Baseband chip sales growth driven by 2.5G solutions in 1Q10, says iSuppli

Momentarily defying the conventional wisdom that 3G technology is driving growth in the cell phone business, it turns out that suppliers focusing on 2.5G were the best performers in the digital baseband semiconductor market during the first quarter, according to iSuppli.

iSuppli observed that among the top-9 suppliers of digital baseband ICs for cell phones, only three posted significant organic revenue growth compared to the fourth quarter of 2009: second-place MediaTek, No. 6-ranked Broadcom and Spreadtrum Communications (Shanghai) in ninth place. MediaTek's revenues in the first quarter rose by 17.2% sequentially, while Broadcom's soared by a stunning 125.6% and Spreadtrum's surged by 28.9%.

Renesas Electronics' massive 200% surge could be attributed entirely to its merger with NEC, and was not supported by organic growth, iSuppli indicated. In comparison, Marvell Technology achieved modest growth of 8.6% during the period.

"With the explosive growth in smart phone sales, the wireless supply chain - from infrastructure equipment, to handsets, to semiconductors - has been completely focused on the massive growth opportunity in 3G technology," said Francis Sideco, principal analyst, wireless communications, for iSuppli. "However, in the first quarter, all the action was in 2.5G, mainly because of strong demand from Asia, a region still dominated by the older technology. While the first quarter is a slow period for wireless in many regions of the world, sales in Asia were strong because of the Lunar New Year holiday season. Furthermore, Broadcom enjoyed a major increase in 2.5G sales due to a major design win from a major OEM."

Global revenues from sales of 2.5G baseband ICs in the first quarter was up 4.2% from the fourth quarter of 2009, according to iSuppli. In contrast, 3G baseband revenue declined by 3.4% during the same period.

Leading baseband supplier Qualcomm suffered from the 3G slump, and saw its baseband IC revenue drop 4.5% sequentially, iSuppli noted.

"Qualcomm doesn't offer GSM/GPRS/EDGE-only baseband chips, which are the primary drivers for the 2.5G market," Sideco said. "Instead, the company supports these technologies only as part of some of its 3G and LTE chips. In the cost-conscious 2G handset market, very few - if any - would pay extra for a 3G chip from Qualcomm only to use just the 2G part of it."

While 2.5G enjoyed a resurgence in the first quarter, iSuppli expects 3G to regain its momentum later in 2010 as sales in developed areas rise again.