2.5G drives success of cell phone baseband semiconductor suppliers

EL SEGUNDO, USA: Momentarily defying the conventional wisdom that 3G technology is driving growth in the cell phone business, it turns out that suppliers focusing on 2.5G were the best performers in the digital baseband semiconductor market during the first quarter, according to iSuppli Corp.

Among the Top 9 suppliers of digital baseband Integrated Circuits (ICs) for cell phones, only three posted significant organic revenue growth compared to the fourth quarter of 2009: second-place MediaTek Inc., No. 6-ranked Broadcom Corp. and Spreadtrum Communications (Shanghai) Co. Ltd. in ninth place. MediaTek’s revenue in the first quarter rose by 17.2 percent sequentially, while Broadcom’s soared by a stunning 125.6 percent and Spreadtrum’s surged by 28.9 percent.

The table presents iSuppli’s ranking of the Top 9 suppliers of cell phone digital baseband ICs.Source: iSuppli, USA.

Renesas Electronics Corp.’s massive 200 percent surge could be attributed entirely to its merger with NEC Corp. and was not supported by organic growth. In comparison, Marvell Technology Group achieved modest growth of 8.6 percent during the period.

“With the explosive growth in smart phone sales, the wireless supply chain—from infrastructure equipment, to handsets, to semiconductors—has been completely focused on the massive growth opportunity in 3G technology,” said Francis Sideco, principal analyst, wireless communications, for iSuppli.

“However, in the first quarter, all the action was in 2.5G, mainly because of strong demand from Asia, a region still dominated by the older technology. While the first quarter is a slow period for wireless in many regions of the world, sales in Asia were strong because of the Lunar New Year holiday season. Furthermore, Broadcom enjoyed a major increase in 2.5G sales due to a major design win from a major OEM.”

Global revenue from sales of 2.5G baseband ICs in the first quarter was up 4.2 percent from the fourth quarter of 2009. In contrast, 3G baseband revenue declined by 3.4 percent during the same period.

While MediaTek, Broadcom and Spreadtrum in the first quarter benefitted from the 2.5G bump, leading baseband supplier Qualcomm Inc. suffered from the 3G slump and saw its baseband IC revenue drop 4.5 percent sequentially.

“Qualcomm doesn’t offer GSM/GPRS/EDGE-only baseband chips, which are the primary drivers for the 2.5G market,” Sideco said. “Instead, the company supports these technologies only as part of some of its 3G and LTE chips. In the cost-conscious 2G handset market, very few—if any—would pay extra for a 3G chip from Qualcomm only to use just the 2G part of it.”

While 2.5G enjoyed a resurgence in the first quarter, iSuppli expects 3G to regain its momentum later in 2010 as sales in developed areas rise again.

Source: iSuppli, USA.