Cha2,
re: QCOM chip competition
<< to what extent does Nokia rely on Texas Instruments for its "Nokia" chips? Assume the "design" is a collaborative one with Nokia in the lead, and active TI participation. [Note that is not what Qualcomm does - the Q uses foundries, and I assume TI is more than a foundry for Nokia] Would much appreciate your informed view on this. >>
I think you nailed it pretty well. Nokia takes advantage of TI's R&D in overall SOC design, uses TI tools, does their own R&D, and collaboratively develops product specifications that TI builds to.
TI is of course one of several silicon suppliers to Nokia but Nokia is the largest customer of TI (they wouldn't be with QCOM) and Nokia is also the largest customer of several others as well.
It was seen as a disadvantage early on that NOK was fabless (unlike Siemens and MOT for example). They have made the most of that potential handicap, obviously.
<< do you see Nokia keeping its chip design in house as essential to Nokia? >>
Yes. It is a core competency, and in a highly competitive market that some call a commodity market, Nokia differentiates through software that they develop. They are able to then apply that differentiating software functionality across a common platform of products that employ different technologies (GSM, TDMA, CDMA, PDC) - a concept they pioneered - using common form factors for chipsets (size, shape, pinouts).
Designing in house allows them to squeeze every bit of available margin, and adds an element of supply chain management control, another Nokia core competency. Nokia enjoys remarkably good relationships with its strategic vendors and its product cycles (order to delivery of components) are the fastest in the industry.
As for Qualcomm supplying Nokia - which alternative Nokia will have to consider if they don't produce a class A product of their own - we have two companies who really are competitors, since Nokia is vigorously supporting a completely different technology migration path.
<< Samsung would seem to be the most realistic major competitor down the line, with Texas Instruments an unknown and puzzling possibility. Don't see any way Motorola could be a threat based on its track record and that MOT may actually get out of the chip business itself in the not too distant future. >>
Samsung could certainly threaten. When I viewed the CDG Digevent on Korea last March I was shocked to hear Samsung plugging its own cdma chips. I did not know they had begun manufacture of same. Perry LaForge seemed as surprised as I was. he was stuttering and stammering and trying to find out more.
As for Motorola - best we don't get into their track record or their focus <g>>. They seem to be star crossed. Now of course we have MOT developing GSM chip platforms for others. I suspect they will stay in the chip business, but one never knows.
I don't see TI being a direct competitor of QCOM. They are in a different business. They supply to others who supply product to the arrier and consumer.
<< Right now it is probably just as well that Qualcomm kept the chip design business in house and close. There are several new chips (and most importantly, related software) essential to the mobile wireless data tornado related to the internet/intranet and wireless nexus. Keeping the key components of that for both the infrastructure requirements and the "terminals" (way beyond simply "phones" BTW) under close control and supervision in house seems sensible. >>
That is hard to argue with, and at the moment, with margins high, and near virtual control of the CDMA chip market, there are certainly advantages to keeping the units closely knit.
This excerpt from an article called Meet the New Qualcomm appeared in "Electronic Business" in March 2000 (6 months before the spin off announcement) discussed some of the issues attendant:
e-insite.net
[registration required but free]
>> ... one reason for the enthusiasm is that by concentrating on CDMA semiconductors and software, instead of phones, Qualcomm will become far more profitable. While the handset business has been a persistent money loser, Qualcomm's CDMA application specific integrated circuit (ASIC) business earned a pre-tax profit of $428 million in fiscal 1999 on sales of $1.13 billion. Licensing its CDMA technology raked in another $454 million last year, most of it pure profit. Together, the two businesses achieved an impressive 52% profit margin before taxes.
Qualcomm also dominates the CDMA chip business, worldwide, with 66% market share, even including the chips that Nokia and Schaumburg, IL-based Motorola Inc. make for their own use.
That market share is almost certain to fall, because of competition from newcomers such as Milpitas, CA-based LSI Logic Corp. and Cupertino, CA-based DSP Communications Inc., a unit of Intel Corp. Yet CDMA is an extremely complex technology and Qualcomm's head start is so large it's likely to take years for potential chip rivals to erode its leadership.
"Qualcomm is the competition as far as I can see it," says Greg Helton, director of LSI Logic's wireless products strategic business unit. "They want to be the Intel of wireless communications."
<snip>
Counting on Chips
That sort of rapid growth will be crucial to support Qualcomm's transition from phone maker to designer of chips and software. To its credit, the company already has shipped more than 100 million CDMA chips. While most competitors are just reaching the market with their first CDMA devices, Qualcomm has already begun shipping samples of its seventh-generation MSM5000 CDMA chipset, a transitional step toward the full CDMA 2000 standard and the first available 3G technology.
Qualcomm relies on Taiwan Semiconductor Manufacturing Co.,IBM Corp., Intel, Texas Instruments Inc. and others to fabricate its chip designs. Last year, Qualcomm vaulted past San Jose, CA-based Altera Corp. to become the world's largest fabless chip company. Being fabless keeps it nimble and saves it the huge cost of building manufacturing plants. Yet as CDMA volumes rise, integrated chip makers like Intel and LSI Logic may gain advantages by deriving benefits from their manufacturing expertise.
Another newcomer with the potential to become a heavyweight is Eindhoven, Netherlands-based Philips Electronics NV. Last year, it bought CDMA chipset maker VLSI Technology Inc., and has been haggling with Qualcomm since then over the transfer of VLSI's CDMA technology license from Qualcomm. Motorola, an early CDMA licensee, could decide to begin selling its chips to outside customers, although thus far it has not met even its own internal needs. One company that doesn't look like a competitor is Kyocera, which has agreed to continue buying Qualcomm's CDMA chips for at least five years.
Qualcomm had little choice but to make its own CDMA chips, and license its technology to other chip makers, until the market took off. But it's not clear whether it can continue doing both over the long term.
Will Strauss, president of Forward Concepts Co., a Tempe, AZ, market research firm, sees inherent conflicts between Qualcomm's own chip business and its CDMA licensing. "They're competing with their ASIC licensees," he says. Strauss sees Qualcomm's business strategy as not quite like Intel, which tries to dominate production of a key technology component, nor like that of U.K.-based ARM Holdings PLC, a "chipless" semiconductor company that derives revenue almost totally from technology licensing. "There are no models for what they're doing, none whatsoever," he says.
Jack Quinn, president of Micrologic Research, says he expects Qualcomm to eventually get out of the CDMA chip business and rely mostly on license and royalty revenue. "Right now there's a good markup in [CDMA chips], but it won't always be that way," he says. "That chip business is going to be dog-eat-dog."
Qualcomm's Jacobs concedes his company has created numerous competitors for its CDMA chip business. Yet he has every intention of keeping Qualcomm's chip business out in front. "We've got a very good lead as far as CDMA is concerned and we're working hard to extend that lead. . . I don't see us selling that business." <<
- Eric - |
