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Qualcomm’s Acquisition of Atheros Can Increase Pressure On Broadcom and TI

by Sravan Kundojjala | Jan 05, 2011

Qualcomm announced the acquisition of Atheros Communications today to strengthen its market presence in the non-handset markets and to unlock the value of its connectivity chip business. Atheros currently supplies WLAN, Bluetooth, GPS and other networking products to notebook and netbook markets. Qualcomm is currently the number one player in the cellular baseband market.

Here are our quick comments and impact on the competition,

This acquisition will allow Qualcomm to enhance the value of its connectivity chip portfolio. Historically, Qualcomm was not a major player in the stand-alone connectivity IC market. Qualcomm successfully integrated GPS functionality into its basebands but couldn't repeat the same for WLAN, Bluetooth and FM.

• Atheros acquisition will allow Qualcomm to apply pressure on Broadcom which appears to have a broader wireless portfolio than Qualcomm including NFC (Near Field Communications). By our estimates, Broadcom ranked number two in the wireless semiconductor market (excluding memory) in Q3 2010 and is growing rapidly. Although Broadcom is a minor player in the cellular baseband market, the company is still ahead of many wireless companies in terms of wireless revenue, thanks to its connectivity business.

• Qualcomm's upcoming product, the MSM8960, integrates multi-mode LTE baseband modem, ARMv7-compliant dual applications processor cores, Adreno GPU and connectivity (WLAN, GPS, Bluetooth and FM). As far we know, this is the first cellular baseband product that integrates a variety of connectivity functions. We believe products like this could apply pressure on Broadcom's stand-alone connectivity chip business in future.

• This acquisition also increases pressure on Texas Instruments (TI). TI currently draws its wireless revenues from OMAP applications processors, connectivity chips and Nokia's custom basebands. TI is expected to complete its exit from the baseband market by 2012. The lack of baseband products could leave TI without any apparent synergies between its applications processors and connectivity chips and may force TI to divest its remaining wireless business.

Overall, we believe that this acquisition will allow Qualcomm to expand into adjacent markets and also apply more pressure on its key competitors. Qualcomm successfully executed integrating applications processors into its basebands and became the number one player and now the company is trying to further the success by integrating connectivity chips.

Sravan Kundojjala

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