Travelling On The Silicon Road

Two compatriots for long at loggerheads have decided to join forces and take on the competition. News about Taiwanese chip designer MediaTek’s offer to buy rival MStar has created quite a buzz and water cooler speculation…. and of course the stock market. MStar was up 6.85 percent (maximum allowed in a session), while MediaTek gained 2.37 percent today.

My two cents’ worth addition to the buzz …..
- This acquisition will create the world’s fourth largest chip designer with total annual sales of US$4.2 billion in 2011

- The combined entity will have an almost 70% market share (a monopoly position??) in the TV SoC biz (DisplaySearch’s Q4’11 data put the two companies’ combined market share as 68.8%).

- Combined R&D resources and not looking over the shoulder for price cutting competition from the previous arch rivals can potentially sharpen the focus and product offering

- On the mobile phones arena: High end 3G smartphone chips along side the 2G ones for feature phones will consolidate & expand MediaTek’s mobile phone chip offering, especially in the emerging markets – more so in China where it has seen its once dominant position threatened by Spreadtrum and the likes (incidentally, MediaTek recently lost a TDSCDMA/WCDMA 3G chip socket in Samsung smartphone to Spreadtrum)

- And most importantly, it positions MediaTek well in an increasingly connected device market. With the growing convergence across platforms – TV, mobile phones, tablets/computing devices – it is crucial to integrate the relevant technologies across them so as to optimally and cost effectively leverage the same across the various platforms (Qualcomm announced a new Snapdragon for smart TVs and set top boxes in CES early this year and then at Computex later, it demonstrated its Smart TV reference platform with its quad-core Snapdragon S4 APQ8064 and MPQ8064 playing games and slinging TV frames. In E3 ’12 (Electronic Entertainment Expo), Samsung’s Smart TV included access to Nvidia’s new cloud gaming platform, GeForce Grid. Marvell too showcased its total solutions across Smart TVs, cloud computing and connectivity at Mobile World Congress)

- Concern: Talent retention/Integration of the combined work force. With almost 80% of MStar’s engineers doing the same work as folks at MediaTek, how will the parent entity avoid overlapping resources and address the potential loss (if not exodus) of talent?

AMD starts selling Intel based servers – it does make an intriguing catch phrase, correct?

AMD’s latest acquisition of SeaMicro has caused some ripples. SeaMicro is a US based exclusive start-up claiming high power and space reductions (both key factors in the server market). And it currently sells exclusively Intel based servers. Its technology includes a custom CPU (Atom or Xeon) + DRAM + Freedom Fabric ASIC.

AMD has seen its market share in the server market fall from 15% in 2007 to 6.5% in 2011. Add to it the fact that almost 22% of the company’s market share depends upon server sales. So, this acquisition will strengthen AMD’s stake in this sector.

Outlook here may well include – AMD phasing out Intel’s design/chips and replacing with its own (the thread performance of its CPUs score over Intel’s) or perhaps ARM (following its partners (IBM, Dell, HP) and…. at the mention of partners, with AMD selling chips to its existing partners and also selling servers which count these partners as competition, this acquisition can pose a channel conflict

The cyberspace is abuzz with news about Google acquiring Motorola Mobility for a whopping $12.5 billion. Speculations on Google’s motive behind the deal are mainly skewed towards 2 issues – access to patents and the other whether Google has plans to set up another end-to-end mobile empire akin to Apple. Add to that the buzzing concern of a high potential for conflict - mainly whether there still will be a “level playing field” amongst different Android handset vendors.

My two cents….

1. Access to patents: Motorola deal gives Google access to more than 17000 patents. This helps Google lend a legal hand to the embroiled Android handset vendors like HTC and Samsung as well as prepare itself against potential infringement law suits.

Flip side: If that was the main point, would Google not have been better off with just buying the patents like it did from IBM?

2. Potential conflict of interest – open OS partner or a handset competitor?? Now that can indeed be a worrying factor amongst the Android handset vendors - in spite of the prompt support statements from Samsung, HTC etc. Will these companies who had flocked towards Android to compete against Apple now gravitate towards Microsoft’s Windows Mobile? Google has stated that the handset biz will be kept as a separate independent biz and Android platform as an open one as before but the company will have a tough time treading this slippery slope in order to retain the Android handset vendors’ support.

Having said that, we have seen biz areas where the line between partner and competitor has blurred. Pure play foundries, IP vendors and IDMs is one such example. Market conditions have led to consolidation, fab lite etc. IDMs get the core process wafers done from foundries and keep some special process add-ons in-house to retain their specific niche. IP vendors work along with foundries in spite of foundries touting their own IP portfolio as well as specific design services.
Individually it has got very difficult to compete, with combining resources, there always lurk the spectre of “loss of level playing field”.

3. An Apple like end-to-end empire: Lucrative but an extremely difficult path ahead for the search engine giant in the hardware world… a tough act to follow!

But apart from these, the news throws up another nugget too:

The central point of computing is moving away from the desk towards mobile - and search engines do follow the computing devices. A tight integration between hardware and OS will make it easier to get the desired utilities and apps to the consumer – providing the coveted “unique user experience’.

The deal goes beyond handsets. Motorola Mobility is also into set top boxes – just to name another one. This will bring Google back into the home automation market. Gigaom’s Stacey Higginbotham & Katie Fehrenbacher has written a very good article on this; do read it. Getting your ads, location optimized and perhaps with dynamic relevance does require a tighter integration between the hardware and software.

And it is for this reason alone, my opinion is that it will very much be in Google’s interest to keep Motorola Mobility humming away as a separate unit within Google – especially as far as the level playing field of Android handset entities are concerned and leverage this hardware vendor acquisition to bolster its search ads revenues by making it’s ads more pervasive and relevant.
The patents are the special icing on the cake!!

Spreadtrum Communications, the fabless developer of baseband and RF chips recently announced its acquisition of Telegent Systems, a developer of software and silicon for the reception of live broadcast television signals.

While trolling the net, I saw this article that gives a quirky feeling of déjà vu. The article’s contents basically go on these lines….

In 2007, the US Wi-Fi provider and GPS manufacturer, SiRF bought Centrality, a company with navigation & multimedia experience. Later, SiRF itself got acquired by CSR. In hindsight, industry analysts viewed the Centrality purchase as a bad move.

Now the money/invested parties part …Centrality’s major investors included Walden International and it had a NEA (New Enterprises Association) principle on its BoD. An NEA principle was also on the SiRF’s board. Baseline appeared to be - sell the company to a public company and for enough cash that would return the VC capital and perhaps a large profit at the same time for the investors.

Move on to today…

Spreadtrum buys Telegent. Telegent shot into fame (and profits) with its analog broadcast TV. Since then, it moved to mixed signal and then to digital – a realm with intense price competition and very low margins.

Telegent’s investors include New Enterprise Associates and Walden International. Telegent’s CFO was once SiRF’s CFO. Spreadtrum has an NEA principle on Board….. you get the drift?

Will Spreadtrum do a SiRF???