What Broadcom's Deal With Apple Means for Chip Stocks

Author:
Publish date:
Video Duration:
2:12

Broadcom  (AVGO) - Get Report  has revealed a $15 billion mega-deal to supply Apple  (APPL)  with radio-frequency chips – a disclosure that signals to potential acquirers of its RF unit that they’re not just buying a ticket to the game, but getting courtside seats.

In a filing with the U.S. Securities and Exchange Commission, Broadcom late Thursday disclosed that it has secured a substantial business relationship with Cupertino, California-based Apple, to the tune of $15 billion over three-plus years. 

The disclosure was a not-so-subtle signal to the likes of semiconductor makers Qorvo  (QRVO) - Get Report and Skyworks Solutions  (SWKS) - Get Report, who are weighing bids for Broadcom's RF chip unit, that they're buying not just a good business, but a business with a substantial, long-term contract with the world's biggest smartphone maker already locked down.

On a broader level, it is also a sign that the tough times for chipmakers have passed, especially with the U.S.-China trade spat now over and with demand for chips ramping up ahead of a variety of new smartphones and devices to be unveiled this year.

Broadcom's RF unit’s chips are used to filter and amplify radio frequency signals. The filters also let wireless communications systems support a large number of subscribers at the same time by preventing voice and data streams from interfering with each other.

Apple's iPhone 11 models, as well as the iPhone XS and XR, use Broadcom components such as an RF power amplifier module and a Wi-Fi/Bluetooth combo chip. Meanwhile, Apple is prepping its suppliers and manufacturers on a new, lower-cost iPhone that it wants them to begin assembling starting next month.

Catch up on the Latest News, Features & Webinars on TheStreet!