Infineon, InterDigital in iPhone 3G?

Wednesday, April 9, 2008

The web is abuzz with the news that the latest iPhone 2.0 beta software revealed whose chipset was at the heart of the impending 3G iPhone. The fairly innocuous and cryptic word ‘SGOLD3’ embedded in the code points to Infineon’s SGOLD-3H baseband processor. While this is news for many enthusiastically expecting the 3G iPhone, it is only a confirmation of what I have been saying since last fall – Infineon and InterDigital will be at the heart of the next iPhone.

The Infineon SGOLD-3H together with the MP-EH platform is a natural solution for Apple. Infineon’s SGOLD2 and the MP-EU platform form the basis of iPhone V1 and Apple has spent considerable time and energy optimizing it for performance, stability and power consumption. It makes sense to carry the good work forward with MP-EH which looks very identical to MP-EU rather than reset it with another new platform. You can read the rest of my prediction analysis from last fall here and here.

While Infineon’s SGOLD-3H appears to have been the default solution for the 3G iPhone, Apple definitely will not regret its choice. The Infineon solution is a Category 8 HSDPA solution, meaning that it supports incoming data rates (equals download speeds) of up to 7.2 Mbps. It has a fractionally spaced equalizer implementation of the receiver (which I think is predominantly InterDigital’s IP) that allows the realization of nominal data rates in mobile conditions. Not surprisingly, Infineon was one of the three companies picked as the 3G performance leaders by Signals Research. You can read more of my SGOLD3 musings here.

It is also important to acknowledge the other winners if the MP-EH and SGOLD-3H are in the next iPhone. First and perhaps the biggest will be InterDigital. Infineon’s 3G solutions use InterDigital’s stack. InterDigital is bound to get per-unit royalty and its deal with Apple last summer is a good pointer towards this direction. The King of Prussia company is Infineon’s behind-the-scene partner for 3G. My extensive coverage of the InterDigital connection can be found here and here.

Marvell, I think, will continue to supply the WiFi provided the interoperability issues it faced with its previous offerings are ironed out. With the Garmin Nuvifone round the corner, it is quite possible that iPhone will have GPS too. Broadcom is in a nice position to offer a bundle of its WiFi, Bluetooth and GPS offerings and may come out a big winner despite losing on the baseband front. As with the chipset itself, I expect Apple to retain most current component vendors who have met Apple’s serious performance expectations last time around. More on the iPhone 3G potential features can be found here.

I am glad that my iPhone 3G predictions are expected to be true. While the actual winners will not be determined until a tear-down, this is good intermediate information. Infineon is trading close at $7.37, close to its 52-week low of $6.26. InterDigital is trading around $20 today. If you have not read my InterDigital valuation series, this is perhaps a good time to do it from here. With the details of the iPhone 3G consolidating, now is perhaps a good time to pick this stock up even if you are looking at some quick short-term profits.

[Long InterDigital at the time of writing]

Posted by Vijay Nagarajan at 11:00 PM  

3 comments:

You know, the one thing that annoys me with it being based on the SGOLD-3H based is that it has been sampling since late Q1/early Q2 2006 and I think mass production started in Q4 2006. Baseband certification and integration takes a long time, but Apple is also well known for moving faster than their competitors.

That doesn't make it impossible at all, but it'd certainly make Steve Jobs' claims about battery life nothing more than a lie. Alternatively, maybe it's a newer chip in the SGOLD3 Family, although my impression (but I'm not sure) is this one is already on 65nm...

I don't think Apple is prone to much vendor loyalty, but I still very clearly agree with you that it is most likely an Infineon chip, and I'd also tend to think it likely is the SGOLD-3H. I just find it strange though; I know this kind of thing can take a long time, but that's a bit extreme...

About one year ago, I noticed that the iPhone 3G timeframe would match perfectly for Icera's 65nm chip, assuming qualification could be done more rapidly than usual. I asked someone with some experience in qualification and apparently the timeframes I gave him seemed reasonable. However, Icera hasn't given any news whatsoever regarding the status of their chip for 6+ months...

