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Powering Up 3G

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News Analysis
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Expanding what has been, at times, a troubled relationship, Motorola Inc. (NYSE: MOT) and Qualcomm Inc. (Nasdaq: QCOM) said today they will collaborate on 3G mobile phones using Qualcomm's UMTS chipsets. Previously, the two companies have worked together primarily on solutions based on CDMA2000 technology.

Expected to lower costs for 3G handsets, Motorola's use of Qualcomm's single-chip system could have a galvanizing effect on the broader 3G market. Beyond a few niche applications, consumer adoption of 3G services has been relatively slow, but Qualcomm's chips, which incorporate High Speed Packet Access (HSPA) technology, could spur the spread of more compelling 3G devices and services when handsets using the UMTS-based chips begin to appear in 2008.

"HSPA will be a key technology in 2007 and will prove the savior of 3G," says Gabriel Brown, chief analyst for Unstrung Insider. "The benefits are two-fold: End users get faster downlink speeds, opening up the potential for services such as unicast Mobile TV, while mobile operators can support many more simultaneous users and benefit from superior economics."

Often referred to more specifically in its downstream version, High Speed Downlink Packet Access, HSPA is an enhancement to 3G that allows data users to share a 5MHz channel to achieve peak speeds of up to 1.8 Mbit/s today, and potentially 3.6 Mbit/s and 7.2 Mbit/s in the future as handset capabilities (i.e., chipsets) evolve. This compares to a peak rate of 384 kbit/s on regular 3G networks, which use dedicated bearers for each user.

The Qualcomm tie-in further complicates the relationship between Motorola and its main supplier of 3G components, Freescale Semiconductor Inc. . Motorola spun out Freescale two years ago as a public company. In September Freescale was taken private by a consortium led by The Blackstone Group , which paid $17.6 billion.

Now, Qualcomm -- itself a former maker of handsets which has at times found itself in competition with Motorola -- is strongly positioned to become the leading provider of components for UMTS-based 3G devices. "Qualcomm strengthens its relationship with the No. 2 mobile handset vendor, and adds to its UMTS growth potential," writes Prudential Equity Group LLC 's Inder Singh in a research note.

In solving its UMTS chip-supply problems, Motorola has also improved its position for the next round of advanced device releases. (See Motorola's Mixed Bag.)

"The single chips should help whittle down Nokia's cost leadership in 3G devices," writes Richard Windsor, global communications equipment analyst with Nomura International , in a research note, "making Motorola much more competitive in 3G as long as it can get the user experience right." (See Nokia Stumbles in Q2.)

Meanwhile, Qualcomm is also making a play for the growing number of devices that require both wireless connectivity and multimedia capabilities. The "Snapdragon" family of chipsets will support multiple wireless connectivity options, including CDMA2000/EV-DO, UMTS/HSDPA, broadcast television and multimedia, WiFi, and Bluetooth, as well as advanced multimedia capabilities such as souped-up graphics and sound processing.

Snapdragon chipsets are expected to start sampling in the second half of 2007, according to Louis Pineda, SVP of marketing for CDMA technology at Qualcomm. The San Diego, Calif.-based vendor says that cellphone vendor Samsung Electronics Co. Ltd. (Korea: SEC) will be among the first manufacturers to deliver products based on the new silicon.

Qualcomm's new chips will face competition from a number of different vendors with this new chipset. The newest OMAP processors from Texas Instruments Inc. (NYSE: TXN) are directly targeted at the multimedia cellphone market, while Intel Corp. (Nasdaq: INTC)'s XScale processors are offered for everything from entry-level phones up to wireless PDAs.

— Richard Martin, Senior Editor, Unstrung

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