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. ®
Sponsored: Ransomware has gone nuclear