I also noticed a Icera-Sirific news piece saying this: "The American phone company AT&T has already signed up for Icera-based cards, while Orange is also understood to have certified Icera's kit." - this is probably just coincidental, but one of the most obvious links between AT&T and Orange is they're both exclusive iPhone carriers. And the fact there is no reason given for why it's certified at Orange (unlike AT&T there's no data card deal?) makes me ponder.

I'm probably just reading too much into this. Either way I don't think Qualcomm or Broadcom are very likely for the iPhone 3G; My opinion/guestimation is that there's a 80% probability for Infineon and a 20% probability for Icera. Obviously such a deal would be even more important for the latter than for the former - but also unlike with InterDigital, there's no direct way to invest based on it since it's pre-IPO.

BTW I'm curious - why do you think they stuck with Marvell for WiFi? I guess the only disruptive technology worth switching to is Atheros', maybe you're just trying not to be too biased towards your own company... :) The AR6002 started mass production in Q1 according to PRs, that's a bit late but might be just enough. Of course, that kind of thing is just guesswork. Same for the app processor.

Oh, and sorry for the long comment, looks like I got carried away again... ;)

Arun Demeure said...
April 10, 2008 at 1:57 AM  

Arun,

No worries on the length of the comment. I truly appreciate the insights you bring in with your comments. I have always wanted my blog to be a forum where people can bounce ideas off each other about the wireless value chain which is a complex beast.

Going back to your SGOLD-3H points, I think that getting the baseband certification and integration will be a easier than starting from scratch. The reason is that the MP-EH platform is very similar to the MP-EU platform. So integration should be better than when you start from scratch, especially if you change the platform. Note that I have taken a platform centric view rather than a baseband chip-centric view.

I realize (and know from what I see in the WiFi space) that Apple is not vendor loyal as much as it worries about performance and technology leadership. But the platform view of things and the effort that has gone into characterizing the first iPhone will not go wasted, not in the time-frame that Apple was looking to launch 3G following its predecessor.

It is also for this same reason that I think Marvell will retain its WiFi slot. Again, Broadcom can displace it with a bundle and that is really best shot anybody can have at Marvell. But this being said, remember that the volumes and the margins we are talking about currently will make an incremental revenue impact on the WLAN provider.

As for Atheros, I do think we have a better mobile WLAN solution than Marvell and perhaps the best in the market in terms of the performance/power curve. But for the same reasons stated, Apple will likely not consider us for this version. (Let me take this chance to mention that I work for our networking (PC/laptops)business and deliberately try to keep away from my company's business details on the mobile side to avoid a conflict of interest. So these are only my opinions as an analyst following the developments, not as an Atheros employee)

With respect to Icera in iPhone, I am not sure if you chanced on a three-part series I wrote on the iPhone 3G suitors back in June last year. I discussed Icera at length from an iPhone perspective. I too see a lot of synergies here, but unfortunately the lack of a complete platform, and of course the lack of proven success as well in the mobile phone space, makes its solution a tougher sell.

I do think that Apple will open its doors for other players in the next couple of years, moving itself more towards performance and feature integration. That is when a proven innovator like Qualcomm or an up-and-coming Icera can win the battle.

Vijay Nagarajan said...
April 10, 2008 at 6:54 PM  

With on2 Technologies codecs in the Infineon chips, i would think they are going to be a big player in the video codec space, not to mention that ON2/Hantro chips are also being integrated into Nokia Samsung etc. Meditek that is expected to get a major chunk of the business from China ,is also a major customer of ON2 technologies. Skype. Youtube, Myspace, Monsoon Multimedia. Move etc , to name a few have also incorporated the ON2 codecs. The talk of the town for video architecture should be ON2 Technologies.

Anonymous said...
July 12, 2008 at 1:09 PM  

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