Successful Strategies for Mobile and Wireless Businesses. Loic LIETAR Corporate VP, Corporate Business Development, STMicroelectronics

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1 Successful Strategies for Mobile and Wireless Businesses Loic LIETAR Corporate VP, Corporate Business Development, STMicroelectronics

2 A 20 B$ Wireless Semi-Conductor Industry Serves a 150 B$ Handset Industry Market Split between Product Families Handset Value (~150 BUSD) ebom (~50 BUSD) 16% 12% 100% 51% 50% 0% 20 BUSD Wireless Semiconductors (excl. Memory, PA) 1% 1% 3% 8% 8% BB+EM RF BT GPS WLAN Mobile TV APE/Copro Others Source: isuppli, ABI, Strategy Analytics & Internal 02/02/2009 2

3 GDP Growth vs. Handset Growth Real GDP Growth WW 4.50% 4.25% Real GDP Growth WW 4.00% Cellular handset growth WW 3.75% 3.50% 3.25% 3.00% 2.75% 2.50% 2.25% 2.00% 1.75% 1.50% 1.25% M 1.00% 0.75% M 5.6% 6.1% 0.50% 0.25% 7.0% M 0.00% % 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 5% 10% Cellular handset growth WW Date Analyst 2009 Nov 18 BNP Paribas 11% Dec 1 Credit Suisse 6% Dec 5 Strategy Analytics 0.8% Dec 9 Gartner 1.1% Dec 16 Citigroup 12.9% Dec 17 ABN 13.6% Dec 17 isuppli 5.6% Dec 18 IDC 1.9% Dec 19 Morgan Stanley 7.5% Jan 5 Piper Jaffray 5.4% Jan 8 SEMC 5%/ 6% Jan 12 Deutsche Bank 10% Jan 22 Nokia 10% Jan 22 LGE 3% Source: Economist Intelligence Unit, January 2009 (Real GDP history and forecast) Consensus, Mid January 2009 (Cellular handset growth WW) Expect Negative growth for the first time since 2001 Jan 23 Nomura 11.4% Jan 23 Samsung 5%/ 10% Financial Analyst Industry Analyst OEM 02/02/2009 3

4 Market Decline in Volume in '400 1'200 1' Munit WCDMA/HSPA 16% 19% 32% 27% 68% 67% GSM/GPRS/EDGE 59% 55% 16% CDMA 14% & Other 13% 13% WCDMA/HSPA volume growing despite market shrinking GSM/GPRS/EDGE remain substantial market in the time frame CDMA market decreasing Source: Internal 02/02/2009 4

5 Key Trends in Wireless Consolidation and evolution of the Wireless Telecommunications Industry among Operators, Network infrastructure providers, handset makers and semiconductor vendors Rise of the Entertainment/Smart Phone with key players moving beyond the phone to become Internet companies Low cost PC (Netbook) and Mobile Internet Devices (MID) with cellular modem subsidized by operators accelerating PC-Mobile convergence Wireless Everywhere connecting machines to each other and to consumers Platform competence moving to Semiconductor vendors with terminal makers focusing on differentiator in terms of user experience, applications and services 02/02/2009 5

6 Consolidation and Evolution of the Wireless Telecommunications Industry 02/02/2009 6

7 Evolving Mobile Telecom Industry Infrastructure Terminals Platforms At the beginning all technologies were developed inhouse (vertically integrated) Semi Design Fabs Vertically Integrated Companies in 1990 s Siemens Alcatel Nokia (no fabs) Philips (limited infra) Ericsson Motorola Lucent Qualcomm Matsushita NEC Mitsubishi Hitachi Fujitsu Consolidation in infrastructure and the terminal manufacturer markets has taken place to a large extent Terminal platform (core chipset plus SW) design activity is gradually moved to Semiconductor companies Almost all Semiconductor design activities have been separated from the original parents China is successfully building new positions in all areas of the mobile telecommunications industry (similarities with the evolution of the Japanese industry) 02/02/2009 7

8 Consolidation among Handset makers OEM Market Share Evolution ( ) Others, 17.9% Apple, 1.2% Sagem, 1.2% Others, 13.2% Alcatel, 1.4% NEC, 2.6% RIM, 2.0% SEMC, 8.0% Nokia, 38.3% Panasonic, 3.2% Nokia, 34.7% Kyocera, 0.2% LG, 0.2% Philips, 2.2% Others, 15.0% Nokia, 22.5% LG, 5.0% Motorola, 8.2% Samsung, 2.7% Mitsubishi, 2.8% SEMC, 5.5% LG, 8.2% Samsung, 16.2% Siemens, 3.1% Siemens, 8.2% NEC, 4.0% Alcatel, 4.3% Motorola, 19.5% Samsung, 10.5% Motorola, 14.5% Panasonic, 8.4% Ericsson, 15.1% Source: Internal 02/02/2009 8

