5G—Next-Generation Wireless KEY POINTS
Transcript of 5G—Next-Generation Wireless KEY POINTS
EQUITY RESEARCH
INDUSTRY UPDATE
Oppenheimer & Co Inc. 85 Broad Street, New York, NY 10004 Tel: 800-221-5588 Fax: 212-667-8229
Rick [email protected]
Disseminated: October 2, 2019 06:01 EDT; Produced: October 2, 201906:01 EDT
For analyst certification and important disclosures, see the DisclosureAppendix.
October 2, 2019
TECHNOLOGY/SEMICONDUCTORS & COMPONENTS
5G—Next-Generation Wireless5G Technology PrimerSUMMARYThe continued adoption of connected devices and exponential growth of mobile datatraffic have put unprecedented strain on current wireless infrastructure networks.In a race to deliver greater performance, monetize the thirst for data, and slowlytransition from a commoditizing, consumer-driven subscriber base to a high-value,mission-critical, enterprise-driven subscriber base, wireless service providers havebegun to accelerate the pace of 5G New Radio (NR) network deployments acrossthe globe. For this report, we interviewed more than 25 companies across thewireless infrastructure and device supply chains and conclude that the 5G upgradecycle will drive both a cyclical rebound in carrier capex and structurally highersemiconductor content per macro cell, which will drive significant growth for manyof the infrastructure-related names in our coverage universe. The adoption of 5Ghandsets is likely to shorten replacement rates, stabilize handset units, and drivesignificant growth in the radio frequency (RF) TAM.
KEY POINTS
■ Carrier capex on the global mobile RAN market bounced between $30B and $35Bfrom 2004-2016 but has hovered closer to $28B. The drop is largely attributableto carriers slowing spending post aggressive 4G build-outs—particularly in China(45% of global 4G BTS), where spending fell nearly 50% peak-to-trough. Thatsaid, we expect a cyclical recovery as 5G roll-outs begin globally and view $33B-$34B, or a 20% bounce from current levels, as a likely scenario.
■ 5G networks promise a 1000x increase in capacity via a 10x increase inthroughput and support for 100-fold increased connections per unit area whilereducing cost per GB by as much as 35x. To achieve such a high bar, thecomplexity—and thus, semiconductor content within macro cells—is going toincrease significantly, esp. with M-MIMO implementations. We expect 2-3x digital,2-4x analog, and 3-5x RF content across the baseband (BBU) and radio (RU) unit.
■ While we’ve seen dramatic changes across the wireless network equipmentmanufacturer (NEM) landscape over the last 15 years with Huawei/ZTE (both relyon internal silicon arms) gaining ~40pts of share, we see potential for reversalduring the 5G era, esp. as US sanctions impede Huawei’s early progress. The USand Japan elected not to use Chinese NEMs, South Korea has reduced relianceon Huawei, and Samsung is becoming more competitive across the globe.
■ Smartphones is a $483B market in 2018 with 1.4B units shipped. Units have beenflat-to-LSD(%) decline the last two years as we near the tail end of the 4G cycle.5G is a growth catalyst led by RF, and we estimate TAM of $26B by 2025 (8%CAGR from 2018). Due to rising band counts/complexity in 5G, we see filters asthe greatest content opportunity in RF with BAW filters growing 13% CAGR to$8.9B by 2025.
■ As technology transitions from 4G to 5G, companies in the supply chain arerealigning strategies. In baseband/AP, technology gap between tier-1 handsetOEMs and merchant component suppliers MediaTek/Qualcomm is closing whendesigning SoC solutions. We see more tier-1 OEMs sourcing back-end 5G-components in-house. As a result, QCOM is differentiating by developing a fullmodem-to-antenna solution. However, we expect limited success as handsetOEMS have expressed interest in working with longtime higher performance RFincumbents AVGO, QRVO, SWKS.
Table of Contents 5G INTRODUCTION .............................................................................................. 3
5G AT A GLANCE – WHAT IS 5G AND WHY DO WE NEED IT? ...................................... 3 NEW FREQUENCIES WITH MORE BANDWIDTH .......................................................... 5 MASSIVE MIMO AND BEAM FORMING ..................................................................... 8 DELIVERING IMPROVED CUSTOMER EXPERIENCE ................................................. 10 NOT ONLY ABOUT THE CONSUMER ...................................................................... 11 CARRIER CAPEX CYCLE ...................................................................................... 12 BASICS OF A MACRO CELL—BBU, RRH, AND ANTENNA ...................................... 15 MACRO CELL TAM: BB & RRH UNIT AND ASP ANALYSIS .................................... 19 MMWAVE: SMALL CELLS RAMP-AGAIN? ............................................................... 21
TELECOM EQUIPMENT ..................................................................................... 23 ERICSSON ......................................................................................................... 23 NOKIA ................................................................................................................ 23 SAMSUNG ......................................................................................................... 24 HUAWEI ............................................................................................................ 24 ZTE .................................................................................................................. 25
INFRASTRUCTURE OEMS ................................................................................ 25 ANALOG DEVICES .............................................................................................. 25 MARVELL ........................................................................................................... 26 QORVO .............................................................................................................. 28 TEXAS INSTRUMENTS ......................................................................................... 29 INTEL ................................................................................................................. 30 NXP .................................................................................................................. 31 MAXIM ............................................................................................................... 32 XILINX ................................................................................................................ 32 INFINEON ........................................................................................................... 33 SEMTECH ........................................................................................................... 33 LATTICE ............................................................................................................. 33 INPHI ................................................................................................................. 34
SMARTPHONES ................................................................................................. 34 SEMICONDUCTORS ............................................................................................. 34 5G SMARTPHONE BOM/TEARDOWN ................................................................... 36 APPLICATION PROCESSOR .................................................................................. 37 BASEBAND PROCESSOR ..................................................................................... 38
APPLICATION/BASEBAND VENDORS ............................................................ 39 APPLE................................................................................................................ 39 QUALCOMM ........................................................................................................ 39 MEDIATEK ......................................................................................................... 40 SAMSUNG .......................................................................................................... 40 HISILICON/HUAWEI ............................................................................................. 40 INTEL ................................................................................................................. 40
RADIO FREQUENCY FRONT END .................................................................... 41 FILTERS ............................................................................................................. 41 5G FREQUENCIES .............................................................................................. 42 FILTER TYPES – SAW, TC-SAW, IHP-SAW, BAW, FBAR ................................. 43 POWER AMPLIFIER, LOW NOISE AMPLIFIER, SWITCHES, TUNER, DIPLEXER ........... 45
RF FRONT-END VENDORS ............................................................................... 46 BROADCOM ........................................................................................................ 47 SKYWORKS ........................................................................................................ 47 QORVO .............................................................................................................. 47 QUALCOMM ........................................................................................................ 48 MURATA ............................................................................................................ 48 AKOUSTIS .......................................................................................................... 48 RESONANT ......................................................................................................... 48 KNOWLES .......................................................................................................... 44
ACRONYMS ........................................................................................................ 50
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5G Introduction
5G at a Glance—What Is 5G and Why Do We
Need It?
The continued growth of both connected devices and traffic per device has caused the
amount of internet protocol (IP) traffic to continue to grow at an exponential pace—Global
IP Traffic in terms of Exabyte (EB) per month is growing >25% every year and essentially
doubling every three years. To put this in context, the amount of IP traffic generated from
2018-2024 will be ~4x the amount of IP traffic created in the history of the world prior to
2018. As such, data demands have strained and will continue to strain our current
wireless network infrastructure. While this is a problem, it’s not a new problem; in fact,
improved user experience, new applications, and network strain have been three of the
primary drivers behind the prior wireless network infrastructure transitions and
transformations for decades. As such, the Third Generation Partnership Project (3GPP)
began initial 5G New Radio (NR) studies in 2015 and completed the first set of 5G NR
standards in December 2017. 5G NR is expected to deliver more efficient communication
protocols, new and wider spectrum, and new technologies, which in combination will
provide more capacity, more throughput, lower latency, lower energy consumption, and
significantly lower cost per GB of data. Specifically, 5G promises to bring a 1000x
increase in capacity, a 10x increase in throughput, a 10x decrease in latency and support
up to 100x the number of connections per unit area given a 3x increase in spectral
efficiency, and a 100x increase in network efficiency relative to initial 4G networks all
within the same 4G power budget. More impressively, 5G delivers these improvements
while delivering up to a 35x reduction in cost per GB.
Exhibit 1. Global IP Traffic; Cost per EB by Technology
Source: Cisco, Mobile Experts, Oppenheimer & Co. Estimates
It’s worth noting that each country (and most network operators) will likely roll 5G NR out
in two distinct phases—phase 1 will be 5G non-standalone (NSA) while phase 2 will be 5G
standalone (SA). Initial 5G NSA deployments and the first commercial launches occurred
in 2018, whereas the SA standards are not expected to be finalized until the end of this
year.
Note that the first operational 5G NSA network was demonstrated at the 2018 Winter
Olympics in Pyeongchang, South Korea. The initial demonstration showed a fixed wireless
access (FWA) use case where the 5G network streamed multiple 4K videos from up to 80
cameras to the Olympic audience simultaneously. Further, all three major carriers in South
Korea—SK Telecom (SKT), Korea Telecom (KT), and LG Uplus (LGU) —launched nation-
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wide mobile 5G services in April 2019 with more than 2M aggregate subscribers to date
and current expectations for 4-5M by year-end.
The primary difference between NSA and SA is that SA requires a carrier to completely
over-haul its core, transport, and radio access networks (RAN). Conversely, NSA only
requires a RAN upgrade—Baseband Units (BBUs), Remote Radio Heads (RRHs), and
Antenna—so the new 5G RAN is simply paired with the existing 2G/3G/4G core and
transport networks. As such, networks will take a big step forward in terms of throughput
and capacity during the NSA phase as operators leverage the latest and greatest RAN
technologies, as well as the incremental spectrum that has been and will continue to be
allocated for 5G NR. Simply put, 5G NSA will do exactly what each transition from 2G to
3G to 4G has done, allowed consumers to do progressively more with their mobile
devices.
Specifically, the 5G NR standards have been set to facilitate the adoption of Enhanced
Mobile Broadband (eMBB), which promises to bring features like augmented (AR) and
virtual (VR) reality to smartphones in 4K/8K resolutions. It’s worth noting that it would be
extremely difficult for an operator to move straight from 4G to 5G SA as: (1) that operator
would likely lose subscribers to other operators that elected to do a phased roll-out and
can thus advertise 5G capabilities; and (2) a phased roll-out makes 5G much more
palatable from a capex standpoint as carriers can stagger the capex peaks of their
respective core and radio access networks.
In our view, commercial 5G SA deployments are unlikely before 2021, will largely use the
same RAN as 5G NSA, and for all intents and purposes will go unnoticed by the common
user. However, the core network will undergo dramatic changes. The new 5G SA core
network will be virtualized from end-to-end as network operators transition away from fixed
function hardware appliances in favor of commodity servers—the transition to software-
defined networking (SDN) and network function virtualization (NFV) began in the middle of
the 4G cycle and, in combination, should dominate core network architectures as 5G SA
rolls out. This transition will allow operators to execute on more distributed (and
abstracted) RAN architectures, mediate the network in real-time via software, and deploy
machine learning (ML)/artificial intelligence (AI) across the network. Perhaps most
importantly, end-to-end network virtualization will enable network slicing—essentially
separate the capacity into multiple functional models, thus permitting custom services and
service levels tailored to specific enterprise or verticals, which, in combination with higher
levels of edge compute, unlocks the other two most hyped use cases (in addition to
eMBB) associated with the development of 5G NR: Ultra-Reliable Low Latency
Communication (URLLC) and Massive Machine Type Communication (mMTC).
URLLC refers to using the network for mission-critical applications that require
uninterrupted and robust data exchange such as autonomous driving, traffic safety &
control, remote manufacturing, as well as other applications across the industrial, medical,
and government complex. Conversely, mMTC would be used to connect an extremely
large number of scalable, low power, and low cost devices across a vast area such as
sensors for smart metering, fleet management, and all sorts of tracking applications. The
reason we called out 5G SA—and specifically the capability to network slice—as
particularly important is that both networking equipment manufacturers (NEMs) and
carriers view these applications as a means of accelerating revenue growth by moving
their businesses beyond the commoditizing consumer market, where carriers are facing
incremental competition from cloud vendors, and into high-value enterprise verticals.
While it remains to be seen that carriers will be able to drive material business value
above and beyond the temporary premium pricing models for 5G-enabled eMBB, the long-
term dream is for 5G service providers to be able to provision specific virtual networks
and/or services and sign service-level-agreements (SLAs) with companies across
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verticals. It’s also worth noting that, given the timelines associated with 5G SA roll-outs
and more specifically timelines associated with robust, dense, and broad 5G SA network
coverage, we aren’t likely to know if NEMs and carriers will be successful in realizing this
vision until the 2025-2030 timeframe. However, it’s worth noting that, even if these
incremental revenue streams don’t materialize, 5G SA could prove to be a boon to
profitability for carriers as end-to-end virtualization should improve network utilization and
traffic management and ultimately lower costs.
5G: New Frequencies with More Bandwidth Shannon Theory is the underlying science that explains why new frequencies, particularly
frequencies with more bandwidth, accelerate the data rate and increase network capacity.
