Broadcom Inc. shares fell Tuesday following reports that Apple Inc. was working on its own radiofrequency (RF) chips, but one analyst wondered whether those plans would get shelved if the chip maker offered the iPhone maker a better deal.
Broadcom
AVGO,
shares fell as much as 4.7% Tuesday and were last down 3%, while Apple
AAPL,
shares were off 0.3%, the S&P 500
SPX,
was up 0.3% and the tech-heavy Nasdaq
COMP,
was up 0.5%. Just before the close of markets Monday, Bloomberg News reported that Apple was working on its own RF chips, with expected availability in late 2024.
In a Tuesday note, Bernstein analyst Stacy Rasgon did the rough math, and given Broadcom’s pending acquisition of VMware Inc.
VMW,
and its continued transformation away from being a WiFi chip company into more of a software player, wondered whether it could all be leverage for a better deal on RF chips.
Read: Broadcom’s ‘excellent backlog management’ earns Wall Street’s trust as other chip makers struggle
Broadcom would lose about $1.50 to $2 a share earnings per share in 2025 should Apple revenue go away, Rasgon estimated, only a 3% to 4% impact to his EPS estimate of $48.11 a share. Of the 21 analysts who cover Broadcom, six have an average 2025 EPS estimate of $45.42 a share. Nineteen have buy-grade ratings, while two have hold ratings.
“The current supply agreement between the two companies expires this year, and would not be out of character to demonstrate alternatives as part of the renegotiation process (Apple tends to drive a hard bargain and Broadcom is not a pushover, in fact [Broadcom CEO] Hock [Tan] all but threatened to sell the wireless business in its entirety the last time around),” Rasgon said.
Rasgon was referring to reports three years ago that Broadcom was shopping its RF chip business as Wall Street analysts speculated the same.
“At the end of the day while Apple’s loyalty (or lack thereof) is always part of the bear case on Broadcom’s stock, we do not believe relevant exposure here is hugely material, and by 2025 wireless and Apple will be even less of a driver especially when/if VMware closes,” the Bernstein analyst said.