iPhone v1 and Infineon

Tuesday, September 25, 2007

As the speculation starts on who has the 3G design win for iPhone v2, here are a few facts to keep in mind about the Infineon (IFX) chipset in v1 -
We should keep these points in mind as we step through sequels to see how future iPhone sales can impact Interdigital in the context of its license deal with Apple (AAPL) and its reputation as an Infineon Ally.

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iPhone v2 - Interdigital in?

Monday, September 24, 2007

iPhone v2 is rumored to be another design win for Infineon (IFX). While I will come up with a detailed article analyzing this soon, I do, in particular, want to mention that the deal between Apple (AAPL) and Interdigital (IDCC) may not be a fixed royalty deal (widely known as IDCC's business model).
  • The $2 million increase in the guidance that seemingly is the basis behind the $56 million calculation may after all be royalty for the 2G phones sold through this quarter.
  • On the 3G front, the royalty from IP itself may be higher, so that number may increase next quarter and beyond.
  • Most importantly, in the event of Infineon getting the design win, iPhone will be using substantial contributions of Interdigital from both the software protocol stack and the design. Besides, Infineon has a per-chip royalty agreement for these two pieces.
In summary, the deal with Apple is a great sign for Interdigital, whose iPhone link I had suggested a few months ago. And that may not be the only money that IDCC would be making off the iPhone. I am currently working on a more detailed version of this article with some numbers to make my case. If anyone has any particular questions or issues that you wish I look at, please let me know.

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iPhone 3G: The Q Factor

Friday, September 21, 2007

The iPhone 3G or V2 will come out and it is a matter of time now. I have, in previous articles, talked about the various options that Apple has for its baseband solution and for the other features. And my personal favorite, at least in terms of providing a truly well-engineered product, down to the nuts-and-bolts, is QualComm (QCOM).

The iPhone currents, on the other hand, seem to be moving away from QualComm if rumors are to be believed. Apple may opt for the Infineon (IFX) 3G chip (incidentally, my first mention in the iPhone V2 suitors). What may have prompted the Apple (AAPL) decision needs a separate analysis by itself. In this article, however, I wish to discuss where it leaves QualComm.

Is this bad for QualComm? Yes, and no. Yes, because it is not partnering with a handset vendor with an increasing market share. The No-part is a little less obvious but here are my reasons -
  • QualComm's legal battles with Nokia (NOK) and BroadCom (BRCM) and the impending ITC ban: Based on the final rulings in much of these cases, QualComm chips may not be allowed to enter the US in the future and this will include an iPhone if it features such disputed chips. Besides, the royalty that it may have to pay the other parties may cut down the margins substantially on a per-chip basis. This is true in general, but a bad publicity with a highly visible product is the last thing the company wants.
  • WCDMA royalties: If a 3G iPhone is available in 2008, about 2.5 million units will be sold that year. This number is expected to climb to about 17.5 million units in 2010. With a conservative average selling price of $350 and a royalty percentage of 6% (especially if Infineon does not have any underlying license deal), QualComm stands to make close to $50 million next year and as high as $340 million in 2010 just on iPhone sales. Compare this against $@ million a quarter, 7-year deal between Interdigital and Apple. This number appears exagerrated, but unless Infineon is able to work around the IP issue, the numbers stand.
While I am quite positive that Infineon and Apple are aware of the IP issue and are looking to circumvent it or at least decrease the impact, I am equally sure that QualComm will litigate if it is not paid its dues. From QualComm's perspective, if the IP is all it has to grab a portion of this sumptuous pie, why would it budge?

I will also write about Infineon and its partner Interdigital (IDCC) in my next article. For now, I will let you chew on this one. For the mathematically minded, if I get a request, we can discuss my numerical methodologies.

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LTE better than LaTE

LTE is better than LaTE! Well, that's the first thing I am taking from Arun Sarin's LTE commitment. The public perception about the company's relationship with Verizon Wireless would have got a fillip after the investor conference. The strategic announcement (if you can call it so) allows for the vision of one unified global technology with the two carriers at the fore-front. And secondly, the timing was important in that this message should get across to the investing public before it is too late.

Besides this, both LTE infrastructure and handsets are expected to be cheaper despite similarities in technology and deployment. There are three reasons for this -
  • There are many more vendors in the LTE space. Ericsson demoed an LTE solution earlier this year. Other infrastructure vendors are already working towards this. Even QualComm(QCOM) is actively working on LTE prototypes and products. The competition is expected to keep the average selling price (ASP) on either end lower than in UMB which is dominated by QualComm on the handset side and a few players on the infrastructure side.
  • Licensing and royalties will be lower in LTE due to the diffused nature of the IP. Compare this against a proprietary UMB that will have QualComm alone laughing all the way to the coffers. This again will have an impact on the ASP.
  • With Sprint-Nextel already putting its weight behind WiMax, the demand for UMB will be much lower resulting in higher costs again.
So, it does make a lot of sense from Verizon's perspective to go with UMB. We will, in a later article investigate the impact of today's event.

