Although the global market for mobile handset baseband semiconductors will continue to expand in 2008, business conditions for suppliers of such solutions will become more challenging due to the shrinking top-tier customer base and more complex requirements from these companies, according to iSuppli Corp. These factors are driving up research and development requirements. The challenge now is how to address the rising cost of remaining competitive while maintaining profitability. Success in this type of business environment relies on many factors, but one of the key ingredients is achieving critical mass – both in terms of volume and in research and development.
Global mobile handset baseband semiconductor revenue will rise to $16.6 billion in 2008, up 9.3% from $15.2 billion in 2007. Further, total handset semiconductor market revenue will expand to $48 billion by 2011, rising at a compound annual growth rate of 4.4% from $38.6 billion in 2006.
However, in 2007, iSuppli estimates that more than 80% of the demand for such semiconductors was generated by the top five mobile handset original equipment manufacturers. This is up from slightly less than 70% just three years ago. This concentration of demand is continuing to increase. Moreover, due to the importance of simultaneously addressing the often conflicting requirements of the high-end handset-upgrade segment as well as the low-end new-sales segment, these same top five handset OEMs are required to introduce more models in shorter time periods than they have ever had to before.
These models must be offered in a variety of form factors, user interface/experiences and application support levels and in the right mix of feature sets to provide relevant differentiation for a given target audience and price range. This is driving the handset OEMs to introduce an increased number of models in the mid- and high-end segments. This also is forcing them to try to figure out how to deliver these capabilities in the price-sensitive lowcost/ entry-level market.
Move to platform-based reference designs
With the maturation of most voice and data networks, as well as the successful mass adoption of the handset among consumers besides the techno-savvy power users, the handset OEMs are also no longer able to differentiate on the basis of on-air interface technology. This is because most consumers do not necessarily care which technology is used as long as they can do what they want to do, when they want to do it – and look good doing it.
Consequently, the top five mobile handset OEMs are shifting toward more platformbased reference designs to leverage across multiple models. They also are making greater use of single-chip solutions integrating not only the baseband and the RF transceiver, but also multimedia and extra connectivity solutions – i.e. Bluetooth and wireless local area network – for the low-end/entry-level segment. Both these types of solutions require high levels of intellectual property and expertise in all major functional areas of the handset.
This is where scale really plays a major part for the handset semiconductor suppliers as a means of both supporting the R&D required to competitively field single-chip and platform-based solutions while still generating acceptable margins. All things considered, iSuppli estimates the critical mass threshold in this context to be around $1 billion in revenue for these suppliers. The effect of achieving this critical mass can best be quantified by comparing the market share of suppliers with revenue of $1 billion or more from 2004 to the present where it grew from 54% to 75%. This percentage is expected to increase in the future. To achieve this goal or to improve on their already existing scale, semiconductor suppliers are engaging in multiple undertakings, including organic growth for those who are already well positioned as well as mergers, acquisitions and partnering.
The charts show the number of billion-dollar-plus suppliers in 2004 compared to the first half of 2007. In 2007 alone, significant M&A and partnering activity included: The Infineon/LSI acquisition; the MediaTek/ADI acquisition; the NXP/SiLabs acquisition; the TI/EMP partnership; the Nokia/STMicro partnership.
iSuppli expects this consolidation and partnering trend to continue in 2008.
Francis Sideco is a senior analyst for wireless communications at iSuppli Corp. For media inquiries on this article, please contact Jonathan Cassell, editorial director and manager, public relations, at [email protected] For nonmedia inquiries please contact [email protected]
Find out more about the wireless market with Sideco’s latest report, RF Components: Calm Surface Belies Turbulent Depths. For more information on this report, please visit www.isuppli.com/catalog/detail.asp?id=8833
