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Summary:

The iPhones have been unboxed and torn down, so now it’s the Wall Street watchers’ turn to tally up who won and who lost among the companies that provide chips for the envy-inducing device. The big winner is Infineon with four chips, including GPS and 3G […]

The iPhones have been unboxed and torn down, so now it’s the Wall Street watchers’ turn to tally up who won and who lost among the companies that provide chips for the envy-inducing device. The big winner is Infineon with four chips, including GPS and 3G radio. Little-known chip firm TriQuint also won, with three power amplifiers inside the phone. Wi-Fi was once again provided by Marvell, but Broadcom scored low, with only a touchscreen controller and no GPS (which we had been expecting).

Most impressive was that the phone contains 19 high-value chips. For silicon vendors the iPhone represents an opportunity to push high-margin chips reserved for high-end smartphones into the average cell phone. Readers of this blog may take a BlackBerry or Nokia N95 for granted, but middle America or even Europe doesn’t always see the point. But if housewives and teens clamor for iPhones, chip makers will cheer.

That’s because the iPhone, in addition to making wireless broadband consumption more accessible to people, will drive smartphone adoption. And smartphones can contain up to six times the amount of silicon found in an entry-level phone. Despite TI not having a large presence in the iPhone, Bill Krenik, CTO of Texas Instruments’ wireless division (the second-largest wireless chip company behind Qualcomm), says the adoption of the iPhone is a good thing for chip makers everywhere.

“It’s a lot more fun to build iPhones and other high-end products than a simple voice-only handset because there’s a lot more design sophistication and exciting features like high-end graphics, but from a business angle there’s more semiconductor content for us to go after,” Krenik said. “There has been a lot of negative sentiment about what more can you really do on a phone, but we’ve ignored that.”

David Carey, president of the firm that conducted an iPhone teardown, Portelligent, said part of the risk point for the wireless industry was that everyone was satisfied — that nothing that would lull consumers into a more feature-rich phone. “If the iPhone does sort of capture the public’s imagination, it’ll have a direct impact on whether the cell-phone industry is a growth market for the chip business, or it stagnates,” he said.

Carey has seen the total space devoted to silicon inside a cell phone shrink as the radios and applications processors became more integrated. Qualcomm and Freescale offer such integrated platforms, while many handset makers still offer an integrated brain and radio for cell phones, even on their higher-end phones like the Samsung Instinct (although phones like the Instinct still offer plenty of other opportunities for chip vendors). Carey points to HTC, Motorola, LG and Samsung as handset companies who tend to consolidate silicon, and offers Nokia and Apple as examples of firms that separate the brains of the phone from the communications chips.

The move toward better integration is the norm in the industry, but despite the rise in the number of cell phones sold and an increase in the sales of wireless chips, it has led to lowered prices per unit. In 2004 when iSuppli started gathering data on the topic, about $23.77 was spent on silicon inside each handset on average. That number dropped to $18.65 in 2007. The wireless chip players are relying on handset growth to keep their sales on the rise — and hoping for next-generation features they can convince consumers and handset makers to buy.

GPS is one such technology gaining in popularity on high-end phones. The iPhone has it, and many software companies are actively trying to make programs and offer services that take advantage of it. Other technologies waiting in the wings are mobile television, which would require chips from Qualcomm in the U.S. or those from Dibcom or Samsung in other countries, and HD video that would require higher-end applications processing such as that offered by Nvidia’s APX 2500 or Texas Instrument’s OMAP 3. Regardless, the iPhone might do more than make semiconductors fun. It may keep chip vendors happy.

  1. [...] fact there are too many radios, especially on high-end devices. And it’s only going to get worse in coming years as 4G networks using LTE or WiMAX [...]

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  2. [...] chips for the envy-inducing device. The big winner is Infineon with four chips, including GPShttp://gigaom.com/2008/07/14/chips-and-the-3g-iphone/When Nature Calls: Cell Phones Ring OwlsMIT researchers are USING cell PHONES TO COUNT OWLS. They’ve [...]

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  3. Not really a resurrection. More like higher ASPs and fatter gross margins going forward. Before the iPhone, there was a race to the bottom. Cranking out lower cost chip solutions at the lowest possible price point (for the ultra-low-cost market). Now there is a sudden rush for high-end smartphones. These would require higher content, higher margin chips. From that perspective, a smartphone uptick is good for wireless chip makers.

    *Chip makers have a chance to escape rapid commoditization by differentiating on the basis of multi-mode solutions, power consumption, multimedia feature sets, GPS/bluetooth integration, etc. Strong smartphone demand driven by carrier subsidies should fuel high-volume shipments in these high end chipsets. Second sourcing may not be that easy for the handset manufacturers, at least for the next year or two. Smart phone IC commoditization is at least 2-3 years away.
    *The iPhone’s $199 price tag also points toward handset price erosion for manufacturers like Nokia and Samsung.
    *We might be through with the memory correction, and it’s unlikely the semiconductor component pricing would decline like it has in the past.

    These three data points lead me to believe that pure play handset manufacturers are looking at sharply lower gross margins over the next few quarters.

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  4. [...] and substantial backend data capacity.  Not to mention the boon for their suppliers (such as chipmakers) who will also benefit from this [...]

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  5. [...] 3G, iPhone Atlas, Ben Wilsom How and Why the iPhone Changes The Game, HaveMacWillBlog, Robin Bloor How iPhone Could Resurrect Wireless Chip Makers, GigaOM, Stacey Higginbotham Two days of iPhone line-waiting: a sordid tale, Ars Technica – [...]

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  6. [...] STMicroelectronics and equipment maker Ericcson this morning, all you need to know is that making wireless chips is no longer enough. The emphasis is shifting beyond the individual radios on a chip, to a platform that contain as [...]

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  7. [...] iPhone is a good example of a wireless device that utilizes several special purpose chips, with more than 19 in total and at least five radios, which send and receive the wireless signals that allow a phone [...]

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  8. [...] that contain the brains and the communications capabilities of the phone on the same platform, rather than separated as the iPhone does. Samsung doesn’t release market data for its mobile applications processors, but analysts say [...]

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  9. [...] that point home, SIA said PCs and cellphone sales were a large part of the overall growth. Citing a recent Credit Suisse report, the association said PC unit sales were up 9.1 percent in [...]

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  10. [...] as people put off purchasing new handsets, PCs or Blu-ray players. But people are also purchasing cheaper electronics that don’t have as high a silicon content. This means phones like the iPhone that contain 19 high-value semiconductors are replaced by phones [...]

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