Virtually no single pundit chose this week to interpret the fact that Intel has bought the Texas Instrument’s cable modem unit (Puma Division) as at all significant, but it seems to us to be a massive play for the digital home, by a cornered Intel, already worried about encroachment from ARM chips into its PC and Netbook heartland, but way of tablet designs.
If most future tablets are based on ARM architectures, and these end up kicking out many netbooks, notebooks and PCs, primarily from domestic use, Intel must look elsewhere for bread and butter growth for its business, which is large enough to will maintain its scale.
If you look at the chip industry and where growth has come from it is from cellular, and last year from netbooks, but also it came from WiFi, broadband and set tops. Intel has taken a look around and immediately alighted on Broadcom as one of its key targets for the future, and in our view is now looking to create a business which can go toe to toe with Broadcom in some of its favorite areas. All of those areas ‘ especially if you include DVD, DVR and Home servers within the set top area, are heading for a single home network, a home gateway that can do many of the things that are currently handled separately by WiFi routers, DSL modems, cable modems and set tops. Intel previously made no move to get into the cable side of the broadband business and any coming together of those technologies into one device would leave it out in the cold in many US homes (there are around 68 million US cable homes from a total of 111 million homes).
There is a similar merging together of devices in the cable market as there is in DSL, with the cable modem thought of as the starting point for the addition of both WiFi and digital video demodulation, along with security. Elsewhere in this issue both Airties and Ruckus have made moves to upgrade their WiFi home routers to cope with 8 way DOCSIS channel bonding using in Europe, which often outputs 300 Mbps.
Intel already has its own Centrino brand of WiFi chips, but only uses them on its own motherboards, and it has made aggressive attempts to get
into the IP set top market with its CE4100 chip, now bundled within the Atom family of chips. These have already been used for Over The Top designs in Europe, with the extra processing power on the CE4100 chip used for running applications on TV sets. Intel is also providing the processing power in the Google TV OTT set top, launched this Summer.
But this is a very slow way into the digital home, and Texas Instruments has a strong market share in cable modems, and claims to be ahead of Broadcom here.
Broadcom’s biggest partner in cable modems is Cisco and what used to be its Scientific Atlanta subsidiary. Cisco may have recently shifted Motorola in the US, out of first place in the provision of cable modems, though there are no official figures and neither breaks out the product line in their numbers. Cable analysts have hinted that Motorola’s market share has dropped from 40% in 2005 to 30% last year.
After Motorola and Cisco, the next largest suppliers in the US of cable modems are Arris and BigBand. Motorola relies on the TI chips, so perhaps TI has seen orders tailing off as it lost market share and that’s why it put it up for sale or was happy parting with it when Intel came calling.
Arris just signed to take MaxLinear tuners and previously used separate Microtune tuners in its cable modem boxes. When DOCSIS 2.0 was the standard it used Broadcom chips throughout. BigBand uses Texas Instruments chips. Recently Comcast has swung the market share, shifting from a reliance on Motorola to taking both Cisco and Arris in equal measure. Time Warner cable has also recently begun taking Arris cable modems in volume over Motorola.
In Broadcom’s figures it only breaks out Broadband Communications which was a $532 million business last quarter, up 33.2% on the previous year. This division includes cable modems but also DSL devices, DTH and IPTV set top chips, digital TV chips (ATSC) and controller chips for Blu-ray and DVDs. It looks to us like Intel is trying to create something more like this profile, as a growth area. If it was, it would lack a DSL capability and so while this is definitively low margin right now, it still might be looking for another acquisition on the near horizon, and there are plenty of candidates out there, such as the DSL segment of Connexant, a stalled Broadcom rival.
Intel says the purchase enhances Intel’s focus on the cable industry and related consumer electronics (CE) market segments, where the company’s expertise in building advanced system-on-chip (SoC) products, built around Intel Atoms cpus, will be applied.
So the Puma cable modem division of Texas is going to go through quite an upheaval, as it tries to take the designs that Texas settled on, and somehow put the Intel instruction set in there, replacing any processor core alongside the DSP designs that probably manage the tuning. The outcome could be an advanced SoC which could run set-top boxes, residential gateways and modem products for the cable industry and logically will also handle TV Everywhere OTT services, re-interpretting internet video for the TV set, as a kind of public internet VoD technology. Intel would also be able to offer the type of Google TV feature set built-into some cable devices.
All the employees of the Texas Instruments cable modem team will be asked to stay on and are primarily based in Israel, and will become part of Intel’s Digital Home Group. Although the terms of the transaction were not disclosed we should be able to get more on Intel’s next filing or the one after. The deal will close in Q4.