Wireless Industry Analyst

Qualcomm recently took a stake in ip.access, a British femtocell maker. The undisclosed investment was made through Qualcomm’s European investment fund. This is a sign that Qualcomm is transitioning from its core competency – to design and develop high capacity wireless baseband technology – to eke out capacity gains through topology.

Before commenting on this latest Qualcomm move, it is important to understand femtocells. Femtocells are indoor base-stations designed to be connected to a broadband internet connection. These devices allow the same mobile device to be used for accessing voice or data through broadband. Femtocells also offer improved in-building coverage, reduced burden on the cellular network and seamless mobility to the user. While dual-mode handsets are seen as the fixed-line operators’ entry-point into wireless, femtocells are regarded as the mobile operators’ answer to it.

So, what is Qualcomm doing in this space? Talking about the investment, Frederic Rombaut, head of Qualcomm Ventures Europe said, "3G femtocells will have a very important role in future mobile network architecture…ip.access has an innovative approach to the 3G femtocell market that will enable our customers to enhance the delivery of 3G services to mobile users."

Disruptive Analysis’ Dean Bubley points out that Qualcomm has remained non-committal about femtocells so far shrugging off that it is “nothing to do with us really.” Evidently, this femtocell investment signifies a change in Qualcomm’s mindset. The company believes, and not without reason, that topology and network planning is the key to extracting more capacity. After all, there is a limit to the number of antennas that can be accommodated in handhelds.

When IS-95 was introduced in the 90’s, it offered a disruptive 10x capacity gain over the existing AMPS. The gains extracted from later standards have exponentially dropped. Most recently, the 3GPP Long-term evolution (LTE) offers incremental improvements over HSPA+. It is clear that we are getting closer to the fundamental limits possible through practical wireless systems. Indoor and edge-of-cell coverage will limit the user experience in tomorrow’s convergence device. This is where topology and microcells help.

It looks like Qualcomm, with its strategic investment in ip.access, is looking to create more capacity gains to carriers through well-designed, scalable low-cost, microcell-based networks. The company’s grounds-up approach to wireless systems design has spelt success right from its early days. I anticipate that the San Diego-based wireless giant will now look to apply theoretical notions to design optimal capacity topologies using picocells and femtocells.

In summary, the ip.access move is proof that Qualcomm is looking beyond its core competencies in wireless baseband. It is proof also that the company relentlessly continues to understand and assist service providers – the strategy that has been its biggest success factor. Finally, the company’s thinking that microcell-based networks will be the key to further capacity enhancement certainly bodes well for femtocells.

[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.

A friend posed this iPhone question recently –

“Could the iPhone run on CDMA with the Infineon chip that will be in the 3G GSM phone? Or would different hardware and/or software be required?”

I thought I will publish a tutorial to benefit all my readers. This is my view of the wirelss standard we will see implemented in the 3G iPhone.

[Originally for Sramana Mitra's site]

The 3G iPhone rumors are getting more frequent by the day. We all know it will hit the market. It is just a question of when. I have, in the past, looked at the likely component vendors for the impending iPhone including Infineon and InterDigital. As requested by one of our readers, we take a look at a company which will gain from the 3G iPhone, even without a single component inside it - Qualcomm.

[Originally for Sramana Mitra's site]

It has been around six months since I wrote my Qualcomm valuation series. I had at that time valued the company at $44.60. Following the company’s fiscal second quarter 2008 earnings conference call I reviewed its mobile opportunities, strategy and also its product strategy for convergence and mobile computing in my blog. With these as the background, let me revisit Qualcomm’s valuation.

My last Qualcomm article talked about its mobile phone chipset strategy. Here, I want to highlight Qualcomm’s other hardware offerings that greatly expand its market possibilities, especially in the mobile computing space. These products and the software/service initiatives that the company has been taking recently allow it to shed its ‘CDMA-company’ or ‘mobile-phone chipset company' tag to help become a more global and well-recognized brand.

Gobi is an embedded solution for notebooks that packs EV-DO, HSPA and GPS capabilities together. More than the component technologies in Gobi, I like the concept of a universal solution. While it will be some time before such combination chipsets are fully utilized, there will certainly be a market for them(perhaps including other standards such as WiMAX, LTE as well.) With convergence shaping up better by the day, Gobi is a very brilliant initiative from a company that seeks to expand its footprint.

