Google Distributes "Reassurance Pill": Cooperation with Broadcom Remains Unchanged, Broadcom Once Close to Recovering All Declines

On Thursday, September 21st, Google announced that its relationship with chip manufacturer Broadcom is expected to remain unchanged. As a result, Broadcom's stock price partially recovered during trading, ultimately closing down 2.67% at $808.36.

Google's statement was in response to earlier media reports. According to Thursday's reports, Google plans to sever its collaboration with Broadcom in the field of artificial intelligence chips by 2027 and produce such chips in-house. Broadcom's stock initially dropped over 6% and at one point during trading, the decline exceeded 4%.

In its statement, Google expressed the following:

We have had a long and effective partnership with Broadcom and other suppliers. We are satisfied with the collaboration with Broadcom, which has benefited our work in both internal and external cloud demands. Broadcom has consistently been an outstanding partner, and there have been no changes in our collaboration.

According to informed sources cited by the media on Thursday, Google may shift towards developing its own "Tensor Processing Units" (TPUs). Google executives discussed the possibility of discontinuing Broadcom as an AI chip supplier as early as 2027. Following the release of this news, Broadcom's pre-market stock price dropped nearly 6%, and the decline continued into the early trading session of the US stock market.

This move could help Google save billions of dollars in costs annually. Google has made significant investments in AI development, and AI chips are particularly expensive compared to other types of chips.

Insiders revealed that the two companies had been deadlocked for several months over TPU pricing. Google executives have now decided to discontinue collaboration with Broadcom. During the global chip shortage in 2021, Broadcom raised the price of network interface chips by 30%. Google estimates that Broadcom's TPU business has a profit margin as high as 70%.

Since last year, Google has been striving to replace Broadcom with Marvell Technology as the supplier of network interface chips that connect Google's data center servers with Ethernet switches. Google recently announced plans to collaborate with Marvell to launch an internally code-named "Granite Redux" network interface chip by next year.

If Google successfully transitions to internal TPU development, it could potentially save billions of dollars annually, but it would result in losses for Broadcom's business of manufacturing dedicated chips for customers.

Analysts have noted that demand for AI chips unexpectedly surged over the past year, making Broadcom the world's second-largest AI chip manufacturer, second only to NVIDIA.

Google is expected to pay approximately $2 billion to Broadcom for TPUs this year. In May of this year, Morgan Stanley analyst Harlan Sur estimated that Google could pay Broadcom $3 billion for TPUs this year. According to SemiAnalysis data, due to the booming development of the AI industry, this figure is expected to rise to $7 billion by the end of next year.

Google's decision to independently develop AI chips mirrors Amazon's approach, as the latter has been developing its own AI chips for many years. Additionally, Microsoft is currently attempting to develop its own chips. Google and Amazon have already used self-developed chips to support their own AI products' servers, and they also rent out these servers to cloud customers.