Tuesday, April 15, 2008
In my last article on the STM, NXP merger, I analyzed the JV from STM’s perspective. The merger is a clear sign of further consolidation in the 3G space. To understand this further, it is also illustrative to look at how other players in the vendor space can be impacted by this merger.
The importance of this merger primarily comes from my thesis that Texas Instruments has fumbled in its 3G strategy, leaving its huge market share wide open for other vendors to steal from it. Especially at risk is its huge Nokia account. The Finnish handset maker has already moved towards a multiple vendor strategy sourcing 3G chips from STM. Last year, it committed about 200 engineers to STM for the latter’s 3G chipset development program. Nokia is essentially focusing away from chipset IP and development. This has worked against TI and into the hands of STM and Broadcom (whose EDGE solutions are now being sourced by Nokia.) You can get further insights into TI’s wireless strategy and its potential pitfalls in my valuation series here, here and here.
The JV can further consolidate this relationship between Nokia and STM. Further, the complete portfolio of connectivity solutions will make it very attractive for the future smartphones from Nokia and the others. So, the JV will likely add to TI’s wireless woes. The impediment that I see is performance. The JV will still be behind Infineon, InterDigital, Icera and Qualcomm on performance. The hope is that a renewed R&D thrust will help narrow the gap in future designs.
Broadcom is perhaps another vendor for whom the merger can cause headaches. The Irvine-based company has in the past made its ambitions apparent – to work diligently towards the coveted third spot in the mobile vendor matrix. Broadcom has been very aggressive in its mobile campaign, not just with product announcements but also in its legal battles with Qualcomm to defend its IP position. The bottom-line is that it is also looking to grab market share from TI. If the JV can improvise on the connectivity solutions and build a stable and complete platform, it will give Broadcom a run for its money. But Broadcom will still have the time-to-market advantage for now. You can read more on Broadcom’s wireless outlook and my valuation analysis here, here and here.
Qualcomm is less likely to be threatened by the JV though the latter now has access to Samsung. Qualcomm’s technology leadership, its support network and its longer-term view of the mobile space places it on firmer ground. Infineon, which is likely to be at the heart of iPhone 3G, will now be a distant second in the European vendor matrix. InterDigital, Infineon’s 3G partner, will have to rely on performance as it tries to gain in the smart-phone market. Marvell and Icera among others will also come up with niche selling points to counter such consolidation.