InterDigital - Samsung ITC case
Tuesday, July 8, 2008
This is not a great development for IDCC. The downside is that if the ALJ upholds the staff's recommendation, then IDCC will lose any right to collect royalty from Samsung in the US. This will also likely percolate to its ITC case against Nokia creating a domino effect. This being said, the dispute still has a long way to go. Both parties are yet to make their respective cases.
For the moment, I am looking for more clarity in this matter. I would appreciate it if readers can provide any information that can be disseminated to educate others here. Please send me emails through the contact form. I would especially appreciate insights on the actual proceedings, court reports etc. that can go beyond what is being commonly reported.
More updates to follow as I come to know more!
[Long IDCC at the time of writing]
InterDigital - More good news on its way?
Monday, July 7, 2008
InterDigital, the King of Prussia-based wireless company, saw its shares jump by about 5% last week when the S&P and Nasdaq were down by around 2%. The reason for this optimism was the news that InterDigital and Nokia have agreed to end two legal proceedings in the
In July 2005, Nokia asked a London High Court declare InterDigital's intellectual property as non-essential to UMTS (3G standard encompassing WCDMA and HSDPA). InterDigital, in turn, filed a suit against Nokia in December 2006. The companies recently decided to drop these lawsuits. The terms of the agreement are unknown. Besides, the companies continue to be at loggerheads in front of the
For Nokia, it means lesser distractions from its focus of retaining and growing its mobile market share and its fight to match new niche players like Apple. For InterDigital, ending the
I see the amicable end to the
Like I have said before, I don't doubt that IDCC has important 3G IP. It is more a question of when and how much the industry is willing to pay for it. Maybe we will know many of these answers over the next few months. Earlier coverage on InterDigital can be found here, here and here.
For me, like for many other InterDigital investors, this week will answer some other questions to bring more good news. This Friday, I will watch out for the many 3G iPhone teardowns that will follow its world-wide release. If my analysis is right, we will see InterDigital's 3G protocol stack inside the new iPhone. IDCC is guaranteed per-unit royalty from Infineon for each of its 3G chipset sold. I will let you guesstimate what it means to InterDigital's revenue for the next few quarters!
[Long IDCC at the time of writing]
[Disclaimer: All thoughts expressed by
Nokia to use IDCC products in future?
Wednesday, June 4, 2008
With Nokia and InterDigital (IDCC) engaged in a prolonged legal battle over licensing issues, the title of this article is sure to raise more than a few eyebrows. I think that recent industry events make this an interesting but overlooked possibility. Here is why –
The IDCC-NXP connection: NXP has licensed IDCC’s 3G HSDPA ASIC design for its PNX6712 chip. The companies entered into this agreement for integration into NXP’s Nexperia cellular chipsets as early as August 2005. Talking about this during InterDigital’s 1st quarter 2008 conference call, its CFO Scott McQuilkin said, “We also completed our delivery of HSDPA technology to NXP and ASIC is now moving into production.”
The NXP-STM connection: STM and NXP entered into a JV last month merging their wireless businesses to acquire scale. You can read my extensive coverage of this event here and here. The formation of a solid number three player stints IDCC’s abilities to sell its SlimChip solution directly. But in the bigger scheme of things, it spells good news for the King of Prussia-based company as the JV widens its footprint. In the most recent quarter conference call, IDCC’s CEO William Merritt resonated this point saying, “Frankly we looked at the combination of ST Micro and NXP and said, ‘Great, they’re getting stronger and they have our IP’ and we love our licensees to be strong and pushing hard into the market..”
The STM-Nokia connection: Nokia last year decided on a multi-vendor sourcing strategy. It now sources 3G from both TI and STM. Additionally, it also transferred about 200 chipset design engineers to STM. This not only signals Nokia’s move away from chipset design, but also presents STM with the opportunity to grab more 3G business at Nokia. It is devoting R&D resources to baseband design and NXP’s team and product are an active part of the equation.
Samsung multi-sources 3G now
Thursday, May 29, 2008
The move away from Qualcomm is significant on at least three counts. Firstly, it suggests that as much as performance is important for data networks, the competition has succeeded in narrowing Qualcomm's lead there. Secondly, the lower cost of Infineon's solution speaks well of the company's IP position. Thirdly, it expands InterDigital's 3G product footprint.
