Wireless Industry Analyst

Wireless: With Nokia and EMP sourcing from multiple vendors, TXN’s strategy of using their baseband along with its application processor and RF modules for the mobile platform seems to have backfired. It has not pursued a 3G baseband product strategy and is hence in danger of losing its market share.

STM, on the other hand, has infused substantial R&D into baseband development as it revamps its product lineup. Nokia transferred its chipset design team to STM late last year. The Italian company has also created a JV merging its wireless business with that of NXP. NXP brings with it, complementary wireless connectivity solutions and a suite of baseband products (including 3G.) STM now has all the components to build mobile platforms for 3G and beyond and can compete effectively against Qualcomm and Broadcom.

So, while TXN appears to be losing its grip on wireless, STM has emerged as a strong player with the backing of the European handset vendors who command around 50% of the worldwide market. STM seems to be benefiting from its geopolitical alignment and is well-positioned to supplant TXN from its second position in wireless.

Analog: TXN has made the conscious decision to aggressively pursue analog as part of its strategy to maximize margins. The analog semiconductor leader understands that a substantial portion of the analog TAM still remains for it to tap into. The High Performance Analog (HPA) segment has been TXN’s champion growth driver. This segment, generating around 40% operating margins has grown at an average of 28% over the past two years. The analog business overall has grown by 11% over the same period. STM, on the other hand, has not focused as much on its analog business as it could. If it makes the right acquisitions, it can grow its analog share too.

In summary, the two companies have identified different niche areas to focus for growth despite directly competing in multiple markets. The strategic directions are meant to capitalize each company’s strengths. For STM, it is the geopolitical clout it carries with the European wireless players. TXN, on the other hand, is becoming a more nimble manufacturer by the day. It hopes to leverage this to dip further into the HPA market. Finally, while STM is looking to create more value through higher revenue, TXN’s value proposition comes from its impressive margins.