Forward Concepts: Wireless DSP Market Bulletin

When LSI Logic, Inc. acquired (or merged with) Agere Systems earlier this year, we asked their VP of Marketing and PR Manager when the acquired wireless operations would be sold off. We were scoffed at, receiving the reply that there were no such plans.

[ad] But it was obvious that LSI Corporation (the name after the merger) only wanted Agere’s substantial hard disk drive controller operations (which had 2006 revenues of about $500 million) to mate with LSI’s own disk drive properties. In that manner, LSI could again claim the “number one” position that they had not seen since they were number one in the now-almost-defunct ASIC market. So it appears that LSI is now number one in the hard disk controller chip market, passing Marvell Semiconductor and STMicroelectronics for that top spot.

LSI had no wireless operations of its own and the company’s president, a former Intel VP, saw that his buddies at Intel had earlier dumped their wireless operations. Further, we saw no wireless synergy in the acquisition (oops, merger), so the early spin-off of the mobile operation was totally predictable. And in August, LSI announced the pending sale of the Agere wireless business headquartered in Allentown, Pennsylvania to Munich-based Infineon Technologies AG.

So how does this affect Apple’s future 3G iPhones? We speculate on that eventuality below.

Infineon gains huge IPR base with Agere

With the acquisition set to close by the end of this year, what does Infineon get?  First, they get substantial customers for GSM/GPRS/EDGE cellphone baseband chips at both Samsung and NEC. And they get the biggest supplier of DSP chips for GSM/GPRS/EDGE cellular base stations. But perhaps most important, they get access to the huge patent portfolio (and Intellectual Property Rights-IPR) that are part of Agere‚Äôs Bell Labs heritage. Our understanding is that Agere had more than 700 patents that were applicable to UMTS technology. Likely, there are Bell Labs telecom patents that could be a nice addition to Infineon‚Äôs own substantial telecom chip operations.

So what happens next in Allentown?

Sad to say, but redundancies are inevitable. After all, both companies produce GSM/GPRS/EDGE baseband and transceiver chips. To keep current customers, it is likely that the product lines will stay separate for a while, at least until the next silicon spins are scheduled. We expect that more bloodletting will be in Allentown than in Munich, with some layoffs expected early in 2008. Thus, another blow will come to the Lehigh Valley, often referred to as the “Rust Belt” because of area steel mill closures in the last century.

How does Qualcomm fit into this equation?

We believe, but nobody will confirm because of secrecy clauses in such agreements, that Agere had earlier arranged for an IPR swap with Qualcomm, essentially negating any royalties that would otherwise be due Qualcomm for future WCDMA/UMTS chips produced by Agere.

Those of you who are old enough may remember when VLSI Technology Inc., a CDMA ASIC licensee of Qualcomm, was acquired by Philips Semiconductor. Qualcomm refused to recognize the transfer of that license to the much larger Philips organization. Consequently, new negotiations were required, no doubt resulting in higher charges to Philips.

We fully expect new negotiations between Qualcomm and Infineon on a WCDMA ASIC license, adding to the continuing legal soap-opera surrounding Qualcomm and its licensees and potential licensees.

Whither WCDMA/UMTS basebands?

Contrary to the recent findings of another market research firm, the $8.6-billion DSP-based baseband chip market continues to be the largest nonmemory segment of the cellular chip market (see “shameless plug” section below).

This is the ultimate battleground, as digital RF processors continue being integrated on to the baseband chip, ultimately displacing traditional RF transceivers. Both Agere and Infineon are known to be working on 3G UMTS baseband chip designs.

[ad] Fielding a UMTS baseband is tough. After all, neither Freescale nor Texas Instruments, not insubstantial cell-phone chip companies, have been able to offer a UMTS baseband of their own to the merchant market. Freescale’s silicon is Freescale’s, but their UMTS software belongs to Motorola. Nokia’s UMTS is based on TI silicon, but the IPR belongs to Nokia and TI is not free to sell the complete package to others. Even Intel, the largest semiconductor supplier, failed to get its UMTS baseband chip into shipping handsets after years of effort. A frustrated Intel sold its wireless business to Marvell Semiconductor, who we expect to eventually succeed in UMTS.

More than two years ago, Agere acquired a WCDMA chip through acquisition of Modem-ART, an Israeli chip startup. That chip was strictly WCDMA, not UMTS-capable, since it had no fallback to GSM (or GPRS or EDGE) as required by UMTS. The plan was to mate the Modem-ART chip with Agere’s GSM/GPRS chip for a complete UMTS solution. It did not happen.

Also about two years ago, Infineon began to employ a WCDMA-only chip from Zyray, a San Diego chip startup. The idea was to mate it with Infineon’s native GSM/GPRS baseband for its own UMTS solution. However, we have found no evidence that Infineon has yet fielded a UMTS baseband chip.

Furthermore, Zyray was acquired by Broadcom, which has plans to ship its own UMTS baseband in cellphones. Nokia’s blessing of Broadcom’s EDGE baseband earlier this month certainly adds credibility to that eventuality.

Whither iPhone’s 3G Baseband?

Infineon is the supplier of the EDGE baseband and associated RF transceiver for Apple’s iPhone. As we all know, the biggest criticism of the iPhone has been its lack of 3G capability. Infineon may have finally produced a UMTS baseband chip for an upcoming 3G iPhone, perhaps with the help of friend and ally InterDigital Communications Corp., another pioneer in CDMA technology (yes, in addition to Qualcomm). Perhaps it is coincidental, but at this February’s 3GSM World Congress InterDigital announced its first WSTS baseband (to go with Infineon’s GSM/GPRS/EDGE baseband) for sampling late this year, perhaps in a new iPhone model.

It’s tough to stand still in the wireless world.

Shameless plug

Forward Concepts’ latest market study, “Cellular Handset & Chip Markets ‘07,” is the most comprehensive cellular handset and chip market study now available. It is an in-depth analysis of the top 37 handset makers and provides market sizes and vendor market shares for handsets by air interface and for virtually all integrated circuits that go into a cell phone. Subscriber and handset forecasts by air interface for each global region are also provided in the 370-page study. Details are at: