Infineon, Marvell and the iPhone
Monday, June 2, 2008
Apple is expected to announce the 3G iPhone this month. Based on a reasonable set of assumptions, I have speculated that Infineon will continue to be at the heart of the iPhone. Clues that ratify this scenario have also been uncovered in the recent months. Recently, however, there were two industry events that made many question this theory. Here, I will take a look at these events and what they signify for the iPhone.
Firstly, Sehat Sutardja, Marvell’s CEO, had this to say in the company’s F1Q09 conference call –
“During the first quarter we achieved what I believe to be a very important milestone as we began volume shipments of our HSDPA communication processor to a key smartphone customer. We expect a steady ramp to high volume production throughout the remainder of the year.”
With the name of this ‘key smartphone customer’ not revealed, Apple and iPhone immediately got tagged to this remark. To me, the matter-of-fact statement appeared to reflect Marvell’s continuing relationship with RIMM.
The latest Blackberry Bold 9000 features Marvell’s Tavor platform. Tavor is a single-chip solution that combines a HSDPA baseband processor with a 624 MHz applications processor. The timelines of the Bold launch and Marvell’s shipment dates seem to corroborate as well. The RIMM angle, coupled with the difficulty in launching and testing a new platform with Marvell for the existing form-factor iPhone makes me believe that the Santa Clara-based company will not displace Infineon in Apple’s darling phone.
I will, however, not dismiss the possibility of Apple launching a second, smaller form-factor 3G phone with Marvell’s solution. Marvell’s Tavor may be ideal for a low-cost phone from Apple. The single chip will eliminate the need for a separate application processor. It will save space and power. Hence, it (or any single chip solution for that matter) will be a preferred solution a low-cost iPhone, if there is one. I also anticipate that Marvell will be able to bundle Tavor with its WiFi solution giving it a price advantage. So, in the eventuality of two iPhone models being launched, it is possible that both Infineon and Marvell have design wins at Apple.
This brings me to the other iPhone related news – the Infineon warning. The German company recently warned that it has received lower than anticipated orders for a project to supply HSDPA chips. Going with the premise that Infineon is indeed the 3G supplier for the iPhone, it is hard to tell if this warning pertains to Samsung or Apple or another customer. If it is for Apple, then, contrary to what is being written elsewhere, I don’t think it signifies any major delay in the anticipated launch of the 3G iPhone.
This may, however, signal one of two things. The first possibility is that Apple may not market the 3G iPhone as widely as anticipated (at least initially.) The second possibility, which ties up with the Apple angle to the Marvell statements is product mix. Apple may be planning on a staggered, complementary launch of two 3G iPhone models. This, in turn, could be the reason behind the lower volumes shipped by Infineon and the perceived secrecy associated with Marvell’s ‘key smartphone customer.’
TXN and STM - A study in contrast
Sunday, June 1, 2008
[In this two part series, I will compare the strategies of TXN and STM]
The 2007 revenues for both companies topped $10 billion. With very broad product portfolios, they compete directly in many markets including communications, computing, consumer electronics, industrial and automotives. Each company owns and operates its own manufacturing
While TXN is a
With this as a background, let us look at the contrasting strategies that these companies are executing on.
Manufacturing: TXN has diverted its manufacturing capabilities towards analog slowly migrating towards the fabless model for digital manufacturing. This move away from the Integrated Device Manufacturer (IDM) model to a more hybrid strategy has allowed TXN to become more nimble.
In contrast, STM seems firmly committed to the IDM model spending substantially in Capital expenditure and process technology research. Although it is engaged in joint R&D efforts with other companies like IBM to gain scale, this strategy may make it increasingly difficult for the company to compete with the aggressive pricing and product strategies from the fabless vendors.
TXN has been executing well on its target of 55% gross margin and 30% operating margin. In contrast, STM is struggling with about 35% gross margin and an operating loss of about 5% in 2007. The company aims to reduce its operating expenses to about 28%. This still implies single digit operating margins for 2008.
Qualcomm - Technology to Topology
Saturday, May 31, 2008
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.
An Open Letter to my readers
Thursday, May 29, 2008
I perennially think of topics that will benefit my readers. As I look to expand the scope of my blog and its coverage, I would like help from you, my readers.
My first request to you - Ask me questions. One of the first rules to get the right information is to ask the right questions. Active debate on this blog or mail exchanges, in turn, help me present new information in a lucid and logical analysis. I have a 'contact me' that will help you ask me questions in private. Of course, you can also ask them as blog comments. In either case, keep those questions coming!
