TI to quit cellphone baseband merchant market
Published: 23 October, 2008
In the biggest potential shake-up in an eventful year for the cellphone baseband chip sector, Texas Instruments is looking to exit the merchant side of this business, which it led until being narrowly overtaken by Qualcomm last year.
TI has come under increasing pressure, losing its exclusive deals with Nokia and seeing reduced revenues from Motorola and Ericsson, and has been vocal about plans to shift its focus more heavily to other areas of strength like analog products. However, its announcement this week that it would lay off 650 people and seek a buyer for the baseband unit still came as a shock.
Depending on who might acquire the unit, the loss of TI should strengthen the market lead of Qualcomm and the rising power of STMicro and Ericsson Mobile Platforms (EMP), which are in the process of creating a wireless joint venture that also includes the wireless assets of NXP.
By selling off the merchant portion of its baseband activities, TI will save $200m a year in costs - about one-third of its total wireless expenses - but with sales at the unit slumping, and recession making most companies nervous, the puzzle is who might acquire the business, especially as it is closely tied into TI's own fabrication plants.
TI will now focus heavily on analog and embedded products and on its OMAP applications processors. It will also continue to support selected custom programs within the cellular baseband operation. According to Barclays Capital, the merchant baseband operation makes up 10% of TI's wireless revenue, OMAP and connectivity currently make up 25%, and the custom baseband operation contributes 65%.
In total, in the third quarter, the company reported wireless revenue of $915m, down 16% on a year earlier, and is forecast to make wireless revenue of almost $3.6bn for fiscal 2008. Overall, TI reported results that disappointed the market, with total Q3 revenues at $3.39bn, down 8% year-on-year, with a 26% drop in net income to $563m.