9 Evolution Semiconductor Vendor Industry Infrastructure Terminals Platforms Semi Design Fabs Siemens Infineon Alcatel STM Nokia ( STM partially) Philips NXP Ericsson (ST-NXP Wireless) Motorola Freescale Lucent Agere Qualcomm Matsushita Adcore NEC Adcore Mitsubishi Renesas Hitachi Renesas Fujitsu With the spin-off the chip companies went to stronger marketing of independent solutions Ericsson and Nokia are also outsourcing key technology development in a controlled manner Smaller players focused only on one part of the solution have been absorbed or stopped business except for Power Amplifier and Application Engine makers RF (Silabs, Quorum, SiRiF), APE(Alphamosaic), GPS (Glonav, Global Locate) Only two significant entrants in the last decade Broadcom and Mediatek 02/02/2009 9

10 Evolution Wireless Semiconductors Pre BRCM QCOM SnapTrack Ziray Wireless QCOM Flarion TXN Chipcon QCOM Airgo (WLAN) RFMD (BT) QCOM TXN Exit merchant Chipset Business BRCM Alphamosaic BRCM Athena Semi. BRCM Global Locate BRCM MOTOROLA (2004) FSL FSL PrairieComm NOKIA STM Alcatel GSM/GPRS Philips VLSI PHILIPS NXP RF Silicon Labs STM Nokia (parital NXP GloNav ST-NXP Wireless ERICSSON ST-NXP EMP SIEMENS (1999) IFX IFX LUCENT (2002) Agere Modem Art LSI Logic Agere LSI (Agere) Renesas Hitachi Mitsubishi MTK Pericom Semi. MTK Pollex MTK Airoha (RF) MTK ADI MTK Source: Internal 02/02/

11 Wireless Semiconductor Ranking 6, Wireless Semiconductor Revenues (M$) 5,000 4,000 3,000 2,000 1,000 0 Source: Market Intelligence 2009 Excludes Infrastructure and Cordless 2/2/

12 Platform Competence moving to Semiconductor vendors 02/02/

13 Semiconductor vendors moving up the chain Complete components to specification Basic design blocks e.g. DC/DC, amplifiers Reference design phone Fully integrated and tested (GCF,IOT, Field..) platform Complete Platform Basic system design Wireless Semiconductor suppliers moving up the value chain Terminal vendors use different sourcing strategies from complete in-house to fully outsourced phone reference designs Specialization and partnerships have reduced the barrier to entry for new terminal vendors Foundry Services 02/02/

14 Broad investment required Access Technologies 2009 Connected Devices Entry Phones Feature Phones Smart Phones Connected Devices Multimedia Technologies Connectivity & Broadcast Technologies Access HSPA,EDGE GSM, GPRS, EDGE, WCDMA EDGE, HSPA HSPA Multimedia - Low High Very High Connectivity - BT, FM BT,FM,GPS, BT,FM,GPS, WiFi, NFC Entry Phones Feature Phones CPU Technologies CPU ARM9/11 ARM9 ARM11 Cortex Smart Phones A broad range of technologies is required to cover the spectrum of phones Investments for one segment are in large extent reused downwards in other segments 02/02/

15 Life-Cycle Management Life-Cycle Management Value Platform Margin HW Margin LTE HSPAevo HSPA WCDMA EDGE GPRS GSM Maturity Reward for the overall Platform R&D effort can only be obtained by being lifecycle leader A broad portfolio covering all cellular technologies allows an optimal investment management 02/02/

16 Implications for Wireless Semi vendors Platform competence has become the key competence in Wireless Semiconductors The scale of investment required increases significantly as Semiconductor vendors take over the full platform validation and test activities Small players with only one part of the solution roadmap will have only very limited opportunities The concentration of market share among terminal vendors means that the relationships with the top 5 OEMs are key 02/02/

17 Rise of the Smartphone 02/02/

18 Smartphone Features Open OS (Symbian, Windows Mobile, Linux Android, Mac OS X, Blackberry OS) HSDPA/HSUPA Full Connectivity (BT, GPS, WLAN, FM radio, USB, TV out) Display >3 with at least QVGA Touchscreen and QWERTY keyboard Multi-touch input method and Accelerometer for auto-rotate Media Player Wireless , Maps, browser, applications 02/02/

19 Smartphone growth forecast 100% 90% 80% Handset Volume (M) - Gartner, Dec 2008 Smartphones Feature Smartphones Entry 70% 60% 50% Enhanced Phones 40% 30% 20% 10% Basic Phones 0% Source: Gartner, Internal By 2012 Smartphones could be over 30% of the volume of the phone market and over 50% of the value 02/02/