It is bad news for Qualcomm. One of the key reasons for Samsung's move is that it found a viable performance alternative for a cheaper price. That underscores the issue for Qualcomm. Until now, the company was charging a premium for its superior performance and its support network. However, as a recent Signals Research Group report points out, there are at least three other solutions with comparable performance in the market today, Infineon being one of them. These alternatives become attractive if the handset vendors discount Qualcomm's reliability and support.
It is good news for Infineon. The company is expected to be central to the 3G iPhone. With design wins at Samsung, the German semiconductor company will grow its 3G market share at the expense of Qualcomm. With the lower overhead coming from its comfortable IP position, Infineon can afford to undercut Qualcomm's pricing to gain further traction.
It is better news for InterDigital. The company supplies the 3G software stack for Infineon's solutions and stands to make money off every 3G Infineon chipset sold. So, while the King of Prussia-based company is involved in a prolonged legal battle with Samsung on IP issues, this will open up another channel of revenue from the Korean handset maker.
InterDigital's SlimChip, though one of the best, has not got substantial direct traction in the market. On the other hand, the company, through its alliance with Infineon and its product IP core licensing initiatives, is looking to expand its footprint at a fast rate. Apart from the Samsung design win, I am particularly curious how 3G will play out between STM and Nokia. (Stay tuned for an analysis of how InterDigital may benefit from the STM-Nokia relationship in the wake of recent industry events.)
In summary, Samsung has reiterated the move towards multi-sourcing. Like some of the other wireless segments, pricing and time-to-market will likely drive mobile baseband as well. That is if Qualcomm's competitors can stand up to its deep pockets and deliver consistently.
ST Microelectronics - Wireless Business
Monday, May 26, 2008
[Originally for Sramana Mitra's site]
The JV with NXP has given STM the scale to succeed in the mobile wireless space. Putting its weight behind the convergence movement, the company plans to leverage its full suite of wireless solutions to enable the advanced mobile devices coming out of the Nokia stables among others. Let us now try and understand the company’s wireless products, strategy, and outlook.
The backbone of STM’s convergence moves is its mobile multimedia applications processor. As part of its strategic alliance with AMD, the company has developed the latest Nomadik processor integrating functions the multimedia coprocessor and the application processor. These processors can be used in smart phones, mobile Internet devices, mobile computers, portable multimedia and navigation devices, and in-car entertainment systems. STM complements its applications processors with energy management and transceiver solutions. With these initiatives, the company hopes to grow its low single-digit market share in the application processors segment.
Prior to the NXP JV, STM’s mobile connectivity portfolio included a 11b/g WiFi solution and multiple Bluetooth solutions including a Bluetooth/FM SiP. STM has succeeded in increasing its Bluetooth market share to about 5%, thanks to its alliance with Nokia. However, STM’s GPS until last month was focused on Personal Navigation Devices (PND) and automobile markets.
Based on STM’s portfolio (excluding NXP), it is easy to see that until recently, it neither had the complete set of convergence ingredients nor the recipe and scale to compete with a veteran like Qualcomm or the relatively new yet formidably entrant, namely Broadcom. But there are two events that can turn the game in STM’s favor –
Nokia’s multi-sourcing strategy: Nokia’s move last year to source 3G from STM among other vendors was more than a mere next-step in the symbiotic relationship between the two European giants. This signified the end of TI’s joyride, a dent in its wireless stronghold. STM, along with Broadcom, is looking to capitalize on this situation by claiming slices of Nokia’s 40% handset market share.
STM received further assurance from Nokia as the latter transferred about 200 of its chipset design engineers last year. As Nokia looks to exit the chipset space, this move has given STM 3G baseband design capabilities and IP as well. With TI not having a 3G baseband roadmap, STM now has a unique opportunity to catapult itself into the second position among wireless semiconductor companies.
NXP merger: Chief among the synergies between NXP and STM is their complementary convergence capabilities. Just recently, NXP had acquired GPS company GloNav. GloNav’s very strong IP, experienced engineering team, GPS SoC solutions for mobile devices and PNDs will now be a key aspect of STM’s convergence portfolio.
