Business Intelligence Commercial News Internet of Things

Cypress Buys Broadcom’s IoT Business – How Both Sides Won

Broadcom Cypress Analysis

If the IoT were at a party it would be the guy that always has a new story and never gets old – everyone would love to be friends with it. Everybody except Broadcom. The semiconductor giant announced that it will sell its entire IoT business, including Wi-Fi, Bluetooth and Zigbee IoT product lines and intellectual property, along with its WICED brand and developer ecosystem to Cypress for $550 Million.

We took a deeper look at this move and found out what’s in it for you. One thing upfront: It seems Cypress will be good friends with the IoT, while Broadcom is has having a good time with its own clique at the party.

As the benefits of the deal for Cypress are more obvious, we’ll start right here.

Cypress already has a strong offering of deeply embedded products including MCU, Flash, PSoC and USB.
The Company is one of the few suppliers of processors outside of field-programmable gate array (FPGA) manufacturers that allow for user-configurable hardware through PSoC microcontrollers. Since the acquisition of Spansion in 2015 Cypress is also the eighth-largest MCU supplier globally and completed its microcontroller portfolio with the highly customised Spansion MCU products.

A comprehensive IoT strategy however needs more. Customers want connectivity and preconfigured solutions that are industry standard with well-recognised IP broadly applicable across multiple connectivity design demands. With the acquisition of Broadcom IoT Cypress is now able to address those needs and adds state-of-the-art Wi-Fi, Bluetooth and Zigbee RF technologies to the already strong offering of deeply embedded products.

The deal, which is expected to close early in the third quarter of 2016 will strengthen Cypress’s position in key embedded systems markets, such as automotive and industrial and will help the company to gain better access to the high-growth consumer IoT markets.

Cypress IoT Products
Cypress is now able to address all IoT requirements from sensors to the cloud (image: Cypress)

As Cypress serves a lot of mass market customers the company will also benefit from the WICED™ brand and developer network: “The robust, ready-to-scale WICED brand and developer network of module makers, value-added resellers (VARs), technology partners and ODMs who are already working with its technology will give us immediate revenue growth capability in new channels,” Cypress President and CEO T.J. Rodgers said. “Cypress will continue to support and grow this network and to provide it with future generations of innovative, disruptive connected products. Cypress will also bring these new technologies to the automotive market, where we are already No. 3 worldwide in microcontrollers and memories, and where the connected car boom has just started.”

Bottom line: Cypress is building on its strengths in serving mass market customers and consolidating its competitive position in the IoT market. The acquisition is perfectly in line with the expected growth opportunities in future IoT markets.

Now let’s turn to Broadcom. Achieving high margins with IoT devices isn’t easy and requires the marketing of products towards a broad and diverse number of customers. That’s something which is not typically “Broadcom-Style”. Here is an explanation: While Cypress’s top three customers from 2015 were all leading global semiconductor distributors, Broadcom’s top customers have been global OEMs including its top two customers, Samsung Electronics and Apple.

To add some numbers: Broadcom stated that revenue from the wireless IoT unit was about $189 million in the 12 months prior to the sale, with approximately 430 employees resulting in less than $440,000 per employee. This is much lower than the over $830,000 of revenue per employee for Avago (note: Avago acquired Broadcom and formed Broadcom Limited) as a whole according to its revenue of $6.8 billion and approximately 8,200 employees listed in its last 10-K filed in December 2015 (source: SemiWiki.com)

Instead of fighting costly battles against Qualcomm and others in order to gain shares of the hyped IoT market Broadcom will be able to focus on “big and boring” businesses like data center solutions, which it expanded through its acquisitions of LSI, PLX Technology and Emulex.

Exiting the IoT party further doesn’t mean that Broadcom will not continue to concentrate on its wireless connectivity solutions for the access and mobility segments that are not IoT related, including serving set-top box, wireless access, smartphone, laptop and notebook customers. However handing over the IoT assets means that the company acknowledged that Cypress will be able to capitalise on the IoT connectivity portfolio more efficiently.

“We are thrilled to be joining forces with Cypress to address the fast growing IoT market,” Broadcom IoT General Manager Stephen DiFranco said. “With our IoT connectivity products, Cypress will be able to provide the connectivity; the MCU, system-on-chip, module and memory technologies; and the mature developer ecosystem that IoT designers require, creating an end-to-end portfolio of embedded solutions and a single IoT design platform.”

Conclusion: Broadcom aims to become a top share leader in large markets. To do so focusing on the needs of specifically identified large OEMs while avoiding the distraction of mass-market customers that are likely to drive relatively low volumes could be an effective strategy. Therefore exiting the IoT in order to serve top OEMs in very large markets such as set-top boxes and smartphones has been a smart move.

What does this mean for you? Well, Cypress will be able to offer you complete and flexible IoT solutions from memory over MCU to connectivity, while Broadcom is able to concentrate on its core business in order to provide highly innovative products in areas such as data center networking, broadband access, telecommunications equipment, smartphones and more.

Party on – Cypress got a new hip friend and Broadcom reunited with some old buddies.

Leave a Reply

Your email address will not be published. Required fields are marked *