Shannon Theory roughly states that a network’s data rate is equivalent to its number of
channels multiplied by the bandwidth of the channels and then again multiplied by log2
(1+SNR) where SNR equals the signal-to-noise ratio. Channels are roughly equivalent to
the number of antennas (hence why networks are progressively moving from 1x1 to 2x2 to
4x4/8x8 and now 32x32/64x64), bandwidth is how wide the spectrum is (n79 = 4.4GHz-
5.0GHz so 600MHz bandwidth), and SNR is how high the signal power is above the noise
floor.
Bandwidth: the difference between the upper and lower frequencies in a continuous band
Channel Bandwidth: the FCC may allocate the regional available bandwidth to broad license holders so their signals do not mutually interfere.
As such, the 3GPP divided the specification for the 5G air interface into two ranges,
frequency range one (FR1) and frequency range 2 (FR2). FR1 is commonly referred to
as Sub-6GHz as it spans from 450MHz to 6GHz, and thus overlaps with and extends
2G/3G/4G frequencies. FR1 bands are numbered 1-255 and provide reliable, cost-
effective mobile broadband coverage. The maximum channel bandwidth defined for FR1
is 100 MHz, due to the scarcity of continuous spectrum in this crowded frequency range;
however, that’s still a significant increase relative to 3G/4G, which used individual
channel bandwidths of 5-20MHz.
FR2 is often referred to as millimeter wave (mmWave) and spans from 24GHz to 52GHz
with bands numbered from 257-511. Relative to FR2, the minimum channel bandwidth is
50MHz and the maximum is 400MHz, and thus basically 10-20x as wide vs. 3G/4G. FR2
frequencies were not used in any of the prior generations of networks (or smartphones);
thus, they have significantly less clutter vs. FR1, enabling wider bandwidths and extremely
high throughput, which is particularly useful in densely populated areas. That said, not
everything about mmWave is great. Given that FR2 is defined by significantly higher
frequencies and shorter wave lengths, it propagates less effectively than lower
frequencies. It offers relatively short-reach as it has trouble: (1) penetrating walls or glass;
and (2) performing in harsh weather conditions, i.e., rain or snow.
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Exhibit 2. 5G Frequencies vs. 2G/3G/4G Frequencies
Source: Mobile Experts, Oppenheimer & Co. Estimates
From a hardware perspective, the implementation of new, higher frequency bands with
wider bandwidths is driving a shift in the base materials used in the underlying radio
frequency (RF) technologies. From an infrastructure perspective, the power amplifier (PA)
space is likely to undergo the largest transition from a materials perspective (in addition to
significant TAM expansion). Historically, LDMOS silicon technology has been the
dominant technology in the base station (BTS) PA market as it had the ideal power and
frequency characteristics at a relatively low cost.
GaAs: Gallium Arsenide
GaN: Gallium Nitride
GaN-on-SiC: Gallium Nitride on
Silicon Carbide
SiGe: Silicon Germanium
LDMOS: Laterally Diffused Metal
Oxide Semiconductor
Power is important because if more power is applied to a given RF signal over a given
frequency, the signal can travel a further distance. The average power out of a PA can
be calculated by the following formula [POUT =VDD2 / 2 x RL] where RL is the optimal
resistance load and is essentially fixed at 50 Ω, implying that the power capability of a PA
is essentially dictated by the voltage applied to it. Thus, in order to increase PA power,
the voltage needs to be increased and certain materials handle high voltages.
Specifically, LDMOS and GaN-on-SiC operate at either 28V or 48V; whereas GaAs
operates between 5-7V and SiGe operates between 2-3V. However, LDMOS has a
much more robust supply chain and lower cost vs. GaN-on-SiC, so GaN-on-SiC
represented only ~15% of the infrastructure PA market in 2018, as compared to LDMOS
at ~75% of the market.
However, the one area where LDMOS is weak relative to GaN-on-Sic, GaAs, and SiGe is
frequency. LDMOS is primarily useful below 4GHz (historically, the peak was thought to
be 2.6GHz, but NXPI has been able to stretch the use case of LDMOS to nearly 4GHz),
whereas the other three materials can handle frequencies up to100GHz. A material’s
ability to handle higher frequencies is related to the electron mobility of that given material,
and in terms of electron mobility, LDMOS lags behind other materials. GaN-on-SiC and
SiGe have similar characteristics at ~2,000cm/V.s while GaAs has the highest electron
mobility at ~5,000cm/V.s.
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Exhibit 3. Semiconductor Materials—Power vs. Frequency
Source: Oppenheimer & Co. Estimates
As such, we should see a slow shift in the primary materials used in different sub-sections
of the PA infrastructure market—especially as 5G M-MIMO and mmWave help create
more robust GaN-on-SiC and SiGe supply chains and thus lower their relative costs over
time.
Exhibit 4. RF PA Material by Application Over Time
Telecom
Infrastructure
Multi
Market
x
2015 2016 2017 2018 2019 Future
LDMOS GaAs GaN
Macro Cells
Military
RF Energy
Small Cells
Backhaul
Wired/CATV
SATCOM
Radars
Source: Yole, Oppenheimer & Co. Estimates
In overview, we see explosive growth in the infrastructure PA market over the next 4-5
years as 5G macro cells with M-MIMO drive a 3-4x content increase relative to a 4G
baseline and the need for smaller mmWave sites in densely, populated areas creates an
entirely new piece of the TAM. Netting it all out, we expect the infrastructure PA TAM to
increase by a factor of 2.1x from the 2018 trough ($1.48B) to the 2024 peak of $3.1B
implying a 13% CAGR. By technology, we expect the LDMOS market to show modest
growth (up >10% from 2020-2024 vs. 2015-2019) while GaN (3-6GHz M-MIMO, some
mmWave) and SiGe (mmWave) drive the majority of the growth in the TAM. Quickly on
the GaN-on-SiC vs. GaN-on-Si, we expect the vast majority (>85%) of GaN deployments
to be GaN-on-SiC-based.
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First, the argument for GaN-on-Si devices has been that they offer “good-enough”
performance and lower cost relative to GaN-on-SiC devices. However, in our view, it’s
unclear if GaN-on-Si devices actually have a lower total cost relative to GaN-on-SiC
devices. Specifically, the argument for GaN-on-Si is that it leverages the Si substrate
supply chain, which is higher volume and lower cost vs. the SiC substrate supply chain.
The nuance being that SiC substrates have much better power density relative to Si; and
thus, GaN-on-SiC die tend to be much smaller vs. GaN-on-Si.
Second, and more importantly, the GaN-on-Si device supply chain is very immature
relative to the GaN-on-SiC device supply chain. Specifically, Sumitomo (and to a lesser
extent, QRVO) has been shipping qualified products to Huawei, ZTE, and Samsung for
years. Similarly, NXPI and Ampleon are working with their foundry partners (we believe
Win Semi) and are currently sampling GaN-on-SiC parts. Conversely, the legal battle
between MTSI and IFX and ensuing leadership change at MTSI has significantly delayed
the ramp of GaN-on-Si devices. Specifically, MTSI is still working to perfect its process
flow with STM, its high volume manufacturing partner. Also worth noting, Wolfspeed (a
subsidiary of CREE) purchased IFX’s LDMOS PA assets, as well as its ability to sell GaN-
on-Si beyond 2021, but it has instead elected to focus solely on GaN-on-SiC—likely as a
materials supplier to NXPI/Ampleon initially, and an IDM over time as IFX brings back-end
packaging technology and OEM relationships to CREE.
Exhibit 5. RF PA TAM by Application; RF PA TAM by Technology
$M
$500M
$1000M
$1500M
$2000M
$2500M
$3000M
$3500M
2015 2016 2017 2018 2019e 2020e 2021e 2022e 2023e 2024e
MM 4G/5G 5G M-MIMO 5G mmWave
$M
$500M
$1000M
$1500M
$2000M
$2500M
$3000M
$3500M
2015 2016 2017 2018 2019e 2020e 2021e 2022e 2023e 2024e
LDMOS GaAs GAN SiGe
Source: Yole, Mobile Experts, Oppenheimer & Co. Estimates
5G: Massive MIMO & Beam Forming—Key New Technologies
Massive Multiple-Input, Multiple-Output (M-MIMO) is an extension of Multiple-Input,
Multiple-Output (MIMO), a general idea that has been around for decades and has been
used in several wireless communication technologies over the last 5-10 years including
802.11n, 802.11ac, and 4G LTE. To better understand M-MIMO, let’s first understand the
basics of the underlying radio and antenna technology and the progression from Single-In,
Single-Out (SISO) systems to Single-In, Multiple-Out (SIMO) systems, and finally to MIMO
and M-MIMO radio systems.
A single antenna can transmit or receive but not simultaneously; thus historically, wireless
radios were constructed as Single-In, Single-Out (SISO) systems where one antenna sat
at both ends of a link. However, as frequencies became more congested and signal
quality suffered, network architects began to take advantage of the idea of spatial degrees
of freedom. Spatial degrees of freedom can be achieved by adding multiple antennae at
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the transmitter or the receiver and can be exploited in the form of diversity (i.e.,
redundancy), multiplexing, or both.
Single-In, Multiple-Out (SIMO) transceiver systems were the next step in the evolution.
These systems had one antenna at the transmitter but two at the receiver; thus if the two
receive antennae were trying to receive the same signal, but there was some level of
interference along each path, the two antenna could combine the two signals and
reconstruct one coherent, higher quality signal. The result was much better receive-side
performance vs. SISO systems.
MIMO systems followed SIMO systems and initially also primarily only took advantage of
diversity. In a 2x2 MIMO system, there are two transmit antennae and two receive
antennae. A 2x2 MIMO system would have similar receive performance vs. a SIMO
system but better transmit performance.
However, over time MIMO technology not only scaled from 2x2 to 4x4 or 8x8, but the use
case evolved such that the incremental spatial degrees of freedom were used more for
multiplexing than diversity. Specifically, a 4x4 MIMO system could transmit four unique
streams of information from different antennae, each operating at the same center
frequency, to a corresponding receiver; and thus, transmitting 4x as much data over the
same channel as a SISO system under optimal conditions. Hence, MIMO now most
commonly refers to a practical technique for sending and receiving more than one data
signal out over the same frequency simultaneously by exploiting multipath propagation.
This technique results in a multiplication of the capacity of a radio link and allows it to
serve multiple autonomous terminals (i.e., smartphones) simultaneously over the same
channel.
M-MIMO is simply the continued scaling of MIMO and in technical terms refers to at least
a 16x16 MIMO. That said, thus far in the 5G sub-6GHz launch, we are primarily seeing
32x32/64x64 M-MIMO implementations and significant increases in capacity relative to 4G
LTE. For example, the addition of 3.5GHz 5G RRHs with M-MIMO at an existing 4G
macro site in a dense city resulted in a 6x increase in downlink capacity and a significant
reduction in latency. Further, M-MIMO is an extremely cost efficient method of adding
capacity vs. adding more macro cells as it lowers equipment costs and energy
consumption. Specifically, the array gain permits a reduction in radiated power, and the
combination of low-accuracy signals and linear processing results in excellent
performance and enables a further reduction in power. Secondly, M-MIMO requires L1
processing in the RRH, which in turn drives a 5-10x reduction in FH transmission
demands, all else equal. However, obviously all else is not equal as M-MIMO multiplies
the bandwidth of a particular RRH so FH transmissions still actually increase on an
absolute basis. In turn, most NEMs are using 25G optics for 5G vs. 10G for 4G.
So who wins with M-MIMO? The short answer is everyone, but more specifically, M-MIMO
drives the number of antenna elements and radios per RRH up significantly and, thus, a
proportionate increase in the number of RF and analog signal chain chips required.
Specifically, toward the end of the 4G LTE cycle, most RRHs had either four (4x4 MIMO)
or eight channels (8x8 MIMO), which means four or eight power amplifiers (PAs), low
noise amplifiers (LNAs) and switches, and either one or two transceivers as each
transceiver can handle four channels (4x4). However, as mentioned previously, most FR1
M-MIMO implementations are either 32x32 or 64x64 implying an 8x increase in both RF
and analog signal chain chips. That said, content growth will likely lag unit growth (4-5x vs.
8x) as the cost per channel comes down such that the implementations make economic
sense for the carriers.
Beam Forming (BF) technology is fundamentally different than M-MIMO; however, it is
often used in tandem with M-MIMO implementations. Rather than multiplying the number
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of data streams that a RU can handle, BF enhances the performance of each single data
stream. Historically, antennas would broadcast a signal in every direction simultaneously
(i.e., 360°). Thus, M-MIMO implementations, which enable the transmission of as many as
256 signals at once, create a significant amount of interference all else equal as the
individual transmissions all interfere with each other. This is where BF technology comes
in—BF essentially transforms a 360° radio transmission into a focused beam, which the
antenna then broadcasts to a specific location or device, thus alleviating the interference
issue. In addition to eliminating interference and, thus, improving the effectiveness of a
transmission, it also enables the delivery of stronger radio signals over greater distances.
This is an ideal solution to increase capacity in congested areas, especially when adding
another frequency band isn’t really an option.
Exhibit 6. FR1 M-MIMO with BF Block Diagram; FR2 M-MIMO with BF Block Diagram
Antenna Antenna
Antenna
Antenna
TransceiverRF
Beamformer
Switch
Switch
RF Beamformer
Transceiver
Source: Qorvo, Analog Devices, Oppenheimer & Co. Estimates
5G: Delivering an Improved Consumer Experience
Looking back, the first generation (1G) network was analog-only and provided support for
voice on mobile phones. The 2G upgrade transitioned the network from analog to digital
and supported text messages in addition to voice calls. The implementation of 3G network
technology provided more capacity and less latency, thus allowing for multi-media support
on mobile devices. Similar to 3G, the 4G upgrade increased capacity, bandwidth. and data
transfer speeds and enabled mobile, wireless internet.