20 New Entrants Smart Phones 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Gartner Handset Volume (M) - Gartner, Dec 2008 Handset OEM market Share 3Q08 LG 7% Others 22% Motorola 8% SEMC 8% Samsung 17% Nokia 38% Basic Phones Smartphones Entry Smartphone OEM market Share 3Q Sharp 3% HTC 5% Apple 13% Others 21% RIM 16% 637 Enhanced Phones Smartphones Feature Nokia 42% Smartphones are currently the major growth segment Niche players and new entrants are also major players in this segment All top handset makers aggressively targeting this segment 02/02/

21 Implications for Wireless Semi vendors Cost efficient platforms will be required to fuel the projected growth of Smartphones The integration challenges are significantly higher than for other phone segments Support of multiple open Operating Systems as well as proprietary systems will required The Smartphone segment will support a higher degree of architecture fragmentation until the device category matures New category pushing from the top, Mobile Internet Devices (MIDs) 02/02/

22 Wireless Everywhere 02/02/

23 MID and Netbook Features MID Netbook Price <US$400 US$ Display 4-6 WVGA (854x480) 7-10 WSVGA (1024x570) OS Form factor Application Windows Mobile, Symbian, Linux Bar with Touchscreen and keyboard Internet experience, Rich multimedia Windows XP, Linux Clam-shell mobile PC Web, learn, communicate, play, view Connectivity Voice and Data Data 02/02/

24 M2M Smart meter Read, manage and control energy information, Residential point-to-point metering, Alarm and monitoring services Smart vending machine Current stock monitoring, Malfunctions and alarm reporting, Cashless payment with Mobile phone, Credit cards, Satellite-based fleet monitoring Telematic car Remote Diagnostics, Emergency Services (ecall), Enhanced Navigation, Concierge Services, Traffic Services, CRM Services, Asset and Fleet Management Health monitor Ambient Assisted Living (AAL, remotely monitor the activity of a person throughout the day to ensure his or her safety and well-being) Body Sensor Networks (BSN, wearable or implantable devices that can sense vital signs such as heart rate, blood oxygen levels, or blood glucose levels) 02/02/

25 Connected Devices, Machine to Machine Markets Wireless Connected Devices, M2M Shipments (M Units) Fixed CE devices Digital Cameras Video Players Huge potential upside considering Consumers Devices and some 50Bn machines in the world M Units Audio Players Gaming Consoles PND MID PC cards & USB Modems M2M Embedded Modems/Notebooks 150M notebooks sold annually, strong netbooks sales 60M new cars sold annually and sensor networks is a new potential growth area Source: ABI Research 02/02/2009 Source: Berlin25

26 Opportunities in Connected Devices, M2M Expand target market to CE devices (Notebooks, Netbooks, DSC, PND ) Netbook is a fast growing segment in PC market and needs to be connected everywhere Mobile/PC convergence is accelerating The M2M market is highly fragmented by application and has a high level of vertical integration Road tolling,smart metering, Emergency-call (E911),Mobile Banking.. Government and regulatory policies will have a direct affect on the development of these markets There is an opportunity for Europe to further the development of this market though fast determination of EU and national regulation 02/02/

27 Summary Although 2009 will be a very challenging year for the Wireless Semiconductor industry the long-term growth prospects remain strong Smartphones are a key growth segment for the future and the challenges for Wireless Semiconductors vendors are high Netbook and MID with cellular modem are additional growth area accelerating PC-Mobile convergence M2M applications also offer new opportunities for the wireless industry and regulation will contribute to the success of this business segment The successful Semiconductor vendors will be those able to be the most complete platform suppliers and with the broader offer moving up the value chain while freeing their customers to focus on differentiation 02/02/

28 ST and Ericsson Wireless JV ST (ST-NXP Wireless) Leading supplier to Nokia, Samsung, and Sony Ericsson Industry leading RF, analog, multimedia and connectivity World class 2G- and EDGE platform and strong 3G offering Ericsson (EMP) Leading supplier to Sony Ericsson, LG, Sharp Industry leading 3G, HSPA and LTE platform technology Leading IPR portfolio EMP & ST-NXP Wireless Technology leader 2G, EDGE, 3G, HSPA, TD-SCDMA and LTE Complete offering Modem, multimedia, connectivity ASSP and ASIC RF, analog and digital Strong customer base Engaged with all leading handset manufacturers Leverage communication and system technology from Ericsson Leverage semiconductor technology, manufacturing and supply chain from ST 28

29 ST and Ericsson Wireless JV Creating a global wireless leader combining some of the best European wireless heritage Starting with the right scale to meet the investment requirements to drive innovation Building on long-standing relationships as a leading supplier to 4 of the top 5 handset makers Supplying the a complete portfolio covering all segments from entry to smartphones and connected devices Working across all the life-cycle of access technologies from 2G to LTE Able to combine access, multimedia and connectivity in full platforms Offering end-to-end solutions with industry-leading level of validation, IOT and field testing 02/02/

30 Thank You 02/02/