Samsung taps Infineon as second source for UMTS chipsets [printer-friendly] • The Register

Original URL: http://www.theregister.co.uk/2008/05/29/samsung_infineon_umts/

Samsung taps Infineon as second source for UMTS chipsets

Cuts reliance on Qualcomm

Posted in Mobile, 29th May 2008 10:32 GMT

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Last year, Nokia sparked the biggest realignment of the handset chipset market for years when it diversified its supply chain to create more competition to its silicon alter ego, Texas Instruments.

Now Samsung has made a similar move, just as the world’s second largest handset maker faces a rejuvenated challenge from Nokia in its home market, one that could drive Korean phonemakers to slash their prices and become more cost-sensitive. Samsung has signed up Infineon as a second source, alongside Qualcomm, for its UMTS models, claiming the German supplier offers 20 per cent lower prices, and putting new pressure on its primary chip partner.

Challenging Qualcomm

Qualcomm has won significant business for its UMTS chipsets by being early to market with almost every technological milestone, and looks set to repeat the cycle in HSPA. However, as it adjusts to the eventual decline of the CDMA business, where it has a near monopoly, it also has to adapt to working on a more level playing field with other chipmakers.

While it has done well in terms of staying ahead of the technology curve, it has greater challenges when markets mature and the playing field shifts to pricing rather than features. This is where Infineon has been carving out its own competitive edge, focusing on price sensitive markets and customers as it fights to preserve a major position in the mobile chip market.

Infineon was one of the companies chosen by Nokia to compete with TI, and its low cost credentials were highlighted because it was picked as a second source for GSM, while Broadcom got the EDGE slot and STMicro the coveted high end 3G/HSPA deal and R&D agreement.

Now the German firm has snapped up Samsung, which has been heavily dependent on Qualcomm but now wishes to reduce that reliance in the interest of more effective price negotiation. This strategy carries clear risk though – UMTS is still relatively cutting edge and handsets are differentiated by performance, particularly in areas like multimedia applications support and integration with other radios (aspects in which Qualcomm excels), as well as cost. It is not clear that Infineon can match Qualcomm and TI in these respects, though it may be that Samsung aims to use its processors mainly for the burgeoning breed of low cost 3G devices for emerging markets – a sector that has been driven by LG, also working with Qualcomm.

Although phonemakers, with the obvious exception of Nokia, find it hard to circumvent Qualcomm, they undoubtedly want to limit the chip designer’s power. The pressure on the US giant’s IPR model, and on the CDMA market where it has virtually no rivals, will both make it more vulnerable to competition in the coming years, though so far these threats have only galvanized the company into renewed efforts to establish a market lead in HSPA and, as it evolves, LTE (where Qualcomm aims to supply silicon across the whole equipment chain, not just phones). But in the shorter term, vendors want a better pricing deal from Qualcomm. Nokia will never buy from the San Diego company until they sort out their licensing differences (and perhaps not even then), but nonetheless its diversification of its supply chain was clearly designed not only to increase competition for TI, but to strengthen other potential challengers to Qualcomm, notably Broadcom.

Motorola, before its handset business went into freefall, put a deal with Qualcomm for UMTS chips onto abeyance and turned to TI, only to make friends with the CDMA company again, reportedly after some serious pricing adjustments.

Freescale

Another mobile chipmaker now controlled by private equity, Freescale Semiconductor, has rolled out the first in a planned series of applications processors targeted at specific market segments. The Freescale i.MX37 focuses on video and imaging and targets high end media players and navigation devices. Over the next six months, the company expects to follow up the launch with at least two more processors. All three make heavy use of products acquired with Sigmatel in February.

Following the merger, the existing Freescale i.MX product team moved into Sigmatel's offices and the combined group is now creating a unified roadmap to support Freescale’s strategy - as its position in the mainstream handset chip market declines with the loss of business from its former owner and main customer Motorola – of moving into high value but specialized niches, especially in multimedia and home content. Sigmatel's products cover entry level, audio-only and QVGA video chips, with low cost, while Freescale's i.MX family is aimed at higher end capabilities, with programmable cores.