To put it simply, 1G allowed people to use mobile phones, and each transition since then
(from 2G to 3G to 4G) was focused more on data bandwidth and enabled people to do
progressively more with their mobile devices. Not surprisingly, the increase in speed,
bandwidth, and capacity associated with the 5G NR transition will also enable consumers
to do more with their mobile devices. Specifically, the 5G NR standards have been set to
facilitate the adoption of eMBB, which promises to bring features like augmented and
virtual reality (AR & VR) in 4K and 8K resolution to mobile, wireless devices. As such,
Ericsson (ERIC) forecasts that 5G devices will represent 23% of the 8.8B global handset
connections by 2024 but 36% of mobile traffic as 5G subscribers are expected to drive
~2x the amount of traffic vs. 2G/3G/4G subscribers.
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Exhibit 7. Connected Devices by Technology; Mobile Data Traffic by Device Type
Source: Ericsson, Oppenheimer & Co. Estimates
Further, Cisco’s (CSCO) annual Virtual Networking Index (VNI) report supports the view
that consumers are hungry for eMBB, which promises to bring AR/VR in 4K/8K definition
to smartphones. Specifically, smartphones are expected to represent 25% of global device
connections and 23% of IP traffic in 2019, which suggests IP per smartphone is slightly
lower vs. the average connection. That said, CSCO predicts that 5G (and eMBB) will drive
a +41% CAGR in EB per smartphone connection from 2019-2024, a slight acceleration vs.
the +39% CAGR observed from 2014-2019. Accordingly, EB per smartphone connection
will increase by 5.5x over the next five years, well ahead of the less than 2x growth in EB
per average connection. As such, IP traffic per smartphone connection is expected to be
2.7x higher than the average connection in 2024 vs. slightly below average in 2019
implying smartphones will represent 55% of global IP in 2024 (vs. 23% in 2019) despite
declining to 21% of connections (vs. 25% in 2019).
Exhibit 8. IP Traffic CAGR by Device Type; IP Traffic by Device Type—Indexed to Total
Source: Cisco, Oppenheimer & Co. Estimates
5G: Not Only About the Consumer
While one could argue that the 2G/3G/4G network upgrades largely delivered handset-
oriented improvements for consumers, the 5G build-out also promises to deliver significant
upgrades and/or new use cases to municipalities, governments, and businesses.
Specifically, in addition to eMBB, 5G will support: (1) FWA, which brings high-speed
wireless internet access to homes, enterprises, and/or public gathering points (i.e.,
stadium); (2) URLLC, which will enable industrial application, remote manufacturing, traffic
& safety control, and autonomous driving; and (3) mMTC, which will facilitate connections
between a large number of low-power, low cost IoT type devices across a wide area and
enable features like smart metering, fleet management, and tracking of all sorts.
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Accordingly, CSCO’s VNI report forecasts a +10% CAGR for global device connections
from 2019-2024, an acceleration vs. the +9% CAGR from 2014-2019. The expected
acceleration is somewhat surprising given that smartphone growth has stalled; however,
global M2M connections (40% of total) already exceed smartphone connections (25% of
total) and are expected to deliver a +18% CAGR from 2019-2024. As such, the M2M
category is expected to drive more than 85% of connection growth over this time frame
and represent ~60% of total connections by 2024—nearly 3x the number of smartphones
connections (~20% of total).
While M2M devices are already the largest single category (40% of total) in terms of
device connections, it’s actually the second smallest category (only larger than feature
phones) in terms of IP traffic. Specifically, the M2M category only represents 4% of global
IP traffic as M2M connections drive 10x less IP traffic vs. an average connection.
However, in addition to driving growth in the number of M2M connections, the advent of
URLLC and mMTC is expected to drive significant growth in the amount of IP traffic per
M2M connection.
Exhibit 9. Connected Devices by Device Type; IP Traffic by Device Type
Source: Cisco, Oppenheimer & Co. Estimates
Specifically, CSCO’s VNI forecasts a +30% CAGR and implies nearly a 4x increase in EB
per M2M connection from 2019-2024. Despite the expectation for the number of EB per
M2M connection to grow at a rate pace over 2x the aggregate, an average M2M
connections will still drive 5x less IP traffic vs. other connections in 2024 (10x less in
2019). As such, the M2M category is still only expected to represent 12% of global IP in
2024 (4% in 2019) despite representing ~60% of connections. That said, it’s worth noting
that we expect the M2M category to continue to increase as a percent of total connections
beyond 2024. Further, we expect M2M as a percent of global IP traffic to increase at an
even faster rate, especially as the adoption of autonomous vehicles drives significant
growth in EB per M2M connection.
Carrier Capex Cycle—5G and Revival of China to
Drive a Reaccelerating Wireless Capex
Global mobile RAN spending ranged from $30B-$35B from 2004-2016 but fell below $30B
beginning in 2017 and has remained there as carriers have slowed spending in an attempt
to increase profits and ahead of a potentially expensive 5G cycle. While we expect the
modest negative long-term trend in the mobile RAN market to persist—at least until
potential new 5G revenue streams for carriers prove out—we do see potential for the
global 5G buildout and reacceleration in wireless spending in China to drive a cyclical
recovery such that the RAN market reverts back above recent trend and toward the $33-
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$34B range for some time between 2020-2025 implying +15-20% recovery vs. the 2018
trough.
Looking at the global RAN market from a technology perspective, we would note that 2G
marked the peak for the level of spend on a single technology as carriers spent >$25B a
year on 2G from 2004-2007 as there was no 1G network to fall back on (i.e., 3G could
leverage 2G, 4G could leverage 2G/3G) and carriers raced to win subscriber share.
Conversely, dedicated 3G spend never exceeded $21B and dedicated 4G spend never
topped $23B on an annual basis despite them being more expensive technologies vs. 2G
and ramping into much larger subscriber bases.
Peak 3G spend was undoubtedly hindered by: (1) the financial crisis in 2008-2009; and (2)
the fact that 4G initially launched only 7-8 years after the first 3G deployments—
comparatively 4G spend peaked 12 years after initial trials. Aggregate 4G spend has been
much higher vs. 3G ($108B in total over the peak 5-year period vs. $85B for 3G), but
instead of ramping to a peak and falling, 4G spend has essentially plateaued at the $20-
$23B level as the early movers—US, Japan, and South Korea—led the initial ramp and
China lagged behind, thus holding spend at relatively high levels until the slower moving
nations began to shift spend to 4G and offset declines in China, albeit total RAN spend
declined as 2G/3G spend fell in lagging nations.
Exhibit 10. Global Mobile RAN TAM; Global Mobile RAN TAM by Technology
Source: Dell Oro, IHS, Gartner, Oppenheimer & Co. Estimates
Given: (1) the significant growth in the number of frequency bands allocated to carriers
across the globe for 5G NR; (2) the fact that 5G NR will rely on higher frequency/lower
propagation spectrum (and thus shorter reach); (3) the expectation that 5G NR will roll out
in stages with 5G NSA initially and 5G SA to follow (i.e., no 6G to cut cycle short); and (4)
China looks to be one of the early movers in 5G NR, we see the potential for a re-
acceleration in spending as the 5G cycle gains steam and expect annual 5G capex to
likely surpass peak 3G/4G levels and potentially rival the $25B level we saw during 2G
deployments.
While we have discussed many of the potential technical/more sophisticated reasons why
the global RAN market could rebound substantially from current trough levels, let’s look at
something a bit simpler, the power of China—albeit the Huawei ban does create some
question marks with regard to the timing and pace of the China 5G ramp. Specifically,
China Mobile (~60% of mobile subs) received its TD-LTE license and launched
commercial 4G service in February 2014, with China Telecom (~20% of mobile subs) and
China Unicom (~20% of mobile subs) launching commercial service in December 2014
after being granted FD-LTE licenses. As such, total service provider capex in China grew
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by ~$19.5B (up 41%) from the post 3G-lull in 2012 to the peak of the 4G cycle in 2015
with wireless-only capex up $12.9B (up 69%) over the same time period. During the same
time annual 4G BTS additions increased from basically 0 in 2012 (20k) to >1M in both
2015 and 2016 vs. a normalized global BTS market that ranges from 1.4-1.8M. According
to data from the three Chinese carriers, China represents ~45% of cumulative 4G BTS
deployments and 60-75% of annual deployments during peak years. While the three
carriers spent a lot of money on BTS deployments, they were certainly rewarded in terms
of winning higher value 4G subscribers—12 months after all three carriers had launched,
there were 415M 4G subscribers in China (32% of total subs); and 24 months after
launch, there were 762M 4G subscribers in China (57% of total subs). Today, China has
>1.2B 4G subscribers, which is 30-35% of the total global 4G subscriber base of
approximately 8B.
Exhibit 11. China 4G/5G Base Station Deployments; China Subscribers by Technology
Source: China Mobile, China Telecom, China Unicom
Post the 2015 peak in China service provider spend, total China service provider spend
fell $27.4B (down 41%) to $40.1B and China service provider spend on wireless fell
$14.4B (down 46%) to a trough of $17B. Annual 4G BTS deployments from 2017-2019E
have been about 25% below the peak levels observed in 2015 and 2016. That said, in
total, the three Chinese careers expect to deploy >130k 5G BTS in 2019—China Mobile
>50k, China Telecom >40k, and China Unicom >40k—which is providing green shoots in
terms of service provider spending. Specifically, total service provider spend is expected
to rebound by $2.4B (up 6% Y/Y) to $42.4B and total wireless spend is expected to
recover by $3.2B (up 19% Y/Y) to $20.2B. Note that still implies total service provider
spend of $25.1B or 37% below prior peak and total wireless spend of $11.2B or 36%
below prior peak.
Exhibit 12. China Wireless Capex; China Service Provider Capex
Source: China Mobile, China Telecom, China Unicom
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Note that up until this point of the section, the expected rebound we have discussed in
carrier capex was purely product cycle and/or cyclically driven; however, if we see new
5G-related applications including Enhanced Mobile Broadband (eMBB), Fixed Wireless
Access (FWA), Ultra Reliable Low Latency Communication (URLLC), or Massive Machine
Type Communication (mMTC) drive significant, sustainable new revenue streams for
carriers, we could see a structural increase in service provider spending and, thus, the
end of the long-term downward carrier capex trend-line.
While it remains to be seen that carriers will be able to drive material business value
above and beyond the temporary premium pricing associated with 5G-enabled eMBB. The
long-term 5G dream is for it to enable service providers to provision specific virtual
networks and/or services and sign service-level-agreements (SLAs) with corporations
across verticals. Further, given the timelines associated with robust, dense, and broad 5G
SA network coverage, we aren’t likely to know if NEMs and carriers will be successful in
realizing this vision until 2025 or later, which is beyond the scope of this report and our
capex forecast.
Basics of a Macro Cell—Base Station, Remote Radio Head, and Antenna in Detail
Wireless infrastructure networks have evolved significantly as technology has both
evolved and improved through the 2G, 3G, and 4G networking upgrade cycles. Further,
5G promises to bring further changes to the network as telecom operators across the
globe work to virtualize their networks in order to make them more agile, boost utilization,
and ultimately lower total cost of ownership (TCO).
As mentioned previously, the shift to SDN and NFV began in the middle of the 4G cycle
and is poised to accelerate with the 5G NSA roll-out and with 5G SA bringing end-to-end
virtualized networks. The transition from solely running specific network tasks on fixed
function appliances to running network functions on industry standard servers in telecom
data centers, as well as corresponding, significant improvements in switching/routing
silicon and optical transport networks, will allow carriers to further evolve and abstract their
wireless RANs; however, for ease of representation, we’ll focus on the more standard
Distributed Radio Access Network (DRAN) architecture vs. any level of Centralized
(CRAN) or Virtualized (VRAN) Radio Access Network in this report.
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Exhibit 13. Network Block Diagram
Source: Oppenheimer & Co. Estimates
Looking more closely at a macro cell, the increased complexity (more spectrum, higher
frequencies, wider bandwidths, and new technologies) associated with 5G is driving
significant increases in content relative to 4G across all three major sections of the cell—
the baseband unit (BBU) or base station (BTS), the radio unit (RU) or remote radio head
(RRH), and the antenna or antenna array.
The BBU sits at the bottom of a macro cell tower and connects up to the RU via a 10/25G
optical front-haul (FH) link. The BBU also connects back to either an aggregation unit or
the network core via a 100/400G optical back-haul (BH) link. The BBU typically has a
modular set-up (similar to a server chassis) and holds at least one main card (MC) and
one line card (LC) —more LCs are typically added to the BBU as more spectrum is
allocated or as next generation technologies roll-out (i.e., LTE vs. LTE-A).
Exhibit 14. Base Station Block Diagram
Source: IDTI, Oppenheimer & Co. Estimates
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The MC is populated with at least one central processing unit (CPU) or field-
programmable gate-array (FPGA) and handles management, processing, and transport.
The LC is also normally populated with at least one CPU or FPGA (or both), as well as
three to six baseband processors (BB). The LC handles much of the layer 1 (L1), layer 2
(L2), and layer (L3) processing and also handles all of the radio functions (signal
generation, modulation, encoding, and frequency shifting) handled in the BBU. Note, L1 is
the physical layer and refers to the actual hardware components that transmit digital data
across the network, L2 is the data link layer and is used to transmit data between adjacent
nodes in a network, and L3 is the network layer and handles path determination and
logical addressing (IP).
