September 23, 2003
RF subsystem vendor Filtronic plc (London: FTC) has caused a major stir in the base-station component market by signing up the first customer for its Linear Power Amplifiers (LPAs), with Siemens AG (NYSE: SI; Frankfurt: SIE) touted as the mystery recipient (see Filtronic Bags OEM Deal).
Filtronic is unable to confirm the identity of the “OEM customer,” but Nomura Holdings Inc.'s Dr Richard Windsor is more forthcoming. “We believe that the new client is Siemens, as Ericsson appears to be still working on its own in-house products.”
Filtronic’s power amplifiers are likely to be incorporated into the network vendor’s Wideband Code Division Multiple Access base stations. Shipment is due to commence in the second half of 2004.
LPAs are used to boost the strength of the radio carrier signal from the base station and increase network coverage and capacity. However, the amplification of 3G base-station radio signals for transmission is often extremely inefficient, with huge amounts of power needed to obtain the required signal, most of which is lost as heat dissipation.
Filtronic's rivals in the LPA field include PowerWave Technologies Inc. (Nasdaq: PWAV) and Andrew Corp. (Nasdaq: ANDW).
Filtronics claims that the underlying technology in its power amplifiers is different from that used by its competitors. “We use compound semiconductor transistors and everyone else uses a silicon product called LDMOS [Laterally Diffused Metal Oxide Silicon],” finance director John Samuel tells Unstrung. “We also have proprietary circuitry which makes the device function in a particularly efficient way.”
Nomura’s Windsor is certainly impressed with the technology. “In terms of their LPAs, they are so far ahead of everyone else. From what we have seen, Filtronic has the best product and manufacturing process available.”
Samuel won’t divulge the exact value of the deal but hints heavily at an estimate. “The likelihood is that this could take our Newton Aycliffe fabrication facility close to breakeven, and that has an annual running cost of about £12 million [US$19.9 million].”
Windsor believes today’s deal -- the successful outcome of trials with four OEM customers -- could catapult Filtronic into the big time, with Nokia Corp. (NYSE: NOK) a likely next target. “If it is Siemens, it increases its chances of bagging Nokia, which is a natural choice as it does not have its own products and has an existing strong relationship with Filtronic. Lucent Technologies Inc. and Motorola Inc. remain possibilities, and there is always a reasonable chance it could land Ericsson. If that happens, watch the shares fly.”
Filtronic’s win provides further evidence of the growing trend by network equipment vendors to cut the cost of base stations through the sourcing of radio components from third parties, rather than making these widgets themselves.
As author Gabriel Brown notes in a recent Unstrung Insider report -- W-CDMA: Disrupting the Technology Chain -- “given that around 50 percent of the demand for power amplifiers is currently met by vendors’ internal operations, this is an area ripe for further OEM outsourcing.”
— Justin Springham, Senior Editor, Europe, Unstrung
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