In recent years the mobile handset market has provided a large avenue for growth to semiconductor suppliers with strong competitive offerings for the segment. Overall the mobile handset market has grown at a compound annual growth rate (CAGR) of 7.4% during the past 5 years, including both smart and non-smartphones. The smartphone market has driven most of the growth over this time with a CAGR over the same period of 60%. After several years of strong growth the smartphone market has begun to mature and growth rates are beginning to stabilize. From 2014 to 2019 the overall market is expected to grow by a CAGR of just 2.39%. Outside of the high-end segment the smartphone market has commoditized as basic feature phone users continue to convert to smartphones. The smartphone market segment is slated to grow at a CAGR over 7% during the above time period, down significantly from the previous 5 year CAGR above. As their end market matures, mobile handset semiconductor suppliers face challenges but also opportunities. In this two part series IHS will examine the state of the mobile handset digital baseband market and where and how each major baseband supplier participates within it.
According to the IHS Wireless Semiconductor Competitive Intelligence Service, digital baseband revenue declined an estimated 6% last year; with this backdrop competition in the smartphone semiconductor market has remained intense. Most suppliers are facing an increasingly difficult environment in which to turn a profit. Consolidation continued in the industry last year as suppliers continued to exit the baseband market, and others reinforced their positions by buying important IP. Nvidia exited the modem business after announcing the wind-down of its Icera unit in May. In September Marvell announced the significant downsizing of its mobile platform business and a resulting reduction of its global workforce of about 17%. Marvell took the measures to reign in expenses associated with the mobile platform business and shift focus to more profitable segments such as automotive and IoT. Also in September, Intel completed its acquisition of assets from Via Telecom which should result in Intel bringing to market CDMA technology with its chipsets in the future.
LTE supplier base continues to grow
The LTE chipset supplier base continued to diversify in 2015. Companies such as Spreadtrum joined the LTE baseband fray with market leaders Qualcomm, MediaTek, and Samsung. With OEMs now having more options to fill their modem needs, market share concentration has reduced. In the low-end and mid-range market segments, a few OEMs which have been historically dependent on Qualcomm for their SoCs, such as HTC have introduced models using MediaTek platforms. In China, Xiaomi has turned to Leadcore to supply at least some of its Chinese smartphones such as the Redmi 2A. Xiaomi has reportedly also chosen Leadcore as a partner to develop its own custom smartphone SoC in the future. Other OEMs such as Samsung and Huawei (via its HiSilicon subsidiary) have internally produced smartphone ICs with which they have so far traditionally supported only some of their higher-end flagship devices.
On the device level, LTE phones continue to move down the price curve as devices are available for well less than $100 from OEMs such as Microsoft, Samsung, LG, HTC, and others. Semiconductor supplier price competition for these low cost phones is likely to be the fiercest, as OEMs need to squeeze every cent from their bill of materials in these phones. IHS expects this market segment with an ASP less than $150 will represent about one third of the smartphone market globally in 2016, representing a significant volume opportunity to the most successful suppliers.
Not all LTE is created equal
A wide variation of digital baseband requirements creates a sizable moat for new entrants in the LTE baseband segment who face daunting challenges to overcome, including well-established market leaders with bleeding edge technology and IP. Qualcomm is the market leader in terms of revenue from LTE baseband and unit shipments. It’s now had several generations of commercially available LTE modem and has both integrated and discrete design options with products targeted across all smartphone tiers from entry-level to high-end. Conversely, new entrants have typically introduced products that aren’t on the bleeding edge and aimed at entry level devices or geared toward specific regions. For instance Spreadtrum’s first category 4 LTE SoC started shipping in April last year, and other companies’ offerings are also currently confined Cat4 LTE solutions, capable of 150Mbps on the downlink. In comparison, the market leader is now offering Cat16/13 LTE solutions which offer up to 1 Gbps in the downlink, featuring higher orders of carrier aggregation. Importantly, speed on the uplink is also improved from 50 Mbps in Cat4 devices to 150Mbps in the uplink with Cat13. As more high-end phones offer 4K video recording and advanced camera capabilities, any increase in uplink speed (or lack of) will become more noticeable to end-users, especially as mobile networks advance and user generated content is increasingly posted to social networks or cloud services.
Network operators across the globe continue to engage in the development of Category 6 (Cat6) and above LTE Advanced (LTE-A) networks. According to the Global Mobile Suppliers Organization (GSA), as of January 2016 there were over 116 commercial LTE advanced networks, over 80 of which were capable of supporting at least Cat6 LTE. As this technology becomes more widespread, a larger number of OEMs are adopting it in their handsets even in the mid-range market segment. Suppliers that are able to offer competitive offerings with Cat6, Cat9, and higher capabilities will be well positioned for future smartphone design wins in the mid-range and high-end market segments.
