Right now, I believe we're in the midst of another such boom. But
since it cuts across two well-established tech industries -- PCs and
cell phones -- the market doesn't look at it as such. Namely, it's a
boom in portable, Internet-connected devices -- products that can do
things like browse the Web and stream quality video, but are also small
and light enough to be carried around on a daily basis. Smartphones
such as Apple's iPhone and Research In Motion's BlackBerries qualify here, as do netbook PCs. And so do some other devices, such as the iPod Touch, Amazon.com's Kindle e-Reader, and the much-rumored Apple tablet.
Look at the spectacular unit shipment growth seen in smartphones,
netbooks, and e-readers, and it becomes clear that a boom is well under
way. So, which chip companies serving this market stand out? I think
they break down into four different segments.
Horsepower
These are the companies making
the chips that provide the raw computing and graphics power needed to
run these devices. Intel, with its Atom processor line, has to be near
the top of the list. The company's efforts to create a low-power chip
that can handle basic PC tasks have translated into a dominance of the netbook market
that I don't see it relinquishing anytime soon. And before all is said
and done, the Atom might find its way into some smartphones.
Qualcomm is another name to watch. Already the undisputed leader in
the market for the baseband processors that power cell phones and
wireless data modems, Qualcomm is trying to up the ante with its
Snapdragon processor line. By combining 3G communications features with
enough processing power to challenge Intel's Atom, Snapdragon is beginning to find a home
in both smartphones and higher-end netbooks. And since Snapdragon chips
carry higher price tags than less powerful baseband processors, they
should help offset the pricing pressure that Qualcomm is seeing in the
latter area.
Nvidia (Nasdaq: NVDA)
might be a diamond in the rough. The company's Tegra processor combines
a healthy dose of traditional processing power with market-leading
graphics capabilities. The Tegra is already being used in Microsoft's
Zune HD media player, and it's reportedly going to power a line of HTC
smartphones and the successor to the Nintendo DS. With the market
focusing on Nvidia's troubles in the PC graphics market, the Tegra
could give the company an unexpected boost.
Storage
All of these wireless devices need
space to store everything from videos to apps to e-books. That's good
news for flash memory giant SanDisk (Nasdaq: SNDK), as it recovers from an epic crash
in memory prices that's accompanied the recession. In addition to being
a leading vendor of the memory cards and embedded flash modules that
are going into so many smartphones, SanDisk is working to become a
leading vendor of the flash memory-based solid-state drives (SSDs)
increasingly used in netbooks. And even if a particular device uses
flash memory from a rival, the device's adoption helps SanDisk by
boosting flash memory prices.
I'm not as high on Micron, because of its heavy exposure to a PC
memory market that's going nowhere fast, but the company's attempts to
expand its flash memory business, courtesy of its IM Flash joint
venture with Intel, could help its growth prospects a little. As might
the company's mobile DRAM business, with smartphones gobbling up
increasing amounts of the relatively expensive memory.
Analog
Keeping down the power consumption of
these portable devices, with their processors and massive displays, is
quite the challenge, and it requires a number of complex, high-margin
analog chips. National Semiconductor, which gets 30% of its revenue from mobile devices and is seeing healthy adoption of its analog chips for smartphones, would be one way to play this trend.
But investors who are looking for more of a "pure play" in this
space, and are willing to assume more risk as well, might want to look
at Advanced Analogic Technologies. Advanced Analogic
gets the lion's share of its revenue from the cell-phone market, with
manufacturers like Samsung and LG using the company's chips in a
variety of high-end phones.
Conglomerates
These are companies that develop chips for a variety of applications. Broadcom (Nasdaq: BRCM) is probably the most intriguing name
here. The company has become a leader in the Bluetooth and Wi-Fi chip
markets, and its "combo chips," which feature some combination of
Bluetooth, Wi-Fi, GPS, and FM Radio technology, have been adopted by
Apple and other smartphone makers. In addition, Broadcom has a growing
baseband processor business that's picked up design wins with Nokia and Samsung.
Broadcom's archrival, Marvell Technology, is also a big player in Wi-Fi,
and has come out with its own combo chip products. In addition, the
company has an application processor business that makes chips for
smartphones, and it just announced a new processor for the e-reader
market that should bring down prices for next-generation products.
Marvell is also seeing booming sales of controller chips for SSDs,
though I think this is offset by the fact that the company is also a
leading maker of controllers for the hard drives that SSDs replace.
Unlike the PC boom, which gave us Intel, it doesn't look as if the
portable device boom will give us a single name that we'll all remember
as its biggest winner. But it will leave some established chip names
much better off.
© 2009 UCLICK L.L.C.
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