Looking ahead to iPhone V2

Sunday, June 24, 2007

In my previous article, I pointed out that Apple WILL have to take the 3G route. Also, it looks like the 3G chip vendor space would consolidate after Apple's choice of base-band chip supplier is announced. The analysis below attempts to elaborate on this latter point.

As Apple heads for V2, its choice of the supplier is likely to be determined by a host of factors apart from the ability to get low-cost chip-sets. Prominent among them are-
  • Feature integration
  • Power management
  • Ease of integration
Feature integration would be fore-most in Apple's mind. The current version has base-band chips from Infineon, while its Wi-Fi capability comes from a Marvell chip. Jobs and Apple would definitely clamor for a single chip that contains most key features. These key features include the base-band radio (with dual-mode support for GSM and WCDMA), Wi-Fi, GPS and it possible, FM as well. Feature integration in turn would help iPhone to
  • have better power management capabilities
  • have smaller space requirements for the chip-set (which would also be enhanced by migration to the newer 65 nm technology) implying more room for music storage
  • be backward-compatible with GSM networks. This is more a requirement for Apple given that most 3G networks are not pervasive and users are likely to be serviced by both GSM and WCDMA based on their location
The mantra is simple. iPhone V2 has to make more features while enhancing user-experience and also providing more 'bang for the buck'. And feature integration will be the key to it.

Another key factor, of course, is the battery life and all its associated issues like talk-time, music time etc. The iPhone of June 29th already boasts of 8 hours of talk-time which in itself is an achievement considering the electronics that go with it. V2 will have to better this. As alluded to previously, an integrated chip-set would help the cause of power-management. On top of it, Apple, as the phone manufacturer, has to make sure that all its features work efficiently in tandem and that power is conserved to provide for greater up-time.

Third, would be the ease of integration. All factors remaining the same, it is natural for Apple to go for the chip-set vendor who would make their life the easiest. These would include fringe-benefits that are not mandatory for the bare-bones chip-set itself to work. For example, video and audio drivers often act as 'kool-aid' for the phone vendors to make their decision.

These factors form a good frame-work into the companies' iPhone strategy while not over-simplifying the central issue. So, with these in mind, we will, in the sequel, analyze potential candidates for the marriage with iPhone and how the game-plans of a lot of the players may depend on the marriage itself.

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Posted by Vijay Nagarajan at 10:55 PM 0 comments Links to this post  

iPhone - 3G has to come!

Thursday, June 21, 2007

While the world awaits June 29th to see if iPhone can live up to all the hype and expectations around it, there is another question that looms large: What next for iPhone?

Apple apparently has set a goal to obtain 1% of the US hand-set market share and analyst reports suggest that it may well be a reality. On the other hand, in order to extract maximum value from the wireless industry and also establish pervasive presence, Apple will have to
- expand presence in the U.S.
- enter other markets

Expansion of U.S. presence: iPhone is entering the U.S. market with GSM, a standard that Cingular A.T.&T supports. Cingular also has an exclusive iPhone license for a couple of years. Thus in the U.S., Apple's market share increase depends, to a large extent, on its charm influencing customers to migrate from other carriers to Cingular. While the iPhone perhaps has that attractiveness, it is a very costly proposition to do so. Apart from the high-price of the phone, the cost of breaking existing phone contracts is a likely deterrent to any major migration. The lowest someone is looking at to switch is $650, an amount the average phone-user is unlikely to pay up. The initial sales are likely to come from the business population (that too only for people who look at a highly integrated device) and the gadget-crazy youngster for whom owning an iPhone may be a 'cool thing'. This said, unless the phone performs or if Apple comes up with improved future versions, the 1% figure for sales can stagnate.