The Samsung-Infineon deal

Now Samsung is doing its bit, buoyed by its rising market share but also driven by an increasing need to improve cost efficiency in the face of Nokia’s increasing prowess in this area. It has been looking for an alternative UMTS partner for some time, but until recently the choices have been scant, with TI too closely associated with Nokia (as well as Motorola and Ericsson Mobile Platforms), and STMicro also heavily focused on its development partnership with Nokia. “Until now, there’s been no credible second source for UMTS chips,” said analyst Will Strauss of Forward Concepts. Infineon is the second largest owner of UMTS intellectual property after Qualcomm, and its developments have been geared to the open market and to cost efficiency, unlike TI’s and STMicro’s, which are heavily customized for Nokia.

According to Strauss, Qualcomm has charged Samsung five per cent of the OEM value of handsets containing its baseband chips, which eats into profits. "Infineon's chipsets are more than 20 per cent cheaper than Qualcomm's, but their quality does not lag behind Qualcomm's at all," a senior Samsung official told Korean Daily News. Samsung’s first Infineon-based handset started shipping in Europe earlier this month.

Samsung urgently needs to reduce costs in order to build on the market share it has gained from the collapse of Motorola, and especially as, with LG, it is facing a re-entry of Nokia into the Korean market. There are widespread reports that Nokia will soon cut prices on certain 3G handsets and re-enter the Korean market, rumors that sent LG shares tumbling by over eight per cent and Samsung’s by four per cent.

Nokia would only say: "We are interested in the Korean market and investigating it, but we have not unveiled any products for that market." LG’s head of marketing strategy, Chang Ma, told the Reuters news agency: "We are carefully watching Nokia." LG has been a major beneficiary of Nokia’s falling market share in north America and has been increasingly focused on high end mediaphones.

The way forward for Infineon

For Infineon, the Samsung deal will be a welcome boost, confirming industry opinion that the German firm is poised for a significant increase in position in the mobile chip market. This is particularly important at a time of major upheaval for the company.

Its DRAM business has been bleeding money, and last week its CEO Wolfgang Ziebart resigned, and will not be replaced, leaving the company to be run by a four-person management team led by Peter Bauer. Also, shareholder hopes that Infineon would be included in a super-chip venture including fellow European stalwarts STMicro and NXP have been dashed recently, first by those two vendors’ formation of a wireless joint venture that excluded Infineon, and then by STMicro statements last week that it would not invite the German firm to join.

All this may well be leading to a bid by a private equity firm, according to stock market talk, and Kohlberg Kravis Roberts (KKR) is said to be in advanced talks that could make it the biggest investor in the company. Reports speculate that KKR would take a stake of up to 50 per cent via an issue of new Infineon shares and bring NXP, majority owned by a private equity consortium including KKR, together with Infineon.

This is despite the comment by Carlo Bozotti, CEO of STMicro, that he was not interested in adding Infineon's wireless communications business to the joint venture that ST is forming with NXP. "I don't believe it makes sense to integrate the wireless activities of Infineon into our joint venture if available,” he told reporters last week.

Renesas and FOMA

Renesas Technology, whose main wireless business is among Japanese phonemakers, is interested in offering the FOMA platform as a handset reference design to companies outside Japan.

FOMA (Freedom of Mobile Multimedia Access) is NTT DoCoMo’s UTMS-like 3G network, which was developed ahead of the full 3GPP standard and has remained advanced, but somewhat incompatible with other 3G networks, ever since. The main handset suppliers for FOMA are Fujitsu, NEC, Panasonic and Sharp.

"There is an interest to take the FOMA platform outside Japan," said Matthew Trowbridge, CEO of Renesas Technology Europe. At present Renesas offers discrete SH-Mobile baseband and application processors which have to be integrated with other RF and memory subsystems in a handset.

Trowbridge said the move to LTE was likely to be pioneered in Japan and this would encourage a shift of application processor support to high definition graphics, and this would be helped by wider availability of FOMA.

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