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Pressure on chips: Shakeout possible among small WiMAX silicon providers

As goes the handset market, so goes the chip market – with a few notable variations on the theme.
The slackening demand for handsets has caused an inventory buildup among chip suppliers’ channels, will dampen those suppliers’ revenue in the new year and may lead to a joint venture among two well-known firms, according to several analysts.
Even if Nokia Corp.’s forecast for negative 5% or more growth in the handset market this year turns out to be optimistic, few name-brand casualties are expected in the semiconductor business and technology will march ahead, analysts said.
“My bias is to the downside in a recession with a worldwide impact,” said Michael Thelander, principal at Signals Research Group L.L.C. “But nothing bad is going to happen to the well-known
names. Five to 10% negative growth in handset shipments isn’t going to send them out of business. Dominant players in 3G technology will do okay.”
Chip suppliers have learned many lessons in an industry that runs hot and cold in the best of times, according to Francis Sideco, analyst at iSuppli Corp. The big names in the industry are mostly “fab-less” or “fab-lite,” which means they have developed the ability to ramp up or ramp down production – which is completely or partly outsourced to independent foundries – according to their customers’ demands.
And that means, in part, that the development of new technologies will continue unabated, said Thelander.
Thelander sees no interruption to the march of Long Term Evolution technology, but he does see shakeout and consolidation among WiMAX chip suppliers. Their ability to gain market traction will be diminished and large customers may refrain from working with them, the analyst said. But that’s due to the credit crunch, not slowing handset sales.
“The WiMAX field is due for consolidation and this downturn will accelerate that trend,” said Thelander.
Meanwhile, chip suppliers are working to take 14 to 17 weeks’ of inventory down to a more manageable 13 to 14 weeks, according to Sideco.
“Normal seasonality will be blown to bits this year,” Sideco said.

Giants to merge?
Sideco said that two well-known chip suppliers – he declined to name them – may well form a joint venture this year to gain scale in research and development and production volumes, but without huge requirements of cash or credit.
Strauss concurred.
“It’ll be like two little old ladies helping each other cross the street,” Strauss said.
Meanwhile, chip firms that make a differentiated application processor and/or 3G chips – markets boosted by smartphone growth


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