The chips are down

Qualcomm faces new challenges to its dominance of the CDMA chipset market in the shape of Nokia, Texas Instruments and STMicroelectronics

TMicroelectronics and Texas Instruments have teamed up with Nokia to challenge Qualcomm's hegemony in the CDMA chipset market. The alliance plans to develop

a full chipset, including RF, analog baseband/power management, digital baseband, associated protocol software and reference designs, for CDMA1x and CDMA1x EV-DV. The chipset will be based on Nokia technology that the company is currently using in its CDMA1x solutions and will be sold by STMicro and TI to handset makers.

Why would Nokia encourage competition in a sector where it wants to gain market share? In fact Nokia's share of the CDMA handset market actually shrunk year-on-year in the first quarter, according to Strategy Analytics - during Q1 2003, Nokia supplied 7.6 per cent of the world's CDMA phones, versus 11.3 per cent during the same period last year. Nokia has targeted a 15 per cent share by year-end. For its part, Qualcomm has dismissed the TI-Nokia chipset as "a patchwork solution," and pointed out that "Nokia is a competitor to all the companies they're trying to sell to."

Perhaps Nokia believes that a variety of chipset suppliers could enhance its own CDMA handset portfolio. TI and STMicro may be offering additional functionality that Nokia's own chipset division cannot deliver. In addition to the basic CDMA chipset functionality, STMicro and TI will make available their "complementary wireless technologies," including applications processors which support the OMAPI standard, WLAN, Bluetooth, and GPS technology.

STM will offer its flash memory products "as an option to complement the chipset". Samples of the new chipset are expected by the third quarter, which suggests that volume shipments could begin in the first half of 2004.

Opening up the market may allow Nokia to cash in on growing demand for CDMA technology. Nokia executives claim that the company is not primarily interested in the revenues from licensing its CDMA solution, arguing that the incentive is to create an open environment to stimulate market growth and bring down barriers to entry. Although the details of Qualcomm's licensing fee structure are a well-guarded secret, according to some analysts the cost of CDMA silicon to handset makers is almost double that of the average GSM chipset.

All this vigorous competition is good news for CDMA, but potentially bad news for Qualcomm. Some analysts believe its CDMA market share could shrink from 90 per cent to 70 per cent over the next two years. "TI will provide tough competition to Qualcomm, which has had pretty much a free ride in terms of pricing," commented Allen Nogee, senior wireless analyst at In-Stat/MDR. Qualcomm's sky-high margins of around 35 per cent will come under pressure now that it has direct competition from Nokia and TI. Samsung is also casting its hat into the ring. The Korean vendor, and number one CDMA handset maker, announced in April that it would increase use of internally manufactured CDMA chips in its upcoming handsets.

The new consortium claims it will be able to offer greater cost efficiencies compared to Qualcomm, not least because the partners have their own manufacturing capabilities. TI also has a cross-licensing agreement with Qualcomm which, it says, means it won't have to pay patent licensing fees. TI and Qualcomm have swapped intellectual property, giving Qualcomm access to TI's GSM patents in return for Qualcomm's CDMA-related IP.

Competitive price cuts are almost inevitable, especially as Qualcomm's competitors are going for the low end of the market which, in the shape of developing markets like China and India, is where most CDMA growth opportunities exist. "The major operators and handset OEMs are expressing a willingness to be courted by someone other than Qualcomm, especially if the price is right," concludes a recent research note from Deutsche Bank analysts. Taiwanese contract manufacturers are reportedly keen to reduce costs, as are the rapidly proliferating Chinese players.

It didn't take long for Qualcomm to strike back, launching the new MSM7000 series within a week of its trio of competitors announcing their alliance.

The chipsets in the MSM7000 family will support all 3G standards, including variations of CDMA 1x, GSM, GPRS and WCDMA. Samples of the MSM7000 chipsets are expected to be available in 2004. The company foresees full-scale production capabilities in 2005 and is pitching the technology at 3G multimedia capabilities and services that will hopefully be in demand in late 2005 or 2006.

The 7000 series, unlike previous Qualcomm chips, incorporates a dual-CPU architecture, reflecting the need to support 3G multimedia functionality.

One processor is optimised for modem functions, and the second is available as an application processor that can be used to download large files.

Qualcomm also released a new chipset to address the low-end market that may be under threat from the new alliance. The MSM6025 is designed to enable wireless data applications in entry-level handsets and drive CDMA1x adoption in developing markets. Qualcomm remains outwardly sanguine about the threat to its core markets. After all, it has seen off plenty of CDMA pretenders in the past. However, heavyweights like Nokia, TI and Samsung will likely present a formidable challenge.