Several factors will create a storm of M&A in the wireless chip world in 2012. The recession will see a number of mature and accomplished start-ups, especially in Europe, coming for sale at bargain prices as IPOs dry up. And as chip suppliers increasingly need to diversify throughout the wireless product chain, they will need to make more, and sometimes larger, purchases, in order to broaden their portfolios rapidly. Last year saw both Qualcomm (Atheros) and Broadcom (NetLogic) making far bigger acquisitions than they normally attempt, in order to gain an overnight foothold in a lateral segment. And 2012 has started with two highly strategic acquisitions at knockdown prices – Mindspeed of femtocell specialist Picochip, and Marvell of Sweden’s infrastructure silicon provider Xelerated.
The Mindspeed deal brings together two key technologies – femtocell SoCs and LTE. The US firm is to pay up to $76.8m for its UK-based prey, with the aim of allowing both firms to achieve the scale to remain competitive in a sector poised for major growth, but eyed hungrily by the giants.
Mindspeed has attracted high levels of attention for its pioneering work in small cell architectures, particularly for LTE, but has not yet converted its innovation into significant sales. Meanwhile, 11-year old Picochip is the leading supplier of SoCs for the femtocell market, and has led the charge to adapt the concepts of that segment – highly integrated, low power, self-managing units – for the more complex challenge of the public access, carrier network. The acquisition gives the UK company the wherewithal to accelerate its migration into the outdoor network and to survive the classic danger period for the start-up, when an initial market lead starts to be threatened by rivals with deeper pockets, before new market opportunities have fully matured.
The price tag reflects the dangers of this transition period, as well as economic realities, rather than the real value of Picochip’s technology and market position. However, the timing is good, giving both firms a fighting chance of making their mark in the LTE small cells space, where SKT recently sounded the bugle with a world-first deployment of a network based on what will become the guiding principles of modern 4G network planning – shrunken base stations and heterogeneous networks combining 3G, LTE and Wi-Fi. In this context, Mindspeed and Picochip make a complementary and highly strategic match, even if the former – like Marvell with its purchase of network processor maker Xelerated earlier this week for a reported $100m – has got a European innovator decidedly on the cheap.
That Marvell transaction is part of a trend for wireless silicon majors to push the balance of their product portfolios further back into the more lucrative guts of the network, shifting their priorities in line with carrier budgets, which increasingly have to focus heavily on back end infrastructure as radio networks take on characteristics of the data center, handling huge levels of data processing and running on Ethernet/IP transport links. Xelerated has products in two key areas of this sector – the AX and HX ranges of network processors as well as programmable Ethernet switches.
Marvell and Broadcom, both major players in Ethernet switch-chips, are expanding their ranges to include more network processors, as seen in the latter’s purchase initially of Sandburst in 2006 and then, last September, of NetLogic. This has taken it up against established players like leader Freescale plus Cavium, AMCC, Renesas and Intel (the last of these strengthened by its purchase last year of Ethernet switch-chip vendor Fulcrum). Texas Instruments, from its starting point in the base station heart of the RAN, has also increasingly been stretching to the back of the network with Cloud-RAN extensions to its KeyStone architecture, while switch-chip specialists like Vitesse are also eyeing the wireless market keenly.
Xelerated will be particularly important in the high growth 100Gbps segment, where Marvell has previously been working with EZchip (and often tipped to buy that firm). The official line is that the acquirer will “continue to work with EZChip on NP-4 and NP-5 processors and is committed to the long term relationship with EZChip.” While EZchip boasts deals with key network players like Cisco and Juniper, Xelerated has Huawei as a flagship client. Nonetheless, EZchip stock fell on nervousness about its long term prospects with Marvell – however, many analysts believe the larger firm would do nothing to compromise the Cisco relationship, and is in reality seeking to control both the alternative players to Broadcom, effectively reducing this growth sector to a two-horse race, just as superfast backbones are being driven forward by the explosions in mobile data and digital video.