Intel's Loss Is Broadcom's Gain as AVGO Dominates Networking

An interesting report came out recently about America’s first big chip company and another that is now one of the main drivers of the AI revolution. According to Reuters, the former king of the U.S. chip universe, Intel (NASDAQ: INTC), is looking to sell off a significant portion of its business.

The report cites strength from the currently second-largest semiconductor company in the world, Broadcom (NASDAQ: AVGO), as a key reason why. Let’s break down Intel’s concerns and why this report adds credence to Broadcom’s positioning as a chip juggernaut going forward.

Intel Eyes Narrowing of Strategic Focus, Wants Out of NEX

Intel is reportedly considering its options to get rid of its Networking and Edge product lines. The company categorized these products under their own segment called NEX through the end of 2024. Although they are no longer reported separately, the company’s financials show that NEX generated $5.8 billion in revenue in 2024. This is equal to around 11% of Intel’s total 2024 revenue.

The segment also had a relatively solid operating margin of around 16% in 2024 and grew by 20% in Q4. Networking involves transferring data between various computers, devices, or components. In networking, Intel makes devices like Network Interface Cards (NICs). NICs let servers in data centers share information with each other through Ethernet connections.

Edge refers to chips that process data closer to their source, rather than sending it through the cloud. For example, the company’s Xeon 6 processors helped Nature Fresh Farms use AI to analyze data on its crops in real time, without having to send the information to the cloud. The reduction in the time it took to receive insights helped to significantly improve crop yields.

Despite the growth in these business lines, Intel wants to refocus on what it does best: PC and data center central processing units (CPUs). Intel says it still holds a 68% market share in PC CPUs and a 55% market share in data center CPUs. According to Counterpoint Research, the company’s overall market share in CPUs has dropped from 80% in 2015 to 60% in 2024. Advanced Micro Devices (NASDAQ: AMD) has been a significant beneficiary.

Intel is surely noticing this and wants to narrow its focus to concentrate on winning in this area. Given that NEX is a relatively small part of its business, getting rid of it is a way to do this. However, the report says Broadcom’s networking strength is another reason why Intel is looking to retreat.

Broadcom’s Networking Business: A Thorn in Intel’s Side

Intel may sell its networking business because "companies such as Broadcom have a tight grip on crucial portions of that market." Indeed, Broadcom has a strong lineup of networking chips. This includes the Tomahawk and Jericho lines.

Tomahawk chips are high-performance Ethernet switch chips designed to move data quickly and efficiently within AI data centers. Jericho chips are for telecom use cases where Intel currently competes. These comments surrounding Broadcom show the company may now be pushing Intel out of telecom networking, which it has already done to an extent in data centers. 

In Q4 2022, Intel announced that it would stop investing in its Ethernet switching chips. This essentially means that the company’s Tofino chips, which competed with Tomahawk, would slowly die out.

Broadcom has taken advantage of this, with Tomahawk becoming a strong growth driver for its networking business. The company said in its Q1 earnings call that its networking chips account for 30% of its AI revenue. Given that the company generated $12.3 billion of AI revenue in 2024, Broadcom’s networking business probably brought in around $3.7 billion. 

Although Intel halted investment in its Ethernet switch business years ago, the success of Broadcom’s Jericho and Tomahawk chips is likely putting additional pressure on Intel’s NIC business. This is because Ethernet switch chips must work closely with NICs. Broadcom has the ability to sell both devices, while Intel does not, creating an easier path to winning customers.

Broadcom Continues to Show Why It Is a Leading Chip Stock

From the perspective of Broadcom, this report crystallized the company’s dominance in yet another key technological area. Broadcom is doing so well in networking that Intel seemingly doesn't even want to put up a fight.

Broadcom's excellence across several verticals, including custom AI chips, networking, and software, bodes well for the business's future.

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The article "Intel's Loss Is Broadcom's Gain as AVGO Dominates Networking" first appeared on MarketBeat.