TI shifting OMAP tech towards embedded apps
OMAP has successfully secured design wins in smartphones and tablets. However, TI's executives have stated that the market has become less attractive because market leaders Apple Inc. and Samsung Electronics Co. Ltd. use their own internally designed processors. Stiff competition from Qualcomm Inc. and Nvidia Corp. have also influenced the company's conclusion.
Greg Delagi, TI's senior vice president for embedded processing, stated that "If you look at the dynamics in that market, you look at it being dominated by a couple of players, you look at the fact that vertical integration has become a very significant factor in the marketplace, the truth is that it's just a less attractive opportunity for us."
Instead, Delagi said, TI plans to re-profile its R&D investment to focus on the embedded market, where he said the company could bring OMAP and its connectivity technologies to a much broader set of customers serving applications like industrial automation, automotive and the "Internet of things."
"We have a lot of work to do to re-profile the investments that we've got as we shift our focus from our historical space in wireless and smartphones and tablets and focus on the embedded area for both OMAP and connectivity," Delagi said.
In the embedded processing space, TI's OMAP and connectivity solutions generate about $400 million in revenue annually from a base of about 4,000 customers, Delagi said. In smartphones and tablets, OMAP and connectivity chips generate about $900 million from roughly 10 customers, he said.
Delagi said TI currently ranks second in sales of embedded processors with 12 per cent market share. "That, by definition, says that there's 88 per cent of the market that we still have a chance to grow. It's a huge opportunity for us," he said.
Delagi emphasized that TI would continue to support existing smartphone and tablet customers that use OMAP. But Delagi said TI would not be investing in the development of OMAP for mobile applications to the same degree.
Delagi said TI has been shifting OMAP investment over the past five years to pursue more opportunities outside of smartphones and tablets. The market for embedded processing is worth about $18 billion per year, he said. TI has an opportunity to leverage its strength in analogue to sell OMAP processors to the embedded market, he said.
"I think we have a really big opportunity with the OMAP processors and with the connectivity technologies to be used in the embedded space, and this is what we'll spend time on," Delagi said.
Some analysts expressed concern over the strategic shift. Craig Berger, an analyst with FBR Capital Markets, said the shift of focus could lead to a decline in the $900 million of revenue from OMAP and connectivity chips in smartphones and handsets. Oppenheimer & Co. analysts downgraded the rating on TI's stock to "perform" from "outperform," saying revenue from the wireless segment—which accounts for 10 per cent of TI's sales—is likely to dwindle over the next several years as a result of the shift.
Analysts from Nomura Equity Research said in a report that TI's sales have underperformed for the past five years, largely due to declining sales to the wireless segment as TI winds down its base band chip business. "TI's update today would suggest that this trend continues in 2013, driven by lower OMAP and connectivity sales." Nomura reiterated its "neutral" rating on TI's stock.
- Dylan McGrath
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