Skyworks Solutions Inc., apparently unafraid of the downward spiral the wireless handset market finds itself in, is launching into the struggling sector.
A merger of Conexant Systems Inc.'s wireless business and Alpha Industries Inc., Skyworks, Woburn, Mass., plans to offer handset OEMs a complete front- to back-end portfolio, accord-
ing to David Aldrich, the new company's chief executive. The merger is expected to be completed by the end of this month.
Skyworks and Motorola Inc.'s Semiconductor Products Sector will be the only two comprehensive handset IC suppliers, company executives and analysts said.
Skyworks' offerings will include baseband processors, DSPs, mixed-signal ICs, transceivers, and power management and power amplifier ICs.
"The handset makers love [what we're planning to do] and tell us they think it's great," Aldrich said. "We can also offer integration of many components and single-component modules, compared to [competitors] that offer too many stand-alone filters, packages, or capacitors that are too big or, in some cases, consume too much power."
But executing the strategy in a soft market won't be a snap. Both Conexant's wireless IC division and Alpha have experienced losses this year.
"The challenge for Skyworks is to make this operation profitable-and soon-while integrating their customer base without losing sight of their customers," said Kalpesh Kapadia, an analyst at C.E. Unterberg, Towbin in San Francisco. "They have to cut R&D, which has brought them to the forefront technology-wise, from 33% to around 22%. They have already developed all the product capabilities they need to be in the forefront."
Top of the heap
Skyworks will be the largest supplier of handset ICs worldwide, according to Dale Pfau, an analyst at CIBC World Markets Corp., San Francisco.
"They have the most diversified customer base with all of the top five customers [whose needs] match Skyworks' diversified portfolio and product offerings," Pfau said. "In this handset market, with the top five handset manufacturers controlling 70% of the market and looking to reduce their supplier base, Skyworks will certainly not be one of those companies knocked out."
Aldrich, who will step up from chief executive of Alpha, also based in Woburn, to head Skyworks, said the world's largest handset makers will be the company's top four customers. "We're going to be 40% bigger than RF Micro Devices, twice the size of TriQuint, and up to four times the size of Anadigics in sales and share.
"Alpha is front-end focused, starting with the PA ICs and moving through the antennas, while Conexant brings the mixed-signal analog and baseband ICs and the software to put it all together," he said. "When you put the two companies together, [Skyworks accommodates] those customers who want a complete module solution, as well as [vertically integrated] customers, such as Nokia, that may require separate components."
Looking to 2.5G, 3G
Skyworks is also looking ahead to 2.5G and 3G applications. "We have customers that may just buy a PA today that, say a year from now, will want a complete module with mixed-signal analog, which will later change because three years from now everyone will know there will be many more embedded solutions wrapped around RF products that we can offer."
Skyworks already has a strong stake in next-generation applications, CIBC's Pfau said. "They're in a good position for 2.5G and 3G since they already have, for example, Samsung and Motorola as customers, which are the largest players in the CDMA space in the U.S."
Skyworks will also offer a backward-integrated production model for its gallium arsenide production, which represents Conexant's GaAs units in Newbury Park, Calif. Skyworks also inherited Conexant's semiconductor assembly, module manufacturing, and test facility in Mexicali, Mexico, for which Alpha paid the Newport Beach, Calif., company $150 million in cash under the terms of the merger deal.