News that the world’s largest chip maker, Intel Corp., plans to purchase mobile-phone chipset maker DSP Communications Inc. for $1.6 billion in cash left some analysts concerned last week that CDMA innovator Qualcomm Inc. may wreak havoc on the benefits.
DSPC licenses Code Division Multiple Access technology from Qualcomm and is the only merchant CDMA chip licensee that is shipping product and actively competing with Qualcomm, a company that today enjoys a commanding lead in the wireless chipset market.
Analysts are jittery because Qualcomm is in the midst of renegotiating a license with Royal Philips Electronics NV after its purchase of another CDMA merchant licensee, VLSI Technology Inc., in June. It’s widely known that Qualcomm wants to limit the number of CDMA chip licensees, say companies competing in this space. However, Philips executives say a new deal is imminent.
“DSP had a decent product and some brand recognition somewhat equal to Qualcomm,” said Jane Zweig, senior vice president with Herschel Shosteck Associates Ltd. in Wheaton, Md. “Now Qualcomm will be competing against Intel. It has nothing to do with technology and more to do with product branding and positioning. Intel is a 9-trillion-pound gorilla.”
Intel President and Chief Executive Officer Craig Barrett consistently reassured analysts during a conference call last week that Intel would acquire the necessary licenses to meet the company’s business needs.
Qualcomm spokeswoman Christine Trimble confirmed that Intel will have to renegotiate DSP’s license with Qualcomm.
“Our goal with licensing is the adoption of CDMA worldwide, and having Intel in the CDMA market would be very positive for CDMA’s future,” said Trimble.
Intel sees DSPC, which makes CDMA, TDMA and PDC handset chipsets, as a beach head for Internet connection via mobile phones. The Internet increasingly will move into the wireless arena, Intel recognizes, and it wants to become the leading building-block supplier of the Web. Intel, which controls about 80 percent of the computer chip market, has been on a buying spree in the last two years, acquiring 11 networking and communications equipment manufacturers.
“This is definitely the first step of a bigger strategy to become as an important player in the wireless handset chip market as they are in the PC market,” said Brian Prohm, senior industry analyst with Dataquest. “The whole move is a clear indication that more players from the PC world are realizing the mobile telephone is the PC of the future.”
Digital signal processing technology “is the ramp to the Internet,” said Will Strauss, analyst with Forward Concepts. “Intel realizes the wireless market is growing faster than the PC market.”
DSPC’s primary focus is making baseband chipsets for the cellular market, and the company has a large presence in Japan, where operators are likely to deploy third-generation technology before the rest of the world.
“Emerging 3G standards are more complex and require integrated designs,” said Davidi Gilo, chairman and CEO of DSPC. “The challenge to support these is great. Intel is well suited to address these challenges.”
DSPC last month introduced its first chip and system software for cdma2000 technology. Last year, DSPC announced plans to develop W-CDMA chipsets for third-generation handsets.
DSPC’s agreement with Intel calls for DSPC to become a wholly owned subsidiary of Intel. The agreement provides for a cash tender offer to acquire all of the outstanding shares of DSPC common stock at $36 per share.
Intel already has a partnership with Analog Devices to develop DSP core and architecture. That partnership will remain intact, said Barrett.
“My opinion is Intel will aim only at the handset market rather than the base-station market,” said Strauss. “In their joint venture with Analog Devices, they get the lower-volume base station market, while Intel gets to take the handset market.”
DSPC announced net income for the third quarter was $10.4 million, or 24 cents per share, compared with $8.7 million, or 21 cents per share, the previous year. Revenues increased 18 percent to $41.2 million.
