Are Infineon and InterDigital in iPhone 3G?

The web is abuzz with the news that the latest iPhone 2.0 beta software revealed whose chipset was at the heart of the impending 3G iPhone. The fairly innocuous and cryptic word ‘SGOLD3’ embedded in the code points to Infineon’s SGOLD-3H baseband processor. While this is news for many enthusiastically expecting the 3G iPhone, it is only a confirmation of what I have been saying since last fall – Infineon (IFX) and InterDigital (IDCC) will be at the heart of the next iPhone.

The Infineon SGOLD-3H together with the MP-EH platform is a natural solution for Apple (APPL). Infineon’s SGOLD2 and the MP-EU platform form the basis of iPhone V1 and Apple has spent considerable time and energy optimizing it for performance, stability and power consumption. It makes sense to carry the good work forward with MP-EH which looks very identical to MP-EU rather than reset it with another new platform. You can read the rest of my prediction analysis from last fall here and here.

While Infineon’s SGOLD-3H appears to have been the default solution for the 3G iPhone, Apple definitely will not regret its choice. The Infineon solution is a Category 8 HSDPA solution, meaning that it supports incoming data rates (equals download speeds) of up to 7.2 Mbps. It has a fractionally spaced equalizer implementation of the receiver (which I think is predominantly InterDigital’s IP) that allows the realization of nominal data rates in mobile conditions. Not surprisingly, Infineon was one of the three companies picked as the 3G performance leaders by Signals Research.

It is also important to acknowledge the other winners if the MP-EH and SGOLD-3H are in the next iPhone. First and perhaps the biggest will be InterDigital. Infineon’s 3G solutions use InterDigital’s stack. InterDigital is bound to get per-unit royalty and its deal with Apple last summer is a good pointer towards this direction. The King of Prussia company is Infineon’s behind-the-scene partner for 3G. My extensive coverage of the InterDigital connection can be found here and here.

Marvell (MRVL), I think, will continue to supply the WiFi provided the interoperability issues it faced with its previous offerings are ironed out. With the Garmin Nuvifone around the corner, it is quite possible that iPhone will also have GPS. Broadcom (BRCM) is in a nice position to offer a bundle of its WiFi, Bluetooth and GPS offerings and may come out a big winner despite losing on the baseband front. As with the chipset itself, I expect Apple to retain most current component vendors who have met Apple’s serious performance expectations last time around. More on the iPhone 3G potential features can be found here.

I am glad that my iPhone 3G predictions are expected to be true. While the actual winners will not be determined until a tear-down, this is good intermediate information. Infineon is trading close at $7.37, close to its 52-week low of $6.26. InterDigital is trading around $20 today. If you have not read my InterDigital valuation series, perhaps this is a good time to read it. With the details of the iPhone 3G consolidating, now is perhaps a good time to pick this stock up even if you are looking at some quick short-term profits.

Disclosure: The author was long InterDigital at the time of writing.

Comments

[xraygwinn]

I wil repeat my question Mr. Nagarajan: When do you think IDCC will be compensated fully for their IP.

1) Soon
2) When the polar Ice caps melt
3) When helll freezes over.
4) Other- please define

[User 159145]

There is nothing as being fully compensated for IP. IDCC, however, has some fundamental IP that will yield fair returns. But the timing depends pretty much on whether the money comes through licensing or through litigations. You can read more on this topic here in my blog -

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