Performance implies good voice quality and reasonable data speeds apart from all the innovative features in the phone. These in turn depend on a) the base-band chip-set currently in use and b) the data rates supported by the standard itself. The Infineon GSM chip-sets in the iPhone probably have a good and cheap design, something imperative to keep the overall cost as low as possible. On the other hand, GSM is limited in its data-speeds. And that is also the reason why 3G has gained prominence. HSPA systems can offer higher nominal rates. But the point is, in the U.S., among the non-CDMA providers, only GSM is prevalent. WCDMA networks are being built only now and that too in major cities alone. As I have mentioned in a previous article, the economics of the iPhone would be prohibitive if 3G support were provided because the chip-set will have to be dual-mode: one that supports GSM and WCDMA. This also has an impact on the power management side. Secondly, the data-using population is miniscule. To optimize the phone for a small fraction of the population which is data-savvy may not have been a good strategy for the first version. Granted that this very segment of population also has the highest probability of owning an iPhone but there needs to be a balance. To provide for the needs of that cross-section however, iPhone has Wi-Fi capabilities coming from the Marvell chip-set. To me, it is a great move since Wi-Fi speeds are way higher than the cellular speeds. Besides, it is important in the context of all cellular manufacturers migrating towards an integrated Wi-Fi/cellular chip-set. In other words, while the cellular chip-set companies are slowly recognizing the importance of Wi-Fi integration with cell-phones, Apple is already one-up on them with Wi-Fi being touted as the answer to high-speed data despite the limited coverage options. The notion at Apple is that for their current market penetration strategy and their pricing, 3G is unattractive. Also, if the phone does live up to the hype and more people feel at home parting with around $600, then Cingular would gain a lot of customers and Apple does not have to worry as much about expanding their US presence to other service providers.

Now when would the market call iPhone a failure? I would not doubt the user-interface or the iPod aspects of the new gadget.My doubts would be on one or more of the following-
-the base-band modem features have multiple issues with voice-call processing, interoperability etc.
-user-data experience in the GSM network is below expectations both with respect to speed of connection and services
-interoperability of multiple features like data, voice and music is not as good as anticipated.
The bottom-line: people could get the feeling that they are not getting their money's worth and if that happens, then all the talk of iPhone changing the way people think of cell-phones may not hold water.

If the first version does fail, then Apple will have to scamper for the next revision. It appears that with further advances on the power management side and more integrated features, Apple might be able to meet the demand for higher data-speeds with 3G for the same costs easily. That apart, Apple will have to strike a balance between a)getting more pervasive through other service providers and b) maintaining an aura of exclusivity and snob value. It looks like 3G may hold the key for the next version, more so in case of failed expectations.

Expansion into other markets: The primary target for the iPhone expansion would be Europe where high-end phones are more likely to be sold. Apple would love to get into a market like India, but there is a basic lack of synergy between the Indian model and the Apple strategy, at least by the looks of it. India pretty much thrives on low and medium-end phones and the profits and operating margins are fairly low. With its prohibitive costs, the iPhone is unlikely to cause a huge frenzy in India and the likes. Europe thus becomes a natural next step. With UMTS networks widely deployed by Vodafone, Orange and 3, it is obvious that the iPhone in Europe will invariably have to be 3G ready. If a European iPhone were to come out in the next few months, it is likely to be costlier than its American version given the economics of having the dual-mode phone. The business population of the rest of the world however may have to make do with the GSM version if and when Apple decides to look beyond Europe.

In summary, even for iPhone to survive into the future, leave alone dominate it, Apple will need to go 3G. Many in the industry understand this and are positioning themselves to win the big prize: a place in the iPhone. In fact, it seems that the survival of some of the chip-set vendors may in turn depend on an Apple acceptance. In the sequel, we will examine the various options Apple has in front of it and the factors it may have to consider before it picks chip-sets and vendors.

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The Nextwave enigma

Tuesday, June 19, 2007

For a while now, I have been trying to resist my temptation to jot my thoughts on Nextwave Wireless. But its product announcement and the acquisition of a European WiMax company has prompted me to do just that.

Nextwave is an enigma to me because I am yet to figure out where they stand in the WiMax world. Given that they are neither one of the first players in this space nor one of the better known bigwigs, the heavy financial activity surrounding them comes as a surprise. Are they genuine or are they a hype? What are they upto with so much spectrum and so many companies under their kitty while generating a paltry $7.7 million in revenue? What makes investors bullish on Nextwave? Do they have a viable business model this time around? These and a lot more questions come to mind each time there is a news about this company.

