Smartphones a bright spot for chips: GPS, Wi-Fi, Bluetooth, 3G help in down year

No one can miss the dark clouds streaming overhead, but analysts say that without the expected growth in smartphone sales, those clouds might blot out the sun altogether.
Handset sales, of course, drive chip sales, and most analysts have been revising their forecasts downward for general handset sales. Both handset and chip channels have excess inventory to clear this year, analysts have observed.
Though smartphone growth is projected to slow considerably from last year, that bright spot will help a number of wireless chip providers survive an otherwise scorching environment.
A snapshot
Deutsche Bank analyst Brian Modoff on Jan. 12 was among the latest to lower his estimate for 2009 handset volumes to negative 10%, down from negative 6.4%, based on low demand in Europe and the Americas. Modoff projected slowing growth in emerging markets. Asia and Africa are projected to be down in the low single digits. China and India are expected to be flat.
“Visibility is poor across the industry,” Modoff wrote.
Earlier this month, JP Morgan analyst Christopher Danely lowered his estimate of all chip sales – of which wireless-related sales are a big driver – this year to negative 20% from negative 17%, following a report by the Semiconductor Industry Association on a steep decline in chip sales in November.
Bright spots
The wireless chip picture is “a mixed bag,” said analyst Will Strauss at Forward Concepts. “Overall, it’ll be down for nearly everyone.”
But smartphones increasingly offer GPS, Wi-Fi and Bluetooth functionality in addition to 3G connectivity, so vendors of chips for those functions will fare better than, say, vendors of merchant 2G baseband chips, Strauss said.
“These are bright spots,” Strauss said. “3G in general is still growing, UMTS/HSPA is still growing. That’s a good thing. Those selling feature phones and plain vanilla handsets are seeing unit growth stall.”
Qualcomm Inc., which makes significant profits from its I.P.-licensing business, also has a thriving business in smartphone chips, so “they’ll fare okay” though chip sales may be flat, according to Strauss.
Qualcomm recently announced that it had supplied the baseband chip for Palm Inc.’s new Pre, which debuted to significant fanfare at the Consumer Electronics Show earlier this month. And, among its diverse offerings, Qualcomm also has secured 15 original equipment manufacturering partners and 30 design wins in the burgeoning market for netbooks and mobile Internet devices with its Snapdragon processor.
Freescale Semiconductor has also targeted netbooks, which typically offer GPS, Bluetooth, Wi-Fi and 3G connectivity, in addition to processors.
Texas Instruments Inc., which does 3G chip business with Nokia Corp. and Ericsson Mobile Platforms, also has significant business in 2G and 2.5G chips, which may constrain its business this year, the analyst said.
“T.I. will probably be more than slightly down this year,” Strauss said.
Freescale, which has seen former owner Motorola Inc. go elsewhere for 3G chips, will be among the “walking wounded” this year, according to the chip analyst. The company, now owned by venture capitalists, is attempting to sell its wireless chip business, Strauss said.
Location lends a hand
According to IMS Research, 2008 was a “breakout year” for GPS in mobile phones. In 2009, GPS chips are expected to turn up in cameras, laptops, ultra-mobile personal computers, even sporting equipment to drive 25% year-on-year growth. Location services championed by Google Inc., Microsoft Corp., Apple Inc., Nokia Corp., Intel Corp., Mozilla and Ericsson Mobile Platforms will bolster this growth, according to Tom Arran, IMS Research analyst.
One caveat to this rosy scenario, Arran said: “poor performance in challenging environments.” Thus, the need for “hybrid location,” which the analyst defined as the use of more than one technology to establish a user’s position.
“For example, the use of Skyhook’s Wireless Position Service, alongside a GPS solution, will be able to offer location information in a wider variety of environments and is considered a hybrid solution,” Arran said.
Companies that should benefit from growth in location services by providing GPS and/or hybrid solutions include the big names such as Qualcomm, T.I., Infineon Technologies A.G., Broadcom Corp. as well as SiRF Technology, Seiko-Epson and STMicroelectronics, plus emerging players including CSR and Atheros, according to Arran.