AUSTIN, Tex. -- When Motorola Inc. this week announced it was unleashing its entire arsenal of semiconductors, software, and embedded systems technologies for cellular phone manufacturers worldwide, the press, financial analysts, and competitors were justifiably confused as well as downright skeptical.
While nearly no one questions Motorola's extensive technical capabilities and know-how in mobile communications, the major issue here is whether or not cell-phone handset suppliers will base next-generation products on platform technologies and integrated circuits from a major competitor. So far--in other equipment markets--the strategy of unleashing internal technologies at system houses with chip operations has failed, often miserably.
But Motorola executives believe this time will be different.
For one thing, they said, the cell phone industry is in a major transition, moving from the design-and-manufacturing era of the 1990s to a new paradigm that splits product development and assembly of handsets from the business of selling units to consumers. The transition to contract manufacturers and so-called "original design manufacturers" (ODMs) that develop and build phones for handset suppliers was compared to a similar change that occurred in personal computers during the '90s.
The second major factor cited by Motorola in its new "open" cell-phone chip strategy is the fact that next-generation handsets and systems are becoming more difficult to develop. The underlying technologies in digital cell phones--especially in 2.5 and 3G generation handsets--are increasingly being integrated into fewer integrated circuits, noted Ray Burgess, corporate vice president and director of strategy at Motorola Semiconductor Products Sector in Austin.
And just as important as the changes in the marketplace, Motorola is serious about shifting its entire approach to open up access to cell-phone chip sets, software and platform technologies, insisted Burgess and Peter Shinyeda, corporate vice president and general manager of Wireless and Broadband Systems in the company's semiconductor sector.
After decades of primarily emphasizing, protecting, and serving its own internal systems requirements, Motorola says it is now making available all its semiconductor, software, and embedded technologies to mobile phone makers worldwide. "We are unleashing the entire cellular systems expertise to the market, and in the process of doing so, we will address a total market opportunity, which many analysts believe will be worth somewhere on the order of $35 billion around or about 2004," Burgess told analysts on Monday.
Repeatedly, Burgess and colleague Shinyeda fielded questions about how and when Motorola would make its newest chip sets, software, and other technologies available to outside cell-phone handset makers. Analysts appeared to be uncertain--and in a few cases unconvinced--that this was in fact a "new Motorola" and an open semiconductor strategy.
"There is not going to be a timing lag," insisted Burgess when asked if outside cell phone customers would receive the same ICs, software and technologies as Motorola's Personal Communications Sector--which is a heavyweight in handsets with more than 15% market share worldwide.
"This strategy only works if--with an open hand--we deal with the entire industry," he responded. "We will be doing this based on the same timing and conditions as serving Motorola's own internal cellular phone needs."
Burgess said the market for cellular phone units is expected to breakout of its slump in the next couple of year, reaching as much as 1 billion handsets per year in the middle of the decade from what is expected to be about 400-to-410 million units in 2001. "While we are not making bottom line financial projections in this strategy at this time, we do believe this will be a multi-billion dollar opportunity for the corporation," he told analysts on Monday.
To reach that potential, Motorola has transferred 200 to 300 engineers from its Personal Communications Sector to the Semiconductor Products Sector. It has also been working on this new strategy for about one year. The entry point for the new open Motorola semiconductor strategy is 2.5G phones, which are beginning to appear but not yet in volume use worldwide, according to Shinyeda.
Motorola's new strategy hinges on new chip-set platforms, which will be formally rolled out starting this fall. First will be a 2.5G platform, based on the global system for mobile communications (GSM) standard and global packet radio service (GPRS) applications. That platform will be available in the first half of 2002, followed by a third-generation (3G) solution, based on wideband-CDMA (Code Division Multiple Access) and Universal Mobile Telephone Service (UMTS) standards.
Proof by year's end
Shinyeda promised analysts that they will know the new strategy is working when Motorola announces "key design wins in both 2.5 and 3G that covers both Europe and Asia" by the end of this year.
"That is the most significant milestone that you should watch for," said Shinyeda, when asked how will the industry know Motorola is being successful.