NXP also brings deep expertise and products in Bluetooth and WiFi as well. STM and NXP together have about 10% of the Bluetooth market today. Finally, NXP provides more baseband expertise, especially in the GSM/GPRS/EDGE space. I am however unable to judge 3G expertise given that the IP core for its HSPA-EDGE product is licensed from InterDigital.
STM now has all the raw materials needed to take on the convergence movement. It however lags in its product roadmap by at least a year. Convergence has to be accompanied by integration efforts. With new baseband capabilities, we can expect STM to make an integrated 3G baseband and applications processor. We will also see integrated connectivity products.
The company’s strong relationship with Nokia will however buy it time. It will likely drive STM's wireless product strategy. I don’t see anything wrong with that for now. With its understanding of the global mobile market and its brand-name, Nokia is a great resource for STM. The Italian company needs to work closely with the leading handset vendor to determine the market direction and focus its internal R&D in that direction. It should however desist from being complacent. It is perhaps TI’s complacency that has given STM this opportunity in the first place. It is now up to STM to learn from TI’s situation, sustain and grow its share within Nokia.
Read the full article>>ST Microelectronics - Strategy
Saturday, May 24, 2008
As highlighted in our discussion of ST Microelectronics financials, the company has not been very profitable in the last few years. More importantly, it has been growing lesser than the semiconductor industry and losing market share. It is therefore appropriate to peek into the steps that the company has taken to address this situation.
There are five major themes in STM’s strategy.
Scale is important: Last year, the company joined hands with Intel to create Numonyx, an independent Flash memories semiconductor company. Last month, STM announced a disruptive deal to merge its wireless assets with those of NXP to create a solid number three player in that space. In both cases, the idea was to use scale and consolidation to succeed. These efforts also directly impact STM’s product portfolio moving forward.
Convergence is coming: STM has rightly identified the coming convergence – the confluence of the computer and communications. As a technology provider, the company is positioned to supply key components for the convergence platform. With the NXP JV, STM has a complete portfolio of core cellular and peripheral connectivity solutions that along with its application processor can completely power today’s smartphones and tomorrow’s convergence devices.
Streamline R&D: STM has focused its R&D efforts on key growth areas that it has identified. What I find more attractive is the focus on the right things within these areas. For example, its focus on wireless baseband and multimedia demonstrates a good understanding of the market dynamics. With data coming to the forefront, more companies have developed stellar receiver solutions. For STM to benefit from its wireless aggression, it needs to have good baseband and application processor solutions to start with.
Move to a less capital intensive model: STM is also consciously attempting to reduce its CapEx. Its move to divest the FMG is a good example. It continues to work with partners to reduce its process technology advancement costs. The company is targeting a CapEx to Sales ratio of less than 10% for 2008.
Build position as Europe’s flag-bearer: Geo-political alliances can help grow STM’s semiconductor market share. For example, Nokia already contributes to over 20% of STM’s revenues. Moving forward, with TI’s wireless share up for grabs, STM will want to leverage its European badge with Nokia to grow its revenues substantially. The two companies have been getting closer by the day, much to the discomfiture, and perhaps to the resignation, of TI.
Much like Ms. Mitra, I am a strong believer in the convergence device movement. So quite naturally, STM’s wireless direction, and R&D efforts excite me. The company’s consolidation efforts are also very positive. Its relationship with Nokia plays to its strength. STM should however be careful not to repeat TI’s mistake of being complacent about its existing big clients.
STM’s annual report is very honest, upfront and detailed. What was worrying was the lack of an apparent vision except the obvious goal to sustain as a semiconductor giant. Unlike the other wireless chipset vendors, the political underpinnings of the company seem to make it more difficult to make grandiose plans and execute on them.
There is no denial of STM’s value and growing strength in the European technology value chain. But there are inherent inefficiencies in the IDM model. So, I am skeptical about its capital and cost reduction moves. I am inclined to think that the company's decision to retain manufacturing control may downplay and even negate some of these strategic initiatives. It may inhibit the creation of growing value to STM’s investors.
ST Microelectronics - Financials
Friday, May 23, 2008
In the introduction to this series, I reviewed the company’s history and businesses. Let us now review the company’s financials from a more holistic perspective.