The genesis of Nextwave's current avatar is also a cause for scepticism. Nextwave as we see today is a morphed version of Nextwave Telecom, the company that bought a lot of spectrum in 1996 and went bankrupt in 1998. Nextwave Telecom was engaged in a long legal battle with FCC and won some of the proceeds of the re-auction of the spectrum allotted to them. This time around, it is almost as if they are betting on WiMax to be used with the spectrum they owned! The point is that the founders of Nextwave are service providers at heart. They are now attempting to provide a 'wholistic solution' primarily targetting companies wanting a part of the wireless cake without time-to-market delays. Examples of prospective customers quoted include google which does not want to be excluded from the impending wireless technology explosion, an event that other rank outsiders like Apple have already ignited.

What is more of a mystery is the acquisition game-plan. For example, though IPWireless came very cheap for their IP portfolio and their product offering, one can imagine a company like Interdigital being more of a natural acquirer given their synergy in 3GPP and other TDD-UMTS activities. GO networks, on the other hand, is a fairly straight-forward acquisition: Wi-Fi expertise for less than $15 million, paving the way for integrated WiMax-WiFi chips, should WiMax hit it big. This week's acquisition of WiMax Telecom AG is also more in line with a linear thought process:pave the way for a wholistic WiMax offering in all attractive markets. The multiple acquisitions happening at a rapid pace without a visibly cogent business plan raises red flags in my mind. Either the founders are great visionaries with a clairvoyance for the wireless future or I am just a pessimist, and a naive one at that.

While the business model is tenuous (obviously, the investors do not believe so especially with a market capitalization of around $850 million), Nextwave has, on the other hand, aggressively built a very good technical team. The pay-roll boasts of some of SD's best OFDM talent and also bright young PhDs. Several of their senior/middle management positions are being held by members of the disbanded Nokia CDMA unit out of San Diego. Their advanced technology group has been working towards quality OFDM products with serious research and development on both Physical and MAC layers of WiMax. They have already grown to around 750 and don't seem to be stopping by the looks of their 'careers' web-site. This is definitely a wise move since it is creating value for the company while attempting to become the leading innovators in the space. In that sense, Salmasi's Qualcomm roots seem to be the guiding light.

So, is a bright work-force enough to offset the bad vibes from the past? Is Nextwave right in putting all its eggs in the WiMax basket alone? Should we be following this one yet? Not yet, not me as yet! I would prefer to wait for something more concrete, some solid business deals that ratify their business model. For the moment, it would be difficult to shake the past off their back. So, I plan to sit back, watch them passively while admiring their intent and aggression.

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BroadCom's GPS move

Thursday, June 14, 2007

While the IP battle rages, BroadCom is slowly moving towards a more complete UMTS solution. It recently announced a $146+80 million acquisition of Global Locate, a GPS company. Now, they are equipped to enter the niche market of chips with integrated features. With previous Wi-Fi, blue-tooth and FM capabilities and with the new range of GPS products and IP from Global Locate, BroadCom's game would be to bundle all these with its UMTS chip, with the hope of shutting the other small players in the fragmented UMTS market.

As I have mentioned in a previous article, the company with the super-set of features is most likely to have a design win with a device manufacturer since the latter would want to build a single platform to support these chips. QualComm, for example, already has Wi-Fi and GPS assets from Airgo and Snaptrack respectively, and is thereby positioned as a front-runner in the race, especially with superior modems. BroadCom appears a little late in obtaining GPS but then we should remember that the company was getting its act together with the modem performance and interoperability testing earlier. With those issues likely out of the way,it is now attempting to carve a niche or at least is trying to become one of the top 3 UMTS IC supplier with a more complete product offering. Of course, it remains to be seen if the pace of QualComm's R&D efforts can be matched. While the industry is grappling to get the basic HSDPA act together, QualComm is already gravitating towards the next generation HS chips. BroadCom's hope perhaps is that the ITC ban will divert resources within QualComm thereby giving it some extra time to try and catch up with its bitter rival.

