Chipmakers cash in on wireless boom

HONG KONG: The fast-growing wireless communications scene has spawned a new generation of mobile phones and other devices, rich pickings for makers of the cutting-edge chips that go inside them.

Intel Corp. has helped popularise Wi-Fi -- a powerful short-range wireless Internet access system -- by equipping portable computers with it.

Now, Wi-Fi is making inroads into a new crop of gizmos coming out with wireless chips, from cellphones through game consoles to TV set-top boxes. Merrill Lynch says revenue of the related chip market could grow 18 percent annually to US$1.65 billion by 2009.

Niche chipmakers from Texas Instruments Inc. and Broadcom Corp. of the U.S. to Taiwan Semiconductor Manufacturing Co. and microchip packager STATS ChipPAC Ltd. in Asia are positioned to ride the potential boom.

"The driver of growth in the semiconductor industry is moving towards really two big trends, one is wireless connectivity," Tan Lay Koon, STATS ChipPAC Chief Executive Officer said at the Reuters Global Technology, Media and Telecoms Summit in Hong Kong.

"The other ... is digital entertainment. If you see the trend, that's where a lot of the growth and a lot of the products and focus of all the companies are," said Tan, whose company counts Qualcomm Inc. and Broadcom as major clients.

Mobile phone companies already view Wi-Fi, or 802.11 standard, as a key weapon in the fiercely competitive handset industry -- using it to boost the reliability and usefulness of 3G networks.

Top handset makers, such as Nokia and Motorola Inc. have begun offering ways to provide customers with integrated Wi-Fi and 3G support. This could allow service providers to offer high-speed wireless access near a Wi-Fi "hotspot", which then switches seamlessly into slower access, but over a wider range, using cellular technology.

To maintain its leadership in the cellphone chip market, a pillar for chip demand, Texas Instruments (TI), the world's chip industry number-three, will ship to customers this year an advanced chip for cellphones using WCDMA, a 3G standard popular in Europe.

Rivals Broadcom, Philips Electronics and Germany's Infineon have followed suit. Broadcom supplies chips for Wi-Fi and Bluetooth -- another, shorter-range wireless technology.

Convergence



Wireless link-ups aside, the chips inside mobile phones need to be more powerful anyway. Like some of the most advanced microprocessors in personal computers, powerful application chips can help boost data processing and run multimedia audio and video features.

"The use of application processors in 3G mobile handsets is increasing the semiconductor value per handset and semiconductor revenue for suppliers of application processors," Gartner analyst Alan Brown said in a recent report.

On the entertainment front, Marvell Technology Inc., a diversified chipmaker whose wireless chips were being used in Sony Corp.'s PlayStation Portable and Microsoft Corp.'s Xbox 360, could also be a major winner.

There is good news, too, for STMicroelectronics, which makes chips for set-top boxes, and privately-owned startup Airgo Networks Inc. A TV set-top box could be equipped with wireless capability to send video to a living room TV or to other rooms.

In a February report titled "Wi-Fi - The Second Coming", Merrill Lynch said demand for consumer goods with wireless links would reach a combined 192.9 million units by 2008, exceeding that for Wi-Fi laptops and access points.

Global demand for wireless handsets and game machines would each have an annual growth rate of 90 percent and 28 percent in the next four years, while demand for other Wi-Fi gear, including printers, set-top boxes and digital televisions, is seen surging an average 165 percent, far outpacing a 20 percent growth for the laptop and access point market.

In dollar terms, Merrill Lynch estimates semiconductor revenue for consumer products embedded with wireless LAN applications will grow 45 percent per year to $950 million by 2009, more than quadrupling from $215 million in 2005. That would help boost total wireless semiconductor revenue to $1.65 billion by 2009, or an annual growth rate of 18 percent.

Some investors seem to have been ahead of the game.

TI shares surged 30 percent last year, similar to the gain on the broader Philadelphia semiconductor index. In Taiwan, shares of TSMC, the world's top contract chip maker which counts TI and Broadcom as key customers, spiked to their highest close in nearly four years in January.

Still, whether the number of available Wi-Fi hotspots and the household usage of Internet access will grow significantly remain to be seen. Only about 15 percent of households in European Union and America, respectively, had high speed fixed-line Internet access by the end of last year, while less than 10 percent of households in many European countries have wireless link-ups, analysts say.

"Coverage is still spotty and when the overall Wi-Fi environment will mature is a question mark," said Herman Chan, a semiconductor analyst at Taiwan's SinoPac Securities.