Texas Instruments is the latest wireless semiconductor firm to reduce its forecasts for the current quarter as market conditions worsen, following similar announcements from Broadcom, Altera and IDT.
In its update, TI said it now expects revenue of $2.3bn to $2.5bn, down from prior guidance of $2.83bn to $3.07bn, with earnings per share of 10-16 cents, down from 30-36 cents.
Broadcom has also reduced its outlook this week, blaming product delivery postponements by customers across all its targeted end markets. It now expects revenue of $1.05bn to $1.10m in the fourth quarter, down from prior guidance of $1.17bn to $1.24bn.
Altera and IDT made similar warnings, also blaming customer caution and postponed orders, though in Altera’s case the main problems lie in the computer storage segments. The company expects Q4 revenue to be down 9-12% from third quarter levels, while IDT predicts a 15-18% sequential decline to $165m to $170m, down from previous forecasts of $170m to $185m. “Order patterns have deteriorated since mid-November as customers become more cautious in the face of a weakening economic environment,” said CEO Ted Tewksbury.
The string of cautious statements came on the heels of dampened expectations from wireless market leader Qualcomm, when it announced its last set of financial results last month, and widespread predictions of cutbacks at Intel. One ray of hope came from analysts at Robert W Baird, whose latest semiconductor research note points to a rebound as early as the third quarter of 2009, driven in particular by a boom in sales of netbooks.
Qualcomm made a significant downward revision to its guidance last month but has not updated that since. It expects chip shipments to decline from 85m in the fiscal fourth quarter to 60m-65m in the fiscal first quarter, and a modest recovery only in the second half of fiscal 2009. This led it to downgrade revenue forecasts, looking for a 3%-8% decline to $10.2bn-$10.8bn in fiscal 2009, with earnings per share down 7%-11% to $2.00-$2.10.
The whole sector is being affected by worries over semiconductor leader Intel. Intel is expected to cut 6-7% of its total headcount ‘ about 5,000 to 6,000 employees – as part of a wider cost cutting initiative to save up to $1bn a year. This was mooted in a research note from Craig Berger, an analyst for FBR Capital Markets, who said Intel could even increase job cuts to 10%, especially in light of a recent warning from competitor AMD that its fourth quarter revenue could be 25% less than Q3’s. FBR lowered its 2009 revenue estimate for Intel to $34.3bn from $35.1bn, its earnings per share estimate to 85 cents from 95, and its price target for Intel shares to $15.50 from $17.
So which of the wireless majors are best positioned to withstand decline, and how will they achieve that? With Nokia likely to maintain or increase its market share in a smaller market, its influence over the whole wireless ecosystem will only increase. As it moves to buying far more baseband and other chips on the merchant market, rather than relying on customized products, except at the high end, it will grow even further apart from its former near-monopoly baseband supplier, Texas Instruments. This leaves significant new opportunities for current and future second source vendors to Nokia, despite intense price pressure.
The second sources to TI for the 2008-9 handset range are Infineon for GSM, Broadcom for EDGE and STMicro for 3G/HSPA ‘ though it is unclear how much any of these deals, announced last year, have translated into actual revenue in 2008. Other key component suppliers include RF Micro, and Nokia is expected to finalize its choice of chip partners for its 2010 handset range soon after the new year.
It is highly likely that Broadcom will increase its position, since it has been working hard on improving its offering for handsets, and could even move beyond the EDGE market, though undoubtedly STMicro ‘ which has the plum 3G deal, including a major R&D partnership with Nokia ‘ will only strengthen its cause following the merger of its ST-NXP Wireless joint venture with Ericsson Mobile Platforms, a deal that was approved by the European Commission earlier this month.
Apart from TI, the supplier most at risk looks likely to be Infineon, according to a new forecast released by analysts at Barclays Capital, which speculates that Broadcom will gain an expanded baseband chip deal with Nokia ‘ affecting revenues from late 2009 ‘ but that Infineon risks losing some of its volume at the company. Analyst Tim Luke also fears Infineon’s high profile iPhone baseband deal could be at risk later in 2009, citing “recent technical and software issues” between Infineon and Apple and wondering whether Qualcomm might pick up the Apple deal for the next iteration of the iPhone. Such a deal could add sales of five to seven million chips a quarter for Qualcomm, starting in the second half of 2009, Luke estimated.
Qualcomm will be hoping to be added to both Apple’s and Nokia’s Christmas card lists, following its patents truce with the market leader. Contracts with both device makers could well be driven by Qualcomm’s expansion beyond pure handsets into a broader range of consumer electronics and mobile internet devices, with platforms like Gobi for notebooks, Kayak for emerging market web systems, and Snapdragon for MIDs. These may have a better chance of breaking into the Nokia fortress ‘ especially if the Finn delivers on market rumors that it will offer netbooks and a wider range of MIDs in 2009 ‘ than Qualcomm’s conventional handset basebands. As well as pushing into new device categories that are geared to markets that should still see growth in 2009, like mobile broadband notebooks, Qualcomm will also aim to be in position ahead of the pack as soon as operators start to deploy new technologies. In particular, it has announced an aggressive roadmap for LTE.
One of Qualcomm’s major competitive advantages in a downturn will be its superior ability to integrate many radios and other features tightly into low power, single-chip platforms, which reduce cost while packing in more functionality. Broadcom is chasing it in this respect, and this could improve its chances during the bad times. This week, it tempered the impact of its quarterly warning by announcing a new combination chip for handsets that is its first to integrate single stream 802.11n, Blueetooth and FM radio. Although many of 11n’s performance advantage come from using MIMO antenna arrays and multiple data streams, companies like Broadcom and Atheros have been backing a single-stream variant, suited to low power devices like cellphones.
The BCM4329 is the vendor’s smallest dual-band Wi-Fi device and its lowest in power consumption but to really hit the handset big time, Broadcom will need more chipsets that integrate Wi-Fi and other radios with 3G. It has pledged to roll out new wireless combo chips every 60 days, supporting features such as GPS, NFC for mobile payments, Bluetooth over Wi-Fi, and peer-to-peer Wi-Fi. All these will give the firm strong differentiation in areas that are of real competitive concern to operators and device makers, such as location awareness and home media networks. Integration is all ‘ TI was the first to release a chip that integrates Wi-Fi, Bluetooth and FM, but this uses separate power management and power amp chips.