For the year 2007, STM reported net revenues of $10 billion at a gross margin of 35.36% and an operating loss of 5.45%. The revenues increased a modest 1.5% over the $9.854 billion that the company earned in 2006 at an operating profit of 6.87%. During the same period, the semiconductor industry sales grew about 3%. It is also worth noting that the industry’s gross margin average is at 50.5% while the operating margin average is at 18.6%.
Nokia is STM’s largest customer accounting for 21.1% of the company’s revenues for 2007. STM’s top-10 OEMs accounted for 49% of its revenues. On the basis of location of order shipment, Europe accounted for around 1/3rd of the revenues while Greater China accounted for 27.5%.
For Q108, STM declared revenues of $2.18 billion (excluding the divested FMG). This is an increase of 11.6% y-o-y. ASG revenues increased 14.2% y-o-y driven by wireless, consumer and automotive products. IMS grew at 7.1% y-o-y helped by the MEMS, microcontrollers and advanced analog businesses. Q208 revenues are expected to increase between 5 and 11% q-o-q and 10-16% y-o-y at a gross margin of about 37%.
It is clear that STM has been struggling, not only to increase its sales but also to obtain industry average margins. The company’s prolonged struggle to achieve above-average sales has necessitated a review of the company’s strategy. STM has already set the wheel in motion. Among other strategic initiatives, it has divested its FMG while aggressively acquiring scale in its wireless business.
The low gross margin, however, questions the prudence of STM’s commitment to continue as an integrated device manufacturing company. With the fabless model gaining ground, STM will find it increasingly difficult to compete favorably if it continues to exercise control over its advanced proprietary manufacturing technologies. The company spent over a billion dollars in related Capital Expenditure for 2007. Besides, to make ends meet, it is constantly looking for alliances to share costs. A good example is the current agreement with IBM to develop 32-nm and 22-nm CMOS process technology. While it perhaps makes political sense to retain control over much of the value chain, the IDM model can turn out to be a deterrent to STM’s profitability.
In summary, while STM’s broad range of products guarantees a steady revenue-stream, its margins are not impressive. The company is looking to keep its operating costs below 28%. As the competition becomes tougher, this needs to be complemented by higher gross margins for the company to have a sustained growth model.
Modu - convergence game-changer?
Thursday, May 8, 2008
Mobile convergence is a recurrent theme in this blog. As I continue my journey to understand the mobile value chain, disruptive trends are often brought to my attention. Recently, I was introduced to the Modu – the world’s smallest and first modular phone.
Let me start by saying Modu impresses me. You can read more about the concept from the company’s website here. As I think through it, more and more ideas pop out. I will pen a few hoping that this can initiate a discussion.
Firstly, while I think convergence is the future, customization has the potential to drive it in the emerging markets. If the feature-set is not available at a reasonable cost, allowing the user to choose a subset for the cost he is willing to shell out makes a compelling business case. While modularity is not my favorite approach to customization, it is an interesting one at that.
Secondly, the idea is simple, yet creative. Once you have the basic phone sold (with or without carrier support), the so-called jackets are consumer electronic gadgets that you can pick off the shelves of your favorite store. The product also helps CE manufacturers who risk being marginalized because they neither have the scale nor time to incorporate mobile phone capabilities in their devices. It is easy to conceptualize a modu transformer slot.
The idea is not without its drawbacks. The concept of changing jackets to suit your needs may be unattractive to a good portion of the consumers. While I like choice, my personal preference will be to go for my feature-set in a single device. For example, let us say that on a particular day I have the music player jacket. What if I have to make an unannounced trip that necessitates the GPS jacket that I don’t have handy? Perhaps, I am very utility-driven. But I am sure I am not alone here.
Not surprisingly, Modu’s PR machinery is focusing on the ‘coolness’ factor. The primary target audience is the young iPod-loving generation. In the emerging markets where cost is a factor, the pricing strategy can help this concept click.
That being said, there are two things to be kept in mind here. Firstly, the emerging markets will have a bifurcated user-base with the utilitarian user on one side and the younger gadget-loving crowd on the other. Secondly, in a country like
In summary, Modu is a very interesting concept that adds a dimension to convergence, ironically through a divergent set of jackets. So far, the Israeli startup has impressed me with its ideas and moves. It remains to be seen whether the company’s marketing department understands its competitors’ moves and the pulse of the markets it is targeting. It is important that the company executes on its product launch well by striking a balance between cost and performance, the very conundrum that drives the growth rate of the wireless market at all levels world-wide.
