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Cellular Baseband Market: A Content-driven Growth Story

by Sravan Kundojjala | Aug 30, 2022

5G continues to be a growth engine.  For the ninth straight quarter, the cellular baseband processor market posted solid double-digit revenue growth in Q1 2022.  Baseband revenue grew 20 percent to $8.8 b, while unit shipments declined 6 percent. 

The baseband market is a content-driven story.  Baseband companies increasingly capture revenue from CPU, GPU, NPU, audio, gaming and security functionalities rather than the modem itself.  Qualcomm, for example, significantly benefited from this dynamic and even built revenue opportunity such as RF front-end.  Likewise, semiconductor foundries benefitted from increased 5G content demand.  It will be a multi-year growth story as markets like India are just starting to deploy 5G.

Except for 5G, all other baseband segments saw unit and revenue decline.  5G baseband revenue grew 47 percent during the quarter, driven by increased traction across price tiers and regions.  4G LTE basebands, despite high demand, continue to be in short supply as baseband vendors prioritised high-margin 5G.

China's smartphone weakness and reduced demand for low-end 5G smartphones affected smartphone OEMs, including Xiaomi, Oppo and Vivo.  While baseband companies navigated the crisis by capturing demand in non-China markets, we believe 2H 2022 will affect orders.  The China baseband inventory has affected multiple chip companies, including Qorvo, Skyworks and Synaptics.  Qualcomm and MediaTek have navigated China softness well so far.  We think inventory digestion will happen in 2H 2022 as vendors continue to destock their supplies.  However, the high-end and premium smartphone market remains robust and hasn't seen high inventory.

Despite the smartphone weakness, non-handsets continue to offer an attractive opportunity and once again outgrew handsets.

1Q22 Baseband

Qualcomm increased its baseband revenue share to 60 percent in Q1 2022, driven by a high mix of Snapdragon 8 and 7 series chips.  In addition, the company's increased share in Samsung's Galaxy S22 helped.  Strategy Analytics believes that Samsung and Apple will be neck and neck in becoming Qualcomm's largest customers in CY 2022.  Qualcomm is poised to grow further in 2H 2022, driven by new iPhones, premium Android and non-handset (auto, IoT etc.) devices.

The company is on track to further increase its share at Samsung, thanks to the new agreement between the two companies.  Qualcomm's X70 modem remains a fallback option for Apple if its in-house modem is not ready by 2023.  Earlier, Qualcomm guided Apple will transition to in-house modems from 2023 onwards.  We estimate Apple contributes $5.5b+ chipset revenue to Qualcomm (baseband, RF front-end, RF transceiver, PMIC etc.).  However, Qualcomm is looking for long-term customer relationships only and it remains to be seen how the company will see Apple's opportunity going forward.

MediaTek baseband revenue grew 28 percent in Q1 2022, driven by increased 4G and 5G shipments.  The company solidified its number two position in the baseband market.  The company has shifted focus to high-end to withstand low-end weakness and maintain its ASPs.  The Dimensity 9000 was off to a promising start, but shipments amounted to less than 1 million.  We expect MediaTek to come under pressure in the back half of 2022 due to increased inventories.  Unlike Qualcomm, MediaTek couldn't capitalise on its 5G momentum to sell RF front-end chips.

Samsung LSI took a hit due to flagship design loss to Qualcomm and mid-range and low-end loss to MediaTek and Unisoc and a lack of diverse customer base.  We forecast Samsung's Exynos modem shipments will reach the lowest in 8 years in 2022.  Despite the weakness, the company showed signs with mid-range chips such as the Exynos 1280 and 850, which saw increased traction in high-volume handsets.  We think the Qualcomm-Samsung agreement will affect Samsung LSI's flagship prospects in the near-to-medium term.  However, the company can ramp up its mid-range presence in the meantime.

Unisoc's baseband revenue grew 80 percent, driven by tier-one OEM design wins and an improved product portfolio.  Historically, Unisoc did well in mature technologies such as 3G to capture long-tail demand.  The company is well-situated to repeat the feat in 4G LTE.  However, despite gains in LTE, the company hasn't yet made much progress in 5G.

Cellular IoT vendors Altair (acquired by Sony), ASR Micro, Nordic Semi and Sequans all did well despite wafer supply constraints.

Strategy Analytics continues to recommend baseband vendors exercise pricing discipline, especially in 5G.  Qualcomm and MediaTek are currently seeing healthy profit margins, driven by increased processor content in their 5G basebands.  We expect the content story to continue through 2022 and 2023.  In addition, continued deployments of 5G will offer a growth opportunity.  Please get in touch with me if you would like to explore our semiconductor research further.

Sravan Kundojjala

@SKundojjala

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