Lehman Brothers: 3G Mass Adoption Approaching - Implications For Wireless Companies (NOK, ERICY, MOT, LU, NT, SI, QCOM, PHG, INTC, IFX, AGR, SNDK, FLSH)

Lehman Brothers analysts yesterday released a thorough report outlining how 3G mobile equipment/networking will hit an 'inflection point' in 2006-7 as mass adoption of the technology kicks in. Implications for particular handset producers, their chip and memory suppliers, and wireless infrastructure companies were noted. Some textual excerpts from the Lehman report, then a graphic on 3G bill of materials:

We believe the confluence of improved handsets, rising carrier commitment, and application availability should make 2006 the inflection point for 3G... W-CDMA phone sales should represent more than 10% of global unit volumes next year and reach 155 million by 2007... W-CDMA is 15%-20% of revenue for Nokia (NOK) and Ericsson (ERICY) and should rise toward 30% by 2008. We believe Ericsson, Nokia, and Lucent (LU) are gaining share in the migration, to the detriment of players such as Nortel (NT) and Motorola (MOT), with Siemens (SI) seeing some execution challenges after early momentum...

Higher semiconductor content in 3G phones may help drive the 3G wireless semi market to 57% growth in 2006 to $9.7 billion following 77% year-over-year or $6.2 billion in 2005... Ericsson Mobile Platforms and QUALCOMM (QCOM) [are] chip vendors with modest or negligible GSM exposure who may be poised to benefit from the ramp of W-CDMA. QUALCOMM should also benefit from its dominance of the CDMA EV-DO and EV-DO Rev... We... suggest that chip vendors such as Philips (PHG), Infineon (IFX) and Agere (AGR) appear less well positioned in the W-CDMA migration...

Higher NOR, NOR+NAND, and removable NAND Flash chips should bolster sales for Samsung, Toshiba, Hynix, Intel, Micron, Infineon Flash, Sandisk (SNDK), M-Systems (FLSH) and potentially licensing play Saifun (SFUN). Other semi beneficiaries should be RF semi players such as RFMD and Skyworks and PLD vendors Xilinx and Altera.

3G Phone Bill of Materials Split by Function (actual dollars and % of total):