Not All Modems Are Created Equal
Semiconductor consolidation has been a defining trend of 2015. It’s typically the result of four factors: falling margins, the need for scale, market diversification and technology integration. Chips are becoming increasingly complex in a highly challenging competitive environment where integration is central to differentiation. It’s forcing market-changing consolidation.
Eight years ago, the number of modem suppliers was twice as large as it is today. The market was more fragmented, with many big manufacturers utilizing diversified sourcing strategies that could sustain multiple partners. We were also just entering the turning point of smartphone market growth.
Multiband, multimode modems weren’t as complex, so barriers to entry and a sustainable business were lower. Huge fragmentation of frequency bands and air interfaces existed, but phone development was heavily region-specific. The launch of LTE changed that, introducing two new standards (FDD-LTE and TDD-LTE). Market leader Qualcomm also made huge strides to enable global devices capable of unprecedented combination support.
The result was mass consolidation, as companies concluded that the growing capital demands needed to be competitive weren’t sustainable given slowing smartphone growth and intense margin pressure. This led to Broadcom, Icera (Nvidia), ST-Ericsson, Texas Instruments and most recently Marvell exiting the mobile baseband market.
Those remaining have strived to close the gap on Qualcomm. Intel surprised the market in announcing the Category 10 XMM 7360 in March 2015, but continues to struggle for design wins. Samsung made progress with its Shannon 333 LTE modem supporting Category 6 in the Galaxy S6, and announced Category 12/13 LTE in its latest Exynos 8 system-on-chip (SoC). HiSilicon reportedly now has a Category 12/13 modem in the Balong 750, though few details are available about the successor to the Category 6 modem in the Kirin 950 SoC. MediaTek has also stepped up its efforts, only supporting Category 4 LTE in its Helio X10 SoC but with the Category 6 Helio X20 due to begin shipping in devices in 1Q16.
The LTE modem landscape now appears vastly more competitive than three years ago, with Qualcomm no longer having a monopoly. This is the case at the lower end of the market, where MediaTek is gaining share, but the competitive gap is beginning to widen once more.
The market opportunity for discrete modems is limited beyond Apple. Many of the more feature-rich variations (from the likes of HiSilicon and Intel) aren’t yet available as fully integrated SoCs. SoC-based options shipping in devices from Huawei, Intel and MediaTek are all Category 6 only, with Samsung’s Exynos 8 representing the exception (although this isn’t yet commercially available). Manufacturers have to deploy the modem as a discrete part alongside a separate central processing unit to make the most of these solutions, and this can have significant implications on cost and, in some cases, performance.
This is where Qualcomm maintains a leadership position. Its modem technology remains at a cadence ahead of its competitors and is integrated into its SoC plans. Qualcomm is currently the only company to offer three-times carrier aggregation in a fully integrated SoC (while the exact specifications of Samsung’s Exynos 8 remain unknown).
We believe this will be a significant advantage as operators look to accelerate LTE-Advanced and now LTE-Advanced Pro network upgrades. Carrier aggregation and support for LTE-U are needed to combine licensed and unlicensed spectrum to deliver the desired capacity.
The use of 256 quadrature amplitude modulation — an advanced scheme that determines how data is represented by a waveform — will also enable significantly greater throughput by packing more data into the signal. It will soon be the standard in three-carrier aggregation, but isn’t an easy technology to deliver across multiple operators. This is also true of 4 x 4 multiple-input multiple-output, which Qualcomm launched for the first time in its X12 modem and which doubles download throughput on a single LTE carrier through the use of multiple antennas. The speed at which Qualcomm pushes such flagship features into its mid-tier products is setting the benchmark for others in the connectivity arms race.
The company still faces significant challenges, largely regarding market structure owing to Apple’s dominance and Apple and Samsung’s lead in vertical integration. But with connectivity standing to become incrementally more complex with the transition to LTE-Advanced and particularly 5G, mobile connectivity will remain a game where only those with capital, scale and a firm commitment to integration, research and development can win.
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