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June 2 (Reuters) - Chipmaker Broadcom Corp said it was looking to sell or wind down its cost-intensive cellular baseband business that is hurting its operating income due to high research and development costs.
The company's shares rose as much as 12 percent to $35.70 in trading before the bell.
Broadcom said on Monday that selling or winding down the business would likely save $700 million per year.
Excluding an estimated $100 million reduction in stock-based compensation, the company said it expected savings of about $600 million in research and development and other administrative costs.
Broadcom is facing stiff competition from companies such as MediaTek Inc and Qualcomm Inc, mainly in China.
Broadcom is losing market share to MediaTek for chips used in low-cost smartphones, while also battling Qualcomm's domination in the 4G long-term evolution (LTE) chip market.
The company has responded to the market shift toward low-cost devices by launching its own 4G technology to compete with Qualcomm, but progress has been slow.
FBR Capital Markets analyst Christopher Rolland said the unit was "significantly unprofitable". "In addition to that, the company's technological roadmap had fallen behind peers like Qualcomm, MediaTek and Marvel, which left them in a very tough spot," he said.
Irvine, California-based Broadcom said it expected to reinvest about $50 million of the savings into its broadband, infrastructure and connectivity businesses annually.
The company also raised its GAAP and adjusted product gross margin forecast for the quarter ending June 30. It now expects gross margins to come in at or above the high end of its previously forecast range of about 100-200 basis points sequentially.
Broadcom shares closed at $31.87 on the Nasdaq on Friday.
(Reporting By Lehar Maan and Soham Chatterjee in Bangalore; Editing by Joyjeet Das and Simon Jennings)