Paul , here is a good article showing the pressure on componenet suppliers even in the all mighty dsp industry.
Motorola, Nokia shaking up their chip suppliers
Marketwatch - February 09, 2007 11:43 AM ET
SAN FRANCISCO (MarketWatch) - The world's top cell phone makers, locked in fierce competition for new customers, are shuffling their chip suppliers.
Nokia Corp. and Motorola Inc. have struck new agreements in recent weeks as they look to cut production costs and cram more features into their handsets. Also changing the supply dynamic is the push by handset makers to capture more market share of low-end phones sold in China, India, and Brazil.
The moves signal that the phone giants aren't afraid to step on the toes of their suppliers, even those with whom they've had longstanding relationships.
"They'll shop around. If they can buy a chip for three cents cheaper, they switch in mid-production of a phone if they can," said Allen Nogee, principal analyst at In-Stat, a technology market researcher. "They want flexibility."
The trend is putting more pressure on all suppliers, including giants like Texas Instruments Inc. (TXN), Freescale Semiconductor Inc., and Qualcomm Inc. (QCOM) But it's been especially tough on smaller competitors.
On Thursday, small-fry Silicon Laboratories Inc. (SLAB) bowed out of the race. It agreed to sell its phone-chip business to NXP Semiconductors for $285 million. Silicon Labs had a single-chip phone product but had yet to score any design wins with top-level phone makers.
More supply agreements may come next week, when the wireless industry holds its annual mega-conference, known as 3GSM, in Barcelona. All the major phone vendors and chip makers plan to be there.
'Musical chairs'
"It's musical chairs," said market researcher Will Strauss of Forward Concepts, speaking to the latest flurry of announcements. "You just can't watch this game without a program."
The latest round of changes started on Jan. 29, when Motorola expanded its chip-supply agreement with TI. While no shipment figures were disclosed, the pact ranges from existing low-end models to newer high-end phones set for release in 2008.
The deal further wedges TI into Motorola's phone business, now mostly dominated by Freescale Semiconductor Inc. Freescale, which was taken private last year in a $17.6 billion private-equity buyout, currently supplies roughly 55% of the silicon in Motorola phones, such as the Razr, Slvr and Krzr devices.
In another move this week, Nokia tapped Infineon to provide a single-chip product for its entry-level phones, a setback for TI. The deal marks the first time Infineon will sell a baseband processor - the central brain of a phone -- to Nokia. See full story.
TI had been the sole source of baseband chips for Nokia (NOK). Infineon currently supplies radio frequency chips to the Finnish company.
On Thursday, Motorola (MOT) also renewed its commitment to Freescale, selecting the semiconductor maker as a "preferred supplier" of current and future chipset platforms through 2009.
Deutsche Bank analyst Ross Seymore said more deals like those are likely, in part because phone-chip architecture is becoming more complex.
Multi-source arrangements with suppliers are "the way of the future, especially as semiconductor vendors introduce more single-chip architecture," Seymore wrote in a recent research note.
Razor-thin margins
When it comes to low-end phones, which are growing faster than sales of high-end models, handset manufacturers are working with razor-thin profit margins. Bare-bones phones, sold in China, India, and Brazil, sell for around $30 to $50 a pop.
This has elevated the design competition among TI, Freescale, STMicroelectronics and Qualcomm Inc., which are challenged with integrating several features on a single chip - while also lowering costs.
For TI, the world's largest phone-chip maker, some analysts think the good news at Motorola will be offset by the bad news at Nokia.
Still, Cody Acree, analyst at Stifel Nicolaus, wonders if TI is losing its grip at Nokia, its biggest customer. Nokia, in a related move, selected STMicro to offer an applications processor for a few of its phone models. That deal also came at the expense of TI, Acree said.
"A major shift in supply mentality can be seen at Nokia, which likely expands in the future and puts further competitive pressure on TI," wrote Acree, who rates the stock a hold.
Rich |
