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Chip giant Broadcom (NASDAQ: AVGO) is a key Apple's (NASDAQ: AAPL) popular iPhone product line. Indeed, TechInsights recently made the latest iPhone XS Max, and it found a Broadcom Wi-Fi / Bluetooth chip, 3D Touch sensor, and Avago front-end module (FEM) chip. (The current Broadcom Limited was formed through the combination of companies called Broadcom and Avago.)
Apple is a big customer of Broadcom's, with Broadcom saying it's most recent in the world. for fiscal year 2016. "
Source image: Apple.
What's more, what is more than $ 25 billion – more than 30% of Broadcom's total sales. This means Apple made up north of 65% of Broadcom's wireless communications revenue that year.
Although iPhone has been sold in many years, Broadcom has managed to grow Apple-related business growth in the total value of the chips that it supplies to each iPhone. Although Broadcom's wireless business is set to be a setback this year as Apple has lost some content in the iPhone XR to a competitor, CEO Hock Tan is optimistic that it will be back to "double-digit growth in fiscal 2020, following a temporary dip in fiscal 2019. "
It seems that Apple's upcoming transition to 5G will support the growth in Broadcom's wireless business. Let's take a closer look at Tan's comments.
Growth in the next iPhone – and beyond
Even if Apple is not expected to launch its first 5G-able iPhone until 2020, Broadcom's expecting a return to double-digit revenue growth in its fiscal 2020. That timing suggests that it expects a solid boost in wireless chip content in Apple's 2019 iPhones .
This is not a surprise considering that next year's iPhones are likely to use Intel's (NASDAQ: INTC) XMM 7660 modem, which promises a significant boost in LTE download speeds compared to the XMM 7560 modem that's in all of this year's models. That boost in wireless capability should also lead to a boost in Broadcom's radio frequency (RF).
On top of that, Tan pointed out that Broadcom is "well off to win the platform," referring to the fact that it was lost in this year's iPhone XR. The combination of the increase in broadband complexity Broadcom the business in the next iPhone XR should help Broadcom achieve its fiscal 2020 wireless growth ambition.
With that said, just getting one year out of wireless growth is not going to be satisfied with investors over the long run. Tan said that "with 5G on the horizon, we expect this rate of annual upgrades to sustain."
"As a result, we are maintaining our high level of market transitions to 5G," Tan asserted.
RF chips are not the only things it sells to Apple (as well as to other premium smartphone makers), so it's unsurprising that the executive also indicated that the industry transition to the more advanced 802.11ax standard will "continue to keep us in the lead. "
"We believe we are very proud of this particular franchise over the next several years," Tan claimed.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $ 150 calls on Apple and short January 2020 $ 155 calls on Apple. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.
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