Ericsson follows Broadcom to modem Mordor

Swedes ring off

Ericsson, once the major manufacturer of modems, is planning to leave the business. The move will see 1,000 redundancies and 500 people moving to other Ericsson projects, such as small cells.

In February 2009, Ericsson entered into a joint venture with ST-Microelectronics – itself a merger of SGS-Thomson and NXP – in a bid to take on Qualcomm. In mid-2013, ST-Ericsson was dissolved – with the modem business moving to Ericsson. The closure of the joint venture led to the loss of 1,600 jobs.

At that time Ericsson was confident that it could take on Qualcomm – and the business has recently produced some well-regarded devices such as the M7450 – but the break-up meant that Ericsson didn’t have an applications processor and increasingly the market has demanded apps processors and modems in a single chip. This is the mainstay of MediaTek and Qualcomm sales. nVidia announced a combined chip at Mobile Wold Congress this year.

Ericsson acknowledges this and gave us the following statement:

The modem organisation has focused on bringing the first devices integrating an Ericsson modem on the market. This was achieved in August 2014 with M7450 which Ericsson continues to deliver to its customers. However, since the integration the modems market has developed in a direction that has reduced the addressable market for thin modems. In addition, there is strong competition, price erosion and an accelerating pace of technology innovation. Success in this evolved market requires significant R&D investments. As a consequence, Ericsson has decided to shift away from modem development to increase focus on opportunities in radio networks.

It’s not the first part of the mobile business to see an Ericsson exit. Ericsson bailed out from Bluetooth – a market it was instrumental in creating – in 2004.

Time was when every major mobile handset manufacturer made its own modem chips, but we’ve seen the vast majority spun out into separate companies and then consolidation between them. Motorola begat Freescale, Siemens floated off Infineon, Nokia sold its modem biz to Renesas and Philips cut NXP loose.

Renesas then sold for $164m to Broadcom which shut down its baseband business in July. That news was greeted with glee by financial types, who pointed to the $600m the company expected to save as a result of the move. The Broadcom share price has risen as a result, and it seems that this was the driver behind the decision – something that can’t have escaped the attention of the financial types at Ericsson.

Modem development is hugely capital-intensive, but with a billion phones being sold each year, it has the potential to be lucrative, particularly if you have the selling point of not being either Qualcomm or MediaTek. With Ericsson shutting its modems down, it leaves a questionmark over nVidia and Intel as players in a field which once saw Texas Instruments, Thompson, Ericsson Mobile Platforms, NXP, Freescale, Infineon and others as major competing players. The lack of competitors is not going to be good for the future price curve of LTE devices. ®

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