Exhibit 15. 4G to 5G Main and Line Card Diagram
4G 5G Main Card
Line Card
CPU/FPGA
CPU/FPGA
CPU/FPGA
PHY PHY
CPU/FPGA
BB
BB
CPU/FPGA
BB
PHY
BB Switch
BB
CPU/FPGA
BB
PHY
BB Switch
BB
Switch
BB
PHY
Switch
Source: Marvell, Oppenheimer & Co. Estimates
The RU is made up of two primary parts, the digital-front-end (DFE) and the analog-front-
end (AFE) and serves as a go between for the BBU and the antenna or antenna array. In
a transmit situation, the BBU sends a stream of data up to the RU via a FH link. In the RU,
the stream of data first enters the DFE where it is converted into a digital signal. The
digital signal is then passed along to the AFE where it is first transitioned into an analog
signal, and then translated into a RF wave. The RF wave is then blasted up through the
antenna via a fiber to the antenna architecture (FTTA) and out over a frequency (i.e., a
channel) via a power amplifier (PA). In a receive situation, the exact opposite happens.
The antenna receives a generally weak RF signal and passes it to the AFE where it is
initially processed through a low-noise amplifier (LNA). The LNA amplifies and
strengthens the initially weak radio signal while adding relatively little interference (i.e.,
noise) and moves the signal through the rest of the AFE and into the DFE where the
analog to digital conversion occurs. The digital stream is then passed down via the FH link
to the BBU where it is processed.
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Exhibit 16. Remote Radio Head Block Diagram
Source: IDTI, Oppenheimer & Co. Estimates
The two new technologies associated with the 5G roll-out that are driving significant
content gains in the RU are massive MIMO (M-MIMO) and Beam Forming (BF). In the
following section, we address M-MIMO and BF, as well as how the two technologies
impact semiconductor content in significantly more detail. However, in simple terms, M-
MIMO multiplies the number of antenna, transmit, and receive elements on a given tower
so that the site can transmit and/or receive multiple signals simultaneously via the same
frequency. Given that antennas typically broadcast signals in every direction at once (i.e.,
360°), M-MIMO implementations, which enable the transmission of as many as 256
signals simultaneously, create a significant amount of interference. This is where BF
comes in—BF essentially transforms 360° radio transmissions into focused streams of
data and sends them to a specific location, thus alleviating the interference issue. M-
MIMO and BF are largely analog and RF technologies, but they actually drive significant
content increase across both the AFE and the DFE of the RU.
From an analog and RF perspective, the move to M-MIMO drives the number of radios
per RU up by an average of 8x; thus, the number of transceivers and RF elements
(switch, LNA, PA) increase proportionately. From a digital perspective, the significant
increase in the number of radios, and thus data, increases the amount of processing
power required per RU. As an example, M-MIMO implementations require some level of
L1 processing in the RU as a means of reducing FH transmission demands—note by
putting L1 processing in the RU FH, transmission decreases by 5-10x all else equal;
however, all else is not equal, so the amount of data traveling over a FH link still actually
grows quite significantly, which is why most OEMs are shifting from 10GB with 4G to
25GB with 5G.
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Exhibit 17. 4G to 5G RRH Diagram
4G 5GRemote Radio Head
DFEASIC/FPGA ASIC/FPGA
AFE AFE
DFEASIC/FPGA
BF ProcessorASIC/FPGA
CPU/FPGA
Source: XLNX, Oppenheimer & Co. Estimates
Macro Cell TAM: BB & RRH Unit and ASP Analysis
Unlike the handset or compute markets, the modular structure of base stations make the
macro cell market a bit more difficult to analyze from a unit and ASP perspective,
especially by technology (i.e., 2G, 3G, 4G, and 5G) as older generation sites can often be
upgraded to newer technologies with software and the addition of line cards. Additionally,
the mid-cycle evolution of radio technologies (i.e., 2G vs. 2.5G, 3G vs. 3.5G and LTE vs.
LTE-Advanced) tends to blur the lines between technologies and further complication unit
analysis by technology. That said, we feel analyzing the macro cell—and thus BTS and
RRH TAM from a unit and ASP perspective—is still quite informative, particularly as it
relates to predicting trends in semiconductor content over time.
First, we’ll look at the landscape from a unit perspective. In aggregate, the macro cell
market has ranged from 1.4-1.9M units annually with individual technologies ramping to
cyclical peaks in the 1.2-1.6M unit range. Looking specifically at the 4G cycle, ~9.2M
macro cells were deployed over the first ten years of the cycle with annual deployments
peaking seven years into the cycle at ~1.4M units. Looking ahead into the 5G cycle, some
industry participants forecast as much as 50% more cumulative 5G deployments relative
to 4G over the first ten years of the cycle and peak annual shipments closer to 2m vs.
~1.5m at the peak of the 4G cycle. The expectation for such strong macro cell growth is
underpinned by the fact that 5G will rely on higher frequency/lower propagation spectrum
(and thus shorter reach), and thus require a higher number of cell sites to cover the same
land area.
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Exhibit 18. XLNX Analyst Day: Cumulative 4G/5G BTS Deployments; Annual 4G/5G BTS Deployments
Source: Xilinx, Mobile Experts, Oppenheimer & Co. Estimates
While we understand the underlying theory behind these bullish forecasts, we see them as
somewhat optimistic and expect more modest cumulative and peak-to-peak growth with
the two major offsets relative to these more bullish forecasts being: (1) the introduction of
new radio and antenna technologies (i.e., M-MIMO and BF) will improve spectral
efficiency and partially offset the higher frequency/lower propagation spectrum in terms of
Sub-6GHz deployments; and (2) we expect the vast majority of mmWave deployments to
be in the small cell form as FR2 frequencies are so high that macro cells will not be
economical. That said, we forecast 5-15% growth in cumulative and 15-25% growth in
peak-to-peak 5G macro cell deployments relative to 4G. Going a layer deeper, we expect
5G macro BBU growth to approximate our macro cell growth forecast; however, we expect
higher growth in the RRH market as the proliferation of M-MIMO drives the number of
RRH units per macro BTS closer to five on average during the 5G cycle vs. closer to three
on average at the beginning of the 4G cycle.
Exhibit 19. Total Annual Macro Cell Deployments; Macro Cell Deployments by Technology
Source: Mobile Experts, ABI Research, Oppenheimer & Co. Estimates
Next we dig a bit deeper into content trends. In the BBU, we expect 5G adoption trends to
be the primary driver of content gains and expect a 2.5-3.0x increase in 5G BBU content
relative to 4G. More specifically, we expect the adoption of more frequency bands and
wider channel bandwidths to drive both the number of BB chips per line card and the
number of line cards per BBU up by a factor of 2x on average implying a 4x increase in
BB content per BBU. Similarly, we expect the sharp uptick in data plane processing power
and the number of data plane components to drive a roughly 3x increase in control plane
content, and thus we forecast a sharp uptick in CPU content per BBU in 5G relative to 4G.
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M-MIMO adoption will have some impact on BBU content, but we expect the content
increase associated with the move from 4G to 5G to be much more significant vs. the
move from 5G to 5G with M-MIMO.
Conversely, we view M-MIMO adoption as the biggest driver of content gains in RRHs
given the multiplier effect that an increase in the number of antenna components has on
the RF and Analog signal chain. Note, we expect M-MIMO adoption to be 30-50% through
the 5G cycle but expect higher attach rates, potentially as high as 60-80%, early in the
cycle as initial deployments will be focused on dense, urban areas where M-MIMO is more
of necessity vs. less dense, rural areas, which carriers would target later in the cycle as
they look to expand their coverage footprint. That said, we still expect 5G macro cells
without M-MIMO to have ~1.5x higher RRH content relative to 4G as the number of
radios/channel per RRH still increases, just not to the threshold (16x16) where it’s
considered to be M-MIMO. 5G macro cells with M-MIMO should have ~3x more content
per RRH vs. 4G with 3.5x increase in analog/RF content and a 1.5x increase in DFE
content.
Exhibit 20. BBU Content by Technology; RRH Content by Technology
Source: Oppenheimer & Co. Estimates
mmWave: Small Cells Ramp—Again? The concept of small cells was introduced to the carrier networking landscape well over a
decade ago and was initially expected to be somewhat transformational. The idea was
simple, scaled-down macro cells and use these “smaller cells” —there is a range of
different types of small cells (metro, micro, pico, and femto cells), each with different
characteristics in terms of maximum reach and maximum number of devices supported—
to improve density in urban areas where capacity and traffic demands are high but there’s
insufficient space to add a macro cell.
That said, while some small cell deployments have occurred over the last decade—most
popular on campuses, in stadiums, and in office buildings—deployments have been
extremely disappointing in aggregate. In fact, on a unit basis, the macro cell market was
still approximately 3x the size of the small cell market in 2017-2018 vs. initial expectations
for the small cell unit TAM to be measured in the tens of millions vs. the 1.4-1.9M unit
macro cell market.
From our perspective, there have been two primary reasons for the underwhelming
number of small cell deployments to date: (1) most municipalities have regulations
against, and simply don’t want, a large number of smaller cell towers scattered across
roofs or hung from light poles in densely populated areas; and (2) small cells simply
haven’t been economical as the cost to install and maintain small cells doesn’t scale down
proportionately with the lower equipment cost.
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While issue number one certainly doesn’t go away with the introduction of 5G and remains
a potential gating factor to mmWave adoption, the introduction of mmWave does change
issue number two. In fact, most expect the vast majority of mmWave deployments to be in
the small cell form-factor as macro cells become uneconomical with mmWave frequencies
that only travel a few hundred meters at best vs. Sub-6GHz frequencies that can travel
over thousands of meters.
That said, we do expect small cells to represent an additional tailwind to the mobile RAN
TAM, especially as the adoption of mmWave technology accelerates. Specifically, many
third-party research platforms predict that small cells will increase to 45-55% or total cell
deployments vs. 20-25% at current levels, which suggests an increase in annual small cell
deployments from ~0.5M to ~2.0M (and potentially more) over time. Note, the small cell
revenue TAM will still be much smaller vs. the macro cell TAM as semiconductor content
is typically 5-25x lower in small cells (with analog/RF a higher % of BOM relative to digital
in macro cells) depending on the exact size and type of cell.
The key issue here from our perspective is time—throughout our research and
discussions with industry participants, we found little-to-no enthusiasm for mmWave
technology. Most tend to think it will take 5-7 years before mmWave really hits its stride
as mission-critical use cases, which will require virtualized networks and microwave
technologies, need to be developed. That said, there will be some adoption in 2020,
especially in the US as AT&T and VZ have only been allocated mmWave 5G spectrum.
The reasons for the lack of enthusiasm ranged from: (1) “everything is an issue at
mmWave frequencies” —line-of-sight is required as mmWaves are too wide to travel
through solid objects like trees, walls, and cars, even glass or inclement weather
conditions like snow, rain, or thick clouds will interfere with signals; (2) “it’s a technology in
search of an application” —there’s no real consumer use case and it’s tough to imagine
consumers wanting to pay up for a faster but more spotty/un-even version of Wi-Fi; and
(3) “it’s going to be very hard to put in phone; how do you filter it?” —high-end consumers
could potentially buy dongles, but that’s not a big market, not many people need that
much capacity.
Exhibit 21. 5G Macro Cell vs. Small Cell Deployments
Source: Mobile Experts, ABI Research, Oppenheimer & Co. Estimates
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Telecom Equipment OEMs
Ericsson (ERIC): Ericsson has been a tier-1 network equipment vendor for decades—
holding over 25% of the Global RAN market each year from 2003-2019E. Given the fact
that almost all initial 5G NR roll-outs are NSA implying the 5G RAN relies on the existing
4G core network, we expect ERIC’s strong position in 4G to serve it well as we progress
further into the 5G NR cycle, as using the same suppliers for 4G and 5G makes it easier
for carriers from an interoperability perspective and creates a level of stickiness for
OEMs. Further, all ERIC radio systems and baseband units manufactured since 2015
support 5G NR and are upgradeable via remote software installation. This strategy
creates another level of stickiness with carriers that used ERIC equipment for 3G/4G
networks and likely gives ERIC a leg-up vs. other OEMs with carriers looking to
modernize their 4G networks and prepare for 5G simultaneously. As such, ERIC has not
reported seeing operators make dramatic shifts from an OEM perspective like it did
during the transition to 4G. ERIC has reportedly signed ~50 commercial agreements for
5G NR. Now looking closer at the first wave of countries moving to 5G NR, ERIC has a
strong position in the US with all major carriers and total RAN share of >40% historically.
ERIC is the close No. 3 player behind Nokia in South Korea, albeit Samsung has a
dominant ~60% market share position 5G cycle to date. In Japan, ERIC only had a
position with SoftBank as NEC and Fujitsu controlled about 30-35% of the market;
however, ERIC expects its position with SoftBank to improve during the 5G cycle and will
have indirect exposure to NTT Docomo, as ERIC is supplying Fujitsu with its BB
processing units. Given China’s preference for domestic suppliers—Huawei, ZTE, and
Datang—ERIC has only had about 10% share in China historically. However, given that
~60% of the world’s 4G BTSs are located in China, ERIC realizes the importance of the
region and has got significantly more aggressive with regard to pricing. China Unicom
recently reported results of a 4G tender, which Huawei won, but ERIC bid 20-25% below
Huawei/ZTE and 40% below NOK. ERIC is hoping aggressive pricing and 5G NR field
trials, which suggest market share gains, will result in an improved overall position in
China. Note the US Huawei ban can only serve to help ERIC in its efforts to build its
footprint in China.
