What Apple’s New Chip Deal Means for Broadcom

A multibillion dollar deal boosts the chipmaker but storm clouds loom

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Apple (AAPL) and Broadcom (AVGO) entered into a multi-billion chip supply agreement that'll help the iphone-maker to pivot to U.S. suppliers and give some runway to the chipmaker to diversify its revenue stream for when Apple starts to manufacture its own chips.

Key Takeaways

  • Apple announces a multi-year chip deal with Broadcom.
  • The deal is part of a 2021 plan to invest $430 billion in homegrown suppliers.
  • Deal might give Broadcom runway to diversify revenue stream as Apple pushes to manufacture chips in-house

Broadcom shares were up as much as 3% in early trading after the announcement, in which the tech company will manufacture 5G components for the iPhone maker. Broadcom’s film bulk acoustic resonator (FBAR) chips are used to connect iPhones and other Apple products to mobile data networks.

This deal is good news for Broadcom as a January report by Bloomberg said that Apple could look to phase out the chipmaker by 2025, as it seeks to build its own chips in-house. Under the CHIPS and Science Act of 2022, $250 billion in subsidies were earmarked for chip research and development (R&D) in the U.S. A severing of ties could prove to be challenging for Broadcom, as the chipmaker reportedly relied on Apple for about 20% of its revenue as of October 2022.

And this deal doesn't just protect Broadcom's revenue stream for now. Apple supports more than 1,100 jobs at Broadcom’s Fort Collins FBAR filter manufacturing facility. Apple said this deal will also help Broadcom work towards automation and upskilling of workers.

"We’ll continue to deepen our investments in the U.S. economy because we have an unshakable belief in America’s future," Apple CEO Tim Cook said. The latest investment is part of Apple’s 2021 plan to invest $430 billion in the U.S. economy over five years.

This deal also comes at a time when a lot of chipmakers are either, like Foxconn (which assembles around 70% of iPhones) looking to move away from China or like Micron (MU) this week will lose out the market due to government restrictions.

Perhaps, it gives Broadcom time to prepare for 2025, where Apple and China may no longer be customers, with 35% of its revenues coming from the Asian giant.

Article Sources
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  1. Apple. "Apple Announces Multibillion-Dollar Deal with Broadcom".

  2. Bloomberg. "Apple to Phase Out Broadcom by 2025".

  3. Apple. "Apple commits $430 billion in US investments over five years."

  4. CNBC. "Apple supplier Foxconn breaks ground on $500 million India factory."

  5. Reuters. "China's Micron Ban Highlights Chipmakers' Dilemma".

  6. Bloomberg. "Micron Drops After China Claims its Chips Pose Risk".

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