Qualcomm, with a head-start in this concept, has gained good traction with the vendors. HP recently announced their plans to ship Gobi-enabled laptops. The company has secured design wins with five major laptop OEMs and several major networks have certified the Gobi. With the first Gobi-enabled laptop shipping in the June time-frame, the company expects full revenue impact in fiscal 2009. Gobi is currently being designed into enterprise devices. As it succeeds in its effort to push Gobi into consumer-grade devices, we will start to see a much higher positive impact on the company’s revenue. You can read earlier Gobi coverage from my blog here, here and here.

Qualcomm’s other big move towards mobile computing and convergence is the Snapdragon. The Snapdragon platform is designed as the single-stop shop for handset vendors looking to converge on mobility and computing (e.g. a hybrid of the iPhone and the Air.) The low-power, high performance platform, Qualcomm says, is designed for pocket-sized portable computers with 4-5 inch screens. This platform is already designed into 15 devices and is expected to hit the markets in the latter half of this year.

Sanjay Jha suggests that the Snapdragon does not compete with Intel’s Atom processor mentioning that the latter targets larger form-factor devices. But it is evident to me that Qualcomm is looking to take on Intel by betting on the smaller form-factor. If you can get a device that can do everything and more than Intel’s Atom-enabled UMPCs and yet fit into your pocket, what would you rather buy? More on Snapdragon can be found in my blog here and here.

The third product is the Snap Star or QST solutions targeting consumer electronics. The Snap Star solutions combine GPS, wireless connectivity, multimedia and broadcast TV to consumer-oriented devices such as personal navigation and mobile entertainment devices. This, it seems to me, is targeting the GPS flavor of Intel’s Mobile Internet Devices (MID).

These industry-defining products that Qualcomm has lined up can thrust it forward beyond mobile-phones. The company is also very aggressive about complementing these solutions with mobile services. Mobility and convergence present wonderful market opportunities. Qualcomm with its comprehensive product roadmap is positioned to exploit them.

Recently, I looked at Qualcomm’s 2008 fiscal second quarter earnings results. Subsequently, I also talked about the various mobile chipset opportunities that Qualcomm was positioned to exploit. Let us first look at how Qualcomm seeks to address some of these market areas.

Qualcomm’s 3G baseband chipset strategy is very comprehensive. The company is targeting low-end phones in emerging markets with cheap single-chip solutions. It expects QSC6010, which is driving CDMA growth in India, to be strong moving forward. Additionally, the company has invested heavily on its QSC6240 single-chip UMTS solution. With this low-cost product offering, the San Diego-based Qualcomm is hoping to drive the transition from GSM to WCDMA, especially in the high-volume markets.

Complementing these low-end 6000 series chips are the 7000 series of convergence platform chipsets. These chipsets combine the baseband functionality with an on-chip ARM-based processor to enable multiple smart-phones in mature markets. Additionally, the integration of the application processor allows Qualcomm to grab more of the handset ASP.

By addressing both the baseband and application processor markets, Qualcomm provides the most complete and powerful product portfolio among mobile silicon vendors. Besides, it is evident that Qualcomm is the only player to address all market segments – low, middle and high-end – efficiently.

Other players compete with Qualcomm in a subset of these segments but no one has either the technical acumen or the deep-pockets to make a difference across the board. They also have their deficiencies. Marvell, for example, focuses on low-cost, high volume chips but is currently behind in testing and development does not have a critical mass of design wins and also lacks a full-portfolio of connectivity solutions. InterDigital has set its sights only on the high-end smart-phone segment fully understanding that performance differentiation is the key to its success. TI lacks an in-house 3G roadmap that is detrimental to its dominating market share. If you are interested in understanding the competitive landscape in the chipset vendor space, I will direct you to my detailed valuation series on TI, InterDigital, Marvell and Broadcom available in my blog. I have also covered other vendors such as STM-NXP, Infineon and Icera to present a fairly complete picture of the chipset vendor space.

