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3 June 2019

NXP and MediaTek feel ripple effect from Qualcomm’s dramas

Qualcomm always sits at the heart of the mobile device chip market like a spider in the center of its web, but over the past couple of years, it has been involved in more dramatic events than ever.

It survived a takeover attempt by Broadcom thanks to an eleventh hour government intervention, only to lose its own acquisition prey, NXP. It engaged in bitter legal battles with Apple, which almost saw it lose its largest modem customer to Intel, but again, it was saved at the last moment when Apple realized it could not axe Qualcomm and produce a top rate iPhone, sparking the abrupt exit of Intel from the 5G modem market.

But a Federal Trade Commission lawsuit went against it, and may force it to amend its licensing practices at a critical time at the start of the 5G cycle. And if sanctions against Huawei persist, and potentially spread to ZTE and other Chinese firms, Qualcomm will lose valuable customers, while seeing its own investments in Chinese chip suppliers and foundries put at risk.

As the dust settles on at least some of these dramas, the ripple effect is felt by other companies. NXP, its hopes of becoming a mobile leader with a Qualcomm merger, has made an acquisition of its own, of Marvell’s WiFi, Bluetooth and NFC technologies. This sees the Dutch company strengthening its core business in automotive and communication devices in a bid to move beyond the Qualcomm episode.

NXP CEO Richard Clemmer said in a statement that combining these Marvell wireless assets with NXP’s embedded processing would “offer our customer base the broadest portfolio of edge solutions, which includes tailored security and a full suite of wireless connectivity spanning WiFi, Bluetooth, Bluetooth Low Energy, Zigbee, Thread and NFC.”

The Marvell WiFi and Bluetooth business employs about 550 people worldwide and it generated about $300m in revenue in Marvell’s fiscal 2019. NXP expects revenue associated with the acquired assets to double by 2022.

NXP will pay $1.76bn for the assets, in a deal which follows Marvell’s own purchase of Cavium, a transaction which has swung the company further towards high value infrastructure businesses in the cloud and mobile networks, and away from more commoditized WiFi and device spaces. Marvell CEO Matt Murphy said the sale “yields a premium valuation and substantially higher economic return for Marvell shareholders while accelerating our transformation into a leading infrastructure supplier spanning 5G, data center, enterprise and automotive Ethernet applications”.

The transaction has been approved by the boards of directors of both NXP and Marvell, and is expected to close by the first quarter of 2020.

No sooner has Qualcomm seen off one competitor for its core smartphone modem business, than another revives itself to fight another day. Taiwan’s MediaTek is still the second player in this sector, but has been a dwindling force over the past couple of years and has been focusing much of its attention on non-handset segments such as IoT devices and set-top box chips. Intel had looked to be a far more serious contender to Qualcomm in the early-stage, and high end, areas of 5G, but clearly did not think the market worth pursuing without Apple as an anchor client.

That should clear the way for MediaTek to stage a comeback, especially if the US-China trade wars make it hard for newer Chinese modem and system-on-chip makers, like Spreadtrum, to expand globally. MediaTek has announced its first integrated modem/processor SoC for 5G, which it expects to be available in devices in China from the first quarter of 2020, and then to expand to other markets. It will not immediately target the USA, particularly because its chipset does not support millimeter wave bands, which feature heavily in the first US 5G roll-outs. Qualcomm (and Intel, before it bowed out) supports combinations of sub-6 GHz and mmWave bands in the same SoC.

However, a credible 5G SoC will help MediaTek to be a stronger force in the smartphone market again, after about two years of focusing elsewhere, steadily losing share in handsets.  Last year, according to Strategy Analytics, Qualcomm had about 50% share of the handset baseband market, while MediaTek had 14%. The US firm typically increases its share sharply when it comes to early-stage technologies – it had 66% of the total market in 2014, thanks to LTE scaling up, and in early 4G years, had over 80% of the LTE segment.

To try to break this pattern in 5G, MediaTek invested about $1.5bn in R&D between 2014 and 2019, not as much as Qualcomm, but a far higher rate than it had previously spent. “This is the first opportunity for us to lead the market, not to fast-follow,” Russ Mestechkin, Mediatek’s senior director of corporate sales and business development, told EE Times.

The new SoC is built on a power-efficient 7-nanometer FinFET process and uses the first implementation of ARM’s Cortex-A77 CPU and Mali-G77 GPU cores, integrated with a its Helio M70 5G modem promising peak download speeds of 4.7Gbps. The multimode chipset also supports 2G, 3G and 4G and includes a new AI processing unit. The Helio M70 made its debut at Mobile World Congress this year, with the fastest sub-6 GHz demonstration to date.

Qualcomm unveiled its second generation 5G modem, Snapdragon X55, in February and will start sampling its integrated Snapdragon 5G SoC this quarter.

Meanwhile, Qualcomm itself has filed a prompt appeal against the court decision against it in the case brought by the Federal Trade Commission (FTC). One of its arguments is particularly resonant, given the feverish climate of paranoia about national security, which is being used to escalate trade and other tensions between the USA and China. Qualcomm is saying that its leadership position in the 5G market is vital to US national security, which would be put at risk if it were forced to license its patents to everybody.

Last week, Judge Lucy Koh ruled that Qualcomm’s “no license, no chips” policy and its exclusive licensing deals with smartphone makers were anti-competitive and, for standards-essential patents (SEP), broke requirements to license to everybody on a fair reasonable and non-discriminatory (Frand) basis. This supported the FTC’s complaints (originally initiated by Apple as part of its anti-Qualcomm suits, now settled).

Qualcomm is now appealing to stay an injunction against its licensing practices, and its security argument may draw the Trump administration onto its side, and against the Ninth Circuit Court where Koh presided. The company said in a filing that Koh’s ruling

misinterprets complex antitrust and patent law and would unfairly hurt not just Qualcomm, but the whole cellular industry and US national security and 5G leadership hopes.

To support its national security argument, Qualcomm filed as evidence the Trump administration’s March 2018 executive order, which blocked the proposed hostile takeover of Qualcomm by Broadcom on the basis that “a threat to Qualcomm’s business model and leadership position [in 5G] … creates attendant national security risks”. This, in turn, cited the opinion of the US Treasury’s Committee on Foreign Investment in the United States.

Not only security but the USA’s lead in 5G technology would be threatened by any weakening of Qualcomm, said the firm. The filing also cited the controversial ‘letter of interest’ which the Department of Justice filed on May 2, urging Koh to be cautious in her ruling and not to “reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology”.

The San Diego firm also noted that the ruling had effectively knocked 15% off the value of its stock price – equivalent to more than $14bn – in anticipation of possible renegotiation of lucrative licensing deals.

For good measure, it laid on other arguments, mainly that the 5G market would be sufficiently competitive. “Competition likely will be fierce in the nascent 5G chip arena. All of Qualcomm’s major competitors — including MediaTek, Samsung and Huawei — have developed or announced 5G products,” it wrote.

And it said an attempt to change licensing practices which have existed for many years in the mobile industry would have a knock-on effect on other companies too, focusing on FTC criticisms of charging fees based on the complete device, not just the component which relies on the patent.

Ignoring the campaigns waged for many years by Apple and others, to have chip-based licensing, Qualcomm wrote: “By condemning the practice of licensing only complete cellular devices (which all major cellular SEP holders have employed for decades), the Order threatens to upend the entire wireless communications industry (including the licensing practices of other major SEP holders like Ericsson, Nokia, and InterDigital) and undermine incentives to contribute the foundational technology underlying cellular standards and systems.”