- Quick Take
- Broadcom announces its first LTE chipset implying that competition is slowly catching up with market leader Qualcomm.
- However, Qualcomm’s dominance stems from its long-standing repute and expertise in the LTE market.
- It will be tough to dislodge Qualcomm from the top any time soon considering that rivals don’t yet have baseband-integrated chipsets.
- Threat more gradual than a near-term one.
After a long period of dominance by Qualcomm (NASDAQ:QCOM), the LTE baseband market is finally seeing some competition. Following Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC), it was Broadcom’s (NASDAQ:BRCM) turn to announce the launch of its first LTE-compatible baseband chip on February 12. The company said that its customers are currently testing the LTE baseband, known as BCM21892, but the first devices to sport the modem will be launched only next year when production begins. As a way of differentiating the chip from rivals, Broadcom touted the small size of the modem (the chip takes up 35% less space than its previous offerings) which not only makes it cheaper to produce but also more power-efficient.
The current baseband market is heavily dominated by Qualcomm which accounted for almost half of the sales last year. However, the rapidly growing mobile device market has attracted the attention of a diverse set of semiconductor manufacturers who will all be vying for a greater chunk of the high-growth, high-margin business in the coming years. The ongoing transition to 4G LTE in many developed markets, to be followed by the emerging markets such as China and India, could threaten Qualcomm’s dominance in the coming years as rivals achieve LTE-compatibility with their chipsets. While the LTE transition does give the new entrants their best chance at competing more effectively with the market leader, Qualcomm’s smart anticipation of the LTE demand and its proactive moves to get its basebands LTE-compatible much before the rest of the market have helped it ride the initial demand and should help it hold down the fort in the near term as well.
Growing demand for LTE and Qualcomm’s dominance
Strong demand for smartphones has helped the cellular baseband market grow by impressive rates every year. The first half of 2012 saw a solid y-o-y growth of 15% in the baseband market. Of the various technologies that are driving the market currently, LTE is seeing the strongest growth as carriers around the world shift to the new gold standard for wireless communication.
It is this trend that was anticipated well by Qualcomm and has now caught the attention of Nvidia, Intel and more recently, Broadcom. According to a Bloomberg report, Qualcomm supplied nearly 86% of the 47 million LTE-capable chipsets that were shipped last year.  The big early lead in the LTE market is a testament to the company’s superiority in 3G/4G connectivity solutions that helped it come to market first with its LTE designs. The LTE market share win helped Qualcomm increase its share within the overall baseband market from around 45% to about 51% y-o-y in the first half of 2012.
Little threat to Qualcomm in the near-term
However, the entry of new players means that the early lead is not likely to last. But how serious is the threat?
Qualcomm’s years of baseband expertise and market dominance means that the near-term threat is limited. While competitors are only just bringing their LTE basebands to market, Qualcomm’s chipsets are in their third-generation already. It is this maturity that the semiconductor giant brings to the table which caused Apple to shift its baseband supplier from Infineon (now acquired by Intel) to Qualcomm back in 2011 when it launched the iPhone 4S.
Moreover, Qualcomm has already managed to integrate its LTE modems with its app processors as a single chip (or SoC) – a technological feat that most of its rivals are unlikely to replicate until late 2013 or early 2014. Integration is a highly desirable quality in mobile semiconductors since it helps minimize power consumption and conserve space – two of the most important considerations for customers designing mobile devices. This is where the industry is heading towards as rivals such as Broadcom look to integrate baseband, app processing and connectivity solutions (Bluetooth, Wi-Fi) on a single chip. Qualcomm has this base covered as well with its acquisition of Atheros in 2011 which will help it compete in a space that is dominated by Broadcom by integrating other connectivity solutions on its integrated chipset. We therefore foresee little impact to Qualcomm from rivals’ moves in the near term, but the scenario could change as the market matures and competitors come out with integrated solutions of their own.Notes:
- Broadcom to Begin Selling LTE Chips Challenging Qualcomm, Bloomberg, February 12th, 2012 [↩]