Philips & The Q>
9/17/99 - Chipset competitors prepare for CDMA challenge -- VLSI buy will aid Philips" push in wireless
Sep. 17, 1999 (Electronic Buyers News - CMP via COMTEX) -- Silicon Valley- Having completed its acquisition of VLSI Technology
Inc., Philips Semiconductors is preparing to take the wireless- communications market by storm.
Already a major force in the GSM cellular arena, Philips will harness VLSI"s chipset technology to catapult into the market for CDMA
(code-division multiple access), which is seen as the next cellular standard to spur growth in emerging markets, such as China.
Contrary to a report in last week"s EBN, a decision by Qualcomm Inc. to terminate VLSI"s license to key CDMA patents will not be a
barrier to Philips" wireless thrust, the company now claims. In fact, Qualcomm and Philips expect to ink a new license agreement in
due time, both parties confirmed late last week.
Though the Philips-VLSI union began on a rancorous note as a widely publicized hostile takeover attempt, the $1 billion merger has
gone smoothly, with little overlap. Effective today, all of VLSI"s wireless programs are folded into the newly created Telecom Terminals
Business Unit of Philips Semiconductors, based in Sunnyvale, Calif. VLSI"s remaining businesses will be similarly integrated into other
Philips units by early next year, the company said.
With combined portfolios, Philips becomes a one-stop shop for major wireless standards, including DECT cordless, CDMA, GSM, and
3G/W-CDMA, said Tom Willey, vice president and general manager of Philips" cellular business lines in the Americas within the new
Telecom Terminals group.
"One of the reasons for acquiring VLSI was to position Philips as the No. 1 supplier of semiconductors for cell phones," he said.
"We"re now in the top three. We"ve made a good start."
In addition, VLSI brings a custom-silicon mindset that should help Philips compete in the emerging system-on-a-chip environment. As
a standard-product supplier, Philips was unable to turn out modified designs fast enough to meet customers" shrinking market
windows, said Brian Salisbury, director of marketing for cellular business lines.
"VLSI has the ASIC methodologies and tools that will allow Philips to take a standard product and do an ASIC derivative in a much
shorter time than it would take to create a new standard product," he said.
Both companies have strengths that, when combined, could make Philips a force in a number of areas, according to Bob Merritt, an
analyst with Semico Research Corp., based in Redwood City, Calif.
"Philips certainly has the capability to focus on any market and make an impact," Merritt said.
That assertion could become a pivotal point as Philips renegotiates a license to CDMA cellular technology from Qualcomm, observers
noted. Following Philips" purchase of VLSI, Qualcomm yanked VLSI"s license to CDMA ASIC technology that was to be central to
Philips" wireless endeavor.
Both companies downplayed the issue, however, noting that it"s common practice when a license holder is acquired to draw up a new
pact with the buyer. In a joint statement last week, Qualcomm and Philips said ongoing discussions should yield a new license that
will allow Philips to continue to develop and market CDMA chipsets without disruption.
Market watchers noted that Qualcomm may leverage its new competitive stance in chipsets to negotiate a larger royalty. While VLSI
was a small enough player not to threaten Qualcomm"s CDMA chipset business-which will soon be its sole focus-$5.5 billion Philips
has the means to be a dominant supplier. In addition, Qualcomm may covet Philips" relationship with Ericsson, which had been VLSI"s
largest customer, analysts said.
At stake are key digital baseband technology patents for CDMA and, potentially, next-generation CDMA-2. The technology provides
key voice-processing functions in a CDMA handset.
Indeed, Philips executives said the technology was a primary motivator in its quest to acquire VLSI.
"In the CDMA space, Philips had baseband activity that had problems, and ended up getting cancelled," Salisbury said. "By acquiring
VLSI, one of the things we got was a replacement for those CDMA programs that weren"t successful."
At the same time, VLSI brought complementary baseband designs for GSM cellular, which are "different enough" to coexist with
Philips" own GSM chipsets for several years, Salisbury said.
Philips, meanwhile, possesses a strong portfolio of RF solutions for all the major cellular and cordless standards to round out the
wireless offering, the company said.
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