In summary, Qualcomm has the right ammunition to sustain and grow in the mobile phone and the data-card markets. Its business model has allowed it to develop a broad portfolio of solutions that dwarfs competition. As 3G grows, Qualcomm will grow with it, not just from this product mix but also the IP that forms the core of these technologies.

[Long Qualcomm at the time of writing]

In my overview of Qualcomm’s fiscal second quarter 2008, I mentioned that the company’s broad range of mobile products positions it to exploit the cellular boom optimally. Before we look at the products themselves, it is illustrative to first peek into a few aspects of the mobile market that Qualcomm addresses.

According to Strategy Analytics, the mobile handset market grew 12% y-o-y while CDMA-based handsets (includes CDMA2000, WCDMA, EV-DO, HSDPA) grew 26% y-o-y. It is forecasted that by 2012, there will be about 1.6bn 3G subscribers in the world. The 3G goldmine, being CDMA-based, presents Qualcomm with an opportunity to monetize on every phone using these technologies. (You can find more on this topic here and here.)

While Europe, Japan, South Korea and the US continue to migrate rapidly towards 3G, emerging markets such as India, China and Latin America present equally bright opportunities for CDMA vendors. The challenge is to cater not only to the elitist user in the traditional markets, but also to the utilitarian consumer in the emerging markets looking for low-cost feature-phones.

Mobile computing and data will also be future growth drivers. As wireless networks mature, and convergence devices start to permeate the market, computing on-the-go will become a staple. Data-cards for high-speed broadband in the mature 3G markets will be an important component. Complementing this is the market for embedded broadband modems in internet-ready laptops.

Mobile computing not only opens up the opportunity for broadband modems but also for the core chipset itself. The challenge will be to make smaller, lower-power processors. Intel, for example, is targeting this market with its Ultra-mobile PC and the mobile internet devices (MID) market. The company hopes to revolutionize computing through the MIDs for the mainstream market targeting social networking and location-based services among other things. Apple recently acquired PA semi signaling its seriousness about convergence devices. As the mobile-phone packs more and more features and laptops become more nimble and mobile, the so-called convergence devices, as signified by such industry events, will emerge as the future of communications.

For Qualcomm, each of these product areas presents opportunities that can steadily grow its revenue. The company not only stands to make money on its own chips, but also for every CDMA-based chip sold in the coming years. Apart from the areas mentioned above, Qualcomm will also benefit from its portfolio of connectivity solutions (GPS, Bluetooth, mobile TV, and to a certain extent, WLAN.) In my next article on Qualcomm, I will focus on its strategy to address these market segments.

[Long Qualcomm at the time of writing]

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]

An LTE patent framework is being pushed by a handful of companies to restrict the total IP licensing fees to single digit percentage of the handset ASP. Companies include Alcatel-Lucent, Ericsson, NEC, Nextwave, Nokia, Nokia Siemens Network and Sony-Ericsson. The announcement further calls upon interested parties to join this alliance to ‘stimulate early adoption’ of LTE. Though I can see the reasons for such an arrangement, I am not very optimistic about its large-scale success.

Part of the problem with LTE or any OFDMA-based standard is the diffused nature of the IP. Many more companies have a stake in the IP pie now than for example, in WCDMA in which Qualcomm has close to 30% of essential IP. So, if there is no upper bound on the royalty rates, the costs can potentially be more prohibitive than the existing CDMA standards and will have a direct impact on the handset ASP. You can read more about my OFDMA, LTE and WiMAX coverage here and here

Another thing to note is that this has been tried before in the 3GPP with WCDMA way back in 2002. Nokia, NTT Docomo, Ericsson and Siemens were among those who initially agreed to cap the cumulative royalty at around 5-6% of the handset ASP. The move did not generate widespread interest. Qualcomm, InterDigital and others with a strong IP presence have stayed away from such deals and are now reaping rich rewards. The WCDMA total royalty rates have hence remained much larger than the envisioned single digit numbers. You can read more about the IP strengths of Qualcomm and InterDigital here and here.

The handset vendors and carriers want to make sure that no one company becomes an Achilles heel in the productization and large scale proliferation of these technologies. However, even if chipset vendors join the bandwagon, these standards will still run the risk of an outsider company staking its claim on essential IP. So, while the 3GPP has tried hard not to repeat the 'Qualcomm effect' again for LTE, it will be interesting to see how this strategy plays out given the more diffused nature of OFDMA IP.

