Growth of 3G modem and mixed view on the modem chip providers

Recently there were a few interesting article regarding 3G modem growth and implications on the modem chip providers.

It’s well known that smartphone is hot now, and sales surges in recent quarters.

In this article, per In-Stat, 3G modem sales will hit to $3.5B in 2010, and described that Qualcomm, Icera and ST will get the benefit.

It’s also noted that the main driver for 3G modem is from external USB data modem rather than embedded modem.

The external 3G cellular modem segment is larger than the embedded modem segment in 2010, but embedded modems are on a path to surpass external 3G modems.

Another article indicates that the cell phone market in Asia will get ~40% of total sales in 2015.

In 2009 Asia was responsible for 60.2 million smartphone shipments, 33 percent of the global figure of 182.4 million. In 2015 IMS expects Asia to see 277.2 million smartphone shipments or 39 percent of a global market size of 710.8 million shipments.

The situation is not good for everybody as more and more players get into the modem chip business. This is particularly problematic for Qualcomm that has highest market share in this segment. From recent report, the main reason for the struggling Qualcomm’s stock these days mainly due to the concern that the company’s market share could drop due to more severe competition and cost pressure on modem chip.

We estimate that Qualcomm’s share in CDMA mobile phone chipset market will decline from 68% in 2009 to 61% by the end of Trefis forecast period.

We believe it may be difficult for Qualcomm to sustain historical market share levels for two reasons:

1. Qualcomm customers Nokia and Samsung are diversifying their chipset suppliers

2. Infineon is gaining momentum by supplying chipsets for Apple’s popular iPhone

Interestingly, at the recent investor meeting, Qualcomm CEO mentioned that the number of modem chip company will reduce from the consolidation and/or leaving the industry. The CEO also pledged that Qualcomm will pressure other chip company by cost and technology to accelerate this.

"Consolidation will happen or people will leave the market," he said. "We’re trying to make that happen sooner."

From his remark, it’s sensed that the urgency of the price competition and problem associated with gaining market share in modem business.

It’s true that not many chip company can survive in one area from the history. It’s well known that you have to be in top 3 to realize the scale so that can sustain R&D and cost. The problem of this historic trend is that it’s based on IDM model and the notion that cutting edge node is always better.

However, in modem industry, almost all players are fabless, so there is no pressure on maintaining fab, so the scale for sustaining doesn’t have to be very large. In addition, in low end market, cutting edge node is not necessary, as cost is number one concern.

The bottom line is that many players still can survive in modem chip industry and more equalization of market share will be made.

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