Samsung has diversified its suppliers of UMTS baseband chips to include Infineon Technologies AG, leaving the world’s second-largest handset vendor less dependent on Qualcomm Inc., Samsung confirmed.
“This is no surprise,” said Will Strauss, principal at Forward Concepts, which tracks the mobile chip market. “Samsung is looking to counter Qualcomm’s hegemony in that market.”
“Samsung has long chafed at Qualcomm’s royalty rates for UMTS,” Strauss added.
Infineon is the world’s second-largest holder of UMTS/W-CDMA IP after Qualcomm, according to Strauss.
“In order to raise cost competitiveness, we have been supplied by Infineon (with UMTS baseband chips),” Samsung said in a prepared statement. “We have been diversifying parts supply sources.”
Samsung’s decision to use Infineon, as well as Qualcomm, for its UMTS baseband chip supplies echoed a similar decision taken last year by Nokia Corp. to turn to new chip suppliers to compete with Texas Instruments Inc., its former main supplier. TI, in turn, mounted a PR campaign to reassure the media and the markets that it remained a key Nokia chip supplier and had targeted growth markets to replace any lost Nokia business, including mobile Internet devices.
Qualcomm declined to comment on Samsung’s new relationship with Infineon for UMTS chips.
Purchasing power
The purchasing power and influence of the world’s top mobile-phone vendors cannot be discounted, according to analyst Francis Sideco at iSuppli Corp. Sideco wrote in a recent column for RCR Wireless News that in 2007, the top five handset vendors accounted for 80% of the global demand for wireless semiconductors. Thus Samsung’s business with Infineon should help the chip vendor, which last week issued a profit warning for the second quarter, citing “lower volumes in certain wireless platform projects.” UBS analyst Gareth Jenkins wrote in a research note last week that Infineon’s warning probably relates to “changes in the ramp of the Apple 3G iPhone.” Infineon is believed to be supplying the UMTS chip for that device as well.
Samsung has been working for some time to diversify its UMTS chip supply, Strauss said, but until now, “there’s been no credible second source for UMTS chips.”
Infineon stock strains
The news appeared to be a boost for Infineon, though its stock tumbled 5% after the Samsung announcement. Last quarter, Infineon lost nearly $2.2 billion and, subsequently, CEO Wolfgang Ziebart resigned, effective June 1. The company’s overall loss was largely due to losses in its DRAM memory business, Strauss said. Infineon said it would focus on improving its own margins through portfolio management and manufacturing-cost management.
“The company has a great IP portfolio and its prospects are quite good, despite competition in the DRAM business,” the analyst said. “Infineon is coming back stronger than expected.”
According to the analyst, Qualcomm has charged Samsung 5% of the OEM’s value of handsets containing Qualcomm’s UMTS baseband chips, which could eat into a large slice of Samsung’s profit margin. Thus Samsung’s pursuit of an alternative supplier, which could help it negotiate lower IP and chip prices with Qualcomm.
Despite the win with Samsung, Infineon may be looking to partner or merge with another major semiconductor company, according to MarketWatch, which named both NXP Semiconductor, largely owned by private-equity firm Kohlberg Kravis Roberts, and Freescale Semiconductor, now held by Blackstone Group, also a private-equity firm. Analysts have said that M&A in the chip business is likely to continue.
Meantime, the Taiwan Semiconductor Manufacturing Co. – a chip foundry that serves fabless semiconductor vendors, including a portion of Qualcomm’s business – told the Associated Press that it is considering a price increase for its customers. TSMC cited falling ASPs for chips and rising research-and-development costs as pushing it to determine a new pricing model that could affect companies such as Qualcomm.