[Long Qualcomm at the time of writing]

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.

So, while the price STM paid for the merger can be debated, there is no doubt in my mind that it is a consolidation that will send some vendors scampering. I have a lot of questions in my mind now. Will someone pick up Freescale as well? Will TI target an acquisition that will give it 3G baseband capabilities, perhaps InterDigital or Icera? Will InterDigital and Infineon further formalize their strong alliance to gain scale? Well, there is consolidation in the air. I can’t wait to see how the vendor matrix ends up a couple of years from now.

Marvell provides application-specific standard products (ASSPs). The company has substantial expertise and intellectual property in the areas of DSP, embedded ARM-based microprocessor, analog and mixed-signal integrated circuit design. These strengths are responsible for Marvell’s phenomenal rise in the storage market. Today, the Santa Clara-based company (incidentally, Atheros’ back-door neighbors and competitors) leverages this expertise to develop high-performance System-on-Chip (SoC) solutions for various markets.

Marvell’s product portfolio includes solutions for data storage, Ethernet, cellular, wireless networking, personal area networking, video-image processing and power management solutions. Marvell serves a variety of markets including convergence of voice, data and video in consumer electronics goods. Marvell’s customers include storage companies such as Samsung, Toshiba and Western Digital, networking companies like Cisco, Juniper Networks and Foundry Networks, and cellular companies including Research in Motion (RIMM), Motorola, and Palm.

Marvell, in the words of its CEO Sehat Sutardja, is “inherently a product cycle company.” He continues to say that the company’s growth rate is directly related to new product adoption and transition. The strategy is to look at long-term investments that can grow on a top-line basis at 15-20% y-o-y. In the context of the current situation, this directly relates to Marvell’s thinking behind the acquisition of Intel’s applications and communications processor business.

We can divide the company’s products into three broad business areas namely storage, Ethernet and wireless. Besides these, other major products include solutions for VoIP, printing, digital video processing and power management. With this as a background, we should be able to take a deeper look at Marvell’s fortunes moving forward

[Originally for Sramana Mitra's site]

In the previous article, I discussed what an acquisition of InterDigital can do to TI. What then will happen to the cellular industry and the 3G value chain?

If TI acquires InterDigital, I think there will be further market consolidation in the 3G space. Firstly, Nokia and Motorola will be happy that they can compete with ‘Qualcomm inside’ phones from Samsung and LG. Until Nokia and Qualcomm cool off on all their IP issues, it is unlikely that the Finnish company will get chips from Qualcomm. So, the entire Nokia business, which until now was TI’s monopoly, is now wide open. An InterDigital acquisition is one way for TI to retain this market. Also, Samsung and LG may also get a viable alternative to pursue a multiple vendor strategy.

If TI acquires InterDigital, its main competitors will feel added pressure moving forward. Qualcomm, the undisputed performance leader so far, is now being challenged by InterDigital, Infineon and Icera. The Qualcomm advantage still comes from its unsurpassed support network and the scale of operation. But TI can complement InterDigital to match Qualcomm on these two fronts as well, thereby erasing its competitive advantage.

If TI acquires InterDigital, Broadcom will take a bigger blow as its wireless strategy seemingly rests on capturing TI’s market share both in baseband and in the application processor market. Infineon, which currently has a strong alliance with InterDigital, and which I suspect has key elements of the latter’s 3G advanced receiver IP, will run the risk of being marginalized in 3G. Similar arguments can be made for Marvell, Freescale and ST Microelectronics among other chipset vendors.

If TI acquires InterDigital, it can potentially generate up to $10 billion of additional revenue over the next five years. The handset vendors like Nokia will be happy to see crucial 3G patents in the hands of ‘one of them.’ This will be an important factor securing TI design wins into the future. Assuming that a deal is closed at my $75 valuation of InterDigital, the sale price will be around $3.5bn. Under this condition, I will value TI between $36-$37.