Nokia (NOK): NOK and Alcatel-Lucent (ALU) were both tier-1 network equipment OEMs
with combined global RAN market share peaking at 43% in 2003 and hovering around
40% from 2004-2007. However, the rise of Huawei and the NOK acquisition of ALU in
2016 caused the combined company’s market share to steadily decline and more
recently stabilized in the 22-24% range over the last 3-4 years. Similar to ERIC, NOK
has reported relatively little market share shift amongst carriers moving from 4G to 5G. In
fact, NOK has stated that it has won 5G NR share with every carrier that it worked with
during the 4G cycle (NOK has ~300 4G accounts in total) as 5G NR NSA roll-outs
require the 5G RAN to fall back on the 4G core network, implying that if a carrier were to
introduce a new 5G OEM (prior to the 5G NR SA build-out), the OEM would have to build
a light 4G network in addition to the 5G network. NOK has reportedly signed 45 5G NR
commercial deals and is relatively well represented in the countries that are leading the
transition to 5G NR. Specifically, NOK has a strong position in the US with all major
carriers and total RAN share of >40% historically. In South Korea, NOK has been the No.
1 player historically and held a No. 1 market share position with all three major carriers
(SK Telecom—50% MS is SK; Korea Telecom—30% MS; and LG Uplus—20% MS) for
most of the 4G cycle; that said, NOK appears to be the No. 2 player behind Samsung for
5G NR as Samsung has had a dominant ~60% market share position 5GNR cycle to
date. NOK has been relatively stronger vs. ERIC in Japan historically, albeit only 65-70%
of the market is in play given domestic vendors NEC and Fujitsu control about 30-35% of
the market. Specifically, NOK has always done well with KDDI and NTT Docomo and
recently added SoftBank as a customer for 5G NR. China is by far NOK’s weakest region
with about 10% share and the company fears its position could weaken further through
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the 5G cycle as China continues to give preference to domestic suppliers—Huawei, ZTE,
and Datang.
Samsung (SCE): Historically, SCE’s RAN business has been subscale and somewhat
overlooked given the conglomerate’s scale in mobile handsets and relative dominance in
both memory and display. That said, Samsung has increased its R&D and focus on the
networks business and appears to be gaining traction. In terms of 4G LTE build-outs,
SCE was a major supplier into South Korea’s large scale deployments throughout the 4G
cycle and began expanding its global footprint later in the 4G cycle with incremental wins
in the US (Sprint, T-Mobile), Japan (KDDI, SoftBank), and India (Reliance Jio). Looking
into the 5G NR cycle, it’s important to note that: (1) SCE was extremely fast to market
with millimeter-wave (mmWave) solutions and the company’s sub-6GHz portfolio is
relatively robust supporting both TDD and FDD technologies, as well as massive MIMO
(M-MIMO); and (2) SCE holds 4G LTE share in three of the four countries that appear to
be driving the 5G capex cycle.
Samsung has 5G tailor-made end-to-end solutions. Late in 4G infrastructure, Samsung
is starting off 5G in South Korea, Japan, and the US where deployments are expected
faster than Europe. South Korea launched the first commercial 5G network, which was
used for FWA at the 2018 Winter Olympics. Nationwide 5G mobile services were
launched in April of 2019, and carrier reports suggests that the country already has >2M
5G subscribers with forecasts suggesting 4-5M by year-end. The network is supported
by 86,000 5G BTS, of which SCE has deployed >60% or 53,000 of those 5G BTS.
Interestingly, the initial SCE 5G BTS roll-out was almost entirely FPGA supported with
essentially no ASIC/ASSPs. However, going forward, Samsung is basically abandoning
FPGAs (more specifically, XLNX) and shifting to MRVL. By our estimates, MRVL content
could top $3300/BTS. Of note, the current 2M South Korean 5G subscribers compare to
a population of 52M and the 86,000 5G BTS compares to 900,000 4G BTS; thus, there’s
a lot of runway for SCE and MRVL in South Korea. SCE has also had commercial 5G
NR success in the US, deploying millimeter wave solutions for AT&T/VZ and is likely also
to participate with S/TMUS given its 4G incumbency. Japan hasn’t transitioned from field
trials to 5G NR scale deployments, but we expect activity to pick up soon ahead of the
Summer Olympics in 2020. Again, we expect Samsung to participate in Japan’s 5G NR
deployments given success with both KDDI and Softbank as the 4G LTE cycle
progressed. Samsung did not participate in China’s LTE deployment in any meaningful
way but has been involved with 5G NR field trials.
Huawei: Huawei has been a dominant force in the global RAN market, steadily
increasing its share from less than 5% in 2006 to become the global market leader for
the first time with 28% share in 2017. Note, Huawei bettered its position and held 31% of
the market in 2018. Perhaps most impressively, Huawei has done this with little to no
exposure to the US due to well-publicized political tension over national security and
privacy between the US and China. Historically, Huawei has been able to overcome its
lack of exposure to the US by leveraging its strong 2G/3G/4G portfolios and aggressive
pricing in emerging geographies such as Eastern Europe, Latin America, Africa, and the
Middle East where Huawei often holds 50% market share or more. Unlike the Western
OEMs, Huawei aligned its 5G NR portfolio with China’s desire to largely forego 5G NSA
in favor of 5G SA and focused on an end-to-end 5G SA solution including core,
transport, RAN, and smartphone. While China has since switched directions and will roll
out 5G NSA initially and the US ban creates further uncertainty, we still expect Huawei to
find a way—bridge inventory, eventually a deal—to participate meaningfully in China’s
5G build-out as China is still Huawei’s most important market (50-55% of revenue in
2018) and Huawei is still China’s preferred OEM (35-45% share with Chinese Telcos).
Looking at the other countries leading the 5G NR charge, both the US and Japan have
elected not to use Huawei equipment. In South Korea, Huawei was only awarded a
minority share position with the country’s smallest operator, LG UPlus—~20% subscriber
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MS in South Korea. That said, Huawei claims it has 50 commercial contracts and have
shipped 200,000 5G-enabled base stations globally, albeit most likely in China.
ZTE: Telecom equipment is ZTE’s highest priority and most profitable business and
spans customer premise equipment, mobile RAN, transport, and core. In terms of the
global RAN market, ZTE has steadily gained share and has held >10% share from 2014-
2019E. ZTE has diversified its mobile RAN business from a geographic perspective,
such that China is now 45-55% of total depending on the year. That said, ZTE is still
strongest in China where it tends to hold 25-35% of the RAN market vs. 10% globally,
and thus, it created its 5G NR strategy relative to China’s network deployment strategy.
Specifically, China initially planned to largely forego 5G NSA in favor of 5G SA so ZTE
planned to sell carriers on its entire 5G NR solution—RAN, transport, and core. China
has since switched directions and will roll out 5G NSA initially, but we still expect ZTE to
hold a strong position. Both the US and Japan have decided against using Chinese
OEMs for their 5G NR deployments and ZTE was unable to secure any wins with South
Korean operators. That said, ZTE has over 25 5G NR contacts with operators worldwide
and has reportedly shipped over 50,000 BTS across the globe, albeit we suspect the
majority landed in China.
Exhibit 22. Mobile RAN Market by OEM
Source: Dell Oro, IHS, Gartner
Infrastructure
Analog Devices (ADI): Historically, communications infrastructure has represented ~20%
of ADI’s revenue mix with wireless infrastructure representing 65-70% of total segment
revenues implying 13-14% exposure ($800-$850M in CY18—our analysis suggest
HITT/LLTC represent $300-$350M) to the wireless RAN market. The bulk of ADI’s
revenue comes from its analog signal chain power, but contribution from its radio
frequency (RF) via HITT and power management via LLTC portfolios should increase
over time.
ADI is well represented with leading transceiver share across all major global OEMs and
sees potential for its share of analog signal chain content in RRHs to increase from 25-
35% during the 4G cycle to 55-65% during the 5G cycle as OEMs transition to a more
highly integrated transceiver-based architecture with 5G vs. discrete analog ICs
components during the 4G cycle. In terms of content, ADI expects a 4x content increase in
5G Sub-6GHz M-MIMO macro cells and a 5x content increase in 5G mmWave macro
cells relative to a 4G baseline.
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More specifically, ADI transceivers are 4x4 so during the 4G cycle, a typical base station
would have one (4x4) or two (8x8) transceivers per RRH; however, with 5G M-MIMO most
implementations require either eight (32x32) or 16 (64x64) transceivers implying 8x the
number of chips, albeit only 4x the dollar content as the price of deployment needs to
make sense for OEMs to ramp in volume. Looking more closely at mmWave, ADI expects
roughly a 5x content increase vs. 4G macro cells with the primary content gain coming
from HITT’s beamforming device and up-down converters. Note that while many mmWave
implementations are 256x256, only four transceivers are required (16x16) as the
beamforming happens in front of the transceiver with mmWave implementations vs.
behind it with M-MIMO.
Exhibit 23. ADI Wireless Infrastructure TAM; Global RRH Transceivers Shipments
Source: ADI, Mobile Experts, Oppenheimer & Co. Estimates
In overview, ADI has said that it sees potential for its RAN business to double to $1.6-
$1.7B (>25% growth vs. 2018 baseline) in a flat BTS environment as 5G ramps overs the
next five years. However, in a more bullish scenario, we see potential revenues to
increase by 2.5x to $2.0-$2.1B (32-34% growth), especially as the global RAN market
rebounds cyclically and mmWave ramps into volume.
Marvell Technologies (MRVL): While MRVL has always been strong in networking, it
historically has been relatively weak in the carrier market and was basically absent from
the wireless RAN market. However, the addition of CAVM (and soon Avera) has
strengthened and broadened MRVL’s networking portfolio and provides the company with
significant leverage to the RAN market especially as the 5G NR cycle ramps. Pro-forma
CY18 Networking revenue was $1.5B (~50% of sales), but only $350M (23% of
networking) of it was levered to carrier spend, and the majority was wired vs. wireless.
Specifically, legacy MRVL sold switches, PHYs, and 2-4 core back-haul processors while
legacy CAVM contributed 3G/4G transport CPUs (secured link between BTS and core)
and 4G baseband processors.
CAVM experienced significant content gains moving from 3G to 4G. During the 3G cycle,
CAVM supplied Octeon CPUs for transport security to its lead customer Nokia (per CAVM
10Ks) and had roughly $200 of content per BTS; however, CAVM’s SAM increased 3-4x
to $600-$800 during the 4G cycle as Samsung adopted both CAVM’s Octeon CPUs for
control/data plane function management and Fusion M baseband processors. Looking
ahead into the 5G NR cycle, the increased complexity associated with 5G NR is driving a
near 4x increase to $2,700 in CPU/BB content at Samsung with an incremental $100 from
MRVL switches/PHYs implying $2,800 of total content per BTS. Further, we see potential
content up 5x vs. 4G at Samsung reaching >$3,300 as Samsung is ramping: (1) another
Fusion M processor per RRH (three RRH per macro cell on average during 4G moving to
4-6 with 5G NR) for Massive MIMO implementations—expect 30-40% attach vs. MRVL’s
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20% estimate—starting this quarter; and (2) a semi-custom chip for front-haul processing
(packet-based link between BTS and RRH) in place of an FPGA in 2HCY21.
Exhibit 24. MRVL: 4G to 5G Transition Drives Higher Content
Source: Marvell, Oppenheimer & Co.
Looking at other OEMs, we expect NOK to ramp its lead 5G platform in the US at
AT&T/VZ using MRVL Fusion M baseband processors ($800-$900 of content) with
potential to replace NOK’s BB ASIC—part of the Reef Shark family of products built by
INTC—for the second- and third-generation platforms given INTC’s manufacturing
struggles with 10nm, especially relatively to an ARM-based process flow. We also note
that it becomes significantly easier for MRVL to win the CPU socket when it is the
baseband incumbent.
Lastly, MRVL’s acquisition of Avera helps get its foot in the door with Ericsson (ERIC) as
Avera has been a digital front-end (DFE) supplier for 15 years. We estimate $165M-
$180M (55-60%) of Avera’s $300M in revenue comes from its digital front-end (DFE) ASIC
business with ERIC and see potential for this business to grow toward $270-$300M during
the course of the 5G cycle given increased complexity and higher number of RRH per cell
site, especially with M-MIMO implementations. We believe Avera has won 7nm 5G DFE at
Ericsson providing a clear sight for revenue stability.
In summary, after taking a deeper dive into the 5G NR market and MRVL’s position within
it, we are raising our base and bull case assumptions relative to potential long-term
incremental revenue/EPS (incl. Avera) from the 5G NR cycle. We now see potential for 5G
to drive incremental ~$1.0B/$0.55E (vs. prior $850M/$0.45E) in our base case scenario
and ~$2.0B/$1.30E (vs. prior ~$1.6B/$1.05) in our bull case scenario. Note that MRVL
recently guided long-term 5G revenue to $600M and said that $1.0B is a somewhat
conservative bull case scenario.
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Exhibit 25. MRVL: 5G-Driven Revenue & Earnings
Source: Marvell, Oppenheimer & Co.
Qorvo (QRVO): While QRVO is typically thought of as a mobile/smartphone (70-75% of
sales) levered stock or more specifically an AAPL play (35% of sales), we expect the 5G
NR cycle to drive significant top-line infrastructure growth and out-sized bottom-line
growth given the higher-margin nature of the infrastructure & defense (IDP) business. IDP
represents (25-30%) of QRVO sales, and we estimate the wireless infrastructure piece at
approximately $80-120M for CY18 (3-4% of total sales, 10-15% of IDP).
However, during the 3G/4G cycles, QRVO was primarily exposed to mobile RAN via its
small signal (switches/LNAs) business with approximately $100 of content per BTS.
