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Ultralow-cost phones ring in chip opportunities

Posted: 03 Mar 2008 ?? ?Print Version ?Bookmark and Share

Keywords:ultralow-cost phones? ULC phone? 3G?

Handset sales are being driven by two very different markets: feature-rich 3G phones and ultralow-cost (ULC) phones. In developed countries, handset makers can only achieve revenue growth by offering phones with must-have featuresthe iPhone being a prime example.

The list of features for these phones is amazing. In addition to handling numerous cellular air interfaces, the phones must support Bluetooth, Wi-Fi, FM and other communications standards. On top of this, they must provide high-quality A/V experiences. The list goes on.

To deliver these features at price points that attract consumers, wireless chip vendors must make enormous R&D investments; vendors that under-invest risk being left behind. This was a key problem for Agere Systems Inc. In 2006, the company spent $445 million on R&Da total that included spending on non-handset technologies such as its hard drive controller business. Compare that with Qualcomm Inc., which spent $1.5 billion on R&D, most of it handset-related. That spending gap was likely a key factor in Agere's sale last year. It could no longer compete on its own.

Even with intense investment, developed markets offer limited opportunities. To maintain their growth, handset makers must develop ULC handsets for countries such as China and India. According to ABI Research, "The developed markets' high saturation rates mean that over 80 percent of new mobile phone subscribers in the next five years will come from emerging markets."

Agent of change
The growth of the ULC handset market is changing the dynamics of the handset business. Traditionally, a handset manufacturer would rely exclusively on one vendor to supply chips for all its phones. That resulted in a small number of vendors dominating the market. ULC phones are changing this model.

TI maintained its DSP market share lead in 2007, but the DSP market looks to be even more competitive this year. (Click to view full image)

ULC phones use commoditized technology for which there are many providers. Having multiple vendors gives handset makers more design flexibility and more power to negotiate lower prices. Thus, handset vendors are using multiple sources for their ULC offerings. For example, Nokia Corp. no longer relies exclusively on Texas Instruments Inc. for baseband chips in its ULC phones. Instead, the company last year announced partnerships with Broadcom, STMicroelectronics and Infineon. Similarly, Samsung now uses an NXP solution for its ULC handsets. A big winner in this shift is CEVA Inc., which supplies DSP cores to all of these second-tier players.

The opportunities for second-tier players are huge for this year and beyond. The future looks particularly promising for Infineon. "Infineon's ambitious goal is to be among the top three cellular chip vendors by 2010, and they have a good shot at it," said Will Strauss, president and founder of Forward Concepts, a market research firm.

Ironically, one reason for Infineon's strong position is that it acquired Agere's wireless business. While Infineon seems well positioned for the future, other second-tier players may fall victim to industry consolidation. In addition to Infineon's acquisition of Agere's wireless business, 2007 saw NXP purchase SiLabs, and Mediatek buy ADI's wireless business. In short, while the future looks risky for vendors that do not make sufficient R&D investments, the market is full of promise for those that give handset manufacturers a viable alternative to TI and Qualcomm.

- Kenton Williston is site editor of DSP DesignLine.

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