Semiconductor Companies: To Survive or Not... Depends on Big Tech's 'Pick' [Tech Talk]

Broadcom Joins the $1 Trillion Club
Early Aggressive M&A in the Cloud Ecosystem
Success Rooted in Securing Big Tech Supply Chains

The semiconductor company that attracted the most attention from investors at the end of last year was 'Broadcom.' Its market capitalization surpassed $1 trillion (approximately 1460 trillion KRW), and its stock price more than doubled in 2024 alone. Some even predict that Broadcom could one day become a rival to Nvidia.

Broadcom logo. Photo by Reuters and Yonhap News

Broadcom originally manufactured wired and wireless communication components. Recently, it has grown by assisting big tech companies in designing customized semiconductors. Although it has always been a giant in terms of scale, it was not considered on the same level as mega-brands like Intel, AMD, or Nvidia. So how did this company suddenly rise as a dark horse in the semiconductor industry?

A company that made set-top box chips, now at the center of the cloud

Broadcom's wireless communication device chip. Broadcom is a company that primarily designs legacy semiconductors used in set-top boxes, routers, and similar devices. Broadcom

Broadcom was founded in 1991 in Silicon Valley, USA. Its initial business was producing semiconductors for cable TV set-top boxes. Later, it merged with Singapore’s 'Avago Technologies,' establishing itself as a manufacturer of wired and wireless communication devices. Until then, Broadcom was simply a manufacturer of inexpensive semiconductors and electronic devices.

Broadcom’s rise began with the cloud era. As demand for cloud services from big tech companies like Amazon, Google, and Microsoft (MS) increased, Broadcom aggressively acquired software companies related to data centers through mergers and acquisitions (M&A). The pinnacle was the acquisition of VMware in May 2022 for a staggering $61 billion (approximately 89 trillion KRW). VMware provides virtual machines (VMs), which are essential for building stable cloud development environments.

Additionally, Broadcom has actively pursued a strategy of gradually penetrating the supply chains for 'in-house chip production' promoted by big tech companies. Google’s proprietary AI accelerator, the Tensor Processing Unit (TPU), was developed in collaboration with Broadcom. Moreover, Broadcom holds stakes in many companies’ custom-designed semiconductors. In other words, although it lacks its own brand, Broadcom has strategically positioned itself across the entire semiconductor market.

'The nameless fabless' making chips for big tech

Broadcom’s strategy of 'quietly infiltrating the market' seems to have borne fruit alongside the AI boom. With soaring demand from Amazon Web Services (AWS), Google TPU, and others, Broadcom itself forecasts that chip demand could reach as high as $90 billion (approximately 131 trillion KRW) by 2027.

Some predict that Broadcom’s business model could break Nvidia’s 'AI semiconductor monopoly.' Nvidia develops graphics processing units (GPUs) that have become the standard AI accelerators. Currently, no one can match the AI training performance of GPUs, but as AI services become commercialized, there will be a need to procure efficient and affordable chips rather than the highest-performance expensive ones.

Google TPU data center (above) and Microsoft's Maia and Cobalt chips. All were independently developed by cloud vendors in collaboration with fabless companies such as Broadcom and ARM. Google, Microsoft websites

Above all, big tech companies providing AI services will want to control the entire process of ordering and securing chips. Relying solely on Nvidia for all chips would leave them without solutions during supply instability and reduce their bargaining power on prices.

For this reason, Amazon is developing data center chips like Trainium and Inferentia, Google is working on TPU and Axion, and MS is creating chips such as Mariana and Cobalt. The 'nameless experts' involved in this process are companies like Broadcom, ARM, Marvell, and MediaTek.

Semiconductor companies chosen by cloud vendors survive

Broadcom’s rise can be attributed to two main factors. First, in the early days of the cloud business, it secured various essential software businesses for data centers through vigorous M&A. Second, it succeeded in closely aligning itself with big tech companies’ semiconductor design businesses.

Broadcom's GPU switching chip 'Jericho-3'. It has opened a new era by designing an ASIC chip specialized for artificial intelligence data center communication. Broadcom

Both strategies share the commonality of anticipating the business trends of today’s leading big tech companies in the US and worldwide and securing their supply chains early. In short, Broadcom was able to break through the $1 trillion market cap because it was 'chosen' by big tech companies.

Last year, Broadcom was not the only company whose fate was decided by big tech’s choices. As the AI era approached, big tech companies began shifting from Intel-based chips to ARM-based chips, which focus on power efficiency rather than performance-centered central processing units (CPUs). This shift raised concerns about Intel’s declining market share, which became a reality. Ultimately, Pat Gelsinger, the former CEO who was expected to revitalize Intel, had to step down.

In South Korea, while Samsung Electronics, a traditional memory powerhouse, faced difficulties, SK Hynix, which focused on high-bandwidth memory (HBM) packaging technology most needed by big tech, was chosen by Nvidia and other big tech companies and received encouraging results. HBM is likely to become Hynix’s savior once again, even amid the current oversupply of memory originating from China.