However, during the 5G NR cycle, we expect a 5-6x content gain for small signal devices
in 5G Sub-6GHz M-MIMO BTS plus an incremental 5-6x content gain from its entrance
into the GaN-on-SiC power amplifier (PA) market implying total content of $1,000-$1,200
per 5G BTS M-MIMO.
In small signal, QRVO is relatively well positioned across all OEMs with similar share at all
of the top five players in the market. On the GaN-on-SiC PA side, QRVO does better with
the Asian OEMs—Huawei (albeit Sumitomo is the leader), Samsung, and ZTE as NOK
and ERIC are more comfortable with LDMOS and in combination appear to have been
able to stretch its use case well beyond 2.6-2.8GHz and closer to 3.6GHz. Note that on
QRVO’s C1Q19 earnings call, mgmt. noted >100% Y/Y growth with three of the top five
global wireless OEMs.
Looking a bit more deeply into the content story, we note that as the 4G cycle progressed,
most RRH were either 4-channel (4 LNAs/switches) or 8-channel (8 LNAs/switches);
however, with 5G Sub-6GHz M-MIMO we’re seeing mostly 32x32 or 64x64
implementations implying an 8x multiplier on the number of small signal devices required.
While the chip count is going up by 8x, we expect dollar content for small signal devices to
increase 5-6x to $500-$600 per BTS vs. $100 during the 4G cycle.
Further, the higher frequency bands and wider bandwidths associated with 5G NR
deployments are driving significant adoption of higher-cost GaN-on-SiC PAs—albeit we
expect the LDMOS TAM to be relatively stable—and providing QRVO with a play in the
wireless infrastructure PA TAM, which has been well >$1B for the last 4-5 years and is
likely to double to >$2b over the next 4-5 years. That said, given the lower cost and more
robust LDMOS supply chain, we expect LDMOS to continue to win almost every time at
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frequencies below 1.8GHz, we expect more of a jump ball with frequencies between 2.1-
3.5GHz and expect frequencies over 3.5GHz to move almost explicitly to GaN. Thus, we
see another $500-$600 of addressable content for QRVO per BTS bringing its total
potential content to $1,000-1,200 per BTS
Exhibit 26. Qorvo 4G/5G Infrastructure TAM
Source: Qorvo, Mobile Experts, Yole, Oppenheimer & Co Estimates
In overview, our analysis suggests QRVO’s mobile RAN TAM will increase by nearly 5x
from ~$400M in 2018 to $1.9B in 2024. While we expect a nearly 5x increase in QRVO’s
revenue TAM, we suspect revenue will increase by something closer to 3-4x given that
~80% of the TAM growth is from GaN-on-SiC PAs where we suspect QRVO will have
lower share vs. its incumbent position in small signal. That said, $80-$120M going to
$240-$480M implies 28-55% growth in IDP and 8-16% total top-line growth.
Texas Instruments (TXN): TXN has made it clear that Industrial (36% of sales) and
Automotive (20% of sales) are its two highest priority end-markets as its internal forecasts
suggest these are the two highest growth, most sticky/stable, and profitable markets. As
such, TXN has increased Industrial and Automotive R&D broadly, and in combination the
two represented 56% of sales in 2018 vs. 42% of sales only five years ago. Relative to
Communications Equipment (11% of sales vs. 15% in 2013), TXN does not expect long-
term growth at a high-level as subscriber saturation and ARPU trending flat-to-down
implies carrier capex is likely to continue on its downward trend. That said, TXN has still
modestly increased its communications equipment R&D budget with initial 5G NR
investments occurring more than ten years ago, but the focus has shifted heavily toward
analog as embedded investments declined.
As noted previously, Communications Equipment represented 11% of TXN sales in 2018
implying the business was $1.7B with 65-70% or $1.1-$1.2B of that designated as
wireless infrastructure revenue. Note that, ~$200M of the $1.1-$1.2B is ASIC business for
ERIC/NOK and is expected to trend to zero over the next 2-4 years implying ~$950M (6%
of sales) of core wireless RAN business. Our analysis suggests that $950M is split roughly
80-85% analog ($760-$810M) vs. 15-20% embedded ($140-$190M). Within analog, TXN
holds a dominant position within power management (PM) and a strong position,
alongside ADI, in the signal chain (SC).
In terms of OEMs, TXN held its strongest market share position with the three largest
global players Huawei, ERIC, and NOK during the 4G cycle but also had a footprint with
Samsung and NEC. Moving forward into the 5G NR cycle, we see potential for some
share loss on the signal chain side as ADI appears to be a bit ahead on transceivers;
however, that should be more than offset by 4x content increases in both the signal chain
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and power management portion of TXN’s mobile RAN business on 5G NR Sub-6GHz M-
MIMO macro cells. Embedded is likely to trend flat to down slightly, and as previously
noted the $200M of ASICs revenue will decline to zero over the course of the 5G cycle.
Netting it all out, we expect TXN mobile RAN business to stay roughly flat at $1.1-$1.2B
as the 5G cycle progresses.
Intel Corporation (INTC): Intel is best known for its dominance in PCs and servers (and
perhaps its blunders in the smartphone market post its acquisition of IFX’ baseband
business for $1.4B in 2010, since sold to AAPL for $1B in July 2019), but the company
has been quietly building a networking giant through a combination of acquisitions and
internal focus and R&D. Specifically, INTC has seen growth in its networking equipment
business to >$4.0B in 2018 (22% MSS) implying a >40% CAGR vs. $1.2B in 2014 (8%
MSS).
From an M&A standpoint, notable networking-related Intel acquisitions over the last
decade INTC include: (1) Fulcrum Microsystems—Ethernet switch silicon in 2011, (2)
QLGC—InfiniBand assets in 2012, (3) CRAY—HPC Interconnect in 2012, (4) MSPD—
3G/4G BB processors for wireless infrastructure from MTSI in 2013, (5) LSI—Axxia
network processor business from AVGO in 2014, (6) ALTR—FPGA in 2015, (7) eASIC—
structured ASICs in 2018, and (8) Barefoot Networks—Ethernet switch silicon in 2019.
From an internal focus and R&D perspective, INTC entered into long-term
discussions/relationships with carriers nationwide and pitched them on the idea of bringing
the virtualization/flexibility of a hyperscale data center (DC) to carrier networks to lower
TCO vs. the current ridged networks constructed with purpose-built physical appliances
and hindered by low utilization.
Exhibit 27. Core Networking TAM by Technology, Intel Mobile RAN Revenue
Source: Dell’Oro, Intel, Oppenheimer & Co. Estimates
While it’s clear that INTC is committed to networking and has seen phenomenal growth,
we suspect that growth will likely continue for multiple years—the roll-out of 5G NSA and
later 5G SA will significantly accelerate the virtualization of carrier core networks, as well
as drive significant growth in INTC’s currently relatively modest (est. $800-$1B) mobile
RAN business. For this report, we’ll primarily look deeper into INTC’s potential in wireless
RAN as the 5G NR cycle ramps over the next 3-5 years.
Specifically, INTC is targeting 40% of the BTS digital silicon market in 2022, which we
estimate to be ~$4.2B (40% = ~$1.7B), with a range of products including its Snow Ridge
and FPGA combination with ERIC and ZTE and its ASIC-based Reef Shark portfolio of
products—Reef Shark includes BB (in BTS), DFE (in RRH), and an M-MIMO processor (in
RRH)—with NOK. INTC notes that these are very long design cycle products, so it has
high confidence in its 40% MSS target. While INTC hasn’t laid out a specific RRH target
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MSS, it does have a play in the market with ALTR FPGAs—XLNX expects ~4x content
increase in RRHs for M-MIMO macro cells—and its ASIC-based DFE and M-MIMO
solutions for NOK. In total, we see potential for INTC’s mobile RAN revenue to increase to
$2.45-$2.65B vs. $700M-$800M in 2018 with $1.65-$1.75B from the BTS units and $800-
$900M from RRH units. Note that the $1.8B of incremental growth from 5G NR mobile
RAN implies >45% growth vs. the 2018 networking baseline; however, it only adds 2.5%
of total top-line growth.
NXP Semiconductors (NXPI): Historically, NXPI was primarily exposed to the
communication infrastructure via its LDMOS power amplifier (PA) business. However, it’s
important to note that NXPI sold its business—No. 2 player with 30-35% share—to JAC
Capital (China) for $1.8B in May 2015 to avoid anti-trust issues prior to closing the
Freescale (FSL) deal in December 2015 as FSL, No. 1 player with 55-60% share. We
estimate that RF PA was $700-$800M or 40-45% of NXPI’s $1.8B Communications,
Infrastructure & Other (CI&O) business in 2018 with 80-90% of RF PA exposed to the
mobile RAN market.
In acquiring FSL, NXPI also acquired its Digital & Networking (D&N) business, which was
once a market leader in embedded processing. FSL’s D&N Business peaked in 2010-11
with ~$1.1B in revenue and $300-$400M (30-40%) of exposure to mobile RAN. FSL
primarily provided the embedded CPU for BTS management and transport through the
2G/3G cycle and early in the 4G cycle. FSL was strong with ERIC, ALU, Huawei, and ZTE
but did also have a small position in BB with ZTE. However, given the uncertainty
associated with FSL’s strategic direction (MOT spin-off in 2004, LBO in 2006, IPO in 2011,
and sale to NXPI in 2015) and lack of investment in high-end digital processing, almost all
of its mobile RAN business has transitioned to ASIC (Huawei), INTC (ERIC, NOK, ZTE),
or MRVL (NOK, Samsung). That said NXPI’s current D&N business is roughly $300M,
levered to industrial and enterprise markets, highly profitable, and fairly stable.
Exhibit 28. RF PA TAM by Application; RF PA TAM by Technology
Source: Gartner, Yole, Mobile Experts, Oppenheimer & Co. Estimates
Looking into the 5G NR cycle, we see potential for strong growth in NXPI’s PA business
despite the market transitioning from LDMOS to GaN where NXPI has no exposure (yet).
The four key drivers of growth are: (1) TAM expansion—expect the infrastructure PA TAM
(including multi-market) to more than double to over $3B in 2024 vs. ~$1.5B in 2018. M-
MIMO is a key driver as 5G NR macro cells with M-MIMO implementations tend to have
32x32/64x64 RRHs vs. 4x4/8x8 toward the end of the 4G LTE cycle implying an 8x
increase in PAs. Further, the number of RRHs and antenna sectors per tower looks to be
increasing from ~three on average to ~five during the 5G NR cycle implying up to a 12-
14x PA multiplier. (2) The LDMOS market is likely to be more resilient than most expect; in
fact, we expect a relatively stable LDMOS TAM at ~$1.5B +/- $200M over the next 4-5
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years as LDMOS continues to dominate below 1.8GHz and holds onto a decent piece of
the market between 2.1-3.5GHz. Further, NXPI’s dominant 55-60% in LDMOS likely
increases as IFX/CREE (10-15% share) focus solely on GaN and Ampleon cedes share at
NOK to NXPI. (3) NXPI ramps production of its GaN-on-SiC PAs and ultimately claims a
strong foothold within the GaN PA market, albeit a weaker position vs. LDMOS. Our work
suggests Win Semi is NXPI’s foundry partner, and we’d highlight that Win Semi has a long
history of supporting successful compound semi businesses—AVGO (cellular PA), Murata
and SWKS (Wi-Fi PA), and ADI/HITT (Infrastructure). (4) NXPI is likely to be very strong
as mmWave solutions ramp given its early mover advantage—already shipping products
into the US (AT&T/VZ) and South Korea—and the combination of performance and cost
that SiGe provides in the 20-40GHz range.
In overview, we see potential for NXPI’s PA business to diversify from 100% LDMOS to
LDMOS, GaN-on-SiC, and SiGe and more than double to $1.6-$1.7B by 2024 vs. a 2018
base-line of $700-$800M implying ~50% CI&O growth and ~10% to total top-line growth.
Maxim Integrated: MXIM has had relatively low exposure to the wireless infrastructure
(~3% of sales) market historically, and we don’t expect a significant change as 5G
technology ramps, as MXIM’s growth strategy is centered around its core positions within
the auto, industrial, and data center markets. MXIM views its general purpose power
management products sold into both BBUs and RRH units as a pure unit play as we move
from 4G to 5G; however, there is potential for share and content gains within MXIM’s
optical product line-up sold into both FH and BH applications. The biggest potentially
driver being the transition from 10G to 25G FH links—MXIM is particularly strong in 25G
as it sells 100G (4x25G) into hyperscale data centers. From an OEM perspective, ERIC
and NOK represent about 80% of MXIM’s wireless infrastructure exposure, with Huawei
and ZTE making up the remaining 20%.
Xilinx: XLNX has historically been over-indexed to the wireless infrastructure market (20-
25% of sales) and expects 5G to be one of its key growth drivers going forward. During
the 4G cycle, 60-65% of XLNX content was in RRHs, 15-20% was in BBUs, and 15-20%
was BH-related. That said, XLNX tends to do better in the BBU early in technology cycles
as smaller OEMs like Samsung and ZTE often initially rely on FPGAs for their complete
BBU platform and shift to an ASIC/ASSP-based approach where they only use an FPGA
as a L1 companion chip as the technology matures. Note larger OEMs tend to take the
ASIC/ASSP plus companion FPGA chip from the start of a cycle.