My second request to you - send me a note if you find anything that you think would be relevant to the contents in this blog. You are also welcome to point me to any disruptive technology that you think deserves my attention.
My third request to you - point out my errors if you see any. I am of the view that receptiveness to constructive criticism is the best way to improve. So feel free to point fingers at me if you find anything wrong in this site. After all, it is the content in this site that has generated the credibility. I do not want to compromise on its quality, least of all by being closed to suggestions.
Finally, if you wish to contribute as a guest on my blog, you can contact me here. I welcome diverse opinions and analysis on the wireless/technology industry which do not necessarily have to resonate with mine.
Keep reading. Keep contributing. Together, we can get a better understanding of this complex industry and its value chain.
Samsung multi-sources 3G now
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.
Labels: Infineon, Interdigital, Nokia, QualComm, Samsung, STM
Infineon - more consolidation?
Wednesday, May 28, 2008
Ziebart, it is said, was a proponent of small acquisitions and organic growth. His exit seems to have come after internal management disagreements. With Ziebart gone, the doors are now open for larger mergers directed towards consolidation along the lines of the recent STM-NXP JV. One of the possibilities being floated around is a merger with NXP. Another possibility is a wireless JV with Freescale. Also, these possibilities are not mutually exclusively either.
Infineon, much like STM, has been in financial pains. The company (exclusing Ziebart) seems to be bitten by the European consolidation bug. The way I see it, Europe is consolidating its technology value chain and some changes in Infineon's strategy and management philosophy are inevitable.
I would opt for a mixed strategy. The small acquisition and calculated growth path that Ziebart believed is a good way to grow market share in new segments. This is also the strategy that another semiconductor giant, Texas Instruments is opting for. A Freescale JV to gain scale and compete effectively in wireless can complement this strategy.
But undoubtedly, the political and legal environment in Europe makes the NXP merger a real possibility as well. I repeat, European semiconductor manufacturers and the value chain are consolidating, and Infineon will be an active part of the big picture. So, don't be surprised if you see more mergers later this year.
Texas Instruments - Valuation Opinions
For a while now, I have been detailing Texas Instruments’ [TXN] failure to capitalize optimally on the impending wireless boom. In my valuation series, I pointed out that in addition to all its analog initiatives, if TXN had managed wireless better, my valuation would have increased from $32 to finish closer to the $40 mark. Nothing has changed since. But I am tempted to comment on a couple of recent analyst reports.
Citigroup’s Glen Yeung raised his rating of TXN to BUY from HOLD. Increasing the price target on the stock from $31 to $39, he replaced Intel (INTC) with TXN in Citi’s “Top Picks Live.” His report seems to be primarily based on TXN’s delay in wireless market share loss at Nokia. This in turn relies on recent comments from Broadcom indicating a delay in its EDGE ramp-up with the Finnish handset vendor. Glen seems to think that this “increased optimism in TXN’s handset revenue opportunity” will sustain TXN longer than consensus estimates.
With due respect, I think this is a very short-sighted opinion. This does not rightly reflect TXN’s longer term position in the wireless space, its overall strategy, its growth drivers and hence the intrinsic value. Share losses getting pushed out by a quarter or two merely increases its net present value but does not warrant this dramatic shift in the target price. Besides, as I have often mentioned, Nokia’s multi-vendor sourcing and TXN’s lack of a viable baseband roadmap are clear indicators that TXN has not dealt its wireless cards as well as it could have.
I find the valuation report from Thomas Weisel Partners’ Tore Svanberg and Brian Williamson much more credible. The report takes a longer term view of TXN. Their sum-of-parts analysis and their argument that analog will be TXN’s growth driver resonates better with me than the Citi report. Though the company is the analog semiconductor leader, it only has about 13% share leaving a big portion of the $35-40 billion TAM for it to exploit. As TWP notes, the analog growth should be strategized and executed through acquisitions.
While I agree on the analog aspects of the TWP analysis, I am not as sure if decreasing wireless contribution is good or was intended. (More detailed coverage here and here.) Assuming fixed resources, it is possible that TXN has consciously let go of its wireless business in exchange for the much higher margin analog business. The high performance analog segment generates operating margins that are greater than twice the average semiconductor industry margins. But does this warrant throwing away its leadership position in wireless? Couldn’t the company have pursued both businesses actively?