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V go with LTE

Carriers, Vodafone (VOD) and Verizon Wireless (VZ) have suggested that they will each go ahead with the 3GPP Long Term Evolution (LTE). This announcement signifies a stride ahead for LTE amidst the noise that Vodafone is making about dabbling with WiMax. This also sounds the death knell for the QualComm (QCOM) proprietary Ultra-Mobile BroadBand (UMB) as a competing 4G standard. While I will analyze the impact of this announcement in a later article, this is dedicated to removing a few popular misconceptions. I am a little disappointed with some of the half-informed and misguiding reports following this announcement. Among other things, I wish to re-emphasize the following points -
  • LTE is not a GSM technology, it is rather an evolution of the GSM standard
  • WCDMA/HSDPA that serve as the link between GSM and LTE is based on CDMA physical layer. In other words, the core over-the-air interface is similar in flavor to CDMA2000
  • UMB is not CDMA-based, but is rather an evolution of the CDMA2000 standard. In fact UMB and LTE are based on the same underlying Orthogonal Frequency Division Multiple Access (OFDMA) technology.
  • This may be bad for UMB, but not entirely for QualComm.
So, as a consequence -
  • Irrespective of whether UMB or LTE, or for that matter, WiMax wins, at the end of the day, CDMA as a technology is on its way out and even QualComm knows this.
  • Since the migration to UMB or LTE will have involved similar infra-structure overhauling, it makes sense for Verizon to go with LTE (I will elaborate on this in a subsequent article)
In summary, the notion of CDMA Vs GSM is very rudimentary and an analysis of the underlying technologies reveals much more in common than perceived and should be kept in mind as we look ahead into the futures of the companies with stakes in the battle.

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QualComm series - Part 3

You can read the third part of my series on QualComm titled "QualComm: The margins" on Sramana Mitra's strategy blog.


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iPhone v2: Steve's 3G job

Wednesday, September 19, 2007

Steve Jobs, at the UK launch of iPhone, finally broke the silence and suggested that Apple (AAPL) was actively working on 3G. No surprises there. But what is important is his assertion about the power consumption of the 3G chip. There are four questions/points I would like to reflect on -
  • The 3G version, as I have already mentioned, suffers from a costlier chip also. The average price per 3G chip is closer to $25 as against single digit numbers for the Infineon chip in the iPhone today. Besides, the royalty structure for 3G amounts to about 28% of the average selling price of the 3G phone. Apple typically keeps its cost constant for more features. This will imply reduced margins from iPhone V2
  • The power consumption issue does open up the question of who the baseband supplier will be. Will it be QualComm (QCOM), which has made strides in power management since iPhone V1? Will it be Infineon that has been confirmed to be developing UMTS (3G) baseband chipsets for atleast 2 companies? And if so, where does the recent licensing deal between Apple and Interdigital (IDCC) fit in?
  • Who will supply the A-GPS capability for the iPhone?
  • Would iPhone V2 be HSDPA-enabled?
Answer to the second bullet will partially answer the other two that follow. I will re-visit a few of these questions and possibilities in subsequent articles. In the meanwhile, you could look at these lengthy essays that I had a few months ago.

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QCom - A loss... and a win

Wednesday, September 12, 2007

This week has QualComm (QCOM) all over the news again. Yesterday, Motorola came out with the shocker that they were giving the boot to QualComm in favor of Freescale and TI for their 3G offerings. This was an announcement leading the American Technology Group to downgrade QualComm's shares. They had earlier viewed Motorola as a positive, earning the San-Diego company up to $700 million in sales.

This news did come as a dampener for QualComm investors, but they were in for a pleasant surprise today. A court of appeals has granted a stay on the ITC ban until a final appeals ruling is given. Quite a rare victory for the embattled company! More importantly, this comes as a relief to all the phone-manufacturers and carriers caught in the cross-fire. This being said, it does not still exonerate QualComm from the implications of the ban. The company ultimately has to settle with BroadCom, but this is a quick-fix solution for all others who risked losing competency in the wake of the ban.

Few points to note -
  • Though absent from the beneficiaries list, Sprint will be able to sell phones from any of the manufacturers who won the stay today.
  • QualComm chips cannot be imported directly into the US. Not a major issue, but highlights the fact that this stay merely seeks to limit the damage caused to the others.
  • QualComm does not have to settle with BroadCom and will perhaps let the law take its course.

In other QualComm news, their case against Nokia went to courts yesterday as well. So, there will be more interesting legal outcomes this year. One thing that I want to re-iterate is that this ruling will not hamper the ruthless efforts to break the company's business model. Even the phone-manufacturers who won the stay will want more competitors in the chip-vendor space. Note that Motorola, one of the beneficiaries is already moving away from QualComm.

More analysis to come soon.

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Part 2 of QualComm series

The second piece of the QualComm series I am authoring on Sramana Mitra's Strategy blog in online. It is titled QualComm: The aftermath and can be found here.