While the 5G cycle doesn’t seem to be conceptually different, lower BBU content will be a
much more significant headwind for XLNX in 2020 vs. prior years as: (1) dislocations in
ERIC’s (Avera/IBM sold to GF then MRVL) and NOK’s ASIC supply chains (INTC delayed
at 10m); and (2) Samsung’s dominant >60% market share position during South Korea’s
initial 5G build-out represented significant tailwinds for XLNX through 2H18-1H19. XLNX
was the primary BBU silicon supplier for Samsung’s first generation 5G roll-out, but
Samsung is making a wholesale shift to MRVL during its second-generation ramp at the
end of 2019. While lower BBU content will be a headwind in 2020, XLNX expects strong
growth across the rest of its wireless infrastructure portfolio and in total predicts that 5G
will drive a 3-4x increase in revenue relative to 4G. Three key factors underpin XLNX’s
forecast as XLNX expects: (1) cumulative 5G macro cell shipments to exceed 4G by 40-
50% given the lower reach spectrum associated with 5G, (2) FPGA content per 5G macro
cell to increase by 2x relative to 4G as M-MIMO technology proliferates and drives
significant content gains in the RRH, and (3) its share within the FPGA TAM to increase to
~60% during the 5G cycle from ~40% during 4G given its process technology leadership
(shipping 7nm in volume vs. ALTR sampling 10nm) and new product introductions with
RFSoC and Versal. From an OEM perspective, ALTR used to have dominant share within
Huawei and ERIC; however, Huawei’s reliance on FPGAs has declined significantly from
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peak levels as it shifts to Hisilicon. Further, both Huawei and ERIC are using more XLNX
relative to ALTR vs. through cycle 4G levels.
Infineon Technologies: From a product perspective, IFX is viewed as a best-in-class
supplier of power discrete products with a particularly strong foothold in the automotive
market (40-45% of IFX sales). Historically, IFX has been under-indexed to the
communications infrastructure market (3-5% of sales) and sold its ~$100M RF PA
business (LDMOS/GaN) to CREE in 2018 for $430M. IFX expects the indirect impact of
5G—as an enabler of massive data growth and autonomous driving—to be a bigger
growth driver for the company than the 5G RAN market directly. IFX will also benefit
directly from 5G deployments as 5G: (1) likely reaccelerates macro BBU deployments
where IFX sells AC-DC, DC-DC power; (2) drives the proliferation of M-MIMO, resulting in
a 4x increase in RRH content (from $25 to $100); and (3) results in higher share for IFX
as 5G demands higher-end/quality products where IFX is stronger. From an OEM
perspective, IFX sells to four of the five major global OEMs including ERIC and Huawei.
Semtech: Over the last few years, wireless infrastructure has represented 5-7% of SMTC
revenue depending on timing of deployments and broader end-market trends. SMTC had
leading market share in both the FH and BH market during the 4G cycle and expects 5G
to drive a 3x increase in its revenue TAM relative to 4G, albeit revenue growth is likely to
be somewhat less due to modest share loss from elevated levels. While 5G will drive an
increase in both FH and BH volumes, FH is the primary growth driver for SMTC for 5G as
M-MIMO adoptions drives a significant uptick in FH transmissions. As such, many OEMs
are transition to 25G FH links (from 10G) where SMTC will supply its TriEdge CDR
products, which carry much higher ASPs relative to their FiberEdge PMD products, which
were its high runner during the 4G cycle.
Lattice Semiconductor: LSCC has 40% exposure to Communications Infrastructure and
Computing, and our estimates suggest a rough split of 15-20% Communications and 20-
25% Computing as LSCC improved its content (1.5-2.0x) and attach rate (80% vs. 25%)
on INTC’s Purley sever cycle relative to Grantley. Note, LSCC expects to maintain its 80%
attach rate and benefit from a 2-3x content increase as Whitley roll outs. That said, LSCC
is primarily exposed to the wireless infrastructure market via its position in RRHs. LSCC
sells low-power FPGAs (0.1-1W) into RRHs that are used for control plane functions and
expects a ~30% content gain moving from 4G to 5G. It’s worth noting that LSCC sells its
products into the control plane and doesn’t compete with the much larger, higher-powered
(200W) FPGAs sold by ALTR (INTC)/ XLNX for data plane applications but rather
manages the peripherals around the ALTR/XLNX products in RRHs. From an OEM
perspective, LSCC is fairly well represented across the major OEM with Huawei being the
largest infrastructure customer at 5% of sales.
IPHI: IPHI has significant leverage to the telecom infrastructure market with the segment
representing 30-45% of total sales depending on carrier deployment patterns and relative
strength of cloud data center spend. Specific to telecom, IPHI has historically been
stronger in the transport layer (long-haul/metro) with its Coherent DSPs, TIAs, and drivers
with somewhat lower direct exposure to the RAN part of the carrier cycle; thus, we expect
the transition to 5G SA, which likely ramps in 2022 and beyond, to be a bigger driver for
IPHI relative to the 5G NSA ramp, which is accelerating into 2020. That said, 5G promises
to deliver significantly more capacity/bandwidth relative to 4G and an order of magnitude
increase in FH and BH transmissions. In turn, OEMs are upgrading to higher-performance
optical technologies, which gives IPHI direct exposure to 5G RAN spend via its 50G PAM
DSPs, TIAs, and drivers—historically, more data center-focused products—primarily
through Huawei. In total, IPHI expects PAM4 to go from $120M this year to $320M next
year, albeit the majority of PAM4 revenue (>80% in our estimation) will be driven by cloud
data center vs. service provider spend.
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Smartphones
Semiconductors 5G will have a profound impact on consumer’s everyday lives. Faster data speeds and
increased connectivity will change the way we interact with wireless devices whether it’s
smartphones, automotive, or IoT devices. In this section of the report, we’ll explore the
smartphone market, the underlying semiconductor enabling technology, and how 5G will:
(1) be a catalyst for content growth, and (2) potentially reaccelerate refresh rates and,
thus, drive incremental unit demand.
LCD: Liquid Crystal Display OLED: Organic Light-Emitting Diode
Handsets represent the largest application in terms of semiconductor demand.
Smartphones are handset devices that run primarily on a high-level operating system that
include but not limited to Android, Apple iOS, Blackberry OS, and Firefox. Smartphones
are generally categorized with features such as a high-quality display (LCD, OLED)
touchscreen, application processor, high-end camera, and the ability to install third-party
applications. According to Gartner, semiconductors for smartphones account for $117B or
24% of the total $475B semiconductor market in 2018.
Exhibit 29. 2018 Semiconductor Market
Source: Gartner
Handsets are a global industry with more than 50 companies competing in the market.
However, the industry is considered somewhat of an oligopoly as the top six OEMs
represent 86% of the $483B smartphone market on a revenue basis and 74% of the1.4B
market on a unit basis. Amongst the top six vendors, Apple, Samsung, and Huawei are
known as tier-1 OEMs and control 51% of the market in unit terms but 71% of the market
in revenue terms given their strength in the premium device market where they leverage
the latest cutting-edge technology. Apple is the single biggest driver behind the
discrepancy between revenue and unit share for tier-1 OEM (37% revenue share, 15%
unit share) as Apple ASPs are nearly 3.5x the global average $255-$260 and nearly 3x
the average of the OEM with the next highest ASP, Samsung at $325. Apple’s market
dominance gives the company influence on the latest handset standards and thus will
prove crucial as the industry transitions to 5G. Conversely, Oppo, Vivo, and Xiaomi are
considered tier-2 OEMs and control 23% of the unit TAM but only 15% of the revenue
TAM.
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Exhibit 30. 2018 Smartphone OEM Market Share
Source: IDC
The first 5G-enabled smartphones debuted in 1H19 from a few handset OEMs in select
cities and regions around the world. Handset OEMs are making exclusive agreements
with carriers to accelerate 5G roll-outs as each looks to create a first mover advantage. In
turn, this allowed handset OEMs to sell more, higher priced phones and carriers to win
subscriber share by advertising the improved capabilities and services that their 5G
network offers. Handset OEMs are expected to ship 6.5M 5G-enabled devices by the end
of 2019 according to IDC. 5G devices are forecast to grow at a 147% CAGR and have
600M devices shipped in 2024 (37% of total smartphones). We believe Apple, a traditional
laggard in adopting the latest technology, won’t debut a 5G-enabled iPhone until 2H20.
This is strategically justified as 5G infrastructure deployments are still in early stages and
won’t fully ramp in earnest until 2020. With an integrated ecosystem and loyal customer
fanfare, Apple can tap into its 700M iPhone installed base. In comparison, Android
operating phones have a 3.3B installed base. Windows OS account for 5M and other
operating systems (Blackberry, Firefox, Sailfish, HTML-based) for 6.5M of the handset
installed base.
Exhibit 31. Smartphone Shipments and Forecast
Source: IDC, Oppenheimer & Co. Estimates
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5G Smartphone BOM/Teardown
Samsung sold 292M smartphone devices in 2018, 21% of all smartphone devices sold
worldwide making Samsung the largest handset OEM by unit volume. Samsung is also
one of the first to launch a 5G phone. The Galaxy S10 5G is Samsung’s first phone to
feature 5G capability. A closer look into the bill of materials comparison (Exhibit 32)
between the S10 5G and its close relative the S10+ offers an early view into the content of
first-generation 5G phones and an idea for content potential in future devices.
Exhibit 32. Samsung Galaxy S10+/S10 5G Bill of Materials
Source: Tech Insights
There is a $70 increase in content in the 5G phone. Upon closer look at the component
breakout, two items stand out with the largest content increase: 1) RF Front End and 2)
Baseband Processor. RF content increases by $15 (47% growth) in the 5G phone driven
by the need to address higher complexity from the additional 5G frequency bands. In the
S10+ model, we note the lack of a discrete baseband processor. Since 4G/LTE
technology is mature, now in its 10th year, a combination of technology improvements and
experience, along with intellectual property rights, allow chipmakers to integrate the
baseband into the processor. In the S10 5G model, we see the use of a discrete
baseband. Similar to first-generation 2G/3G/4G devices, we see early 5G handsets
utilizing a discrete baseband as an add-on into existing 4G/LTE-designed devices to
facilitate time-to-market smartphones. The S10 5G uses Qualcomm’s X50 5G modem. On
the new Samsung Galaxy Note 10+ 5G teardown from iFixit (Exhibit 33), note the use of
Qualcomm’s modem and RF modules, highlighting coupling importance between the
baseband and RFFE.
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Exhibit 33. Samsung Galaxy Note10+ 5G Teardown
Source: ifixit.com
Application Processor
The application processor referred to as the central processing unit (CPU) is the most
critical chip in a smartphone. It is the central hub on a smartphone that performs all
functions, receiving and executing every command. Using an analogy, when compared to
the human body, the processor is considered the “brain.” Every action you perform,
whether it’s opening an image, sending an email, or playing music, gets processed from
binary ones and zeros in the CPU to execute the desired result.
Exhibit 34. Application Processor
Source: IDC, Oppenheimer & Co.
In smartphones, the CPU is integrated as a system on a chip (SoC), which combines
multiple functions including the GPU, baseband processor (modem), security, AI
accelerator, and Bluetooth/WiFi. Apple is the only tier-1 OEM that still uses a discrete
application processor, designing its own A-series chips without a baseband modem. The
industry has moved toward more integrated chips as it reduces space and eliminates the
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need for two separate chips. Gartner highlights integrated solutions can shave $5 to $7 off
a device’s bill of materials. We believe there will be an increase in demand for discrete
processors in early 5G smartphones to allow handset OEMs entry into the market. As
technology improves, we see the industry moving towards more integrated solutions.
Exhibit 35. Premium Application Processor Chips
Source: Apple, Qualcomm, Samsung, Huawei
Baseband Processor (Modem)
The cellular baseband processor is considered the fundamental technology enabling the
wireless connected world we know today. The baseband referred to as the modem
(abbreviation for modulator-demodulator) is an integrated circuit allowing a smartphone to
connect to the internet and transmit/receive data. The modem converts—“modulates” —a
digital signal into an analog signal to allow transmission over the air through radio
frequencies. Concurrently, it converts analog signals it receives from the antenna into a
digital signal, commonly called data. The baseband works in conjunction with the radio
frequency front-end to manage the cellular network connection. Mobile phones are the
largest market for modems, but adoption is increasing in automotive vehicles and IoT
devices.
Integrated baseband, where the baseband processor is combined with an application
processor, account for 83% of the total baseband market in 2018 based on IDC.
Qualcomm is the largest manufacturer with 57% share in the integrated market, and 53%
of the total baseband market. We believe early 5G phones will use discrete basebands for
initial entry into the 5G market, similar to early 4G/LTE mobile phones in the past. Apple is
currently the only handset OEM that uses discrete basebands, sourcing exclusively from
Intel in 2018 and most recently signing a supply agreement from Qualcomm. We note a
trend in tier-1 OEMs increasing their capabilities to design basebands in-house. Apple
announced plans to acquire Intel’s modem business, joining Samsung and Huawei as
smartphone vendors with capabilities to design basebands and applications processors
internally.
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Exhibit 36. Discrete Baseband Modems
Source: Qualcomm, MediaTek, Samsung, Huawei, Intel
Application/Baseband Processor Vendors
The market for application and baseband processors share many of the same companies.
Tier-1 handset vendors have capability to design their own applications processors and
baseband, with Apple recently joining the fold. Qualcomm and MediaTek are the two
established incumbent pure play semiconductor companies developing mobile processors
and 5G modems without a handset business. The two account for 60% of the applications
processor market and 66% of the baseband market in 2018, according to IDC. Trends in
the mobile handset market suggest a shift in tier-1 handset OEMs from outsourcing supply
to developing modems in-house for better control chip supply, and less reliance on
Qualcomm’s leading technology, and to mitigate royalty expenses.
