behind.
I think in the cellular space we've done very well in GPS. There is an effect in the cellular space that because some baseband chips already have GPS integrated; it means there's a portion of the market more difficult for us to attack. But that is still a relatively small portion of the market, and the portion of the market that doesn't have cellular baseband/GPS is a very high growth segment. We're still seeing numbers in the cellular segment growing, and for that area we have offerings where we've combined Bluetooth and GPS in a single chip.
We're also seeing GPS going into embedded segments. For example people are talking about sensors for inside navigation in malls.
We're seeing applications for GPS in the in-car PND market expand too. There have been reports that in-car GPS is on the decline, and I think it will decline as you see an increase in cellular GPS, but at least at this moment we are seeing the market continue to grow.
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