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SM on Strategy

Tuesday, September 11, 2007

I am writing a series of articles on QualComm on Ms.Sramana Mitra's Strategy blog. The First piece is titled QualComm: Legal Battles Galore. You can read it by accessing www.sramanamitra.com.

You may also want to read a host of related QualComm articles that I have posted on this blog over these last few months.


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Posted by Vijay Nagarajan at 10:18 PM 0 comments Links to this post  

iPod - I am Touched

Sunday, September 9, 2007

A day before the Apple special event, I had written about a new iPod and its potential features. Steve Jobs subsequently announced the iPod Touch. Here is a summary of what it has and what it does not -

The 'Yes' list
  • The touch-screen that was the iPhone's identity
  • Wi-Fi, allowing internet access through the 'Safari' browser with custom yahoo and google functions.
  • Music download from Wi-Fi hotspots at Starbucks locations
  • Digital Radio
  • Flash drives of 8 or 16 GB

The 'No' list

  • Of course, the phone part of iPhone
  • A microphone
  • Bluetooth
  • A bigger hard-disk

The Analysis

  • Wi-Fi had to come: The iPod has to compete with Zune features and allow for wireless download of music
  • Flash Drive, the power saver: The flash drivehas been used to compensate for the power-hogging Wi-Fi feature. The 'Touch' advertises 22 hours of music playback or 5 hours of video playback. Makes sense!
  • Wi-Fi browsing: The Safari browsing experience is likely to be a paid service. If so, then the primary use will be limited to the business population and the intended reach of the device will not be as fast. On the other hand, the easy-to-use interface along with the mobility may have people willing to spend if affordable.
  • The microphone: With a microphone, it can be used as a VoIP phone along with the Wi-Fi feature. There were perhaps 2 reasons for its absence. Apple, wants to maintain a good relationship with the carrier community, especially considering it is yet to globalize the iPhone. Secondly, my suspicion is that the GSM chip from iPhone is still in place in the iPod touch. Although it makes economic sense for Apple not to spend design cycles for an iPod that is essentally an iPhone clone, the presence of a microphone will let hackers enable the phone feature as well at no cost.

Looking ahead, the next generation of iPod touch (not knowing when that will come) will have -

  • Free browsing on Safari, or at least cheaper and more affordable services with a wider range of applications
  • Bluetooth 2.0 or higher, perhaps integrated with Wi-Fi chips
  • The microphone will come once the iPhone obtains a stronger foothold. VoIP calls from home or hot-spots will become popular, especially when integrated with a sleek iPod.

On a personal note, I am undoubtedly thrilled. I wanted to get an iPhone but did not think the phone part was worth it. So, apart from the Flash drive, the VoIP feature looks attractive for the future, but I don't think I can wait to get 'touched' by this new gadget from Steve Job's garage.

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The beat is on?

Tuesday, September 4, 2007

"The beat is on"

That is the caption for the special Apple event tomorrow. Its stocks have risen 12.5% since August 28th and I think it is for a good reason. While the internet is abuzz with speculations about the announcements, I do anticipate one thing for sure: The new iPod.

The iPod has to come for various reasons -
  • There has been a rut in both iPod innovation and sales growth over the past couple of years. It is high-time Apple re-invents the product.
  • The iPhone was an Avatar of the iPod but with phone capabilities. Steve himself announced that it was the most powereful iPod as yet. It makes sense that Apple should give the market a stand-alone non-phone version of such a gadget as well. Besides, its innate ability to surprise not with-standing, Apple should cater to customer demand and anticipation of features such as wide-screen, touch-screen etc.
  • Wi-Fi is already in competing gadgets as the Microsoft Zune. iPod should not appear dated especially given that another of Apple's product already has such features. I do not think this will encroach the iPhone's market since the phone and its associated features (like the voice mail feature) have to be the USP of iPhone.
  • Wi-Fi will open up avenues of using the iPod as a fixed wireless phone (with VoIP services) and would be a handy addition. The issue with Wi-Fi however is going to be battery life. Unless Marvell and Apple have worked a solution for that, this may be a bottle-neck.
Other features that could be added include -

  • A Mac OS based iPod, again in line with the iPhone thereby helping it transition from just a music player to a PC-surrogate. This would open the gates to applications and features that make the iPod powerful.
  • A flash version of iPod with less battery utility to compensate for the power consumption of the Wi-Fi chip.
The iPod apart, there are talks of the nano-version of the iPhone coming up as well. I would in fact not be surprised if Apple reveals more than one phone tomorrow or at least lays the road-map for multiple devices. An iSuppli study found that the iPhone out-sold all smart-phones in the market for the month of July. In my mind, it makes sense that Apple comes up with a line of 2-3 models that would cater to various segments without compromising the exclusivity factor. It has traction in this market and it should widen its array of products to capitalize on it. It is also possible that the future phones from Apple will not be tied to a particular carrier like the iPhone is.

In summary, Apple tomorrow will unveil a product-portfolio that is in line with its unique vision while trying to leverage the unshakeable market share of the iPod. It may well signal the further transition of mobile devices into omni-potent mean machines.

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