Wireless Industry Analyst

[Originally for Sramana Mitra's site]

Over the past two weeks, we have looked at Infineon’s financials and various business units. Before we proceed to its valuation, it will be useful to examine the company’s key strategic initiatives and growth possibilities if we exclude Qimonda from the picture.

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.

• Though absent from the beneficiaries list, Sprint will be able to sell phones from any of the manufacturers who won the stay today.
• QualComm chips cannot be imported directly into the US. Not a major issue, but highlights the fact that this stay merely seeks to limit the damage caused to the others.
• QualComm does not have to settle with BroadCom and will perhaps let the law take its course.

In other QualComm news, their case against Nokia went to courts yesterday as well. So, there will be more interesting legal outcomes this year. One thing that I want to re-iterate is that this ruling will not hamper the ruthless efforts to break the company's business model. Even the phone-manufacturers who won the stay will want more competitors in the chip-vendor space. Note that Motorola, one of the beneficiaries is already moving away from QualComm.

More analysis to come soon.

While the IP battle rages, BroadCom is slowly moving towards a more complete UMTS solution. It recently announced a $146+80 million acquisition of Global Locate, a GPS company. Now, they are equipped to enter the niche market of chips with integrated features. With previous Wi-Fi, blue-tooth and FM capabilities and with the new range of GPS products and IP from Global Locate, BroadCom's game would be to bundle all these with its UMTS chip, with the hope of shutting the other small players in the fragmented UMTS market.

As I have mentioned in a previous article, the company with the super-set of features is most likely to have a design win with a device manufacturer since the latter would want to build a single platform to support these chips. QualComm, for example, already has Wi-Fi and GPS assets from Airgo and Snaptrack respectively, and is thereby positioned as a front-runner in the race, especially with superior modems. BroadCom appears a little late in obtaining GPS but then we should remember that the company was getting its act together with the modem performance and interoperability testing earlier. With those issues likely out of the way,it is now attempting to carve a niche or at least is trying to become one of the top 3 UMTS IC supplier with a more complete product offering. Of course, it remains to be seen if the pace of QualComm's R&D efforts can be matched. While the industry is grappling to get the basic HSDPA act together, QualComm is already gravitating towards the next generation HS chips. BroadCom's hope perhaps is that the ITC ban will divert resources within QualComm thereby giving it some extra time to try and catch up with its bitter rival.

Also, it remains to be seen now what Marvell and Free-scale are thinking on the GPS front. They don't have GPS features as yet and there are not too many small companies to grab at now. Would they try to license from the $1.6 billion Sirf or are they likely to take the acquisition route? If it is the latter, the time is running out, both from an availability stand-point and a design-win stand-point. BroadCom is already making noises about making it to the top 5 UMTS IC suppliers. So we should see some more GPS deals soon. I also think that the window of opportunity for all the other players is getting smaller by the day and the weaker/financially poorer ones are likely to be left out. We will see market consolidation in this space and a few clear winners emerging. In the meanwhile, let us wait and watch the frantic action!