Further consolidation in the wireless chip-making industry is inevitable, according to both the industry and sector analysts.
“The amount of money you need to invest is huge. It needs an investment of $500m per annum,” Theo Claasen, head of business development at NXP told EW, adding, “the only way to get this $500m is to merge.”
NXP has just put its wireless chip-making business into a joint venture with STMicroelectronics.
“Qualcomm and Texas Instruments are the leaders. They have an R&D spend which is twice as big as ours, and their sales as twice as much as ours”, said Claasen.
After the Big Two, the other players besides NXP in the wireless chip game are Broadcom, Infineon, Mediatek, Freescale and ST. It is among these smaller players that consolidation is expected to happen.
Asked if he agreed that $500m a year is the annual stake to stay in the game, Steve Entwistle, vice president for strategic technologies practice, at Strategy Analytics, replied: “Yes”.
Asked if such a huge requirement would drive industry consolidation, Entwistle replied: “Yes”, adding, “the NXP-ST deal puts more pressure on the others to consolidate.”
Asked, where that leaves the start-up fabless chip companies which are trying to get into the wireless equipment market, Entwistle replied: “The top five handset vendors are not going to risk a mainstream handset design on a small company. I can’t see any handset OEM designing in a start-up company’s baseband.”
How about a Chinese OEM, asked EW? “That’s possible”, conceded Entwistle, “but not many of the Chinese handset OEMs are going to survive.”
The reason for the $500m annual cost of R&D is, according to Claasen: “Because the innovation goes so fast that you either skip nodes, or skip products, or spend a large amount of money. You need to invest in new standards every two years. Telephones are becoming gadgets which should do everything. It’s a field in which the No.1 and No.2 make money, and No.s 5, 6 and 7 lose money.”
See also: Mannerisms, the blog of David Manners. Updated twice daily, it's the distinctive, entertaining, authoritative and never dull commentary on the semiconductor industry, from someone who knows...