Wireless Industry Analyst

Michael Canning resigned last week as the CEO of SiRF, the leading GPS silicon provider. Besides the events leading up to it, the announcement itself reaffirms my belief that SiRF’s end-game, whether it likes it or not, is to merge or get acquired.

As early as last summer, when SiRF’s shares were soaring, I questioned its strategy of focusing on stand-alone GPS solutions unmindful of the bigger trends towards integration and convergent connectivity solutions in the mobile world. Mobile companies like Broadcom and NXP (which recently got acquired by STM) acquired smaller GPS companies. SiRF, on its part, did not attempt to pair up with WLAN or Bluetooth solution providers but instead focused on a DVB-H product for mobile broadcasting. Contrast this with Atheros, a WLAN provider with comparable market cap last year, which has expanded its portfolio to have Bluetooth, GPS and Ethernet over the past couple of years and you will notice a flaw in SiRF’s thinking so far. You can read my thoughts on the Broadcom’s Global Locate acquisition here and Atheros’ GPS moves here.

Despite the booming GPS market and its acquisition of Centrality last year, SiRF may have just let the mobile market slip away from its hands. Broadcom especially seems to be doing a stellar job in stealing customers away from SiRF. The loss in market share led to bad quarters and the company’s share price has since tumbled to its nadir. While I think that this price drop is a little harsh, it does surprise me that most people did not see this coming. More insights and explanations about the SiRF strategy can be found here and here.

Now, with Qualcomm, Broadcom, STM-NXP and TI having GPS capabilities, SiRF has limited room to maneuver in the mobile space. Additionally, companies like Atheros and CSR are broadening their portfolios to fill in the gaps. Faced with the increased possibility of being marginalized, it looks like SiRF will have to align itself with the others who have a realistic chance in the mobile space or with a microprocessor/computer chipset company to sell with laptops.

So far, the deterrent for most companies trying to get SiRF was the latter’s huge market capitalization. That is not true any more. Besides, the company is now on its back-foot. A company like Intel can easily grab the company. But of late, I feel that a merger with Marvell is a good possibility as well. I will let you think about this for a day. Check this space tomorrow for my reasons why.

[Long SiRF at the time of writing]

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.

Two pieces of information over the past two days may spell some more bad news to QualComm. First came in the news that the European Union has decided to go with DVB-H patronized by Nokia. The EU wants to stick by it and maybe even make it a law to only use DVB-H for broadcast. This means that QualComm's MediaFlo is virtually out of Europe. Of course, this is not all bad since MediaFlo has gelled well with the U.S. carriers. With this news, also watch out for Sirf Technology Inc. which through the acquisition of TrueSpan has positioned itself to expand beyond the GPS market to get into the DVB-H market as well. Though their market cap is around $1.5 billion now, with GPS taking center-stage as one of the big features of tomorrow's mobiles and with DVB-H gaining traction, the company can go places, especially if it can ink some prudent GPS bundling agreements with cellular and/or WLAN chip-vendors. Another thought, as outrageous as it may seem, is that QualComm may make a bid for Sirf just for the synergy and the complementary technology that the latter can bring in. Of course, this would be at least around 3x bigger than the Flaarion acquisition.

Another piece that is most talked about today is the Sprint-Clearwire agreement to merge their WiMax networks. This is good for the WiMax proponents but is most likely a set-back for QualComm. A good possibility however is that Sprint sees this as a way to de-couple it's WiMax business (which is currently only a small proportion) and its more pervasive CDMA business. If this merged-unit is being treated as a new independent entity, then Sprint is implying a commitment to keeping alive and hence enhancing its CDMA2000 network with EV-DO and other capabilities along the 3GPP2 evolution path.