Two heavy hitters in the cell-phone chip market are trading punches, with Qualcomm Inc. scoring a design win with longtime Texas Instruments Inc. customer Nokia, and TI reaching into its deep pockets to complete an acquisition that is expected to provide the company with CDMA technology required for emerging third-generation (3G) systems.
The actions come as the cell-phone market begins to slowly move to 3G-handset technologies that offer increased bandwidth to support new value-added services.
While TI is the clear leader in the cell-handset market with more than a 60% market share, San Diego-based Qualcomm has a huge lead in Code Division Multiple Access technology, supplying about 85% of the CDMA chipsets shipped this year, according to industry analysts.
Finland's Nokia recently chose to outsource a portion of its CDMA-handset manufacturing to Telson Electronics, a wireless OEM in Seoul, Korea, that currently buys its CDMA chipsets from Qualcomm.
Under terms of the agreement, Nokia will design and market second-generation CDMA handsets in Korea, with Telson manufacturing the handsets using Qualcomm's chipsets. The handsets are expected to be on the market in the first quarter of 2001, and may eventually serve other markets in Asia, and perhaps in the United States and Israel, a Nokia spokesperson said.
In what it said was an unrelated announcement, TI plans a stock-based acquisition valued
at about $475 million of Dot Wireless Inc., a supplier of software and transceiver technologies for CDMA.
The acquisition is the first clear indication of how TI plans to achieve compatibility with emerging air-interface protocols for 3G cellular handsets, and is perhaps designed to forestall efforts by Qualcomm to leapfrog TI during the transition to 3G technologies.
Nokia and Ericsson LM are the world's No. 1 and No. 3 handset manufacturers, respectively, and have made up the core of TI's leading position in that market. Qualcomm and Motorola Inc. both have similar-volume chip shipments. Last month at the Embedded Processor Forum, Motorola's Semiconductor Products Sector announced a 3G-handset chipset based on its StarCore DSP.
TI has agreements with Nokia, Ericsson, and Sony Corp. for use of its Open Multimedia Application Platform, which is based on a chipset that integrates the company's TMS320C55x and an ARM RISC processor in 3G systems. But it has been unclear how TI would gain access to technologies allowing it to transfer its capabilities to emerging 3G air interfaces such as CDMA, Wideband-CDMA (W-CDMA), and cdma2000.
Nokia's defection to Qualcomm, even if limited, could be significant if the chipset market is redefined during the market transition to 3G, analysts said.
"It's now clear that Nokia is willing to work with Qualcomm, and has broken the ice on that front," said David Heger, an analyst at A.G. Edwards & Sons Inc. in St. Louis. "While there's certainly a significant revenue opportunity for Qualcomm in the near term, in the longer term, Nokia may be open to buying Qualcomm chips for other markets."
Nokia's move to outsource its Korean manufacturing and adopt the Qualcomm chipset was made in the interest of speed in getting its handsets to market, according to Larry Pulson, vice president of Nokia's CDMA product-line management in Seoul.
"We had a lot to accomplish on our end in CDMA, and we thought a partner would be a simple way for us to approach the handset business in Korea," Pulson said. "But we're taking parallel-path activities through organic growth to develop our own CDMA technology."
Bob Carl, manager of TI's Wireless Computing Business unit, downplayed the significance of Nokia's decision in Korea, but acknowledged the company does have ground to make up in the CDMA market.
"It's a spot deal for a spot market," Carl said. "Nokia is having a phone design built for them, and Telson is a current user of the Qualcomm chipset. . . . We haven't historically done a lot in CDMA, and felt the best way to address it was through acquisition.
"We wanted to be able to service all markets and our entire customer base with a product line that goes across all different standards," he said. "Dot Wireless has extremely strong CMDA expertise, and they've been focused on the cdma2000 arena. We've been focusing on the underlying technology, but really W-CDMA."
The Dot Wireless acquisition will not ensure TI the kind of success in 3G systems that it has experienced in earlier-generation handsets, but customers now have a definitive understanding of what TI is planning to accomplish, said Will Strauss, an analyst at Forward Concepts Co., Tempe, Ariz.
"CDMA is the one place where TI has not been a strong participant," Strauss said. "This [acquisition] certainly fills that gap. They're going to make sure they can provide a complete solution regardless of what happens in the market. The key thing they got is the software. Let's face it, software sells silicon."
Two or more high-bandwidth air interfaces are expected to emerge worldwide for 3G handsets. The two main protocols currently being implemented are cdma2000 and W-CDMA. Although EDGE is considered a 2.5G technology, the protocol is capable of handling the general packet radio system, which transports data over a GSM-standard network at speeds of up to 115 Kbits/s, accomplishing much of what is promised with 3G alternatives.
The market is littered with companies attempting to carve out a piece of the 3G-chip market, as analysts project the cell-phone business to grow from about 435 million units shipped this year to nearly a billion in 2003.
A number of companies have announced 3G-chip offerings, including Infineon, LSI Logic, Motorola, Philips Semiconductors, and PrairieComm. Intel Corp. entered into its joint DSP development with Analog Devices Inc. specifically with an eye on the 3G market. Lucent Technologies Inc.'s Microelectronics Group has announced a 3G infrastructure chip, and is expected to make a bid for the handset market as well.
Although 3G systems are expected to be deployed in Japan and other Asian countries as early as next year, availability in Europe could trail by a year, and in the United States by two years or more, according to analysts.
"The market's not here yet, but a lot of things are happening," Strauss said. "Everyone's trying to jockey for position. It's clear now that TI is not going to let the grass grow under its feet, but the fact is there are new entrants coming along, and it's going to be very tough for TI to hold on to 60% of the market."
Deployment of CDMA worldwide will also run into political and geographic hurdles in the next few years, Strauss said.
"It's not always just what's technically right, but what's politically correct," he said. "What's politically correct in Europe may not be politically correct in the U.S. or Japan or some other region."
Qualcomm warned last week that it may post lower-than-expected sales for its fiscal fourth quarter, which ends Sept. 30, due to a cancellation by the Korean government of subsidies to local telephone service providers.
"The company will evaluate potential offsetting factors, such as the introduction of carrier marketing programs in Korea, increased export activity to other worldwide markets, and the rapid deployment of CMDA networks," the company said.
Qualcomm also announced last week that it will be laying off about 200 employees, according to the Associated Press. The company claimed the layoffs were needed to streamline its operations and were not related to the expected decline of handset sales in Korea because of the Korean government's decision to end phone-industry subsidies.
No further layoffs are immediately planned, according to Qualcomm spokeswoman Christine Trimble.