Small cells gain mindshare through Mindspeed’s acquisition of Picochip

On January 5, 2012, Mindspeed Technologies announced that it reached an agreement to purchase Picochip for $51.8m. The proposed deal is touted as creating the largest 3G/4G small-cell solution provider. It combines system-on-chip (SoC) products: Picochip’s market-leading 3G/HSPA products and Mindspeed’s Transcede, a leading LTE product. The acquisition also furthers Mindspeed’s strategic objective to become a global leader in wireless infrastructure technology.

Ovum believes this transaction signals another step in the acceptance of small cells into the overall wireless infrastructure market. Although the need for small cells to offload traffic, increase network capacity, and extend network coverage has been debated, femtocell deployments by AT&T, Vodafone, and Yahoo Softbank provide notable examples of their effectiveness. Even Ericsson, one of the staunchest small-cell opponents, now acknowledges it as a network tool, although Ericsson’s small-cell vision is more limited than others. But even with this acquisition, the outlook for Mindspeed is challenging due to wireless infrastructure competition from more entrenched giants.

Acquisition marks acceptance of small-cell base stations

Publicly traded Mindspeed’s acquisition of privately held Picochip indicates the broader acceptance of small cells as part of the wireless infrastructure market. Ovum believes the market needs small cells to help deal with the growth of mobile broadband data. But, implementing small cells can be challenging. Network management, interference, and backhaul can all be issues with small-cell deployments. All of these issues have limited the current size of the small-cell market. However, Picochip has had admirable success in this still emerging market with such tier-1 mobile carriers as Vodafone (UK) and SK Telecom. Mindspeed’s planned $51.8m acquisition of Picochip signals that Mindspeed sees small cells as an important market and Picochip as an important player in that market. This acquisition, however, isn’t the only sign of greater market acceptance of small-cell solutions.

In 2011, most major base station vendors in some way addressed the importance of small cells. Ericsson, long a critic of femtocells, even acknowledged the need for small cells as part of a mobile operator’s overall network strategy. Given Ericsson’s history with femtocells and the vendor’s conservative nature when it comes to new market trends, its endorsement of small cells indicates this is a market with some potential.

Deal to deliver merchant small-cell IC, good for market

The presence of a merchant small-cell IC supplier helps equipment vendors decrease time-to-market and costs, and provides a more robust supply ecosystem, a healthy situation for the entire market. Furthermore, mobile operators want their infrastructure vendors to have multiple technology suppliers, and Mindspeed’s acquisition of Picochip makes it a more solid supplier.

But small cells come in different flavors. (Ovum is developing a report that provides our definitions of these flavors.) The trick for Mindspeed is to have solutions that are flexible enough to support a large fraction of the OEM market. Furthermore, Mindspeed needs to ensure it integrates its LTE technology with Picochip’s existing 2G and 3G solutions. Multi-standard solutions are important for small-cell success.

Good deal for Mindspeed, but challenging outlook

Mindspeed’s acquisition expands its wireless infrastructure offering, but the competitive landscape presents challenges. Mindspeed’s total annual revenue of about $160m (not including Picochip’s revenue) is small compared to its competitors. Semiconductor behemoths like Qualcomm, Broadcom, Freescale, and Texas Instruments are also eyeing this market. These semiconductor vendors have well established relationships with infrastructure vendors that they can mine for small-cell opportunities. While Mindspeed cited a total small-cell opportunity of $3b by 2016, its addressable market is likely considerably smaller than this. 

Nonetheless, the small-cell market is still sufficiently nascent that a focused, agile supplier may be able to seize opportunities and turn small cells into a great opportunity. The 4G market is still young and the next two years should provide a reasonable picture on how small cells will be used in these new networks, and how Mindspeed fares.