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Broadcom retains Google as key customer despite rumors of parting ways
By: Investing.com | October 2, 2023

Despite recent rumors suggesting that Alphabet's (NASDAQ: NASDAQ:GOOGL) (NASDAQ: GOOG) lead business unit Google was considering parting ways with semiconductor giant Broadcom (NASDAQ: NASDAQ:AVGO), a Google spokesperson confirmed on Monday that its engagement with Broadcom remains unchanged, labeling Broadcom as an "excellent partner."

The rumor mill, despite its uncertainty, has shed light on the long-queried identity of Broadcom's significant "computing offload customer." While it was widely speculated to be a tech titan, likely Google, this recent internal source seemingly confirms it.

Broadcom's custom silicon projects, also known as application-specific integrated circuits (ASICs), have been a subject of interest since 2022. The company categorized its ASIC revenue into two segments: routing and switching, and compute offload. Compute offload is a two-step process within a data center. Initially, routers and switches decide which part of the data center will handle the computing request. Processors then make the computations, which are subsequently sent back to the end user through the internet or private network by those same routers and switches.

With the confirmation that Google is Broadcom's significant ASIC customer, it's clear that Broadcom plays a crucial role in helping engineer Google's Tensor Processing Units (TPUs)—custom processors for specific AI workloads—as well as routers and switches for Google's extensive global data center fleet.

In the spring of 2022, Broadcom revealed that its ASIC business had generated nearly $800 million in 2021 for routing and switching, and nearly $1.6 billion from compute offload. These sectors had been growing at an average annual rate of 20%. Assuming this growth rate continued and that Google is the sole ASIC customer (which is likely not the case), Google could represent upwards of $3 billion in revenue for Broadcom in 2023, or nearly 10% of total annual sales.

Even though Google has debunked the rumors of parting ways with Broadcom, other ASIC companies such as Marvell (NASDAQ:MRVL) Technology Group, a smaller competitor to Broadcom also riding the AI wave with its own routing and switching chip, would likely be interested in this business opportunity.

Earlier this year, similar rumors suggested that Apple (NASDAQ:AAPL) was nearing the end of its relationship with Broadcom for 5G wireless and Wi-Fi chips. However, a few months later, Apple renewed its multibillion-dollar supply agreement with Broadcom for another couple of years. The secret to Broadcom's retention of these tech giants lies in its chip designs, extensive patent library, and some proprietary in-house manufacturing capabilities.

Despite the rumors of Google trying to save a couple of billion dollars a year, it is well-positioned to continue paying Broadcom for its assistance in compute offload chips while simultaneously growing its profitability from digital ads and Google Cloud.

Broadcom's integral role in the technology sector continues to be highlighted through its partnerships with tech giants like Apple and Google.

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