Also, it remains to be seen now what Marvell and Free-scale are thinking on the GPS front. They don't have GPS features as yet and there are not too many small companies to grab at now. Would they try to license from the $1.6 billion Sirf or are they likely to take the acquisition route? If it is the latter, the time is running out, both from an availability stand-point and a design-win stand-point. BroadCom is already making noises about making it to the top 5 UMTS IC suppliers. So we should see some more GPS deals soon. I also think that the window of opportunity for all the other players is getting smaller by the day and the weaker/financially poorer ones are likely to be left out. We will see market consolidation in this space and a few clear winners emerging. In the meanwhile, let us wait and watch the frantic action!

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The ban - my take!

Tuesday, June 12, 2007

THe ITC ban that has left QualComm high-and-dry and BroadCom basking in its moments of glory is definitely not an aberration. It has been viewed by some as trouble that QualComm invited for itself.

Here is my take on it. BroadCom went into IP cross-licensing discussions with QualComm. The IP aggressive QualComm would have thrown out some of these patents from the discussion tables citing limited value while still being its own pricey self. A miffed BroadCom obviously felt that its portfolio had a greater value than suggested and decided to take the matter to the courts. While BroadCom would have had its novelty claims, QualComm would have argued on obviousness and prior-art. I had a look at the patent and the invention and the primary claim are fairly simple. But clearly, QualComm's arguments did not hold water. The claim was clear enough for the jury to come to a straight-forward conclusion despite QualComm's best efforts. Now that the ruling is out, QualComm is obligated to respect it, give credit to the inventors for thinking about it first no matter how simple or basic the invention is and find a solution. And this is something I would have expected QualComm to anticipate considering ts own aggressive stance. So, it is almost child-like to cry wolf and seek helping hands.

BroadCom, on its part, is expected to be reasonable in the price it quotes for QualComm. Obviously, it cannot be discriminatory in its pricing meaning that QualComm should have a fair shot at being able to pay the royalties and shut this matter there. My suspicion thus is that QualComm's hesitation does not come from the price that BroadCom may have asked ('steep' as used by QualComm may be an overkill), but more from the loss of pride, position and power. This is likely to embolden the others and more bitter battles can be expected. We are seeing that Nokia is already filing more lawsuits for 6 other patents. So QualComm wants to be able to control its own destiny and not compromise on the value of its own portfolio in an attempt to license patents from others at a much higher price than before. But hey, something has got to give!

Also, contrary to QualComm's explosive press-release, BroadComm has taken a rather dignified stance choosing not to get into an ugly war of words. The release that you can find in the link below clearly hints at the genesis of the law-suit-

http://www.broadcom.com/press/release.php?id=1013134

The coming few days will be very interesting for the U.S wireless industry and we will get to see more of where everyone's loyalties lie. For the moment, it appears that the long-time defending champion is caught on the back-foot.

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Posted by Vijay Nagarajan at 3:31 PM 0 comments Links to this post  

QualComm says..

Monday, June 11, 2007

Here is QualComm's official position on the ITC ban.

http://www.qualcomm.com/press/releases/2007/070607_disagrees_itc_decision.html

Notice the press-release positioning themselves as the champion of the US cellular industry while BroadCom is accused of using the IT ban "as a vehicle to attack the U.S. cellular industry." An obviously biased opinion of a miffed giant! Besides, they seem to pass much of the burden on the entire industry while it is really their own product and their own engineering expertise that is in question. Verizon, while signing in on the Presidential veto request has precisely made the same point.

It is apparently a knee-jerk reaction. A truly altruistic position would be to say, "we will pay up for the common good of the country and the industry. After all, it is our product that is in the midst of the controversy." Again, of all the companies in the industry, QualComm should understand IP and what it entails, and I am sure they do! They have never really given sweet deals to anyone as far as IP is concerned. So, BroadCom is only returning the favor.

