Qualcomm announced the acquisition of Atheros Communications today to strengthen its market presence in the non-handset markets and to unlock the value of its connectivity chip business. Atheros currently supplies WLAN, Bluetooth, GPS and other networking products to notebook and netbook markets. Qualcomm is currently the number one player in the cellular baseband market.

Here are our quick comments and impact on the competition,

• This acquisition will allow Qualcomm to enhance the value of its connectivity chip portfolio. Historically, Qualcomm was not a major player in the stand-alone connectivity IC market. Qualcomm successfully integrated GPS functionality into its basebands but couldn't repeat the same for WLAN, Bluetooth and FM.

• Atheros acquisition will allow Qualcomm to apply pressure on Broadcom which appears to have a broader wireless portfolio than Qualcomm including NFC (Near Field Communications). By our estimates, Broadcom ranked number two in the wireless semiconductor market (excluding memory) in Q3 2010 and is growing rapidly. Although Broadcom is a minor player in the cellular baseband market, the company is still ahead of many wireless companies in terms of wireless revenue, thanks to its connectivity business.

• Qualcomm's upcoming product, the MSM8960, integrates multi-mode LTE baseband modem, ARMv7-compliant dual applications processor cores, Adreno GPU and connectivity (WLAN, GPS, Bluetooth and FM). As far we know, this is the first cellular baseband product that integrates a variety of connectivity functions. We believe products like this could apply pressure on Broadcom's stand-alone connectivity chip business in future.

• This acquisition also increases pressure on Texas Instruments (TI). TI currently draws its wireless revenues from OMAP applications processors, connectivity chips and Nokia's custom basebands. TI is expected to complete its exit from the baseband market by 2012. The lack of baseband products could leave TI without any apparent synergies between its applications processors and connectivity chips and may force TI to divest its remaining wireless business.

Overall, we believe that this acquisition will allow Qualcomm to expand into adjacent markets and also apply more pressure on its key competitors. Qualcomm successfully executed integrating applications processors into its basebands and became the number one player and now the company is trying to further the success by integrating connectivity chips.

Sravan Kundojjala

Consolidation in the baseband market continued with Intel acquiring Infineon's wireless business on Monday for $1.4 billion. Infineon's takeover is the fourth high-profile announcement in the last two years. Previously NXP, Freescale and Texas Instruments announced their exits from the merchant baseband market. This signals that the entry barrier is now too high for new entrants and raises pressure on smaller players such as Marvell, Spreadtrum and Icera. Intel's acquisition of Infineon's wireless business leaves Qualcomm, MediaTek, ST-Ericsson, Intel, Broadcom and Renesas as long-term players in the cellular baseband market.

We analyzed this back in May when the original rumour of the Intel/Infineon wireless deal surfaced. Infineon's wireless business is definitely an attractive target for Intel as it gives immediate access to valuable IP and an established customer base. Infineon is a rising star in the W-CDMA baseband market and ranked number two in the W-CDMA baseband market behind Qualcomm (excluding Texas Instruments’ custom baseband business with Nokia). Infineon has so far focused on slim modems and has stayed away from developing ARM-based applications processors. So far Infineon’s niche strategy has paid off, but the time has come for the company to expand its portfolio by offering a wider range of processors to address smartphones, tablets and other connected consumer devices. Although 3G and smartphones are of most interest to Intel, the company is likely to keep Infineon’s 2G business as it provides scale which is crucial to play in the cellular baseband segment.

It will be another year or two before Intel's applications processors are smartphone-ready. Meanwhile, in the next 12 - 18 months Intel can bundle Infineon's 3G platform with all of its notebook and netbook chipsets and gain significant 3G share to undercut Qualcomm and ST-Ericsson's non-handset offerings. But both Qualcomm and ST-Ericsson appear to have a two year technology lead over Infineon in chipsets for HSPA+ and LTE; Infineon is expected to introduce its first HSPA+ chipset in 2011 and an LTE chipset in 2012. MediaTek’s grey handset chip business may come under pressure from Infineon in the future if Intel expands its field application engineering force in China. Likewise, Broadcom is expected to come under pressure from this deal but should survive with help from its other businesses such as connectivity and digital home. This acquisition will also likely affect stand-alone application processor vendors such as Texas Instruments and NVIDIA that currently lack their own 3G / 4G modems. But we believe that it will take another 4-5 years for Intel to integrate basebands into its Atom CPU, if at all.

