Nvidia is not the only one who has turned over with AI, and Broadcom, the "route
01
Good AI stories are not just told by NVIDIA
The wave of AI infrastructure keeps coming, and not only NVIDIA is making a fortune as the "seller of shovels." Broadcom, the leader in the communication chip industry, is also no longer keeping a low profile.
Recently, Broadcom's stock price trend in the US stock market has been astonishing. Since announcing the split of its shares in mid-June, its stock price has soared, and its market value once exceeded 851 billion US dollars, even surpassing AMD to become the second giant in AI infrastructure manufacturers. Some analysts in the industry even predict that Broadcom will soon become the seventh company after Microsoft, Apple, Amazon, and others to have a market value of over one trillion US dollars.
What does this player, which is overlooked by most people, do? Founded in 1991, Broadcom initially focused on the design and manufacturing of analog chips and officially entered the network chip market around 1998. With the popularization of the Internet, its network chip business grew rapidly, mainly producing chips in the fields of wired networks, wireless WiFi, and storage.
For example, most of the mobile phones, computers, or routers we use now have Broadcom's WiFi chips, and even Apple's WiFi chip supplier is Broadcom.
Advertisement
However, Broadcom now has many labels: "one of the world's largest chip manufacturers," "the leader in the field of Ethernet switch chips," and more importantly, "the most diversified semiconductor enterprise." For the convenience of analysis, we generally divide Broadcom's business into two sectors: semiconductor solutions and infrastructure software. It is precisely the leading step in the software field that has given Broadcom the opportunity to catch up with NVIDIA.
02Mirroring Cisco's Thoughts
In December last year, NVIDIA CEO Jen-Hsun Huang and the company's executives held a series of meetings, addressing a question that concerns NVIDIA's future fate: whether the data centers of the company's major clients still have the space and energy to install and digest NVIDIA's AI chips? Considering the decline of the once-mighty hardware giant Cisco, NVIDIA is not being overly anxious.
Behind the Rapid Growth of NVIDIA's Data Center Revenue Lies Hidden Business Concerns
Readers familiar with the history of the internet should not be strangers to Cisco, a communications company that sells networking hardware equipment. During the rise of the internet, Cisco was also sought after by the market, with its stock price increasing more than 50 times in just six years from 1994 to 2000. This is very similar to today's NVIDIA.
However, problems emerged as the global internet infrastructure was established. Cisco's "shovels" gradually became less marketable. The reasons are multifaceted. First, the turn of the century coincided with the bursting of the internet bubble, causing Cisco's stock price to plummet by two-thirds, forcing internal layoffs and adjustments, and inevitably affecting the business lines. Second, external competitors, including Huawei, gradually gained momentum, beginning to challenge Cisco's dominant position.
More importantly, the opportunities that emerged during the rapid development of the internet over the next 20 years belonged to software companies like Google and Amazon, not Cisco.
The famous Silicon Valley investor Cathie Wood (nicknamed "Woodie") was once questioned by other investors for selling out of NVIDIA early and missing out on its most substantial price increase. However, her reason at the time was also straightforward: "NVIDIA is too much like Cisco at its peak."
Led by Jen-Hsun Huang, NVIDIA does not want to become the next Cisco, so it is aggressively entering the cloud services and software markets. Not long ago, NVIDIA just announced a massive $9 billion investment plan, centered around cooperation with major cloud service providers such as Amazon, Microsoft, Google, and Oracle. The huge investment plan is nothing more than an attempt to get a share of the cloud services market and gain more market share for its own cloud service, DGX Cloud.As for the software business, Guangfa Securities' U.S. stock hard technology analyst, Yang Linlin, believes that NVIDIA has been well-prepared in the software business field. Although the current annual revenue of hundreds of millions of dollars is negligible compared to the chip business, NVIDIA has its own R&D ecosystem. In the future, it can sell its AI software to companies developing AI or XR applications. "The potential opportunity could be at the level of hundreds of billions of dollars."