The bad blood between BRCM and QCOM has festered for a while now and has peaked with the ITC intervention. The press-release rubs in where it hurts BRCM most, its failure so far to break into the WCDMA market. WCDMA was a prize they sought very vigorously, especially after the acquisition of Peter Van Rooyen's Zyray Corp., and the spinner chip. Grapevine has it that the chip spun last year was below par and failed a few basic tests. So, now while they are trying to sort issues with their product-line they are also more active in the 3GPP RAN1 and LTE. They may have, on the other hand, lost valuable time to market with their chips. The QualComm release ridicules this very point about the lack of performance of their chips and their subsequent failure to capture market.

From BRCM's perspective, however, it may be a win-win situation. If QualComm fails in its attempts to steer around the IP, then BRCM either gets substantial revenue and/or greater negotiating power at the cross-licensing discussion tables. Their IP stack just got a lot bigger and QualComm will have to budge on the royalties it seeks on a few of its basic patents. More importantly, this eventuality would have breached the tough walls of QualComm in this IP game and would signal more lawsuits from all the power-hungry players. On the other hand, if QualComm opts for a slower work-around without paying royalties, that may give BRCM the time to market for their chips. Vendor and operator confidence in their products however remains an unknown, though!

Do watch out for this space here as I bring more updates and views on this entire issue.

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Posted by Vijay Nagarajan at 9:42 PM 0 comments Links to this post  

Ths ITC ban

Friday, June 8, 2007

Here is a report from Fierce Wireless with some insights into the ITC ban of QualComm chipsets violating BroadCom's patents.

http://www.fiercewireless.com/story/itc-ban-detrimental-to-qualcomm-wireless-industry/2007-06-08

The analyst seems to share my opinions on QualComm's relationship with the industry. The point is that the love-hate relationship between the company and the industry has given more people a reason to rejoice than feel for it.

The move might be a huge blow to the US wireless industry and QualComm is attempting to make the same point by seeking a Presidential veto despite realizing that the probability of a veto is close to nil. On the other hand, my suspicion is that QualComm as a company would certainly have some fall-back plans to counter something this drastic. And of course, all said and done, they are likely to get the support of the service providers in any move attempting to circumvent the controversial IP. After all, the QualComm 'cool-ade' is too intoxicating for them to let go. They may have wanted to shake up things a little bit, but for their own good, they will help QualComm get its act together fast!


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Posted by Vijay Nagarajan at 11:22 AM 0 comments Links to this post  

QualComm and OFDM

Thursday, June 7, 2007

Ever since QualComm acquired Flarion, their claims about CDMA Vs OFDM have been taken with a pinch of salt. There is no doubt that the best case situation for them is the continuation of CDMA-based technologies. The longer it takes to phase out CDMA-based networks in favor of OFDM systems (DO Rev-C, WiMax etc), the more money QualComm makes from its patents and its core competency area. The Flarion acquisition sent jitters to a lot of players who were hoping to phase out QualComm by marginalizing CDMA. It also meant that QualComm could no longer continue their OFDM program clandestinely.

The Flarion acquisition worked out very well for QualComm. They paid a little over $800 Million for a good-sized engineering team, new offices and presence in the East, a complete end-to-end OFDMA standard with valuable IP, expertise in areas such as coding theory (advances in which QualComm had chosen to ignore up to that point) and of course, a lot more attention from the wireless world.

While clearly protecting their primary assets i.e. their CDMA IP and product line, QualComm has left no stones unturned in any standard that is OFDM-based or is looking to adapt OFDM as its evolution path. Here are some points that indicate QualComm's gaurded aggression with respect to OFDM systems-

Acquisition of AirGo with its Wi-Fi assets: This should give them an entry-point into the WLAN market. With their ability to manufacture in volumes and also with their brand-name they have the ability to complement AirGo's superior TrueMIMO solution. They would attempt to muscle their way to a piece of the very attractive WLAN cake as well. Besides, this gives them OFDM-MIMO IP and the power to get into the lap-top market as well. They are also likely to integrate it into their all-in-all snapdragon platform and come up with integrated 3G-WLAN chips. AirGo, though marginalized in the WLAN market, shares a synergy with QualComm in being technology innovators. They also thrive to have the best performing products in the market and this is likely to gel well with QualComm's overall philosophy.

