Google's TPU Strategy Shake-Up: Broadcom Faces Pressure as MediaTek Enters the Fray

Amid speculations that google might collaborate with MediaTek to develop AI-focused Tensor Processing Units (TPUs), broadcom saw its stock dip significantly, highlighting potential consequences for the company’s existing exclusive supply relationship with Google. Despite recent tensions over pricing, Broadcom is still actively negotiating with Google to maintain their partnership in developing certain AI chips.

This development follows reports suggesting Google's move towards MediaTek is driven by cost considerations, with the latter offering more competitive pricing compared to Broadcom. Industry insiders revealed Google's plans to commence production of a new generation of AI chips with MediaTek by next year. This potential collaboration could shift dynamics, as Google leads most of the design work for the next-gen TPU, yet entrusts MediaTek with managing the input/output modules essential for interfacing the main processor with external components.

While Google's venture with MediaTek suggests diversification of suppliers, it doesn't imply a complete severance from Broadcom. Google and Broadcom have enjoyed a nine-year-long exclusive relationship for AI chip development, and discussions are ongoing to continue their cooperation on specific projects. However, should Google fortify its partnership with MediaTek, Broadcom might face the prospect of relinquishing its sole control over the TPU business, affecting projected revenue from AI initiatives.

It's clear that Google aims to optimize its operational costs, driven by pricing disagreements with Broadcom. By tapping into MediaTek, Google hopes to streamline its supply chain expenditures. Moreover, Google is attempting to bring more chip development in-house, focusing on reducing reliance on external partners like Broadcom and MediaTek. A recent recruitment drive for chip design engineers underscores its intent to nurture internal capabilities for comprehensive chip development.

Nonetheless, indications suggest Google may continue to rely on MediaTek or Broadcom, especially for production tasks such as packaging and quality assurance. Despite shifts in development strategy, Google remains a cornerstone in Broadcom’s business, contributing significantly to its revenue from customized AI chips. Google’s expenses on Broadcom chips are substantial, posing both an opportunity and risk for Broadcom amid evolving supply dynamics.