Read the full article>>Qualcomm - a well-executed quarter
Tuesday, April 29, 2008
The San Diego-based pioneer of CDMA technology reported revenues of $2.61bn for the quarter and GAAP net income of $766mn. The net income was up 6% y-o-y and even sequentially. The GAAP diluted EPS was $0.47. The pro forma net income was $894mn at an operating margin of 34.4%. The company returned around $1.2mn in shareholder capital through dividends and stock-repurchase programs and retains $10.6bn in cash and marketable securities.
Qualcomm’s chipmaking division, QCT had over $1.6bn in revenue at an operating margin of 26%. This 29% y-o-y revenue increase comes from the shipment of 85mn MSM units. Qualcomm Technology Licensing (QTL) division posted $795mn in revenues at a staggering 86% operating margin. This operating margin is the key to Qualcomm’s successful business model. With the weighted operating margin at around 35% - a level unseen by most semiconductor companies – Qualcomm is able to direct a huge portion of its revenue into R&D helping create more value for the company.
Looking ahead, the company guided 8-16% y-o-y revenue growth and pro forma EPS of $0.50-0.52 for the fiscal third quarter of 2008. Also, expecting to sell 488 – 518mn CDMA-based devices in fiscal 2008, Qualcomm also raised its 2008 revenue guidance to $10-10.4bn. It also raised its corresponding pro forma EPS to $2.04-2.09. This is in line with my 2008 Qualcomm revenue estimates that you can look here.
Overall, Qualcomm has done well amidst all the economic concerns. Furthermore, the company is well equipped to handle adverse situations with its broad range of mobile product offerings, the wide geographical distribution of its customer base and its diversification into new market areas. Its legal battles not withstanding, Qualcomm continues to be the flag-bearer of the US wireless industry. Paul Jacobs' concluding remarks summarize Qualcomm’s quarter – “It’s really about focus and execution.”
[In the sequel I will look at Qualcomm’s strategic initiatives as discussed in the earnings call. In the meantime, for the interested reader, here is a link to my Qualcomm valuation series on Sramana Mitra’s site. You can find earlier coverage of QCOM on my site here, here, here and here.]
[Long Qualcomm at the time of writing]
Texas Instruments - Wireless Business Outlook
Saturday, March 29, 2008
In the past two segments on TI, I have presented my perspective of TI’s wireless strategy. Let us now look at how this will impact the company’s revenue outlook over the next few years.
With the current indicators, it appears that TI’s wireless business will not grow appreciably over the next five years. I expect the growth to be between 1-2%. The connectivity solutions will also lose their overall market share. This number just does not seem right considering the opportunity that 3G presents. But then, a combination of TI’s flawed (IMHO) baseband strategy and the competition will likely take the teeth off TI’s wireless program.
The savior, however, will be the OMAP business. Though the company’s market share will likely reduce from its current 65% to about 40-50%, the volumes achieved by the growth in 3G will reduce the impact of this loss. I expect OMAP-related revenue to double in the next five years. Note, however, that retaining the high market share will also be contingent on EMP, Nokia and Motorola using OMAP for a majority of their 3G platforms. Further, if TI can work out a partnership agreement with someone like Interdigital, for example, then perhaps it can leverage its complimentary OMAP solution to provide a very competent bundle for smartphones that Nokia may pounce at. More on this thread of thought can be found here.
Thanks to the OMAP business, I estimate that wireless will continue to contribute around a third of TI’s revenues into the next decade. But this will not yield anywhere close to what could have been obtained had TI played its cards right. If TI maintains its current market share, the wireless revenues will have grown at a much higher rate (around 10%).
Wireless, it seems to me, is a missed opportunity for TI today. In the concluding part of this series on TI, I will provide my valuation of the company and briefly discuss its future outlook in the context of all the details that I have laid out so far.
[Long IDCC at the time of writing]
Read the full article>>TI can benefit from Interdigital
Friday, March 28, 2008
I have, in the past, discussed the synergies that existed between Qualcomm and InterDigital. As I completed penning my Texas Instruments (TXN) series on Sramana Mitra’s site, I noticed that even the Dallas-based semiconductor giant could benefit immensely from an alliance with InterDigital.
