Comm chip companies need to invest in startups
The top 5 communications chip makers hold nearly 60% of the market share. The rest is shared by over 200 other chip vendors. Of the top 5 vendors, only Qualcomm has a specific market that it addresses. Others have a wide portfolio serving multiple areas. It seems plausible therefore to assume that only Qualcomm will have inherent capability to maintain its market position while other vendors will be facing stiff competition from the startups.
As the communications market gets fragmented into more specific applications the current market leaders would not have the bandwidth serving these specific markets. In such a scenario startups like Sequans, Artimi, etc. may have better prospects as they are just focused on specific technologies.This is a dilemma that platform vendors like Nortel and Alcatel-Lucent have also had to deal with. Unlike the platform vendors, however, chip makers are not adding every single emerging technology solution to their portfolios. As an example, NXP has aligned its resources towards mainstream cellular technologies only. There is always an option of inorganic growth by acquiring these startups. Since we do not see much consolidation in the comm chip segment, it seems that major chip makers are passing on the opportunity of acquisitions for a while.
In the mean time however, we see more and more fragmentation of the communications chip market. Not only will the 40% of the share held by others break down further but the share with top 5 leaders will also get reduced. It seems that investment in startups is the best way forward for the large chip makers: investments that allow them to exercise options to acquire the assets five years down the line.
