Texas Instruments: Screw smartphones, put our chips in the dishwasher
Seeks better markets as Apple and Samsung start eating own dogfood
Apple and Samsung are squeezing smaller chip manufacturers out of the market by only using their own chips, said a VP at chipmakers Texas Instruments.
Greg Delagi senior vice president for embedded processing at Texas Instruments announced that his company was winding down its investment in smartphone and tab chips, and instead concentrating on making chips for cars, white goods and robotics.
Delagi announced the shift away from smartphones at a conference call with investors yesterday: "We believe that opportunity is less attractive as we go forward," he said.
Several factors are bearing down on Texas Instruments' profits in the smartphone/tablet market, execs noted in their presentations to investors.
A Safe Harbor notice to investors [PDF] mentioned the burden of paying for patent licences for smartphone chips and the danger of being caught with fixed operating costs from factories in a shrivelling market. Delagi also hinted at the fact that Apple and Samsung have sewn up huge swathes of the market by locking out chips designed by rivals, when he referred to "vertical integration" from unnamed "big players".
It chimes with comments from Texas Instruments' VP for investors Ron Slaymaker in a mid quarter conference call with investors on 11 September [PDF]:
[T]he smartphone and tablet market has become less attractive to us even in the past 12 months and that really is being driven by, our view is that the two largest players in that market or those markets have really shown a very strong tendency to vertically integrate the key chips in their systems.
Bring on the dishwashers!
So Texas will be ditching smartphones for dishwashers and cars by betting its biz on the rise of the Internet of Things. The chip-maker intends to ramp up investment in its "embedded processing" division – which makes chips for cars, appliances, industrial machines, and a whole range of other consumer goods including wearable tech, tele-health devices and sports equipment.
Texas has 11.5 per cent of the market in embedded processing, according to Delagi's presentation [PDF], making it the second biggest player in that market in the US. It calculates embedded processing to be a $18bn market, with cars making up a $6.5bn slice.
They predict there will be "chips everywhere in the car" and overall 24 billion connected devices by 2020. Margins seem to be more generous in embedded tech too; TI reports an operating margin of 30 per cent in its embedded tech division.
Investors seemed a little dubious about the move away from the enormous market of smartphones and slabs - shares fell 3 per cent after the meeting.
TI makes a range of components, including the touchscreen controllers in the new iPhone 5. It also manufactures the chips in the Kindle Fire. ®
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COMMENTS
Two largest players?
Must have been talking about Samsung and Nokia then.
(Before anyone says, the distinction between "smart" and "feature" phones is a marketing one, and they all have ARM processors anyway).
Or they can just keep charging $100 for a 20 year old calculator
Re: Is there a story?
Too right. And device integration and reducing chip count has been the name of the game ever since people started putting together electronic equipment.
And that's why IP players like ARM do so well, and "fabless manufacturers" like Wolfson have done so badly, and indeed the whole SoC theme is part of this, with the big player building more and more functionality into fewer and fewer chips.
Worth noting the effort that Intel is now putting in to try and enter this field. Threatened by Windows RT, and the probable further fragmentation (and possibly decline) of what we knew as the PC market, they have put increasing amounts of effort into low power and mobile processing, as evidenced by recent Intel based phone launches. They don't yet match the best, but Intel has noticed how ARM sell (the IP for) well over ten billion chips a year, compared to Intel's 300m microprocessors. Margins differ, but the growth rate for mobile devices is phenomenal, as is the growth in the capabilities of mobile processors, and Intel know there may not be a PC market (as we now recognise it) in ten years.
If TI think that embedded devices is going to be an easy win, they are mistaken - Intel are intent on making sure they don';t get left behind again, and the existing mobile device players have already given thought to what else can use their chips, so TI will find themselves as welcome in dishwashers as they are in mobile phones.
Perhaps the story should have been "Texas Instruments announce strategy to fade away".
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