Wireless Industry Analyst

In my Texas Instruments (TXN) valuation series, I pointed out that the company did not have a strong 3G product strategy. I subsequently also discussed in detail the synergies that existed between InterDigital and TI. I had also noted that if not InterDigital, TI could consider Icera also as a viable option to buttress its 3G roadmap. Let us take a quick look at this possibility.

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.

Bristol-based Icera Semiconductors announced today that it was acquiring Sirific Wireless for its complementary mobile RF capabilities. With this all-share merger for an undisclosed sum, Icera now hopes to offer a more complete 3G+ mobile chipset. (Read earlier coverage of Icera here and here.)

Sirific, founded in 2000, is a fabless semiconductor company developing CMOS RF transceivers for various mobile technologies including 3G and beyond. It boasts of expertise in digital RF, one of the more difficult design problems in mobile circuitry. It has raised around $60mn till date.

With a series C funding closed recently, Icera has now raised a little over $140mn in venture funding. So, the combined entity has over $200mn in venture money – an impressive amount demonstrating the VC confidence in this startup. Icera plans to raise a further $100mn later this year positioning itself for an IPO at the London stock exchange in 2 years.

Is it justified in dreaming big? Why go for Sirific?

Well, Icera has a niche product with its soft modems. Soft modems are highly customizable and upgradeable. The technology and the concepts involved, if rightly done, can be used for any wireless standard allowing for easier integration that is vital for tomorrow’s convergence devices. Icera’s thinking is that Sirific’s RF frontend and digital RF expertise will complement its revolutionary Livanto soft modem solution. This will not only allow Icera to come up with more complete, in-house platforms and reference designs but also offer a roadmap to highly integrated baseband + RF products in the future.

Icera is beginning to gain traction in the wireless data card market that it is currently targeting. It has signed a deal with Option, Europe’s laptop wireless data card leader and aims to capture 33% of the global data card market by the end of next year. But with the move towards in-built wireless broadband capabilities, products such as Qualcomm’s Gobi and the convergence devices phenomenon, data cards will become superfluous in the future. So to create a larger impact, the company has to make it big in the higher volume mobile phone space.

It has, however, not gotten nearly as much traction in the mobile space. What it needs is a strong alliance with a company like TI that offers application processors. Like I mentioned for InterDigital, such an alliance will allow it to piggyback on TI’s support network and economy of scale to win market share for its baseband (now baseband + RF) business. In turn, this will also help TI retain its 3G market share.Earlier coverage on this topic can be found here, here and here.

Icera has the technology to take it into the future. It needs to however sustain in the fiercely competitive mobile vendor space. The data card market will help on that front in the short term. Besides positively approaching the mobile phone market with the strategic acquisition of Sirific, Icera has certainly made a bold statement indicating that its IPO ambitions are real. The flotation valuation of such an IPO will be determined much by the design wins it secures in the mobile broadband space and perhaps on a few other strategic alliances.

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]

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 is the market leader for 3G application processors with its OMAP product-line. But it does not currently have a standard 3G baseband solution. The company’s OMAP roadmap merely has placeholders for future merchant ICs with 3G baseband. Its mammoth market share comes from custom chips it develops for Nokia and Motorola among others. This position is, however, challenged by the multiple sourcing trend that the handset vendors are now adopting. Left behind in the 3G baseband race, not only by Qualcomm but also by Broadcom, Infineon, InterDigital etc, TI is finding itself losing mobile share. The aggressive strategy and the niche product positioning by the competition is not helping its cause either.

On the other side, InterDigital sells its SlimChip 3G solution with a fully equipped software stack both as an IC and as intellectual preperty (IP). Besides, in a recently conducted independent study by Signals Research Group, InterDigital’s SlimChip came out as one of the top performing baseband solutions along with iCera and Infineon. That InterDigital finished high among very competitive solutions establishes the company’s credibility. Also, this complements its positioning as a top choice for the smartphones segment for bandwidth intensive data services.

Now, here is a part of a recent press release from InterDigital that forms the basis for my thesis –

“InterDigital's SlimChip products feature a "slim" modem architecture where the modem - which provides core wireless connectivity - is separated from the applications processor and peripheral functions. This approach allows wireless device manufacturers to customize the pre-certified modem, in a rapid and cost-efficient manner, …”

My thesis is that if TI can negotiate a deal with InterDigital to sell a bundle of the SlimChip IC with its own OMAP, or perhaps incorporate InterDigital’s IP in an OMAP-Vox solution, then both companies can benefit. For TI, it will be a chance to retain and even grow 3G market share by marrying its manufacturing excellence to performance, an area in which it has always been behind Qualcomm. For InterDigital, any such alliance will not only imply SlimChip sales levels it can never get to otherwise but also a chance to change industry and Wall Street perceptions.

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]

[Originally for Sramana Mitra's site]

I mentioned in the last segment of this series that I was not happy with TI's wireless and mobile market strategy. Let me try to explain why.

My bearish feeling about TI’s wireless business stems from what I think has been a flawed baseband strategy. The company seems to have grossly misjudged both its primary customer and its competitive landscape. Nokia and Ericsson’s multiple vendor strategy is a stark proof that TI can no longer leverage on its strengths such as manufacturing excellence either. The company, realizing this, has recently pursued a hybrid manufacturing strategy (moving towards a fabless model for digital), but it may be late to counter aggressive competition. So, while not being able to compete on baseband with Qualcomm, Interdigital and iCera, TI is also being handed design losses at customers it would consider its childhood buddies by the likes of Broadcom.

Another fact that cannot be ignored is that all the major baseband providers either have their own application processor product or an active development program running. There is also a move towards integrated application processor plus baseband processors. This, until now, was perceived as another TI strength that is fast eroding due to smarter competition. TI’s answer which ought to have been a 3G OMAP-Vox chip is conspicuously absent from its product-line.

Thirdly, the fortunes of its connectivity solutions - WLAN, Bluetooth and GPS – are tied with the mobile chipset design wins compounding the company’s wireless woes. Though independent of the OMAP or custom chips, these are often bundled in the mobile chipsets. TI has spent substantial resources on these technologies with cutting edge R&D work. But it has made a conscious decision to focus on the mobile market though each of these connectivity solutions presents a wider prospect. This dependence on mobile not only drastically reduces their total addressable market, but also implies suboptimal utilization of the related advanced research and development work.

In summary, TI’s competitors are carving shares for themselves with niche products and the company seems all but a muted spectator. In the sequel, I will take a brief look at the financial impact of the wireless reverses for TI and the impact of its focus on the application processor segment.