Infineon's acquisition still doesn’t guarantee Intel's success in the wireless handset market and the company's ultimate success in this market hinges on how soon Intel can come up with power-efficient processors that can stand-up and compete against a host of ARM-based processor vendors. On a positive note, Intel appears to be moving ahead of its other chip competitors in the software area which positions it well against ARM-based processor vendors. The company’s strong software expertise could help it to gain some OEM mindshare. Intel’s uninspiring track record in the wireless market during the last decade suggests that the company has to execute flawlessly this time to make it successful and keep Infineon’s wireless business as independent as possible. Clients can read our eight page analysis of the Intel/Infineon deal here.

Hear insights from Stuart Robinson, Director of Strategy Analytics’ SpecTRAX service, who will talk about the important trends in recent global cellular handset model announcements. Join us on Thursday 9th September for a complimentary live online webinar.

Topics covered by the webinar include:

• OS penetration; how many phones feature Android compared to LiMo, Windows and Symbian?
• Analysis of current spec trends; Bluetooth, touchscreen, QWERTY, form factor, screen & camera resolution….
• Shelf share analysis by region; which carriers offer the most Android phones?
• Typical specs of Android phone vs handsets running other operating systems

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Attendance to the webinar is free however pre-registration is required. REGISTER –>>>           

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Intel is said to be in talks with Infineon to buy latter's wireless chip business unit. Of course this not the first time we heard about Infineon's wireless chip division rumors. Previously Samsung, NXP and ST Micro were also reported as potential buyers of Infineon's wireless chip business.

Previously Intel invested in the wireless handset chip business but divested it to Marvell. That time Intel was more focused on the application processor and was less focused on the baseband processor. So what's changed? Strategy Analytics believes that the growth in the mobile broadband is a key factor and Intel definitely needs a modem know-how to participate in this market. Intel is a key player in the WiMax market but lacks 3G and LTE baseband technology. Currently the company ships 3rd party modems in its Atom chipsets but in the long-term it would be beneficial to own modem technology to integrate it in its future Atom CPUs. Last year Intel acquired Freescale's France-based wireless operations and also licensed 3G / HSPA modem technology from Nokia.

Strategy Analytics believes that Infineon could be a good partner to companies looking for RF expertise and baseband customer relationships. Infineon's wireless business looks well settled after the company divested its Qimonda stake.

Here are some quick facts about Infineon's wireless business based on Strategy Analytics data.

* Infineon's wireless chip revenues represented close to 30% of its total revenues in calendar year 2009 and 25 percent in Q1-2010.

* Infineon's wireless chip products include basebands, RF transceivers, power management ICs, connectivity ICs (Bluetooth, GPS, and WLAN) and platform solutions.

* Infineon's baseband revenues represented close to 53% of its wireless chip revenues in 2009. * The company has baseband / RF customer relationships with almost all of the top-10 handset OEMs.

* Infineon ranked fourth with 11% unit shipment share in the $11.0 billion cellular baseband market in 2009.

* Infineon's wireless business has been profitable for the last four consecutive quarters. The company had just 2.5% operating margin in its wireless business in 2009.

* Despite its impressive baseband and RF product portfolio, the company currently lacks stand-alone application processors. It remains to be seen whether Infineon will go it alone or partner with Intel. We believe that it would cost $3-$5 billion for Intel to acquire Infineon's wireless business.

- Sravan Kundojjala

At the London “official” launch of Samsung’s new mobile operating system, bada (which means ocean in Korean), many questions remain unanswered regarding what bada is all about.

bada’s goal is “smartphones for everyone”, everywhere in the world, starting with 50 countries when the first handset is launched sometime during the first half of 2010, but extending to global coverage eventually.

Samsung’s first handset based on the bada platform will also be the first phone to run Samsung’s TouchWiz 3.0 user interface. The company has a desire to deliver a rich user experience to everyone. Although Samsung declined to comment on its strategy for other OSs including Symbian, Android, LiMo and Windows Mobile, we believe that bada has come about as a result of Samsung’s frustration with the user interface capabilities (or lack of) of Symbian over the last couple of years, forcing the handset OEM to develop its own solution.

Samsung declined to estimate the number of shipments it expects to achieve with bada during 2010, but said it is currently working with mobile network operators to estimate the likely demand for its first handset.

Full details of the hardware requirements for bada were not discussed during the announcement, but Thomas Richter, Director of Portfolio Management at Samsung, confirmed that the platform will support 3D graphics, multi-touch capacitive touchscreens, Flash, C++, HTML5, multiple sensors and many other hardware and software functions. Application developers will have access to some of the core phone functions such as the proximity sensor, weather sensor and call functions. Richter added that there will be an extensive developer site and developer support centres around the world. In the same way that Google drummed up support for its Android platform, Samsung is launching a developer competition for bada, with total prize money of US$2.7 million and a first prize of $300K for the winner of the best application. Developer days will be held in Seoul, London and San Francisco to begin with during 2010.

