November 20, 2012
By Caroline Gabriel
The essence of being a successful small challenger in the chip industry is to identify trends before they happen and take a position, rather than like spotting an obscure stock and investing early. Selecting markets which will deliver growth, but will be ignored – at least for a while – by the more mainstream players is a high risk activity, and relies on understanding industry politics as much as technologies. Israel’s Altair Semiconductor is a good example of a wireless challenger, looking for the niches which will enable it to be disruptive against the baseband giants like Qualcomm, Intel and so on. Its current big bet is on single-mode LTE, initially for the fixed access space, and then for the bigger spoils of connected devices in the consumer and machine-to-machine segments.
Standard thinking is that carriers will not have significant LTE-only networks for many years, but will need to retain 2G and/or 3G to support voice, roaming and , depending on their 4G spectrum, broad coverage. Keeping 3G also enables cellcos to retain a price premium for LTE while keeping their lower value customers on the older networks. This thinking is borne out in many markets, most clearly in Europe, where most operators are adopting LTE on a cautious basis, to supplement HSPA(+) for hotzone capacity or additional rural coverage, or to fill in fixed broadband gaps – but with no plans to replace the still-evolving 3G+ systems until the second half of the decade or beyond.
Such strategies focus the chip industry on multimode offerings, and this is where the greatest volumes will continue to lie, especially for those that major on handsets, which must be able to roam. The idea that multimode will be almost universal for years also suits the established baseband giants, with their massive investments in multilayered architectures that support 2G and 3G. Yet this is not the whole story, as Altair and others argue. Some carriers have a strong strategic interest in moving as quickly as possible to LTE-only, in order to maximize the benefits of the more efficient new air interface, to be able to harness all their spectrum for 4G, and to avoid the complexities of managing and modernizing several networks.
This trend is clearest among those operators with little growth path for their 3G standards – the CDMA community and China Mobile with its unsatisfactory TD-SCDMA solution for 3G. Though these operators will still need multimode handsets to support roaming outside their own networks, for many other device types this will not be necessary – data-only gadgets which are portable rather than fully mobile, such as tablets, personal routers and media players; M2M modules; and fixed CPE where cellcos are looking to offer LTE in place of DSL (as AT&T has indicated).
Verizon is leading the push to build an LTE-only ecosystem, but this space remains a softer target than the mass market for LTE/3G/2G baseband chips, and they are the areas where Altair, as well as other specialist 4G chip vendors such as Sequans and GCT, can steal a march on the giants.
Altair’s previous bets have been heavily focused on emerging markets, and it has majored on single-mode 4G and on squeezing the cost of the chip to the extreme. These principles underpinned its strategy to push WiMAX into affordable devices for Africa, and its involvement in TD-LTE trials in India, China and elsewhere. However, single-mode LTE is starting to be relevant to developed market, tier one carriers too, where they are aiming, like Verizon, to accelerate the move away from CDMA and to introduce new data-only revenue streams linked to the internet of things. When Altair achieved chipset certification in Verizon Wireless’s famously stringent process earlier this year, it saw it as an important endorsement of its single-mode strategy and its first significant opportunity to support customers creating devices for western markets, particularly the US.
Altair’s co-founder and head of marketing and business development, Eran Eshed, said the Verizon certification – which Sequans has also pledged for this year or early 2013 – was a turning point, and he was “surprised by the extent of Verizon’s support” and its enthusiasm for an LTE-only solution, especially for M2M modules. Connected devices, from tablets to smart meters to sensors, have been a source of significant growth already for the big three US cellcos and as they expand their LTE networks, they will look to harness some of that capacity for services which represent brand new revenue without the trade-offs of device subsidies or data hogging.
For the M2M model to work, device and chipset price points must be very low, and Altair claims to have a “disruptive” bill of materials because of its work on highly integrated solutions, its ownership of its own RFIC (saving it about $6 on a third party component), and its refusal to include 2G or 3G. This leads to a single-mode, data-only baseband platform which can be half the cost of the multimode offerings from Qualcomm and other majors, and cheaper than other single-mode options too. And this will play to the agenda of early single-mode movers like Verizon, which aims to drive the creation of a broad but very low cost ecosystem to support its flight from CDMA.
Altair expects to see its chips in products for Verizon and other carriers next year, starting with fixed and portable CPE, which is likely to be particularly relevant in India’s TD-LTE build-outs, which are heavily geared to broadband access. The next wave of products, Eshed says, will be the M2M and consumer connected devices, reaching meaningful volumes for Altair in the second half of 2014. He does not think single-mode handsets will be mainstream until 2015 or later, partly because they will require broad adoption of VoLTE to support voice services.
He says Altair will continue to differentiate by focusing on relative niches and on achieving price points which are non-viable for the big vendors, which would not sacrifice their margins in sectors that do not deliver, by their standards, massive volumes. So he expects Qualcomm, Intel, MediaTek and others to continue to lead on handsets in their baseband strategies, leaving data-only devices to be a secondary push. Its most direct competitors will be its old rivals, Sequans and GCT, plus the vertically integrated solutions from vendors with their own modem technology, such as Samsung, Huawei and Motorola.
The area where the strategy of identifying future growth markets at an early stage did not deliver results for Altair was WiMAX. Despite several years of pinning hopes on mass adoption of the wireless broadband standard, Eshed says Altair is now not investing in it at all. He expressed some interest in the ‘new WiMAX’ – the WiMAX Forum recently announced plans to support other air interfaces, notably LTE, in its next release, which would ease coexistence or migration for 802.16 operators looking to include LTE in parallel. But for now, Eshed believes the WiMAX/LTE sector is another dual-mode opportunity to pass on. “It is not a smooth migration from WiMAX to LTE, and most operators will wait and do a hard switch rather than supporting multimode devices,” he commented. “There will be some migrations next year, but dollars on WiMAX are not well spent.”