Texas Instruments Inc. said last week that it will sell or shutdown its merchant baseband chip business, and focus on application processors and multimedia for smartphones.
The news appeared to be driven by a slowdown in orders, increasing competition in the merchant baseband sector and a need, felt by most companies, to cut costs in a time of economic uncertainty.
T.I. last week reported that third quarter revenue was down 8% from the year-ago quarter and income was down 26%. The outlook, said CEO Rich Templeton, was for further drops in revenue in the current quarter. Templeton said the company would reduce inventory, expenses and capital spending.
Smartphone focus
And T.I. will ditch merchant basebands – commoditized basebands for myriad second-tier handset vendors – to focus on a more profitable and growing market serving the smartphone segment. The company projected that that would save about $200 million annually, about one-third of its wireless-related expenses, effective by June 2009. A sale, should it happen, would be completed within “a few months,” a spokeswoman said.
“T.I.’s OMAP application processor can be married to anyone’s baseband chip,” said Michael Thelander, CEO of Signals Research Group. With smartphone growth, T.I. has more opportunities in this direction. Software is more complex than the connectivity technology.”
Market “gone to hell”
“The chip vendors’ outlooks are based on the fact that the market has gone to hell,” said Will Strauss, principal at Forward Concepts, on the bigger economic picture. “A lot of people, across the board, are cutting back orders in anticipation of a slow fourth quarter – even toy makers. The outlook is pretty cloudy, so they’re cutting back on expenses.”
T.I. said last week that, should a sale not work out, it would continue supporting existing customers but eliminate “almost all operating expenses” associated with the merchant baseband operation.
Asian competition fierce
According to Strauss, intense price competition from Taiwanese and Chinese vendors working the merchant baseband market – including MediaTek in Taiwan and Spreadtrum in China – has sent T.I.’s average selling prices plummeting for 2G and 2.5G baseband chips.
“The drive among handset vendors for low prices for merchant basebands gives the Taiwanese and Chinese merchant baseband providers an opportunity to undercut the market,” Strauss said.
More on MIDs
In other chip news, Ericsson Mobile Platforms added its name to the vendor list for HSPA data solution providers for mobile Internet devices, or MIDs. Ericsson joins Icera (UMTS), Qualcomm Inc. (CDMA) and other players. Intel Corp. confirmed that its own Moorestown MID processor was compatible with Ericsson’s HSPA solution, which may boost Ericsson’s fortunes in that nascent device space, but the two companies do not have an exclusive relationship. MID vendors who use Intel’s Moorestown platform simply know that Ericsson’s solution is compatible with Intel’s, analysts said.
Intel intends to serve WiMAX markets, but also HSPA markets such as Europe, Thelander said. So Intel’s customers – MID device makers – can choose Intel’s processor and Ericsson’s module, knowing they’ll work well together.
Qualcomm, the wireless industry’s leading semiconductor supplier, will report on its final fiscal quarter and full-year results on Nov. 6.
