The Intel–ARM rivalry is getting interesting. Last year, ARM (NASDAQ:ARMH) unveiled its processor for netbooks and was perceived as a threat to Intel. And this year, Intel responded with an LG smartphone built on its Atom Moorestown platform. Let’s take a closer look at ARM and the other semiconductor IP players, Tessera (NASDAQ:TSRA) and InterDigital (NASDAQ:IDCC).
in his Intel vs. ARM series, guest author Nalini Kumar Muppala looked at ARM’s strengths and why it is such a threat to Intel. ARM processors excel in low-power consumption, and the company’s netbook processor challenges Intel on this ground. Intel, which for a long time has been focusing on PCs and laptops that do not use batteries much, does not rate high on the low-power consumption factor. Netbooks, smartbooks, tablets, smartphones, and even laptops are where ARM is expected to have an edge over Intel.
ARM has design wins with Dell’s Latitude laptops and Lenovo’s Skylight smartbook. Even Apple’s iPad and its A4 chip are believed to be ARM-based. While Intel’s Moorestown consumes much less power than the Atom processors, it could be a long time before Intel comes close to ARM, which has its chips in about 90% of the smartphones manufactured today. ARM’s revenue in fiscal 2009 grew 2% to £305 million or $489.5 million while EPS was down 4% to 5.45 pence. In its latest fourth quarter results, the company reported 10% decline in revenue to £85.2 million or $140 million and EPS of 1.79 pence, down 8%. It ended the year with £141.8 million or $227.5 million in cash. Gross margin was 94.3% versus 89.5% last year and 92.9% last quarter.
ARM signed six new licenses for use in mobile computers and smartphones, including two new licenses for the Cortex-M series of processors. It is also growing beyond mobile phones with 19 processor licenses signed for a broad range of applications including automotive, microcontrollers, printers, and smartcards. Infineon and STMicroelectronics have announced plans to use ARM processors in their respective smartcard and digital TV/set-top-box product lines, and Samsung has licensed ARM’s Mali graphics processor for use in next generation consumer products. ARM is currently trading around $10.13, just below to the 52-week high of $10.32 reached yesterday.
In a recent EE Times op-ed, I said I would bet on Intel’s technical capabilities but not on its ability to excel in the low-margin game that the smartphone market is bound to turn into.
Last week, Intel announced that its deal with TSMC to manufacture customized Atom chips is on holddue to lack of customer demand. Intel recently announced a joint venture with Nokia, MeeGo, to create a modified Linux version that works on smartphones, netbooks, and tablets. Nokia also announced a 3G netbook powered by Atom. However, this doesn’t indicate that ARM’s relationship with Nokia is turning sour.Nokia is going ahead with its plans of an ARM-based smartbook. That just about sums up the situation. Intel is welcome to the market, but at the moment, ARM rules the mobility market.
Tessera, which licenses its miniaturization technology to various mobile device vendors, recently reported fiscal 2009 revenue of $299.4 million, up 20.5% and net income of $69.8 million. Microelectronics continues to be the company’s revenue generator, accounting for $269.7 million revenue while it is building up its Imaging and Optics portfolio, which accounted for $29.7 million of annual revenue.
Tessera is looking to cash in on the growing market for camera-based handsets. Recently, it announced that Samsung Electronics has integrated Tessera’s OptiML Focus solution in its notebooks. Tessera has been building out its imaging and optics portfolio with the help of five acquisitions since 2005: part of Shellcase, a wafer-level image sensor packaging technology provider; Digital Optics, a micro-optical solutions developer; Eyesquad, a smart optics technology supplier; part of Dblur Technologies, a software lens technology developer; and FotoNation, an embedded imaging solutions provider.
A number of Tessera’s patents start expiring over the next couple of years. Patent No. 6,433,419 related to semiconductor packaging technologies used in the wireless industry expires in September 2010. However as the patent is under reexamination, claims on it remain valid for about five years even after it expires. Last year, the International Trade Commission (ITC) ruled that this patent was infringed by Qualcomm, STM, Motorola, Freescale, and Spansion and banned their products in the United States. Motorola subsequently signed a deal with Tessera and is allowed to sell its products.
In another case against DRAM manufacturers including Acer, Nanya, Elpida, and others involving Tessera’s Patent No. 5,663,106, the ITC recently ruled that only some of the products infringed Tessera’s patent. Patent 106 expires in 2014.
This week, Tessera and United Test and Assembly Center Ltd (UTAC) signed a deal that is valid until 2016. Tessera had earlier sued UTAC, and under the new deal UTAC will pay Tessera $15 million for past royalties. Because of this impending payment, Tessera raised its first quarter sales target to $63 million to $64 million, from earlier guidance of $58 million to $61 million. Tessera expects its imaging and optics to reach $100 million in 2011. The stock is currently trading around $20 with market cap of about $992 million. It hit a 52-week high of $32.17 on October 12. Tessera still holds additional patents that extend well beyond 2012 but needs to tread carefully here as most of its revenue-generating patents expire in the near future. And if its optics gamble works out, it could well be worth it.
InterDigital, which has a 55% share in the 3G handset license market, reported a 20% increase in fiscal 2009 revenue of $297.4 million and net income of $87.3 million or $1.95 per share, more than triple its 2008 income. During 2009, the company repurchased shares for $25 million under the $100 million share repurchase program authorized in March 2009. It ended the year with $409 million in cash.
Its strong growth was driven by revenue from new patent license deals with Samsung, Pantech, and Cinterion. Samsung now accounts for 33% of its revenue, LG 19%, and Sharp 10%. For the first quarter 2010, InterDigital expects revenue of $78 to $79 million. The stock is currently trading around $26 with market cap of about $1 billion. It hit a 52-week low of $18.41 on October 28.