Qualcomm Inc (QCOM)

[khemara_qc]

Gloves come off as TI, Qualcomm spar over 3G chips
Thu Nov 25, 2004 09:53 PM ET
By Doug Young

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh74227_2004-11-26_02-53-23_hkg...

HONG KONG, Nov 26 (Reuters) - For the top two makers of mobile phone chips, it's time to take the gloves off.

For years, Texas Instruments Inc. (TXN.N: Quote, Profile, Research) and Qualcomm Inc. (QCOM.O: Quote, Profile, Research) have avoided direct competition by focussing on different mobile technologies: in TI's case, the GSM standard used by 80 percent of mobile subscribers; for Qualcomm, the CDMA system used in parts of the United States and Asia.

Now, the advent of new standards for third-generation mobiles is driving the companies onto each other's turf and raising the prospect that Qualcomm will dominate a 3G chip market forecast to be worth billions of dollars in the next few years.

San Diego-based Qualcomm, as well as making chips for the 3G standard that will succeed CDMA, is tasting early success with its semiconductors for the GSM successor.

TI, likewise, is offering chips for both of the new technologies that will turn mobile phones into broadband Internet-enabled devices.

But Qualcomm has an advantage in that both 3G standards are based on its patented CDMA technology, as their names attest: the GSM successor is called WCDMA, while the plain CDMA networks are upgrading to CDMA 2000.

"Next year is going to be a brand new game," said Warren Lau, a semiconductor analyst at Macquarie Securities. "Qualcomm seems to be doing pretty well in Europe with their WCDMA chipsets. But I'm not sure if they can repeat their success in Asia."

TI has dominated the market for GSM phone chips with a 60-70 percent share and hopes to do the same for WCDMA. But Qualcomm has set itself a target of half the WCDMA market, albeit not any time soon.

"Our target is to try to get up around 50 percent ... as quickly as possible," Qualcomm CEO Irwin Jacobs told reporters on the sidelines of a 3G conference last week in Hong Kong. "Often people laugh at that when we say that's our target."

NO LAUGHING MATTER

It's no laughing matter for TI. Qualcomm forecasts its WCDMA chip sales will double in 2005, albeit from a low base, and has already signed on Samsung Electronics Co. Ltd. (005930.KS: Quote, Profile, Research) , the third-biggest mobile maker, number four player Siemens AG (SIEGn.DE: Quote, Profile, Research) and sixth-ranked LG Electronics Ltd. (066570.KS: Quote, Profile, Research) for its WCDMA chips.

Qualcomm is also wooing market leader Motorola Inc. (MOT.N: Quote, Profile, Research) and Japan's NEC Corp. (6701.T: Quote, Profile, Research) , although it is likely to face competition from other chip makers such as Agere Systems Inc. (AGRa.N: Quote, Profile, Research) , Analog Devices Inc. (ADI.N: Quote, Profile, Research) , Ericsson (ERICb.ST: Quote, Profile, Research) and Philips Electronics NV (PHG.AS: Quote, Profile, Research) .

Next year is rapidly shaping up as a watershed year for 3G, with the recent or pending launch of services by heavyweights such as Europe's Vodafone Plc (VOD.L: Quote, Profile, Research) , U.S. carrier Verizon (VZ.N: Quote, Profile, Research) , and Australia's Telstra Corp. (TLS.AX: Quote, Profile, Research) .

Merrill Lynch estimated WCDMA phone sales will grow from 14 million this year to 45 million in 2005. CDMA and CDMA 2000 handset sales combined, of which half or more of them are now 3G, are expected to grow to 160 million in 2005 from 145 million.

Still, 3G phones will remain a small fraction of total mobile sales Merrill forecasts will reach 658 million in 2005.

TI sees its 3G chip sales overtaking its 2G business only in 2006. Phone makers have begun testing its new CDMA 2000 chips, said Doug Rasor, TI's worldwide strategic marketing manager, although he declined to name customers.

Pacific Crest Securities analyst James Faucette said Qualcomm has a leg up on TI when it comes to 3G chip design.

"For the foreseeable future, I don't particularly see Texas Instruments' designs being very competitive," said Faucette, who rates Qualcomm a "sector outperform" but does not cover TI.

"As far as WCDMA, Texas Instruments doesn't really have a competitive design in the market yet ... I would expect that you'll see phones based on Qualcomm solutions for WCDMA rolling out in Hong Kong and Australia." (Additional reporting by Daniel Sorid in San Francisco)


© Reuters 2004. All Rights Reserved.