TI’s executives have mentioned that they are watching the market and are prepared in case they see a trend away from its custom IC products for 3G. They also perceive a good position if the industry does not sway from separate baseband and application processors in the chipset. If not, they suggest a quick ramp up in 3G baseband integration. While not discounting TI’s capabilities, I think that the time to market will disadvantage it considerably given the lengthy product cycles. The alternative is to go with someone like InterDigital. This will have both parties laughing their ways to the coffers.
[Long Qualcomm, InterDigital at the time of writing]
Read the full article>>Interdigital - Nokia not that optimistic?
Monday, March 24, 2008
Well, Nokia will settle and it will have to happen soon. Whether yesterday's Form-8K or today's rebuttal matters at all will be known in the next few months.
[Long Interdigital at the time of writing]
Interdigital - Nokia talks signify changing fortunes
Interdigital reported that it was in settlement discussions with Nokia for 3G and that the parties have made substantial progress' towards a resolution on all the patent disputes between them. A bigger positive about this piece of news is that it was reported as an unscheduled material event or corporate change through a Form-8K. The news was further ratified by a Nokia spokesperson who declined to add more color to it.
The Wall Street reacted very favorably to this information as the company's shares soared almost 15% to close at $22.31. The last trade for the day was in fact at $22.80. This also ended a two-month rut for Interdigital shares that were trading in the high-teens.
That a Form-8K was used signifies a positive end to this prolonged battle with Nokia. It also suggests that the King of Prussia-based company is quite confident, perhaps about a favorable licensing deal. Besides, with a stock buyback plan in progress, the company will also want to play safe. It will certainly not want investors complaining that the buyback is unfair (if a Nokia settlement is not made public).
On a related note, Interdigital also stated in the 8K that it will appeal against a court order seeking that it enter an arbitration with Nokia. It will also continue to participate in the ITC investigation against Samsung. It now appears that Nokia likely in tow, Samsung and the others will soon follow suit and Interdigital will be presented a chance to prove its real worth to the Street.
[Long IDCC at the time of writing]
Who caused TI's outlook revision?
Tuesday, March 11, 2008
The company, reduced its Q1 EPS forecast to 41-45 cents on revenues between $3.21bn and $3.35bn. It had earlier issued EPS estimates of 43-49 cents and revenue target of $3.27bn to $3.55bn. Correspondingly, the Q1 semiconductor business revenue targets have been reduced to $3.14bn - $3.26bn. These numbers fall below the analyst estimates of 46 cents, according to a poll by Thomson Financial.
The company executives cite that there is a weakened demand for high-end phones, especially from one 'large' customer. This large customer, is most likely Nokia. Nokia alone accounted for 15% of TI's revenues in 2006 if indirect sales are also accounted for. So, like we are probably seeing now, any fluctuation in demand from the Finnish company, is likely to affect TI's fortunes. Also on a related note, last year, Nokia announced among other new relationships, that it was going to source 3G from ST Microelectronics as well. But TI, has taken pains, to reassure investors that this does not change its own 3G prospects.
Motorola, with its struggling wireless business, is also a very possible candidate. Motorola and TI announced last January that they were teaming up for 'high-volume' 3G, WiMAX and OMAP devices with the earliest handsets expected as early as 2008. It could well be that Motorola's continuing market share woes are seeping into TI'S fortunes.
The next couple of months will give us a clearer picture of who caused this 'significant downward reduction' in demand. If it is indeed Motorola, the situation is fairly explicable given all the recent developments. If, on the other hand, Nokia is found wanting, several interesting questions come to my mind. Is Nokia losing market share in the high-end smartphone segment? If so, who are the likely winners? What are the factors and trends? How does this in turn affect the long-term chipset vendor landscape? All these are complex questions with equally complex answers given the nature of the wireless value chain and its geo-political environment. For the moment, it is best not to speculate without concrete evidence pointing fingers at Nokia.
Qualcomm - Were the GSM lawsuits calculated?
Wednesday, March 5, 2008
There are only two explanations to the GSM lawsuits. Either Qualcomm's legal team was confident (read overconfident) about the chances of the patents in question or it was a well-calculated move by the Qualcomm executives.
