Seeking Alpha
Long/short equity, deep value, special situations, growth at reasonable price
Profile| Send Message|
( followers)  

Intel (NASDAQ:INTC) is the world's largest semiconductor manufacturers by dollar volume, but not by number of wafers processed per year. Due to the company's huge lead in process technology, Intel has a near monopoly on PC CPU chips and Network server chips. The company is trailing Qualcomm (NASDAQ:QCOM), Nvidia (NASDAQ:NVDA) badly in mobile application processors for smartphones and tablet computers.

Intel needs to quickly become a major factor in the mobile business in order to more fully utilize the company's manufacturing capacity. Digital radio is likely the "gotcha" that will allow Intel to leapfrog mobile competitors.

Smartphones could have easily been called "smart radios." The base band, Wi-Fi, Blue Tooth, and near field communication sections are all one form or another of radio technology.

Analyzing the Apple (NASDAQ:AAPL) iPhone teardown and bill of materials shows that, of the semiconductor devices identified, 10 are radio related and eight, including the A6 chip and memory, run everything else. The radio components and non-radio components are nearly equal in value at about $46 for each group.

The most significant of the radio components are the LTE (Long Term Evolution) solution provided by Qualcomm . The solution is made up of two devices, the MDM9615M baseband modem and the RTR8600 Multi band/mode receiver transmitter. Judging from the size of the packages of these two chips, the combined silicon size is approximately equal to the size of the A6 chip. Since the LTE parts are supplied by a third party (Qualcomm), the price is probably higher than the A6 chip.

The supplier opportunity here is further integration of those radio parts into a "smart-phone-on-a-chip". Qualcomm has taken a big step by offering a product that includes the baseband modem and Application Processor on a single chip (this Qualcomm product doesn't work for Apple since they design their own Application Processor, A6, and need a discrete LTE solution.) So far no one has integrated the LTE receiver/transmitter into the Application Processor. Radios, by their nature have been analog. Typically analog based products are not subject to the improvements made possible by Moore's Law (Moore's Observation) that has led to the increase in performance and reduction power and cost of every digital IC product ever designed.

So, the bottom line here is that any supplier that could provide a product that integrates the Application Processor with the entire LTE radio solution would have a very strong leg up on the mobile business.

Enter Intel. At the International Solid-State Circuits Conference In February of 2012, Intel demonstrated and discussed an SoC, called Rosepoint, with an integrated Wi-Fi radio on a chip with two Atom CPUs. That apparently left everyone scratching their heads about how Intel could get a radio to work without RF interference with the CPUs.

On the third day of the Intel Developers Conference in September, 2012, when most attendees are snoozing, Intel demonstrated the Rosepoint chip again, but this time they revealed that the on-chip Wi-Fi radio was actually a completely digital implementation of radio. Digital radio was thought to be an "impossible" technology, but after ten years of work, Intel demonstrated, not pieces, but an entire digital radio transceiver.

The conclusion here is that LTE radio is no more difficult than Wi-Fi radio. In today's market a digital LTE radio solution, integrated on an Application Processor is far more valuable than a Wi-Fi radio chip that can be bought inexpensively from a number of sources. This digital radio technology was first shown in February, 2012, demonstrated again in September of 2012. One can only assume that the technology has been working at Intel for a couple of years. If that is true nobody should be surprised if Intel offers a complete digital radio smartphone-on-a-chip SoC within the next year.

The size of such a chip would be approximately 50 square mm run on a 14nm process. The manufacturing cost of that chip could be as little as $5. As we can see from the above bill of materials, the value of that chip to a handset manufacturer might be $35-45.

Source: Intel: Integrated Digital Radio