Broadcom shares rose 15% in pre-market trading Monday after the chipmaker announced it is exploring strategic alternatives for its cellular baseband business, including a potential sale or wind-down.
Broadcom, a maker of DOCSIS modem and set-top chipsets, said it has hired JP Morgan in connection with the efforts.
The company said a successful sale or wind-down of its cellular baseband business is currently expected to result in a $700 million reduction in annualized GAAP R&D and in other selling and general administrative expenses, of which about $100 million relates to estimated reductions in stock-based compensation. Additionally, non-GAAP R&D and selling and G&A expenses are expected to be cut by about $600 million, the company said.
Broadcom said it expects to organically reinvest about $500 million of these savings on an annualized basis into projects tied to its Broadband, Infrastructure and Connectivity Businesses, noting that this incremental spending should strengthen and accelerate Broadcom’s plans in the areas small cells, embedded processing and low-power connectivity.
In the first quarter, Broadcom’s mobile and wireless segment generated $846 million, down 10%, and noted that it expected that part of the business to trend down slightly in the second quarter.
Broadcom is facing stiff competition in the sector from companies such as MediaTek and Qualcomm and the cellular baseband unit is “significantly unprofitable,” Reuters reported, citing a FBR Capital Markets analyst Christopher Rolland.
Broadcom said it still expects second quarter revenues to be in the range of $2 billion to $2.1 billion.
Shares in Broadcom rose $4.79 (15.03%) to $36.66 each in pre-market trading Monday.