Qualcomm is CDMA-centric, or at least its early IP was. When all the world was developing GSM and TDMA devices, the company set forth demonstrating the capacity benefits of a revolutionary technology. This in turn, meant that the company's engineering talent was intensely focussed on broadening its CDMA intellectual property, thereby ignoring the other prevelant standards. So the only GSM patent claims, if any, could come from a few common methods, system or apparatus. Even this is likely to be pre-dated by the work or 'prior-art' of other engineering teams focussed on GSM. So, if I were to take an educated guess on the company's chances of defending its GSM IP, I would say 'Slim'.
And what are the chances that Qualcomm, of all companies, is not aware of this? Super slim. Then the next question that should be asked is - Why then did Qualcomm file a slew of lawsuits related to its GSM IP if it knew it was going to lose? The legal team, that has done so well for the last 15 years (until the Broadcom debacles), may have been overconfident that they can outsmart their opponents in a couple of these battles. By filing multiple lawsuits, the company also sought to increase the probability of a win.
Alas, so far it has been a sad tale though with the disputed patents being fully or partially invalidated. The company has sunk in substantial legal fees in a seemingly lossy venture. What is more hurting is the loss of face and the negative public perception that comes with it.
Does this then reflect poor judgment from the Irwin Jacobs clan? Or are Paul Jacobs and his team so confident of the company's foundations? In the latter situation, the upsides of a win make these lawsuits a risk worth taking. I would like to believe that this is the case. Paul, much like others who cherish the company's engineering leadership, would hate to dilute this position by a series of miscalculated maneavors.
Qualcomm - Losses don't matter
Tuesday, March 4, 2008
Seems fair, you would say. But you have to realize that GSM was never Qualcomm's center-piece. These lawsuits were just inserted in the first place to see if it can pull off a win or two that would have Nokia accelerating to a 3G licensing deal. The idea was that a couple of wins will enable the company to still demand close to a 5% royalty for 3G.
So is it really an issue if it did not win a few of these lawsuits? I would say no. As I have mentioned in my QCOM series on Sramana Mitra's site, the final royalty rate for 3G will likely be closer to 3%. This is perhaps a rate that both parties will be happy about (although the prolonged negotiations and arbitration seem to indicate that there is more to it than meets the eye.) Even at 3%, I valued QCOM at $44.60 with the caveat that this can only go up. So, at $40, the share is still being traded below its minimum intrinsic value. If anything, a win here and there would push the share to the 50's which the company is capable of pulling off through all its other aggressive initiatives (including LTE development.)
So in summary, Qualcomm hardly cares if it gets real royalty from GSM. Also, the share price drop is uncalled for. And the stock will see stability and price growth when the Nokia deal is struck.
Broadcom - Time for Stellar Execution
Wednesday, February 27, 2008
In the last part of this series, I talked about Broadcom’s aggressive campaign to become a leading vendor in the cellular IC market. In this piece, I will talk about the plan, the challenges and the need to execute these plans in style.
So what is the plan? CEO Scott McGregor said in his Q4 2007 conference call, “Our goal in cellular baseband is to reach a 10% unit market share by the time we exit 2009. The plan remains the same -- 2007 was a year to win designs; 2008 is the year to get products and phones done; and 2009 is the year to grow share and generate significant revenue.”
I like the plan. I also think that the execution has gone quite well so far. Broadcom announced a design win with Nokia last year for its single-chip EDGE chip. Nokia’s dominating market share in this space, coupled with the fact that there will be over 400 million EDGE phones for 2009 augers well for Broadcom. These factors imply that even the design wins for ‘selected future EDGE phones’ translates to large unit shipments instantly getting it closer to the target envisioned. Add to this the 3G business with Samsung, the 10% target looks very reasonable.
The catch, however, is this. 2008-2009 are the peak years for EDGE. Later, these phones will give way to faster phones using WCDMA/HSDPA. I also estimate that the per-unit cost for the EDGE chips will be much lower than the $23 price for the 3G chips. Broadcom has also not won any substantial designs for its 3G solution. While we may see some design win announcements later this year, my worry is two-folds. For data-centric phones, cost advantages apart, performance becomes a key criterion for design wins. Broadcom purchased Zyray in 2004 but is yet to deliver in the 3G space. This makes me think that Broadcom is battling basic performance issues. Secondly, the engineering challenges associated with the complicated design and the level of integration in the new product may push the delivery and in some cases, also lose customers.