However, Broadcom, which is more similar to Cisco, has actually taken the lead in this field.
03
After the hardware competition
What should AI focus on next?
The similarities between Broadcom and Cisco extend beyond their industry status to their business coverage areas. For example, both have been leaders in the technology industry, with strong networks, communications, and semiconductor hardware products, as well as a diverse range of products and solutions covering data centers, the Internet of Things, and other industry scenarios. In addition, both companies have strong financial strength and are adept at using "financial power" to make acquisitions, and both have experiences of growing stronger or weathering crises through acquisitions.
The Broadcom of today is no longer the original Broadcom; it is essentially Avago, which is highly skilled in capital operations. This story begins with Broadcom's current leader, Hock Tan (Tan Huck Chew).
Tan Huck Chew is a Chinese Malaysian born in Malaysia, with a background in science and engineering and a low-profile capitalist who is adept at using leverage. He has a rich work experience, having held key positions in traditional companies like PepsiCo and General Motors, as well as in technology companies like ICS and IDT. In 2005, the Agilent Semiconductor division, which was spun off from HP, was restructured into Avago Technologies in Singapore under the operation of private equity giants KKR and Silver Lake Capital. The two private equity consortiums chose Tan Huck Chew to help Avago go public.
Now 71 years old, Tan Huck Chew is an ambitious leader.Subsequently, relying on his own experience and the support of financial capital, Avago, led by Hock Tan, initiated a series of transformative acquisitions.
Several acquisitions worth noting include their strategic positioning in the 5G sector. In 2008, Avago acquired the bulk acoustic wave (BAW) business from Infineon for a mere $30 million, bringing its filter product patents under its umbrella. BAW filters are core components of 5G radio frequency devices, requiring extensive R&D and technological accumulation for commercialization. Currently, only Broadcom and Qorvo, a joint venture of RF Micro Devices and TriQuint Semiconductor, can produce BAW filters on a large scale, with these two companies accounting for over ninety percent of the market share.
Avago then successively acquired storage chip company LSI, data equipment supplier Emulex, and other enterprises. By 2015, Avago's market value had exceeded $30 billion. Unlike typical tech startups, Avago is more akin to a ruthless and aggressive investment firm—once it identifies a promising business, it spares no expense in acquiring the company through mergers and acquisitions, followed by immediate restructuring, retaining only the main product lines with high profit margins.
This is also why a relatively unknown Singaporean company in the United States dared to spend a significant amount to acquire Broadcom, a veteran chip company that was much larger at the time; and in 2018, it even attempted to acquire Qualcomm due to its interest in Qualcomm's mobile chip patent technology and 5G wireless business—only to be stopped by then-President Trump on antitrust grounds.
Returning to AI business, Broadcom also managed to tap into the technological trend earlier through acquisitions.
In August of last year, Broadcom spent $69 billion to acquire VMware, a leading global virtualization and cloud computing infrastructure company. This transaction was seen in the tech industry as comparable to Microsoft's acquisition of Activision Blizzard.
Industry insiders explain that VMware's cloud integration software solutions can be understood as creating different virtual machines in the cloud for various AI processing tasks, each with its own operating system, capable of running, managing, and allocating different tasks. This means that "a user's single computer can be used as several computers."
Since acquiring VMware, Broadcom has filled the gap in its infrastructure software, and the revenue contribution from this business segment has doubled by the end of last year. The revenue forecast for 2024 is expected to exceed $50 billion, and VMware has also been bolstered by AI hardware products.Although Broadcom does not compete with NVIDIA in the GPU market, it excels in network chips, particularly in addressing communication issues between chips and enhancing signal transmission efficiency, which allows it to customize AI chip solutions for some major clients. Google's TPU (Tensor Processing Unit) is manufactured by Broadcom, and Meta and Microsoft are also among its significant clients.
With a "merger and acquisition enthusiast" at the helm, Broadcom's story in the AI era may have only just begun.
Comment