Abstract

Competition Among LTE Chipmakers Heating Up; End-Market Demand Remains Unclear

In the past, the mobile chipset market was dominated by a few chipmakers, including Qualcomm, ST-Ericsson, and Infineon. At present, LTE and WiMAX have similar modulation technology and both operate on IP-based networks, thereby intensifying the competition between mobile communications and data communications chipmakers. In addition, some end-market suppliers have begun developing LTE-based products aiming to tap the market demand in advance. As a result, the boundary between the mobile communications and data communications segments are becoming blurred and competition in these two segments is intensifying.   

As of the end of 2009, the LTE standard had not yet been finalized. The launch of 3GPP Release 9, which was designed to enhance the details of LTE standard, was halted in December 2009. Therefore, there are rumors in the industry that the large-scale commercialization of LTE services will not be completely realized until 2015.

In addition, the current HSPA+ downlink transmission speed is theoretically capable of reaching a maximum downlink speed of 42Mbps and the market is yet to have any applications that have urgent needs for ultra-high speed broadband. Moreover, upgrading a 3G HSPA system to HSPA+ system only requires software upgrades. In view of the return on investment, telecom operators may choose to continue operating HSPA/HSPA+ networks in the short term, which is projected to hinder the development of LTE networks.

Nevertheless, in order not to lag behind competitors in terms of LTE patent and technology development, leading chipmakers have devoted themselves to the development of chip products based on LTE amid unclear demand outlook. There are two factors behind this decision. First, chipmakers can provide IC solutions for terminal device makers to develop LTE-related products and gain more market presence. Second, by holding some patents, in the future they can have more bargaining power against dominant chipmakers, such as Qualcomm, which have already held more patents.

Dual-mode WiMAX/LTE Chips Facing Development Hurdles

WiMAX and LTE both embrace OFDMA and MIMO technologies. Their subsequent standards, 802.16m and LTE-advanced, have competed with each other for the recognition as the 4G communications standard. To reduce the risks of taking a wrong side, there is an emerging market demand for chip products integrating these two technologies. Meanwhile, even though WiMAX development began earlier than LTE, LTE has enjoyed more support among vendors in the mobile communications sector. It is possible that LTE will eventually win over WiMAX. As far as WiMAX chipmakers are concerned, developing an IC solution consolidating both WiMAX and LTE technologies may help encourage terminal device vendors and telecom operators to make their forays into WiMAX.  

Moreover, the SC-FDMA technology selected for LTE uplink is quite different from the OFDMA technology, which has been adopted for WiMAX uplink and downlink. In addition, the deployment of WiMAX mainly uses the TDD mode, while the deployment of LTE currently uses the FDD mode. The abovementioned factors have led to difficulties in integrating LTE and WiMAX chipsets.

Power consumption is another major hurdle for dual-mode WiMAX/LTE IC solution. SC-FDMA is selected for LTE uplink in order to reduce power consumption. If SC-FDMA is combined with WiMAX, the IC solution will not be able to reach the goal of power reduction. In addition, with double baseband and RF processors, the power consumption is expected to increase significantly. As a result, the combined IC solution may lead to reduced battery run time for mobile internet devices, affecting the terminal device makers' willingness to adopt the dual-mode WiMAX/LTE IC products.

Observing the development of 3G chips, the 3GPP WCDMA and 3GPP2 CDMA2000 1X EV-DO have been lacking in dual-mode IC products for a long time. This indicates that other than development difficulties, telecom operators and users have yet to show significant demand for dual-mode terminals despite the fact that the share of CDMA users in total mobile phone users has reached around 10%. Compared with the development of 3G IC solutions, the future outlook for dual-mode WiMAX/LTE IC solutions may not be quite rosy.

Even though integrating LTE and WiMAX chip platforms may bring about advantages, it is rather difficult to push the development of dual-mode IC solutions as there are still several hurdles to overcome, including the relatively high power consumption and lackluster market demand.

Patent Fees a Key Factor Affecting LTE Adoption

Looking at the development road map of 3G terminal devices, mobile phones based on CDMA2000/WCDMA or newer-generation technologies currently only account for approximately 40% of the total global mobile phones in use. One of the key factors affecting the adoption of CDMA2000/WCDMA is the price tag. The GSMA (Global System for Mobile Communication Association) launched the 3G for All campaign in 2007 in a bid to encourage mobile phone makers to develop value-line 3G mobile phones.

It is rather difficult to reduce the prices of 3G phones, mainly due to the fact that 3G chip licenses are held by a few dominant chipmakers. For example, when a chipmaker develop a CDMA or WCDMA IC solution related to Qualcomm patents, the company will have to pay Qualcomm upfront license fees and additional running royalties based on a certain ratio (around 3% to 6%) of the sales. Downstream system integrators also need to pay license fees to Qualcomm. These license fees will add to the burden on system integrators who already have to cope with narrowing profit margins.

To prevent the same situation from happening again in the era of 4G, equipment suppliers including Alcatel-Lucent, Ericsson, NEC, NextWave Wireless, and NSN, along with mobile phone makers Nokia and Sony Ericsson, jointly established an LTE license alliance in April 2008. Through the alliance, they aim to lower LTE license fees and accelerate the provision of LTE licenses to third-party companies. Under this framework, these companies agreed to keep the royalty for LTE patents used in mobile phones below 10% of the sale price. This alliance is expected to help reduce the barriers for chipset products to migrate from 3G to 4G, thereby accelerating the development and adoption of LTE products.

Judging from the core LTE patents held by individual companies, Qualcomm and InterDigital, which hold the most numbers of patents filed for LTE technology, have not yet joined the alliance. It is expected that these two chipmakers' attitudes will be a key factor in determining the LTE license fees and will play a crucial role in the popularization of LTE-based services and products in the future.

Appendix

Research Scope

This report aims to cover the current development of LTE IC products developed by mobile and data communications chipmakers and mobile phone makers worldwide; includes IC platforms sampled or commercialized prior to December 2009; analyzes the strategic deployment of LTE chipset products and explores future development of the industry. 

Glossary of Terms

List of Companies