Atheros and the u-Nav gambit

Monday, December 17, 2007

I have, so far, refrained from expressing my opinions about my company, Atheros Communications (ATHR). But late last week, we announced that we will acquire u-Nav Microelectronics for $54 million that includes $15.4 million in cash and 1.28 million shares of Atheros common stock. This news has forced me out of my silence.

Firstly, I am happy that Atheros has added an extremely important strategic piece to its portfolio. I have, in my articles dating back to July, mentioned that the future of wireless is in integration-the ability of the same wireless chip or card to support multiple technologies. Qualcomm has been a traditional champion of this notion. Whether it is Snapdragon, its omnipotent chipset or its Gobi move, Qualcomm has been promoting integration around its core mobile capabilities. Broadcom, a key WLAN player, sought to expand its portfolio to include 3G, Bluetooth and completed it with GPS capabilities from Global Locate earlier this year. I had written that other semiconductor companies will hence have to acquire this technology through internal development, acquisitions or strong alliances. Today, I am glad that Atheros understands this as it positions itself as a future champion of the wireless industry. With its leadership in PC WLAN market and exciting solutions in Bluetooth and mobile WLAN, it is not surprising that Atheros got the “Most Respected Emerging Public Fabless Company” award from FSA this year. The GPS move can only help strengthen its future outlook.

Secondly, it signifies a bigger consolidation of the wireless industry and its various components. While I will not glorify this acquisition, I do wish to emphasize that the future survival of a wireless company is contingent on its portfolio expansion. These companies can no longer afford to be one-trick ponies. Thus, we are likely to see some significant trends through the next couple of years.

  • Mobile companies shopping for other GPS companies: The problem is that not many small players with competitive solutions are available in the market today. Few names that crop up include SkyTraq, CellGuide, NemeriX etc. It will be interesting to see players like Marvell, NXP and Freescale get GPS capabilities.
  • Companies may exit 3G space: A lot of the GPS action has taken off along with 3G technologies. The consumer also wants powerful devices. With the market slowly consolidating on the mobile side, players like Qualcomm and TI will thrive while Broadcom, STM and Infineon (each of whom have GPS in their kitty) could take a part of the pie, especially with interest from vendors such as Nokia and Apple. For the others, it is a do-or-die situation. If they cannot acquire GPS capabilities, they cannot be competitive and hence risk losing out in this space. This in turn implies a further consolidation of the market with companies announcing their exit slowly.
  • More technology integration: We have a list of mobile broadcasting standards that fall in this list. SiRF, for example, complements its GPS core competence with DVB-H capabilities it acquired through TrueSpan in 2006. Qualcomm’s Snapdragon platform can integrate most broadcasting standards. We also have integration across multiple standards as demonstrated by Gobi.

Thus, the next two years will be fairly crucial for a lot of the wireless players. As for Atheros, at a price of $54 million, it won itself an entry into an important technology market, a good product, good engineering expertise and a ticket to the wireless future.


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