There has been some confusion on Seeking Alpha over the meaning of the announcements made by Texas Instruments (TXN) at the analyst conference call this week. TI announced they are combining their wireless unit and embedded unit into one business unit under embedded. You can read the conference call transcript on Seeking Alpha here.
TI will be concentrating on some huge markets where it has distinct advantages leveraging its technology portfolio and customer base. How big is the opportunity? TI stated it this way in the conference call:
This concept of Internet of Things, I just want to spend a minute on, it is literally everywhere... I've got a figure here, 24 billion connected devices by 2020, and this is the -- GSM Association came up with this figure. If you have seen any of the things that the Ericsson team has positioned out in the market, the Ericsson guys will talk about 60 billion connected devices by 2020. So I don't know whether you want to believe GSMA or whether you want to believe Ericsson, whether it's 24 or it's 60, the point is it's an enormous trend. And we're talking about, I think, a fundamental explosion in the role that wireless is going to play in everything we do in our lives.
In the mobile and tablet space TI most likely will concentrate on Amazon as a customer, which uses their ARM based OMAP processor in all of the Kindle Fire tablets, but not aggressively go after more low margin business at the handset and tablet makers. But TI will be increasing investment in the embedded space (internet of things), which will be based on their ARM processors and their vast array of analog and wireless devices. They have a new line of embedded ARM chips called Sitara application processors to address these markets. The reason they are doing this was also clearly stated: the wireless part of their business is around $400M and 4000 customers, while the embedded side has 30,000 customers generating $800M, and the analog side has 90,000 customers generating most of their revenues (DSP is about $1.2B). So combining these embedded and wireless customer groups, and focusing its design efforts on those customer needs makes good sense. TI did NOT state they are exiting the ARM OMAP processor business or their fab relationships in Taiwan. As stated in the conference call:
Again, we have a much smaller product portfolio in OMAP, with only about 20 products, because we've been fairly focused on a couple of verticals. That is expanding, and we are putting more of our R&D dollars in the products for the embedded space. The price range on OMAP is somewhere between $20 -- or $10 and $30, and we have 150 engagements today with OMAP. So we feel very, very good about what this scalable platform can mean. We feel great about how the industry is changing. We feel good about our position.
So TI will continue to produce OMAP chips for Amazon and others, and will be expanding its ARM processor product lines to address the huge new wireless embedded markets that are coming down the road.
That said, it is a good development for Intel (INTC), Qualcomm (QCOM), and Nvidia (NVDA), because they will have one less potential competitor at the handset and tablet makers. But TI will be concentrating on some huge markets where it has a big advantage leveraging its analog, wireless, and ARM processor technology portfolio and customer base.
Disclosure: I am long INTC.