Texas Instruments and STMicroelectronics: The Analog Wireless Trade-Off

Includes: STM, TXN
by: Vijay Nagarajan

In the first part of this series, I looked at the contrasting manufacturing strategies of STMicroelectronics (NYSE:STM) and NXP. In this concluding piece, I will look at their product decisions with respect to the wireless analog trade-off.

Wireless: With Nokia (NOK) and EMP [Ericsson Mobile Platforms] sourcing from multiple vendors, Texas Instruments' (TXN) strategy of using its baseband along with its application processor and RF modules for the mobile platform seems to have backfired. It is in danger of losing its market share because it has not pursued a 3G baseband product strategy.

On the other hand, STM has infused substantial R&D into baseband development as it revamps its product lineup. Nokia transferred its chipset design team to STM late last year. The Italian company has also created a joint venture [JV] merging its wireless business with that of NXP. NXP brings with it, complementary wireless connectivity solutions and a suite of baseband products (including 3G.) STM now has all the components to build mobile platforms for 3G and beyond and can compete effectively against Qualcomm (NASDAQ:QCOM) and Broadcom (BRCM).

Therefore, while TXN appears to be losing its grip on wireless, STM has emerged as a strong player with the backing of the European handset vendors who command around 50% of the worldwide market. STM appears to be benefiting from its geopolitical alignment, and is well-positioned to supplant TXN from its second position in wireless.

Analog: As part of its strategy to maximize margins, TXN has made the conscious decision pursue analog aggressively. The analog semiconductor leader understands that a substantial portion of the analog TAM remains for it to tap. The High Performance Analog [HPA] segment has been TXN’s champion growth driver. This segment, generating around 40% operating margins has grown at an average of 28% over the past two years. The analog business overall has grown by 11% over the same period. STM, on the other hand, has not focused as much on its analog business as it could. If it makes the right acquisitions, it can grow its analog share too.

In summary, the two companies have identified different niche areas to focus for growth despite directly competing in multiple markets. The strategic directions are meant to capitalize each company’s strengths. For STM, it carries with the European wireless players the geopolitical influence. TXN, on the other hand, is becoming a more nimble manufacturer by the day. It hopes to leverage this to dip further into the HPA market. Finally, while STM is looking to create more value through higher revenue, TXN’s value proposition comes from its impressive margins.

[All thoughts expressed here are those of the author's and do not necessarily reflect those of either Atheros Communications or TensorComm Inc.]

Disclosure: None