The W-CDMA baseband chip business is morphing in real time, as various market pressures push and pull the players to partner, diversify their customer base or pursue less-demanding technologies.
Data from Forward Concepts (see chart) shows that last year Texas Instruments Inc. was the global leader in WCDMA baseband chip sales as it supplied Nokia Corp. and Ericsson Mobile Platforms (EMP), which provides WCDMA to Sony Ericsson Mobile Communications and other handset vendors. (Nokia and SEMC are the No. 1-and No. 4 handset vendors, globally.)
Qualcomm Inc. had the next big chunk of business by virtue of its relationships with Samsung Electronics Co. Ltd. and LG Electronics Co. (the No. 2- and No. 5 handset vendors).
NEC provides W-CDMA technology to a handful of Japanese handset vendors, which serve NTT DoCoMo Inc.’s FOMA network. Freescale Semiconductor has worked exclusively with Motorola Inc. on W-CDMA, since being spun off by the handset giant, which just slipped from No. 2 to No. 3 in global handset vendor rankings during the second quarter.
Meanwhile, Infineon Technologies, Broadcom Corp. and NXP provided vendors with samples of their W-CDMA products last year and had not shipped significant quantities in the first half of this year, according to analyst Will Strauss at Forward Concepts.
Shifts expected
The players’ market shares are expected to shift during the next few years as a result of Nokia’s recent announcement that it would diversify its chip suppliers and tap ST Microelectronics for UMTS-the European variant of WCDMA-as well as maintain its relations with TI. (Motorola also has announced a diversification strategy and will work with Qualcomm, TI and Freescale.)
“The Nokia news really does change the landscape of the chip supply business,” said Strauss.
Last year, Qualcomm and EMP were the only major suppliers of W-CDMA chips to the “merchant market,” which means they could sell their 3G products to any vendor.
In contrast, the W-CDMA baseband chip landscape has been largely governed by “captive” agreements, in which the handset vendor and chip supplier-for example, Nokia and TI, Motorola and Freescale-worked together on chip designs to enable the handset features desired by the handset vendor. In Nokia and Motorola’s cases, the handset vendors provided a significant portion of the intellectual property necessary to drive the silicon provided by the chip supplier.
Those captive agreements worked well at the time they were struck. But in Nokia’s case, the decision to move beyond TI for W-CDMA, EDGE and GSM chips will allow it to have multiple sources of chips and that likely will drive down its chip costs as well as enable it to spread the cost of research-and-development among several partners. At the same time, Nokia will license its UMTS/W-CDMA chip IP to any and all comers, which is designed to create a new revenue stream and, according to Strauss, puts pressure on Qualcomm to consider lowering its prices.
“The Nokia announcement really says, ‘We’re going to get chips cheaper in the future,'” Strauss said. “And now Nokia has branched out into licensing UMTS. Until now, Qualcomm was the only company licensing UMTS. My guess is that this will force Qualcomm to lower their prices and it will bring a whole new element to negotiations between the two companies on cross-licensing.”
The new landscape means that TI, for instance, has been developing its own W-CDMA IP for the merchant market, with an eye to developing new relationships with vendors beyond Nokia. While the merchant market offers opportunity, it remains risky. The remaining handset vendors do not have the market share to support volume orders on the scale of a Nokia.
“TI saw this coming,” Strauss said, “and knew it had to broaden its market beyond Nokia.”
Secondary supplier challenges
John Jackson, analyst at Yankee Group, said that handset vendors’ diversification of suppliers does not guarantee that secondary suppliers would thrive in the UMTS/W-CDMA market.
“I’m skeptical of big volume opportunities in the next 12 months, if you’re the second source,” Jackson said. “The transition to 3G has precipitated consolidation and privatization in the chip space. And there’s more to come.”
That also means that new aspirants to the 3G chip market will find it difficult to enter the market, according to Jackson. The fallback is to focus on GSM/GPRS/EDGE opportunities in the emerging markets.
“Is there meaningful new market opportunities for new entrants?” Jackson asked, rhetorically. “The cost and timeframe for credible 3G products may limit new entrants. Yet some vendors are gaining traction, such as Broadcom.”
The Nokia announcement underscores how the largest handset vendors can throw its demand for volume behind such a peripheral player and bring it into the limelight, Jackson said.
But for existing players, the arc of 3G uptake means, in Jackson’s view, that “there’s a reasonably confident, five-year outlook for 3G growth.”
The big picture outcome of these ongoing market shifts?
“I don’t see any fortunes changing this year,” Strauss said. “Nokia’s strategy will affect the players in the second half of next year. The players have a little time to ameliorate any problems. Certainly it’s causing every player to re-examine their position in the market and determine how to play in a new market.”