Clearly, the two companies have distinct cultures and business model. But if these issues are dealt well, the combination can be explosive. What amazes me about InterDigital is the immense value it offers to companies with completely different business model. If it considers being acquired, it will be hot property. While I am not predicting an acquisition here, I think this is an option that TI should think about. Perhaps it is thinking about InterDigital, or even Icera, or has an accelerated in-house 3G/HSDPA program. Or it is just waiting out for the 4G promise, dodging the 3G curveballs thrown at it in the interim.

[Originally for Sramana Mitra's site]

In my recently completed series on Texas Instruments, I pointed out that TI was not in a great position as far as 3G is concerned. I subsequently also suggested that the company ally with InterDigital to prevent further damage. Let us take this a step further and examine what it will mean for TI to acquire InterDigital. I understand it takes much more than a 500 word essay to make an acquisition happen, but a quick look in this direction will give some new insights into the wireless industry as well.

If TI acquires InterDigital, it will have a viable path towards sustained 3G baseband market share. It will have a quicker time-to-market for advanced HSDPA products. An OMAP-Vox Solution with the 3G HSDPA baseband receiver from InterDigital and its own OMAP can be a competition killer. Even a bundle of IDCC’s SlimChip solution with OMAP will sell well. The new product can marry TI’s manufacturing excellence with the SlimChip’s proven performance. The interested reader can find a more detailed analysis on the combination product here in my blog.

InterDigital’s ASIC business is a small portion of its value. But for TI, the combination of 3G intellectual property (IP) and a competitive product is most appealing. In contrast to InterDigital, TI has never had an aggressive IP strategy. It has, however, leveraged its IP to obtain favorable cross-licensing deals with Qualcomm and the others. If it acquires InterDigital, TI can use its new-found IP position to further improve its margins by getting even better licensing deals. More importantly, it will have the handset vendors once again queuing at its gates for their next designs.

An acquisition will work well for TI. In the sequel, I will look at how the industry value chain will take it if TI made this strategic move to get InterDigital and also give some numbers for such a deal.

[Long IDCC, QCOM at the time of writing]

Recently, Signals Research Group published an independent performance report comparing HSDPA solutions from various vendors. The test results, coming as they did from a credible firm, surprised many by concluding that InterDigital(IDCC), Infineon (IFX) and Icera were the winners. I was not surprised though.

Over the past few months, I have extensively covered InterDigital and its SlimChip solution. The SlimChip’s advantage comes from its advanced baseband receivers with firm theoretical underpinnings. Much like Qualcomm, InterDigital has a strong systems team that designs the optimal system first and then seeks to make the cost-performance trade-off. The SlimChip is well-positioned to complement the market-leading applications processors such as TI’s OMAP to break into the smart-phone market. For more coverage on InterDigital, I will refer you to my earlier articles here, here and here.

Infineon is also not a surprising topper at least for two reasons. Firstly, I am betting that Infineon will be in the impending 3G iPhone. The Apple angle implies that Infineon has to match the former’s push for innovation with a high-performance, low power chipset. Secondly, Infineon has a very friendly alliance with InterDigital. The Infineon chipset uses InterDigital’s 3G stack. Besides, I suspect that InterDigital has provided substantial baseband IP for this chipset including the advanced receiver algorithms that have made SlimChip superior. You can read my iPhone suspicions here and here.

Icera is a Bristol-based startup which has raised over $100 million in venture funding till date. Its Livanto solution is the world’s first wireless soft modem. Along with the Adaptive Software solution, Livanto supports HSDPA,WDCMA, GSM and EDGE. The software solution implies that very high precision advanced algorithms can be programmed without spinning a new chip. This not only allows for extremely good performance, but also implies that the Icera chipset can handle any improvements in the standard or receiver algorithm. You can find earlier coverage on Icera here.

I had suggested earlier that an alliance with InterDigital will do TI a world of good. Watch out for Icera as well. Soft modem is the future. This company founded by Broadcom and ST Microelectronics founders already has a pioneer status and can come at a much cheaper price than InterDigital if TI wants quick 3G capability.

In summary, the three companies are not surprising winners, after all. But the test results have challenged Qualcomm’s Unique Selling Proposition (USP) – its baseband performance. Qualcomm, for the moment, can rely on its economy of scale, service and support to stay ahead. This may also be broken if, for example, TI throws its weight behind InterDigital or Icera.

[Long Qualcomm, InterDigital at the time of writing]