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Broadcom officials last month said the chip maker was getting out of the cellular broadband business, either by winding it down or selling it off.
They have now decided to shutter the business, a move that could mean reducing the company’s workforce by 20 percent. Already the company has cut 250 sales and administrative jobs, and the closing of the baseband business could lead to another 2,250 job cuts.
Broadcom President and CEO Scott McGregor, in a conference call with analysts and journalists to talk about the company’s second-quarter financial numbers, said that the company had gauged market interest in the baseband business, but eventually decided the best move would be to close it instead.
“We made the decision to pursue a wind down, which minimizes the ongoing losses from the business and enables us to focus on our core strengths that much more quickly,” McGregor said. “Going forward, Broadcom will be a stronger company, as we focus on our core businesses. Our gross margins will go up, profitability will improve, and we will be in a position to return more capital to shareholders.”
Broadcom, which has about 12,500 employees worldwide, will now be able to focus more of its time and money in efforts around its three business groups of broadband communications, mobile and infrastructure and networking, he said. The company will see some negative impact that will result from no longer selling connectivity products that included baseband technology, but those issues will disappear, McGregor said. In addition, there will be some continued issues in low- and midrange platforms.
However, the closing of the baseband business will help Broadcom in the long run, the CEO said.
“On the positive side, we have new technologies ramping,” he said. “We have some [average selling price] increases, as we are able to add additional functionality for some customers, and we believe that things like Internet of things and automotive and wearables and things like that will contribute somewhat.”
Along with the job cuts, Broadcom will close or consolidate 18 sites and end some existing contracts, according to Eric Brandt, executive vice president and chief financial officer. According to a July 22 filing with the Securities and Exchange Commission, Broadcom officials decided to exit a baseband business that was a drag on the company’s financial numbers and to focus more of its resources on other parts of the company.
While company executives decided to get out of the baseband business in June, it wasn’t until earlier this month that they decided to shut it down rather than sell it. During the conference call, Brandt said it made more fiscal and business sense to shutter the business rather than sell it.
“We had many talks and some significant interests,” he said. “One of the challenges for us is that in the sale of the business, the time it takes to go through regulatory approval can eat up a lot of value you would receive in selling the business, so it would add certain challenges and hurdles you would need to get to in order to be a positive economic benefit to the company.”
Brandt also said that is “a benefit for the company to be able to put this behind us and move forward in terms of driving our investments in new areas and focusing on where we want to see the company going forward. So we considered all those factors, and came to the conclusion that … it made sense to wind down to the business, rather than to conclude the sale.”
For the second quarter, Broadcom saw revenues fall 2.3 percent over the same period last year, to $2.04 billion. In addition, the company lost $1 million, a significant improvement over the $251 million it lost in the second quarter in 2013.