Texas bets chips against integrated silicon

US chip shop Texas Instruments is looking to cut its cellular baseband operations, by flogging off its merchant market business, the company revealed this week.

TI reported a 26 per cent drop in third quarter income, from $758m last year to $563m this year, while revenues dived 8 per cent year on year to $3.4bn.

To cut costs in the near term, reductions in the company’s cellular baseband operations will begin immediately and are expected to be complete by June 2009. TI anticipates annual savings of more than $200m once these reductions are complete, although the firm expects to take restructuring charges of approximately $110m across the next three quarters.

The vendor is also looking to offload its baseband business completely as it switches its focus to application processors.

But as Nomura’s Richard Windsor points out, the company is taking a big gamble with this move.

The baseband chip deals with radio communications, while the application processor runs higher level software such as music players and cameras. TI’s latest strategy banks on the fact that the applications processor and the baseband will remain isolated components, despite a clear industry trend to the contrary.

Windsor believes that the direction of the market is in fact the opposite, “Meaning that once a technology is stable it will be integrated into the baseband.” Indeed, we’ve heard plenty of noise about system on a chip (SoC) implementations and multi-core processors, which might integrate GPS, audio and video processing and Bluetooth with the baseband.

It’s also not without irony that Windsor notes that the best performing 3G chipset going into almost all of the non-Nokia high end handsets is Qualcomm’s 72** series fully integrated dual core solution. “We believe that greater integration is in the interest of the handset customer as fewer chips mean smaller phones, simpler designs and lower power consumption,” Windsor said.

It should also be noted that TI has actually spent a lot of time and money developing its OMAP Vox range of products which integrate the baseband and applications processor on the same piece of silicon.

As a result of this latest move, TI stands to lose WCDMA market share to Qualcomm, Nomura predicts, suggesting that the real reason Texas is bailing out of the baseband market is an “Inability to create a working merchant market 3G baseband.”