Trying to form a sense of the sprawling chip market for mobile phones is akin to getting a tape measure around an elephant’s waist.
With dozens of players and product types, the chip industry that enables the fantastic functions of today’s mobile phones is indeed a moving beast in a dense ecosystem. You can hack your way to the remote plateau where this beast lives, but conditions prohibit shooting a satisfactory, full-length movie. Snapshots, however, are possible.
With mobile phones becoming the most ubiquitous consumer electronic device in history, the chip industry that enables those phones to function has also grown, though growth is incremental in revenue terms due to intense competition driving down chip prices.
Who leads what, and where
A glance at the match-ups between handset vendors and their chip partners (among top five market share holders in the four basic chip types) is one way to size up the beast.
- According to Lehman Brothers, Nokia Corp. does significant business with Texas Instruments Inc., Infineon Technologies AG, RF Micro Devices Inc., ST Microelectronics and Skyworks Solutions Inc.
- Motorola Inc. relies on Qualcomm, Inc. Freescale Semiconductor Inc., RF Micro Devices, Skyworks and Triquint Semiconductor Inc.
- Samsung Electronics Co. Ltd. utilizes products from Agere Systems Inc., Qualcomm, Silicon Laboratories Inc., Triquint and RF Micro Devices.
- Sony Ericsson Mobile Communications depends on Broadcom Corp., NXP Semiconductors, Skyworks, ST Microelectronics and TI.
- LG Electronics Co. Ltd. uses chips from Qualcomm, Silicon Labs, Skyworks, TI, Triquint and RF Micro Devices.
“These are long-established relationships,” said Taylor. “Keep in mind that each handset vendor has various value levels in their portfolio, and they make products in different air-interface technologies. That’s why the handset vendors rely on a variety of component vendors.”
According to IDC, worldwide mobile-phone semiconductor revenue grew 4 percent to $18.5 billion in 2005 from the prior year. (This figure excludes image sensors, memory and general purpose chips.) Dominant chip vendors continue to fare well, despite price competition. Digital baseband revenue grew slightly, while analog baseband and transceiver revenue shrank a bit. Hard data for this year is months away.
IDC reports that, in terms of overall revenue, TI and Qualcomm ranked as the largest chip vendors last year. TI grew revenue from the prior year by 18 percent and is expanding its portfolio in 2.5G and 3G technologies, particularly in W-CDMA, which grew by 46 percent from 2004 to 2005. Qualcomm grew overall revenue by 8 percent from 2004 to 2005, retaining a dominant share in CDMA2000 1x EV-DO and growing W-CDMA revenue. (Whether Qualcomm can maintain its position may depend on the outcome of various lawsuits and anti-competitive complaints lodged by competitors and customers in court and before international trade authorities.)
Freescale, ST Microelectronics and NXP held the third, fourth and fifth positions overall in the market last year, little changed from the prior year. Infineon held the sixth position last year; it has cut its workforce in response cancelled sales to BenQ Mobile, which is shuttering various handset units outside its Asian markets. One maverick on the loose, according to IDC: Mediatek made the top 10 in 2005 from 25th the prior year, based on chip sales for multimedia phones in the fast-growing Chinese market.
This monolithic, revenue-based approach, however, does not provide a good sense of the various players’ strengths and portfolios, said Chris Taylor, an analyst at Strategy Analytics’ component group.
“Really, nobody is strong in all four categories at this time,” Taylor said.
Adding value
One major market trend is adding value to one’s portfolio by moving into chip categories beyond your traditional strength, Taylor said. Power amplifier players are getting into transceivers and baseband chips and vice versa. Comparing players is thus akin to an apples-and-oranges exercise.
“This diversity of portfolios among the players makes the component market interesting to determine how it all gets sorted out,” Taylor said. “Expanding your portfolio has been going on for some time and the reason is that the handset market is a moving target, as vendors add more features for consumers. If the market was static, TI and Qualcomm would take over the world in six months.”
Other trends to watch include the uptake of 3G handsets and devices with features that require higher-end chipsets with attractive margins for the chip vendors. And at the other end of the market, sales volumes of low-tier phones in the emerging markets that feed the high volume, low-margin business of vendors who ply that sector.
“You have to have a broad footprint in many areas to survive in this market,” said Flint Pulskamp, semiconductor analyst with IDC. “Or, you can be a niche player.”
Stock market impact
Headlines are filled with zig-zagging quarterly results, news of technical breakthroughs and sales wins that match up chip vendors and handset makers-a dizzying onslaught of information that makes one leery of interpreting the results. One result of the volatility reflected in quarterly earnings reports: NXP and Freescale have gone private, in part to escape the punishing cycle of quarterly results and stock values that batter public companies.
Pulskamp cautioned, however, against reading too much into chip vendors’ quarterly results or the stock market’s subsequent gyrations.
“You have to be careful about connecting short-term, stock-price trading with longer-term technology investment,” Pulskamp said.
For instance, when TI recently reported strong third-quarter results, it also posted a weak sales outlook for the fourth quarter. TI’s stock lost some ground. Readers of the market’s tea leaves pondered whether that implied that Nokia, one of TI’s biggest customers, would see slowing handset shipments.
“It’s very tough to generalize, based on quarterly results,” Pulskamp said of the notoriously volatile quarter-by-quarter results of chip vendors in general. “The short answer is: TI is doing fine in its long-term prospects. If low-cost phones are driving global handset growth, where Nokia is most competitive, Nokia and its suppliers should do fine.”
Of course, opinions differ on whether measuring the elephant’s waist or taking its pulse will yield insights into its overall health. Despite projections by financial analysts and market watchers that point at 2006 as the year that all handset vendors globally will ship a billion handsets (give or take 5 percent), at least one observer disagrees.
Will Strauss, principal at Forward Concepts, a semiconductor market analysis firm, said recently that his firm has lowered its forecast on digital signal processors-a component of baseband chips, the heart of a phone-from 15-percent growth to 10-percent growth. The mobile phone industry consumes about 75 percent of DSP chips, he said.
“This will not be the year that we pass the billion handset shipment mark,” Strauss said.