Broadcom has a good track record of delivering on its promises. So, despite the odds, I am willing to give it the benefit of doubt. If the execution is good, then we will see 3G design wins this year resulting in significant revenue contributions in 2010. I anticipate that in the long-term, pending delivery, Broadcom is positioned to capture around 20% of the 3G market. This will help it to about 15% market share in 2012. The drivers will be its continued relationship with Nokia, its complete solution and its aggressive pricing. Most of these gains will come from TI and the other smaller vendors as I expect Qualcomm to retain its engineering leadership, and hence also grow its market share, in this space.
In summary, the cell-phone market appears promising for Broadcom. In the next piece, I will complete the picture with a synthesis of the various revenue streams in its Mobile and Wireless business.
Disclaimer: These are my perspectives on Broadcom and does not necessarily reflect the views of Atheros Communications or Tensorcomm.
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QCOM and NOK - Sramana Mitra's article
Wednesday, February 6, 2008
Motorola's Icahnic move
Thursday, January 31, 2008
You can read some opinions and analysis in this reuters report. While this is not necessarily surprising in the wake of Mr.Icahn's position, I do wish to note a few points -
- The largest US handset maker may potentially get acquired by an Asian/European competitor. This can weaken US's position in the wireless/telecommunications industry. Further, its position as the US market leader is an extremely attractive proposition to other vendors.
- In the case of an acquisition by a non-US company, I can see QCOM's position strengthen internally. As a handset vendor, Motorola had vested interests in keeping QCOM at bay in the wireless standards. If the company ceases to exist in this space, then QCOM will likely get unconditional backing from the US wireless industry and perhaps the government as well.
- With Nokia unlikely to be a buyer, it is further good news for QCOM in terms of increasing its market share. If it is any indication, the recent announcement from Motorola that it will go with QCOM 3G chipsets may be a deliberate positioning effort to bring in more suitors. LG or Samsung will perhaps be most ideal for QCOM's fortunes.
- Chinese vendors who are having a growing clout in the industry, may post heavy bids to emerge as bigger forces effectively redefining the industry's geopolitical alignment.
- I can also think of dark horses like Google as buyers.
- While a spin-off itself may be good for the other two profit-making ventures, it will also enable the new entity to focus on winning back some market share.
QCOM wins back Moto
Wednesday, January 23, 2008
http://www.edn.com/article/CA6525019.html
Motorola announced, along with its grim financial results, that it will use QCOM chipsets in its UMTS phones. The new CEO, Greg Brown, may have played a key role in Moto's change of stance on QCOM which it shunned just a few months ago. I had written on November 5th, 2007 -
"Look who is back: As data takes the forefront, and modem performance becomes more important, some vendors who have looked away from QCOM may come back. The QCOM receiver is perhaps the most advanced, thorough, stable and well tested product out there. With R&D two generations ahead of the competition, the engineering superiority is never in question. The caveat is a slight change in the heart of the QCOM management and a reduced royalty rate. And I think both of these are good for the company in the long run as it strives to get more chipset market share. We may see Motorola coming back to QCOM for 2010 and beyond. And who knows, maybe Nokia too!"
It seems Motorola is doing so even for 2009. This is certainly big news for QCOM. In my note on QCOM's valuation, I had mentioned "The valuation of the QCOM stock with Gobi in the picture goes up to $52. Motorola coming back to its fold can also raise valuation to the same number." Effectively, a sustained partnership, not to mention the chances of Motorola regaining market share with its superior performance, is worth a few billions to QCOM and boosts its valuation by about $6.
For Motorola, it no longer needs to worry about performance superiority and can now focus on software, GUI and other issues that have bogged the sales of its phones. Of course, the modem itself is only one of its worries. Nokia is the market leader by a mile because it understands the pulse of the emerging markets like no other handset manufacturer. The indigenous designs that cater to almost all segments of phone buyers is yet to be matched. Motorola will have to work on these macro parameters if it wishes to make the best use of the best modem out there.
Paul Jacobs remarked that cell phones are ``not a luxury, they're a staple.' This strengthens the case of cell-phones despite concerns of an economic downturn. The Motorola alliance adds to QCOM's strength and resilience. It is a firm pointer to the company's survival in the wake of a recession.
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