Mindspeed Buys Picochip For Small Cells Push

Small cells will be the hallmark of new networks from this year, and the wireless chip industry's second acquisition this week brings together two key technologies - femtocell SoCs and LTE. Mindspeed Technologies is to pay up to $76.8m for the UK's Picochip, allowing both firms to achieve the scale to remain competitive in a sector poised for major growth - but eyed hungrily by the giants.

Focal Points:

• Mindspeed has attracted high levels of attention for its pioneering work in small cell architectures, particularly for LTE, but has not yet converted its innovation into significant sales. Meanwhile, 11-year old Picochip is the leading supplier of SoCs for the femtocell market, and has led the charge to adapt the concepts of that segment - highly integrated, low power, self-managing units - for the more complex challenge of the public access, carrier network.
• Acquisition gives the UK company the wherewithal to accelerate its migration into the outdoor network, and to survive the classic danger period for the start-up, when an initial market lead starts to be threatened by rivals with deeper pockets, before new market opportunities have fully matured. This has been seen in femtocells, where Broadcom entered the market via its own acquisition of Percello and Qualcomm has also become active. Meanwhile, even before the broader small cell sector converts carrier enthusiasm into large-scale revenues, majors like Texas Instruments and Freescale are throwing their hats in the ring and seeking to sideline the pioneers like Mindspeed.
• The price tag reflects the dangers of this transition period, as well as economic realities, rather than the real value of Picochip's technology and market position. Mindspeed is paying $27.5m in cash and issuing 5.19m new shares to Picochip's investors, and will pay a further $25m in cash by 2013 if Picochip meets certain undisclosed financial performance objectives. Mindspeed expects to close the acquisition this quarter.
• However, the timing is good, giving both firms a fighting chance of making their mark in the LTE small cells space, where SKT recently sounded the bugle with a world-first deployment of a network based on what will become the guiding principles of modern 4G network planning - shrunken base stations and heterogeneous networks combining 3G, LTE and Wi-Fi. In this context, Mindspeed and Picochip make a complementary and highly strategic match, even if the former - like Marvell with its purchase of network processor maker Xelerated earlier this week for a reported $100m - has got a European innovator decidedly on the cheap.
• Mindspeed estimates that, together, its Trancede SoC line and Picochip's PicoXcell have 70% of the HSPA femtocell chip market and are best positioned for the LTE small base station wave, nascent as that may currently be. Both companies have big name customers and alliances, too - Picochip powers femtocells from Alcatel-Lucent, Cisco and others, while Mindspeed, with its broader portfolio of ARM-based telecoms infrastructure offerings, also supplies those two giants, plus Nokia Siemens, Huawei and Samsung.
• The firms calculate that their total addressable market will be worth about $3bn by 2016, now that they have a broader range of base station silicon to offer. They also see "substantial" technology and operational synergies, and opportunities for cross-selling.
• In his statement, Mindspeed CEO Raouf Halim called the deal "a great strategic fit for several reasons. It enhances our competitive position as we join our respective 3G/4G technologies to offer single- and multi-mode solutions that we believe will provide us a time-to-market and product performance advantage relative to competitors."
• Picochip CEO Nigel Toon, in a message to customers, said: "Picochip pioneered the concept of femtocells and small cells, and has been the clear leader in this field. However, over the last year it has become clear that this is not the environment for small companies, and we needed more resources if we were to maintain that lead and deliver on the other innovations we are working on. By joining with Mindspeed we get access to the resources of a Nasdaq-listed company, with their economies of scale and customer base. There are powerful market synergies: both companies are focused on communications infrastructure, and we share a vision for small cells and how they will transform the industry."
• All Picochip's 150 employees are expected to transfer to Mindspeed. The company, which has a massively parallel approach to baseband design, has raised about $100m in venture capital over the past decade, with strategic investors including AT&T, Intel and Samsung, plus VCs including Atlas Venture, Highland Capital Partners, Pond Venture Partners, Rothschild Group and Scottish Equity Partners.

Editor’s Note: Experton Group has watched this market over the past two years and we expect that the integration of femtocells and LTE signify a quiet revolution in wireless delivery. This is an excellent example of ubiquitous technology application to support end-user expectation. In other words, user expectation (supported by trade press and public broadcast advertising) is that wireless will be available everywhere you go, as you travel or when you are stationary.