After reports that Google may collaborate with MediaTek to develop an AI Chip, Broadcom's stock fell over 3.9% during trading.

On Eastern Time, March 17, Monday, The Information cited two people involved in the project, revealing that Google is preparing to collaborate with MediaTek to develop the next generation AI processing chip TPU, which is planned for production next year.

The timing of this announcement coincides with Broadcom actively promoting its potential revenue from TPU and other custom AI Chip businesses, which could amount to several billion dollars in the coming years.

However, this does not mean that Google has completely severed ties with Broadcom. For the past nine years, Google has been in exclusive cooperation with Broadcom to develop AI Chips. According to Broadcom employees, both parties are still negotiating to continue co-designing some of Google's AI Chips.

But if Google ultimately implements this new plan, Broadcom may have to share the TPU business with its competitor MediaTek. Analysts point out that this move could mean Broadcom will lose exclusive control over Google's TPU business, which could impact Broadcom's AI revenue expectations.

Google is seeking to reduce costs and increase efficiency.

Google has disagreements with long-term partner Broadcom regarding the pricing of TPU, which has prompted Google to start looking for alternative partners such as MediaTek.

The Information cited sources from Taiwan Semiconductor and Broadcom, revealing that one of the reasons Google chose MediaTek is that MediaTek's chip Quote is lower than Broadcom's, which helps optimize supply chain costs.

According to a person involved in the project, Google will lead most of the work in the design of the next generation TPU, including the processor design, while MediaTek's main responsibility will be to manage the input/output (I/O) module that manages communications between the main processor and peripheral components. This collaboration model is different from Google’s partnership with Broadcom, as Broadcom had previously participated in the development of the core chip of TPU.

However, Google is also working to internalize more chip development work, further reducing reliance on Broadcom or MediaTek. According to a person who has discussed this matter with Google’s management, Google is also willing to develop its chips independently. A person who recently interviewed for a chip design position at Google revealed that the company is actively recruiting chip design engineers.

Analysts say that this move by Google could pose a threat to companies like Broadcom. If Google successfully implements in-house chip development, Broadcom will lose one of its largest customers, which will impact its revenue and profits.

Broadcom continues to benefit from Google Orders, but faces competition.

Even if Google takes on more chip development work, according to another informed source who has participated in Google’s TPU project, Google may still rely on partners like MediaTek or Broadcom for the chip production phase, including packaging and quality testing.

Analysts point out that Broadcom still benefits from Google’s orders. Currently, Google remains the largest source of revenue for Broadcom’s custom AI Chip Business. Google invests billions of dollars annually in Broadcom's chips, while Broadcom is responsible for the physical design of TPU, specifically developing chips based on the blueprints provided by Google.

Broadcom stated last week that its AI Chip design and sales revenue for the fiscal quarter ending February 2 increased by 77% year-on-year, reaching 4.1 billion USD. In contrast, NVIDIA's AI Chip revenue is roughly ten times that of Broadcom.

In addition, Broadcom is collaboratively designing AI Chips or chip network technologies with major companies such as Apple, Arm Holdings, Meta, and OpenAI.

Google is attempting to reduce its dependence on NVIDIA.

Google typically produces two different TPUs, one for training new models and the other being the 'inference' chip that supports services like Google Search, YouTube, and the Gemini application. It is unclear whether Google plans to adjust its strategy to focus only on producing one type of TPU.

In the AI Chip field, TPU has been a competitive advantage for Google, helping it to reduce dependence on NVIDIA. In contrast, competitors like OpenAI and Meta remain more reliant on NVIDIA, especially over the past two years, as the demand for NVIDIA's AI Chips has surged, with major companies vying to develop large models (LLMs), such as applications like ChatGPT.

According to research institution Omdia, Google's investment in TPUs last year was estimated to be between 6 billion and 9 billion USD. Nevertheless, Google remains one of NVIDIA's major customers, as it not only rents NVIDIA's chips to Cloud Computing clients but also uses them internally. Previously, Google had ordered over 10 billion USD worth of NVIDIA's flagship Blackwell chips.

Other companies are following Google's lead in developing their own AI Chips, such as OpenAI planning to launch its self-developed chip next year.

According to relevant people involved in the development of OpenAI's chips, some companies, including OpenAI, are emulating Google's approach as they recognize the TPU strategy and hope to reduce their dependence on NVIDIA to avoid being limited by NVIDIA's finite chip supply.