How does Broadcom make money?

Broadcom makes money from semiconductors through a combination of design, licensing, and manufacturing:

Broadcom's Business Model

1. Chip Design & Licensing: Broadcom designs various types of semiconductors, including those used for data center networking, wireless connectivity (WiFi and Bluetooth), and broadband communication. They generate revenue by:

   • Selling their chip designs to other manufacturers.

   • Licensing their intellectual property (IP) for a fee, allowing other companies to use their designs in their products.

2. Manufacturing: Broadcom also manufactures some of its own chips, but unlike companies like Intel or TSMC (a major contract manufacturer), they don't own and operate the expensive fabrication plants (fabs) required for this process. Instead, Broadcom uses a fabless model:

   • They outsource the actual manufacturing to companies like TSMC, providing them with the designs and specifications.

   • Broadcom then purchases the finished chips from these manufacturers and sells them to their customers.

Manufacturing Process (General Overview):

Semiconductor manufacturing is a complex and highly specialized process. Here's a simplified breakdown:

1. Design: It all starts with the chip's design, which Broadcom excels at. This involves complex engineering to create intricate circuits on a microscopic scale.

2. Wafer Fabrication: Ultra-thin silicon wafers are used as the base. Through a series of photolithography and etching processes, millions of tiny transistors and other components are layered onto the wafer.

3. Packaging and Testing: The wafer is then diced into individual chips, packaged to protect them, and rigorously tested to ensure functionality.

Production at Broadcom

Since Broadcom uses a fabless model, their production process focuses on design, collaboration with manufacturers, and quality control:

• Broadcom likely has internal production facilities for chip design, testing, and development.

• They closely collaborate with fabs like TSMC to ensure smooth manufacturing based on Broadcom's designs and specifications.

• Once manufactured, Broadcom receives the finished chips and performs final quality checks before selling them.

Why Investors are Interested in Broadcom Stock (AVGO)

Several factors make Broadcom an attractive investment for some:

• Strong Market Position: Broadcom is a leader in several key semiconductor segments, and the overall demand for these chips is high due to the increasing reliance on technology.

• Diversified Revenue Streams: Their combined design-focused and manufacturing model creates multiple revenue streams, offering some stability.

• Growth Potential: The semiconductor industry is expected to keep growing, and Broadcom is well-positioned to benefit from this.

• History of Innovation: Their continuous investment in research and development keeps them at the forefront of chip technology.

• Shareholder Friendly: Broadcom has a track record of share buybacks and dividends, appealing to income-oriented investors.

Important to Consider:

• Cyclicality: The semiconductor industry is cyclical, meaning periods of high growth can be followed by downturns.

• Competition: Broadcom faces stiff competition from other chip designers and manufacturers.

• Geopolitical Issues: Global trade tensions or disruptions in chip manufacturing can affect Broadcom's supply chain.

Overall, Broadcom offers a combination of design expertise, strategic partnerships, and a growing market for its products, making it an attractive option for some investors. However, understanding the inherent risks associated with the industry is crucial before making any investment decisions.