As mobile networks advance and Wi-Fi has become ubiquitous in most developed markets, users now expect seamless data connectivity to meet their rigorous demands. Moving forward as technologies like voice-over-LTE (VoLTE) are increasingly adopted and Wi-Fi calling becomes more pervasive; the level at which modems can offer seamless interoperability between LTE and Wi-Fi is becoming another key differentiator between current market leaders and new entrants. Suppliers that can offer the smoothest most consistent handoff between Wi-Fi and LTE will be best positioned to address the technologies coexistence.
Low power consumption is another characteristic which successful modem portfolios must offer, regardless of target market segment. One way of achieving superior power consumption is by moving modems to smaller semiconductor technology nodes. Currently, leading suppliers are offering 14/16nm applications processors with modems following suit in 2016. Some baseband suppliers also offer power management solutions for the RF front-end (the functional area between the transceiver and the antenna), providing further relief for mounting battery life demands.
Integrated solutions offer benefits to OEMs and suppliers alike
The overall design trend in the smartphone market is a shift from discrete or “thin” modems to integrated modem-application processors (Mod+APs). While certain OEMs such as Apple and Samsung have used thin-modems extensively in their flagship phones, those designs are increasingly the exception rather than the rule. Suppliers will typically favor selling Mod+APs as they offer better revenue opportunities and provide better profit margin than thin-modems. Selling a Mod+AP as opposed to a thin modem will typically lead to greater opportunities for sales of other components such as WLAN ICs, audio codecs, RF components, and power management ICs, as attach rates of these supporting ICs tend to be much higher with integrated solutions.
Some OEMs may elect to utilize Mod+AP, benefiting from reduced design resource requirements and potentially faster development cycles, as well as reduced BOM cost of some functions such as WLAN/Bluetooth connectivity. Modem suppliers have been integrating the WLAN baseband functionality into the main SoC of a smartphone and pairing that with a companion IC which addresses the WLAN RF functionality. MediaTek, Qualcomm, and Spreadtrum are all using this approach, with varying degrees of success. The WLAN companion IC approach is particularly attractive to entry level and mid-range smartphone designs from a BOM perspective. However, in many premium focused smartphones OEMs are choosing to stay with discrete WLAN/Bluetooth solutions such as those from Broadcom. The incorporation of WLAN into main smartphone SoCs has helped to soften Broadcom’s dominance of the overall WLAN IC market in recent years.
Vertical integration remains a challenge
As vertically integrated OEMs such as Huawei and Samsung continue to develop their own modem solutions third party suppliers may find revenue from these OEMs harder to come by. For instance, at the end of its fiscal year in 2013 Qualcomm cited Samsung as a greater than 10% customer, due in large part to their extensive use of Qualcomm’s solutions for its handsets. However, over the past year Samsung increasingly relied upon its own Shannon modems in many smartphone models. In November Samsung announced the Exynos 8890 which should be the first internally developed integrated modem to become widely used in Samsung’s smartphones. As this follows the greater trend toward the use of integrated modems in the smartphone market, it could signal even less reliance on Qualcomm in the future, though network interoperability may keep the company from being completely shut out. It’s important to note however, that Samsung will often have design teams compete internally using different approaches or components and may choose a third-party IC in one design cycle while opting for Exynos in the next. Therefore, the last design loss is not necessarily a harbinger of decline for Qualcomm as they have as good of chance or better with the next design.
Huawei, through its Hisilicon subsidiary, is also leaning on internally developed baseband products. In 2015 the company used its own integrated modem in the Kirin 930 which was found in high-end phones such as the P8. Last fall the company announced the Kirin 950 which represents further progress for its internally developed modem line. The Kirin 950 is the company’s third generation Mod+AP which boasts improved power consumption and performance relative to the Kirin 930. The 16nm SoC uses ARMs big.LITTLE architecture and also includes an always on co-processor, supporting functions such as a sensor hub. The Kirin 950 will be in the Huawei Mate 8, which was announced at CES 2016.
Samsung is the largest smartphone maker, by unit market share, and Huawei was the 4th largest smartphone OEM by units as of Q3-15. Both OEMs utilize third parties for baseband in some of their mobile handset models, but have recently increased their reliance on homegrown ICs. So far internally produced digital baseband have been found mostly in high-end phones targeted toward certain geographies or network operators from both companies; although Samsung recently announced a 14nm Exynos product to cater to mid-range smartphones. Any penetration into the mid-range and entry level smartphone segments will only further reduce the available market for third party suppliers.
As 2016 continues to unfold growth in the digital baseband market will correlate with overall developments in the mobile handset market. Each mobile handset baseband supplier is facing the maturing handset market in different ways with some targeting certain market segments while others focus on technology differentiation.
Click here for the next article providing a description of the current state of each of the major mobile handset digital baseband suppliers.