Samsung said it expects to ship a total of 40 million touchscreen phones during 2009 and “many more” during 2010. Estimates from other sources suggest that around 50% of Samsung’s portfolio in 2010 will consist of touchscreen phones and that the company may ship over 100 million touchscreen handsets during 2010.

Stuart Robinson

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Qualcomm, Gold sponsor of the 2009 Symbian Exchange and Exposition, today announced a new subsidiary called QuIC (Qualcomm Innovation Center, Inc) to focus on optimizing open source software such as Android, Symbian and Chrome to its wireless chipsets. Qualcomm settled its legal disputes with Nokia last year and earlier this year Nokia awarded a 3G / 3.5G design-win to Qualcomm. Qualcomm agreed to port Symbian operating system to its MSM7000 and 8000 series chips and Nokia's handsets based on this partnership are expected to debut in 2010.

We believe that Qualcomm will play an important role in Nokia's high-end smartphone portfolio in the coming years as Nokia continues with its multi-vendor strategy for baseband suppliers.  Nokia's previous custom ASIC approach, primarily using Texas Instruments (TI), is gradually reducing and Broadcom, ST-Ericsson and Qualcomm will ramp up at Nokia to compensate for this. We expect Nokia to use Qualcomm and ST-Ericsson in the high-end portfolio while Infineon and Broadcom are expected to play a role in the low-end to mid-range portfolio. It is worth noting that with the exception of Infineon, the remaining three are all fabless semiconductor companies. This is in line with Nokia's strategy to adopt standard off-the-shelf ASSP solutions instead of custom ASICs. Earlier Texas Instruments didn't have a 3G baseband design of its own and acted like a foundry for Nokia's in-house designs.

Currently Qualcomm has a relatively weak position in the smartphone market primarily because it did not support the Symbian OS. However, the company's recent settlement with Nokia, its SnapDragon processors and multiple Android and Windows Mobile design-wins could potentially make it competitive in the smartphone market. We believe that initiatives such as QuIC could contribute positive results in improving Qualcomm's smartphone position.

Sravan Kundojjala

Last week Nokia announced official Qt support for Maemo. The community work to port Qt to Maemo has been already underway and the official Qt port to Maemo is expected to take things to the next level. Nokia is betting on Qt because it provides them much more flexibility in terms of hardware and software platform adoption. In simple terms, Qt is an abstraction layer on top of underlying hardware and software. The plan is to replace current platform specific APIs with Qt APIs which almost covers commonly used functions. Nokia already announced Qt support for S60 / Symbian platform in October 2008 and the project is currently in Technology Preview phase. We expect Nokia's transition to Qt to be completed by late 2010 or early 2011. The Symbian Foundation is expected to replace its AvKon UI framework in favour of a Qt-based Orbit UI framework when Symbian^4, its fourth iteration, becomes available in 2011.

The platform abstraction layers / cross-platform technologies are nothing new in the cell phone industry as they promise to solve the important problem, fragmentation. The platform abstraction layers include Java, BREW, Flash, Silverlight and web technologies. Unlike other cross-platform technologies Qt promises consistency of native applications across different platforms. Nokia is betting on Qt because it can control the direction and we believe that owning the primary technologies used in its device portfolio is crucial for Nokia to maintain its margins. We observe that Nokia’s software assets including Maemo, Symbian, Trolltech and web browsing technology are all open sourced and the company is trying to control its growing software R&D costs by using open source software.

Our concern is that until late 2010 we won't see Qt based UI and application frameworks in Maemo and Symbian based commercial devices in fully fledged manner and this could leave room for competitors Android and iPhone to attack Nokia. Incidentally, for Nokia, the software transition started at a time when its competitors are agile and aggressive with their plans. Nokia's plans to switch to Qt in 2010-11 timeframe could delay developer's commitment to its smartphone platforms Maemo and Symbian. The current Maemo 5 OS used in the Nokia N900 uses GTK+ framework and Nokia is expected to switch to Qt in 2010. We feel that Nokia could have delayed the N900 launch until 2010 but this shows how desperate Nokia is to tackle new era competitors Google and Apple. We are also cautious about execution challenges for Nokia in this mission and if Nokia can demonstrate the value of Qt and excite the developer community then the company should keep its smartphone lead for a long time to come.

Sravan Kundojjala