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Aug. 18, 2010
Intel's recent acquisition of Texas Instruments' cable modem business is considered by some in the industry
as a big step by the chip giant to expand the company in the cable industry and related consumer electronics
market segments.
Some didn't expect Intel to foray into the cable industry, and comes a bit as a surprise.
The chip and CPU maker wants to move beyond from its PC processors and server business and focus on the
cable gateway market that is currently being dominated by Broadcom Corp. and a few others.
Why Intel waited so long to expand in that market is another question that some analysts still don't have
an answer for.
On Monday, Intel said it agreed to buy Texas Intrument's cable modem product line for an undisclosed amount
that will accelerate adoption of its Atom chips into the cable market and could help Intel better target new
customers such as Cisco Systems and Motorola.
Also based in California, Broadcom makes its own silicon tuners, has its own wireless chipsets and video-rendering
technology and leads the market in providing a low-cost but highly efficient solution.
"We view this acquisition as an essential step for Intel to further its traction in the cable gateway market,
but we also expect significant challenges ahead from a competitive and technical perspective," Jefferies analyst
Adam Benjamin said in a recent note to some of his major and institutional clients.
Benjamin said Intel's solution will be less integrated and likely more expensive in the long-term as it
still does not control many of the other IP blocks within the media/IP gateway including the cable tuner,
Ethernet switch and voice modem which Broadcom does.
The media/IP gateway is one central box that handles the data, voice and video including the digital
video recording (DVR) functionality. This is a segment that Intel has very little experience in, and happens
to be a very competitive market on top of that.
Can Intel succeed in this segment? Nobody knows for sure at this point in time.
But TI's cable modem unit has always been known for its Puma cable technology and Intel intends to mix Puma
with its own Atom-based system-on-chip (SoC) technology that it will use in cable modems, set-top boxes and
residential gateways.
Some industry observers also see this market segment as lower-margin when compared with the server and PC
processor markets where Intel has always enjoyed above industry profit margins and for the past ten to twelve
years.
In cable modem systems, the media/IP gateway sends the TV signal to each TV over IP to set-top boxes (STBs),
resulting in the elimination of multiple DVRs and replaces the cable tuners in the STB.
"We would note that the elimination of the cable tuner does take away one of Broadcom's advantages that
has allowed it to maintain a very high share in the cable STB market, but we still believe it has significant
advantages in connectivity, integration and software," Benjamin said in the note to investors.
Additionally, Intel would have to rewrite Texas Intrument's modem software to run on Atom or ship two
processor cores, while Broadcom supplies only one single processor core, thus reducing system complexity
by a wide margin.
The potential issue here is that the performance advantages of the Atom core will have to be significant
enough to warrant the likely additional cost. That's another reason why Benjamin is cautious about Intel's
move to acquire TI's cable modem division.
But Intel does have some initial wins with Atom in the cable market including an Arris IP gateway, and it
will be important for the world's leading chip company to maintain these designs as they move from the high-end
to volume deployments.
Intel's new Arris IP gateway is expected to ship sometime in early 2011.
It will be interesting to see how Intel manages to pull this one off. Nevertheless, Intel is still a huge
player in the chip market (it's the biggest), and if any company can pull this off, it would be Intel.
Source: Intel.
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