Monday, June 05, 2006

Dean Bubley: Finally, consolidation in handset software

Dean Bubley posts at the Disruptive Wireless about Motorola's (MOT) acquisition of handset software & silicon IP vendor TTPCom for £103m. Bubley notes he is quite familiar with TTPCom, having followed them for more than 5 years, and that "the announcement came on the same day that TTPCom announced its results for its 05/06 financial year, which had been pretty poor, despite the growth in volume of the handset industry." Bubley writes:

This is quite telling. There are dozens of specialist software companies (as well as semiconductor & silicon IPR firms) servicing the mobile phone industry. The fact that one of the largest independent suppliers to the sector has suffered from such problems, in a banner year for the industry, is a bit of a sobering thought for the hordes (shoals?) of minnows that still flock to it. I've long thought that the market for handset software - especially application "suites" - has been overcrowded, especially given in-house development by a handful of leading handset manufacturers. But it seemed as though every time one disappeared (eg IXI Mobile) another two would pop up in its place.
Bubley believes handset software firms fall into two categories, "those with "point products" like video players, predictive text functions or individual "clients" like push-to-talk - or those with platforms or "integrated suites". Clearly, there's a huge attraction in becoming a "platform player", but the problem has always been that the larger vendors like Nokia are quite happy with their in-house software, so outsiders have always been chasing the Tier 2's and 3's. And there's not a huge amount of kudos (or value) in being "leading software platform supplier to all the vendors who don't have enough scale to do their own". Not only that, but end customers don't really value software that much (they prefer pinkness & thin-ness), and very few other people in the industry seem to recognise just how tricky it is to get right. (Hence my prediction that "IMS phones" will be incredibly late-to-market, as everyone has understimated the complexity involved)."

Bubley thinks the TTPCom fills in a few separate pieces of the puzzle that Motorola is missing and states, "firstly, its protocol stacks work across multiple vendors' chips, and secondly its Ajar platform can potentially fit nicely "below" the higher-end Java-Linux inhouse platform (or, possibly, be integrated with it). The TTPCom solution should also mean it's easier for Moto to manage its various outsourcing/ODM partners, by providing them with a more standardised software platform."

Bubly closes by writing that:
The other interesting side to this acquisition is TTPCom's stake in ip.access , probably the best-established player in the suddenly smoking-hot cellular picocell infrastructure business. TTPCom recently got a round of external funding for this arm of the company, but retains a large stake. Interestingly, there's a very good fit indeed here - ip.access has been relatively slow with creating 3G "home cellular access point" versions of its products (also called femtocells). Meanwhile, Motorola's AXPT rival lacks 2G capabilities - fine for providing indoor high-speed data connection, but missing out on the more basic need for low-cost homezone voice options.

Potentially, this acquisition throws a few spanners into the works for various of TTPCom's other customers. TTPCom has a broad range of other handset clients (although it has probably focused more on semiconductor firms as routes-to-market of late), while ip.access has an OEM deal with Siemens for picocells. Whether Moto can assuage these companies' fears by setting up a separate subsidiary remains to be seen.