LTE activities: Though debates on HSPA performance Vs LTE's OFDM path are a regular feature in the RAN1 rooms, QualComm has also been actively involved in the standardization of the OFDM system as the LTE path of 3GPP. In fact, Corporate R&D majorly expanded its LTE team recently.

3GPP2: Need one doubt QualComm's position here? A lot of the FLASH-OFDM/Flarion IP has gone into the creation of EV-DO Rev C. Is this indicative of the fact that even QualComm sees the death of CDMA? It represents QualComm's initiative to remain in the competition amidst other similar standards. They may well have swallowed the hard truth that to remain competitive is to give in to the benefits of OFDM/OFDMA over CDMA. For the data-centric communications of the future, it appears that OFDM is getting ahead and for QualComm to steer EV-DO towards OFDMA tells a rather forceful story.

The TeleCIS coup: QualComm recently acquired the mobile WiMax assets alone of TeleCIS announcing their direct foray into the WiMax space. With the acquisition, QualComm would be positioned to have WiMax products 'if the need arises'. Again, they have obtained more OFDMA IP and an experienced engineering team to add to their small but successful Campbell team. I would call it a coup because it was all done under the gun without even a press-release. Besides, the news of the acquisition came at a time when former Sprint man and current head of QualComm's mobile-business unit, Mr.Len Lauer was publicly bashing WiMax. The TeleCIS move will also help them avoid the danger of being left out in a future with integrated WLAN-WiMax chipsets. They had all other ingredients to make this happen, and now it is complete! It would not be surprising to most who follow QualComm that they have already started expanding the acquired group indicating an active step forward in terms of WiMax research and development within the company. It is not IP that has been bought to be used in case of contingency, it is something that they are acting on and following up rather aggressively.

The changing face of the core group: The young guns at both Corporate R&D and QCT want to work on OFDM since that is where the cool innovations can occur. With new blood comes a new thought process, and change! The company as a whole is looking up to innovations in areas other than their core competency and with the face of QualComm's engineering team changing, this is a thought ingrained into every new engineer entering the firm while the old-timers carefully guard the old CDMA school of thought.

It is a different question whether OFDM-based 4G standards will become popular in a reasonable time-frame. But QualComm is already taking great strides in attempts to stay ahead of the rest in this great race and may well be in a good position to head a movement for a unified wireless standard in the future. They have to their advantage, a relatively smaller but focussed team and the financial horse-power to back unbridled research and product development to achieve the superiority they desire.

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Posted by Vijay Nagarajan at 4:25 PM 0 comments Links to this post  

Service Provider Economics

This is a note on something that I learnt from a colleague.

A lot of us have been annoyed at all those one-year and two-year contracts that we are made to sign when we get a new mobile connection. It can sometimes be perplexing when we are not happy with the service provided, quality of phones etc but then have to wait until the mandatory service period to get over before we can switch.

The bottomline however is that for any business to continue to exist, it needs to be a profit making proposition. And with most basic plans in the market, the carriers lose money if someone quits midway! And here's why-

When someone gets a new service, he/she gets a cool new gadget to go with it at unbelievably low prices. If the same phone were to be bought outside of a service agreement, it would cost us a fortune. So, clearly, the service provider is subsidizing the cost of the phone. The average Cost Per Gross Add (CPGA) or the cost associated with adding a new mobile-line (including the subsidy, cost of setting up etc.) is around $300. This along with the Capital Expenditure (CapEx) per user amounts to around $600. Now, with a $40 per month plan, it would take 15 months to break even! So, then doesn't a 2-year contract now make sense from a service provider perspective? That is when the Average Revenue per Unit (ARPU) is appreciable enough to make a business case. That is also perhaps the reason why most additional services/minutes cost us a lot more than the basic plan itself.

The key thing to take off this note is that the 'percentage churn' or the number of users switching service providers is an important factor for the service provider. If this number is kept low, then all power to the service provider. They will start showing profits. More so if they can keep their customers happy for more than the minimum period. Else, it is a lost cause and no business is philanthropic.

Now you know why the service providers strive for good customer care!

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Posted by Vijay Nagarajan at 1:58 PM 0 comments Links to this post