Pricing PowerNarrow moat

Pricing power is the reward Broadcom extracts from all its other advantages, and it wields it more aggressively than almost any company in the industry. Where a part is critical, hard to qualify, expensive to switch, and technically ahead, Broadcom prices to the value it delivers — and it has shown, again and again, a willingness to raise prices firmly on customers who have few good alternatives. This is the through-line of the whole business model: assemble positions of genuine strength, then monetize them without apology.

The power shows up in Broadcom's remarkable margins, which sit far above those of a typical chipmaker and reflect its focus on franchises where it can dictate terms rather than compete on price. Hock Tan's strategy has been explicit about this — acquire strong positions, shed the commodity businesses where pricing power is weak, and concentrate on the products and customers where the company can charge what the value is worth. The result is one of the most profitable large semiconductor operations in the world.

The danger of exercising pricing power this forcefully is that it breeds resentment and, over time, motivates customers to escape. Every aggressive price increase strengthens a customer's incentive to design Broadcom out, build the function in-house, or back a rival — so the very power that produces today's margins plants the seeds of tomorrow's competition. Broadcom has managed this balance skillfully for years, but pricing power pressed to its limit is a strategy with a long-term cost, and the line between confident and predatory is one the company walks deliberately close to — the VMware repricing being the current exhibit¹.