In summary, analog, and not wireless, will be TXN’s growth driver. While I am disappointed with TI as an industry observer, I also think that the company has compensated for this loss to a certain extent through its aggressive pursuit of the analog business. For now however, with the bird in hand slowly escaping, I think TXN’s stock price continues to hover around its intrinsic value.
ST Microelectronics - Valuation
Tuesday, May 27, 2008
[Originally for Sramana Mitra's site]
I value ST Microelectronics at just under $15 per share. This is about 30% more than its current value. Its strengths include its broad portfolio, its position in the strengthening European block and its resultant wireless business outlook. The operating constraints caused by STM’s geopolitical ties are growth deterrents. Its commitment to the IDM model can make it tough to compete effectively against the crop of nimble fabless companies.
While STM has been in the news recently for its wireless moves, its product portfolio extends from consumer goods to industrial automation solutions. Its IMS business will remain a steady revenue source. Its MEMS products are an important part of the highly successful Nintendo Wii. The company continues to supply advanced analog components and energy management solutions for various industrial applications. The IMS also offers growth drivers that STM is yet to address aggressively. The analog market has a TAM of around $37 billion that STM can look at once it has its wireless business logistics worked out.
Its wireless business, it appears to me, is increasingly becoming Europe and Nokia-centric. The company’s success and growth in wireless relies to a large extent on how it can bootstrap itself to Nokia’s success. While it has a good rapport with the Finnish-handset company, it cannot afford complacency. With Broadcom pushing as well to grab TI’s share as well through an aggressive product and pricing strategy, STM’s task is cut out. It has to anticipate and meet Nokia’s needs, being ready in the process to take further margin cuts.
The IDM model and Europe's labor laws will keep STM from reaping the full benefits of its wireless outlook. Its gross margins are below industry average at a low 35%. While the company is taking great efforts to become less capital-intensive, I am not sure how much more manufacturing efficiency the company can eke out. The divesting and merger activities to gain scale will provide some reprieve though.
In conclusion, I think STM is well-positioned in the wireless market to displace TI from its second position. But since this will not come at increased efficiency and margins, it does not increase the company’s value dramatically. While I am both curious and enthusiastic about STM’s wireless future, I will shy away from investing in the company just given the baggage it appears to come with.
Read the full article>>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>>Labels: BroadCom, Nokia, QualComm, ST Microelectronics, STM
ST Microelectronics - NXP JV
Sunday, May 25, 2008
[Originally for Sramana Mitra's site]
In the last part of this series, we looked at STM’s strategic initiatives that are aimed at making the company more nimble and profitable. A very important part of this strategy was unveiled last month when the company decided to form a Joint venture with its wireless business and that of NXP. Before moving on to STM’s wireless business and outlook, it is important to understand the dynamics behind this move.
As per the deal, STM will have control on the JV with about 80% stake. The company will pay NXP $1.55bn to close the deal in the third quarter. With revenue totaling about $3bn in 2007, the JV had about 10 percent of the global market, according to iSuppli. Besides, the synergies are expected to save up to $250mn in 2011.
While STM has steadily encroached into TI’s market share by denting its Nokia and EMP 3G accounts, NXP is a 2/2.5G supplier to tier-1 and tier-2 vendors including Samsung. Besides the scale, the JV will have a strong IP position with over 3500 patent families. This, in turn, gives it greater negotiating power in IP cross-licensing discussions further increasing its margins.
Besides establishing a strong R&D team focusing on media convergence and energy management, the JV now has a complete portfolio of connectivity solutions. These technologies – WiFi, Bluetooth, FM and GPS - will be integral to tomorrow’s convergence devices. These connectivity solutions complement the company’s baseband, application processor and RF products, allowing the company to offer them as part of a state-of-the-art single stop mobile platform. For more details on the STM-NXP JV and its effects on the wireless industry, I will direct the interested reader to my articles here and here.
The wireless industry, especially the 3G chip vendor space, will consolidate and the stronger players will pick themselves out of the crowd. The JV is STM’s statement of arrival. Over the last couple of years it has made tremendous strides culminating in design wins from Nokia and Sony Ericsson. The JV will perhaps not make an immediate impact in its product line. It, however, expands its customer base and also positions STM to exploit the convergence market over the next few years.
Read the full article>>Labels: Bluetooth, GPS, NXP, ST Microelectronics, STM, Wi-Fi
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