According to Shinyeda, the first working prototypes of the 3G radio development platform have been produced, and an "alpha' customer is targeting products for global manufacturers in 2003.
Motorola refuses to give out any details about its chip set platforms. When SBN asked semiconductor officials in Austin whether or not 2.5 or 3G platforms would use the StarCore digital signal processor (DSP) technology being jointly developed by Motorola and Agere Systems Inc. in Atlanta, a spokeswoman declined interviews.
"We want to save that information for the formal rollout," she said, referring to a launch set in the fall.
But based on the responses to analysts questions on Monday, it appears that the platforms will be based on DSP architectures and technologies selected by Motorola's Personal Communications Sector--at least initially.
In fact, the effort's first 3G chip set is being used in by Motorola's Personal Communications Sector to provide Hong Kong-based Hutchison Whampoa Ltd. with cellular phones for a number of markets, including Australia, Austria, Italy, Sweden and the U.K. The deal, announced on July 10, is valued at more than $700 million, and Motorola PCS officials said they expect to deliver the first 3G handsets in the third quarter of 2002.
The Hutchison deal schedules delivery of 3G phones ahead of Motorola semiconductor's target of its first "alpha" customer shipments in 2003. That lag caused some analysts to question whether there would be equal treatment of cell phone customers and Motorola's internal requirements.
But Burgess and Shinyeda insisted that cell-phone makers, outside of Motorola's PCS division, will be getting access to technology at the same time. The timing will certainly be on par for the volume 3G markets, which is not expected to start until 2003, they said.
"The first 2.5G product to be available in the first half of 2002 will help reduce the overall part count by more than half of today's GSM radio," said Burgess. This will help "simplify and reduce the cost of the new GSM phones" for contract manufacturers and ODMs, he said, adding that Motorola believes its turnkey solution will help accelerate the new outsourcing model for handsets.
The 2.5G platform will have everything needed to build a cell phone--from antenna to microphone, using Motorola's extensive process technologies and software expertise. Motorola will apply its new 0.13-micron copper CMOS technology, BiCMOS and silicon-germanium-carbon (SiGeC) for radio-frequency (RF) functions as well as "SmartMOS" for power management.
In addition to total chip sets for phones, Motorola is also planning to make available complete reference design platforms, a man-machine interface tool for customization of handset functions, testing systems, and all the underlying software." All that a merchant cell phone supplier needs to do is add its own handset styling, user interfaces, brand name, and distribution channels, said Motorola chip executives.
But are the semiconductor competitors worried about Motorola's unleashing of its cell phone technologies? Not completely, but they are going to keep a close eye on Motorola, for sure. "The fact is that historically companies have had a lot of problems convincing their competitors to buy their components when they compete at a systems level," said Bill Aylesworth, senior vice president and chief financial officer at Texas Instruments Inc. "We plan to exploit the fact that we htink we are way out ahead of Motorola in the merchant market," he told analysts this week when asked about the new strategy.
TI claims its a year ahead of Motorola in providing its cellular phone customers with 2.5G platforms and its transitioning to the 3G capability now.
Motorola's new cellular phone chip strategy is exactly what's needed for the company to survive in this semiconductor segment, said analyst Will Strauss of Forward Concepts of Tempe, Ariz. It also puts Motorola's semiconductor sector on equal footing in terms of freedom compared to the company's cellular phone unit, he added.
The Motorola systems groups get to buy chips from wherever they want. In fact, they buy a bundle of DSP chips from TI," noted Strauss, who specializes in tracking digital signal processing technologies.
"Now, Motorola SPS Semiconductor Products Sector is being given a looser tether, that's for sure," he added. "That's partly because in this current downturn, the SPS unit had only one big socket in cell phones that is holding them back--Motorola!" Strauss estimates that as much as 80% of Motorola's DSP chips have been shipped to internal systems divisions, with the biggest portion being wireless phones.
But now Motorola promises to change that. "No other semiconductor company has the complete has the complete cellular exeprtise as Motorola--no TI, not STM STMicroelectronics, not Intel. No one," Shinyeda insisted.
And it must be noted that no semiconductor company has done what Motorola's aiming to do as well--serve competitors with total solutions.