The rising cost of developing wireless chips will mean that there will have to be further consolidation in the wireless chip industry, according to J.J.Yamaguchi, executive vice president of NEC Electronics, speaking to the International Electronics Forum 2008 in Dubai this morning.

“I think the development cost has been increasing. Consolidation and collaboration will be happening. I expect to see it over the next couple of years,” Yamaguchi told the forum which is organised by Future Horizons of Sevenoaks.

Last month NXP and STMicroelectronics merged their wireless chip operations. NXP’s vice president for business development, Theo Claasen, said that it cost $500m a year in R&D costs to stay in the wireless business.

According to Dr Sanja Jha, COO of Qualcomm, Qualcomm spends $1bn a year a year on R&D and he too expects the wireless chip development industry to consolidate as a result.

Asked where that left picoChip, the Bath start-up specializing in chips for Wimax and femtocells, CEO Guillaime d’Eyssautier joked: “We’re more efficient,” adding “we aren’t in the handset business. We operate in niches.”

At least half the wireless chip development costs relate to software development costs, with much of that being spent on coping with emerging standards.

“The innovation goes so fast that you either skip nodes, or skip products, or spend a large amount of money”, said Claasen, “you need to invest in new standards every two years. It’s a field in which the No.1 and No.2 make money, and No.s 5, 6 and 7 lose money.”

After the wireless chip Big Two, Qualcomm and Texas Instruments, the tier two players in the wireless chip game are Broadcom, Infineon, Mediatek, Freescale, ST and NXP. It is among these smaller players that consolidation is expected to happen.

According to Steve Entwistle, vice president for strategic technologies practice, at Strategy Analytics: “The NXP-ST deal puts more pressure on the others to consolidate.”

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