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Analysis: ST, Renesas failed to see the bigger mobile picture

Posted: 26 Mar 2013 ?? ?Print Version ?Bookmark and Share

Keywords:4G LTE? mobile chip industry? baseband?

Junko Yoshida thinks that the reason why the mobile ventures of STMicroelectronics and Renesas failed because they adopted a traditional business model!serving only tier-one handset customers like Motorola, Nokia, Samsung, Sony-Ericsson!which eventually became irrelevant as China rose to dominate the current smartphone market.

Earlier this week, upon returning to my hotel from an interview with Spreadtrum CEO Leo Li at his office here, I found in my e-mail inbox the announcement on the breakup of the ST-Ericsson joint venture.

Ericsson is taking over the 4G LTE multi-mode slim modem product line. ST alone will oversee existing products including the legacy modem business, RF, Power Management and NovaThor integrated apps processors, according to the announcement.

A week ago, Renesas Electronics back in Japan announced that it is "reviewing" the direction of its mobile business. The implication is that it has decided to divest Renesas Mobile or explore alternate business models for its mobile subsidiary.

Both ST-Ericsson and Renesas Mobile, in search of buyers, are likely to ditch their mobile baseband business, just as Texas Instruments, Freescale and Analog Devices did years ago.

Strategy Analytics' analyst Sravan Kundojjala blamed ST-Ericsson's breakup on "duplication among legacy products, transition to a new product roadmap and constant management changes." The analyst said that the joint venture struggled to integrate multiple companies and execute on its original plan.

Other industry observers might posit similar reasons for Renesas' failures, since Renesas Mobile, too, is a company based on the integration of several different companies!including Nokia's former modem team.

Kundojjala may be correct. But I think his analysis misses a crucial point: both companies failed to recognise how a traditional business model!serving tier-one handset customers!became irrelevant to ultimately winning the global mobile battle.

As Li put it, 10 years ago, "you were OK," if you got design wins from handset vendors in the United States and in Europe. It's because "those tier-one guys!Motorola, Nokia, Samsung, Sony-Ericsson, etc.!held 90 per cent of the global market share."

Today, the share of the traditional tier-one companies is only 40 per cent. The rest of the market is China, according to Li.

Further, China's smartphone market today, estimated to be 240 million units in 2013, is much bigger than that of the United States, projected to be about 125 million units, according to market research firm Canalys.

And guess what? Practically every smartphoneCregardless of brand!is manufactured in China today.

Without addressing the burgeoning Chinese market and the needs of local handset vendors who demand chip suppliers to do a lot more hand holding, mobile IC vendors like ST-Ericsson or Renesas Mobile have seen their market share sharply plummet in recent years.

Another reason for paying attention to China's handset vendors!including the many local design houses!is that they hold the key to the global market beyond China, in such countries like India, Africa and South East Asia.

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