Ericsson pins comeback hopes on US$17 phone chip

Swedish firm's latest mobile-phone comeback attempt puts it in face-off with Qualcomm

PUBLISHED : Wednesday, 11 June, 2014, 1:15am
UPDATED : Wednesday, 11 June, 2014, 4:44am

Ericsson is betting third time's the charm for its mobile-phone comeback.

The Swedish wireless pioneer has come up with a strategy to share in the success of Apple and Samsung Electronics, with a new US$17 stamp-sized chip for transferring data to phones it expects to start generating revenue soon.

By making the components rather than its own handsets, Ericsson avoids competing against the giants that dominate smartphone sales.

Still, that will require taking on an even more dominant, if less visible, player in the mobile-phone business: Qualcomm. The San Diego-based company last year had 92 per cent of the US$4.1 billion market for chips like the one Ericsson has developed, called LTE thin modems, which go into devices to let them connect to speedier 4G networks, according to research firm Strategy Analytics.

"It's a big market with well over a billion smartphones a year so there's room for several players," said Bjoern Ekelund, head of strategy and ecosystem at Ericsson's modem facility in the southern Swedish town of Lund. "The mobile ecosystem needs multiple players in every part of the food chain."

While Ericsson helped define the mobile-phone market with its handsets in the 1980s and 1990s, rising competition in the early 2000s led to it focusing on networks instead. Since then, two efforts designed to keep the company involved in mobile phones - a handset venture with Sony and a phone-chip business with STMicroelectronics - both failed.

Today, the modem division Ekelund helps run is still unprofitable, with Stockholm-based Ericsson spending 2.6 billion krona (HK$3 billion) this year alone to improve designs to appeal to phonemakers. Ericsson is forecasting the endeavour to start bringing in revenue in the second half.

The challenge is to convince makers of high-end smartphones to award some of the business now claimed by Qualcomm to Ericsson instead. Qualcomm was benefiting from early investments to broaden its modem portfolio, said Sravan Kundojjala, an analyst at Strategy Analytics.

Other attempts to shake Qualcomm's dominance have proved fruitless. Last week, chipmaker Broadcom Corp said it was giving up its modem efforts and would either sell or close the unit. In April, Intel Corp reported losses that exceeded revenue in its mobile-chip business.

Much of the unit's future depends on the success of its first product under sole owner Ericsson, the M7450.

China Mobile, the world's largest phone company by users, certified the M7450 last month, a signal to device makers that the modem will work on its network.

"It's going to take a lot to dislodge Qualcomm from Apple," Kundojjala said.