Apple is the only major handset OEM that exclusively uses its own internally
developed application processor. The very first iPhone was based on an Apple
SoC manufactured by Samsung. Its first A-series processor was the A4
processor on the iPhone 4. Apple has used Samsung’s foundry for
manufacturing its SoC until the A8, where it transitioned to TSMC and has used
the company ever since. The A13 Bionic is the latest CPU in the A-series lineup
featured discretely on the iPhone 11. Apple signed a 6-year licensing
agreement with Qualcomm (backdated to April 1, 2019), that includes supply of
chips, most likely for early 5G modem. We expect early 5G iPhones will use
discrete Qualcomm basebands. Given Apple’s $1B acquisition of Intel’s modem
business, we believe Apple plans to develop a 5G modem solution and
potentially integrate it within its own process over time.
Qualcomm designs application processors (AP), baseband modems (BB), and
system-on-chip (SoC) solutions, which integrate the AP and BB on a single chip
(Snapdragon SoCs). The BB market has undergone a substantial round of
consolidation over the last 10-15 years as most suppliers exited or sold—ADI,
BRCM, FSL, MRVL, NXPI, STE, and TXN have all shut-down their BB
divisions, Icera was sold to NVDA and later shut-down, and IFX’s BB assets
were sold to INTC and just recently re-sold to AAPL—after realizing they
couldn’t accrue enough scale to support the R&D burden. With most Western
competitors influx and Asian competitors (MTK/SPRD) lagging on technology,
QCOM was left as the only viable 4G BB supplier over the first 2-3 years of the
4G cycle. Further, the OEMs (Huawei, Samsung, ZTE) who had embarked on
internal BB silicon strategies were not ready with 4G product leaving QCOM
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with substantially all of the 4G market at the time of introduction and >80% for
the next two years. That said, QCOM has lost ~30pts of share over the last five
years (vs. ~50% of the market in 2018) causing QCT revenues to decline 25%
from the peak in 2014 despite smartphone units growing 10-15%. The loss of
AAPL was certainly a significant headwind, but we estimate that QCT is still
down 10-15% ex-AAPL despite benefitting from growth in peripheral markets
(auto, compute, networking, and server) and consolidating the RF360 JV as
both Huawei and Samsung are using significantly more in-house silicon and
MTK has become more competitive in 4G. While we suspect that 5G will be a
tailwind for QCOM, we do not expect the company to regain the dominance it
had at the beginning of the 4G cycle as Huawei and Samsung already have 5G
product ready, MTK is 2-3 quarters behind instead of 2-3 years behind, and
APPL should have internal product ready in the next 2-3 years post acquiring
INTC’s baseband assets this year.
MediaTek is a Taiwan-based semiconductor company that develops CPUs and
baseband modems for mobile devices. Generally considered second tier
compared to Qualcomm in 4G/LTE, the company looks to narrow the
technology gap in 5G modems. MediaTek’s first venture into 5G is with its Helio
M70 5G modem, integrated into a 7nm FinFET SoC. The SoC supports both
NSA and SA 5G architectures but is only capable of supporting sub-6GHz
bands, which keeps complexity and cost of the chips down. MediaTek had 13%
share of the baseband market mostly to Chinese handset OEMs.
Samsung designs and manufactures integrated application/baseband
processors. The company’s Exynos chips are used mostly within its own mid-
and low-tier 4G/LTE smartphones. As 5G proliferates and its technology
advances, we believe Samsung will leverage its manufacturing capabilities to
design chips in-house and reduce reliance on suppliers. Its Exynos 9825 is the
industry’s first processor manufactured on its own leading edge 7nm EUV
technology. Samsung is the only company on this list with fabrication facilities
for high volume chip production. Samsung also manufactures NAND flash
storage and DRAM memory for mobile devices, and is market leader in both
categories.
HiSilicon, a subsidiary owned by Huawei, is a fabless semiconductor company
based in China. The company designs application and cellular baseband
processors for mobile devices. The company claims its Kiren 990 5G processor
is the world’s first SoC integrated with a baseband, its own Balong 5G modem.
HiSilicon’s chips are designed mostly for Huawei smartphone devices though
not exclusively.
Intel (Apple) became an exclusive supplier of 4G/LTE modems to the iPhone
for two years amid Apple’s royalty dispute with Qualcomm. Apple eventually
settled with Qualcomm and reached a 6-year chip supply agreement with a 2-
year extension. Shortly thereafter, Intel announced its decision to exit the 5G
modem business. On July 2019, Apple announced acquisition of Intel’s modem
business for $1B bringing with it 2,200 employees, over 17,000 wireless
patents, and designs for the current XMM 8160 5G modem.
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Exhibit 37. Baseband Processor Market
Source: IDC
Radio Frequency Front End
The radio frequency (RF) front end module contains all the circuitry between the antenna
and baseband. It processes analog signals received from antennas into a suitable input
for the baseband, while concurrently preparing a digital signal for transmission over radio
waves through its antenna. Due to its proximity with the baseband, the partnership
between RF manufacturers and baseband vendors is critical for designing a power-saving
and performance-enhanced 5G solution. Some of the RF content includes antennas,
power amplifiers, switches, tuners, and filters. 4G RF content trends grows on average
10% annually through the 4G cycle. We expect this trend continues in 5G as complexity in
RF modules for mobile devices increases the need for more content. Since 5G is inherent
in higher frequencies vs. 4G, we expect filters will lead RF content, specifically BAW
filters. By our estimates, we see average RF content growing ~40% from $18 of content
on a 4G handset to $25 in premium 5G smartphones. We estimate a total RF front end
including mmWave market at $26B total by 2025, growth of 8% CAGR. Filters are the
largest sub-component opportunity within RF, a $9.5B market in 2018, growing at an 8.8%
CAGR to $17.1B by 2025. Due to high band counts and rising complexity, BAW filters will
play a bigger role in 5G. A $3.7B market in 2018 (25% of RF content), we estimate it
grows at a 13.4% CAGR to reach a $8.9B TAM (34% of RF content) by 2025.
Exhibit 38. Smartphones RF Market Growth Breakout
Source: Yole, Mobile Experts, Oppenheimer & Co. Estimates
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Filters
Filters are the largest sub-component and fastest growing within the RF. Radio spectrum
spans from 3Hz to 300GHz. Crowding across 4G/LTE, WiFi, and emerging 5G
frequencies leads to interference and disruptions, leading for the need for more filters. A
filter allows the intended frequency to pass through the front end while rejecting wanted
ones. Filters need to be designed to accommodate various categories of spectrum in 5G,
sub-6GHz, and mmWave, and based on its respective geographic requirements. Band
counts are rising from 13 in 3G, to 45 in 4G, to over 100 in 5G. Filters are the only
component that scales 1-to-1 with the number of frequency bands on a device so we
believe a premium 5G phone could contain up to 100 filters.
Exhibit 39. Expanding RF Content in Mobile; BAW and SAW Market
Source: Skyworks, Mobile Experts, Oppenheimer & Co. Estimates
5G Frequencies
3GPP (3rd Generation Partnership Project) is the governing body that determines protocol
for telecommunication networks. The organization has been involved with the
development and maintenance of 2G, 2.5G, 3G, 4G/LTE, and 5G NR. With Release 15,
frequency bands for 5G NR have been designated. The specification defines two main
bands: 1) FR1—450MHz to 6000MHz (Sub-6GHz), 2) FR2—24GHz to 52.6GHz
(mmWave).
There are 42 frequency bands available in 5G. From a carrier and handset perspective,
they may be interested in providing services at certain bands and channel bandwidths due
to rights (licenses) allocated by the FCC. RF filters would be needed to accommodate
these specific bandwidths. Additionally, there are certain bands that are more attractive
than others. In FR1 (sub-6GHz), interest lies on n77 (3.7GHz), n78 (3.5GHz), and n79
(4.7GHz) as these bands offer wider channel bandwidth up to 100MHz, essential for data
throughput. As for FR2, there are four bands designated for 5G within mmWave spectrum,
n257 (28GHz), n258 (26GHz), n260 (39GHz), and n261 (28GHz) with bandwidth up to
3.2GHz and channel bandwidth up to 400MHz. Hence the need for telecom, handset, and
semiconductor companies to work closely given intermingled complexity of each
participant’s requirements in the wireless ecosystem.
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Exhibit 40. Select 5G Frequency Bands
Band Frequency Type
FR1 450 to 6000 MHz Sub-6 GHzFR2 24 to 52.6 GHz mmWave
FR1 (Sub-6 GHz)
5G NR Band Band Name Frequency Bandwidth Channel Bandwidth (MHz)
n77 3.7 GHz 3300 - 4200 MHz 900 MHz 10, 20, 40, 50, 60, 80, 90, 100n78 3.5 GHz 3300 - 3800 MHz 500 MHz 10, 20, 40, 50, 60, 80, 90, 100n79 4.7 GHz 4400 - 5000 MHz 600 MHz 40, 50, 60, 80, 100
FR2 (mmWave)
5G NR Band Band Name Frequency Bandwidth Channel Bandwidth (MHz)
n257 28 GHz 26.5 - 29.5 GHz 3 GHz 50, 100, 200, 400n258 26 GHz 24.25 - 27.5 GHz 3.25 GHz 50, 100, 200, 400n260 39 GHz 37 - 40 GHz 3 GHz 50, 100, 200, 400n261 28 GHz 27.5 - 28.35 GHz 850 MHz 50, 100, 200, 400
Source: 3GPP, EverythingRF
Filter Types
There are a variety of RF filters for different devices and markets. The most common
configuration for mobile devices is the acoustic filter. RF filters currently used in the
market for 4G include surface acoustic wave (SAW), temperature compensated SAW (TC-
SAW), incredible high performance SAW (IHP-SAW), bulk acoustic wave (BAW), and thin
film bulk acoustic resonator (FBAR). Given their higher frequency support, BAW filters will
dominate in 5G and will lead RF content growth. We estimate BAW (BAW and FBAR)
market of $3.7B in 2018, grows to $8.9B in seven years, a 13.4% CAGR.
Exhibit 41. RF Front-End Market by Product Type; RF Front-End Market by Air Interface
Source: Yole Developpment, Mobile Experts, Oppenheimer & Co.
Surface Acoustic Wave (SAW) is a compact, low-cost RF filter most suitable for
applications at the low end of the spectrum, for frequencies up to 1.5GHz. It’s
capable up to 3GHz, though performance deteriorates as you approach higher
frequencies, compelling handset OEMs to ideally design them for lower
frequencies. SAW filters are also sensitive at higher temperatures where acoustic
properties are affected, diminishing performance. SAW filters operate by
converting electrical signal energy into an acoustic wave using interdigital
transducers where it travels over a piezoelectric material and then back to an
electrical signal. SAW filters are fabricated on wafers using one or two layers of
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thin-film metal deposition and one or two photomask (vs. BAW ten mask layers
and many depositions). Thus, SAW filters carry the lowest ASP on this list. A
drawback to SAW filters is they are temperature-sensitive. The stiffness of the
substrate material affects the center frequency of the filter. At lower
temperatures, the frequency shifts upwards. At higher temperatures, the
frequency shifts downwards. To overcome limitations, compensation methods
were developed to reduce sensitivity to temperature changes.
Temperature Compensated SAW (TC-SAW) filters are designed to withstand
sensitivity that SAW filters have at high and low temperatures. TC-SAW filters
are the same as SAW but have an extra layer of coating on IDT structures to
strengthen its stiffness and withstand temperature variation. This reduces the
changes in frequencies. The process requires higher mask layers and raises
manufacturing costs, thereby making its ASP higher than SAW though still less
expensive than BAW filters.
Incredible High Performance SAW (IHP SAW) filters are manufactured by
Murata and look to address some of the technological challenges in traditional
SAW filters and improve their performance. The filters adopt a structure that
makes the energy of surface acoustic wave focus on the surface of the substrate.
This results in filters that exhibit higher Q factor, lower temperature coefficient of
frequency, and improved heat dissipation relative to SAW.
Bulk Acoustic Wave (BAW) filters deliver superior performance vs. SAW and
support higher frequency levels. BAW can address frequencies above 1.5GHz
and up to 6GHz, making them complementary to SAW filters. We believe BAW
will play a bigger role in 5G where early devices will utilize spectrum in the sub-
6GHz frequency range. BAW filter size decreases with higher frequencies
making them ideal in mobile devices where space comes at a premium. Unlike
SAW, the acoustic waves in BAW filters are propagated vertically. BAW filters
have a crystal quartz as the substrate with metal patches on the top and bottom.
The metal patches excite the acoustic waves, which bounce from the top to
bottom. To prevent waves from escaping the substrate, a Bragg reflector is
created by stacking multiple thin layers of alternating materials with varying
stiffness and density. The thickness of the material and mass of the electrodes
determine the frequency where resonance occurs. This method is referred as
solidly mounted resonator BAW (BAW-SMR). BAW filters are less sensitive to
temperature and are more expensive than SAW.
Film Bulk Acoustic Resonator (FBAR) is an alternative form of BAW structured
by having an air cavity beneath the active area. The result is a higher
performance filter with frequency range up to 10GHz. The main difference
between BAW-SMR and FBAR is how acoustic waves are trapped. In FBAR, the
air crystal on both resonators is the primary function that ensures acoustic
energy is trapped. In BAW-SMR, this function is performed by the Bragg
reflector. FBAR filters have higher performance and steeper rejection curves
compared to BAW-SMR and SAW filters. They support frequency ranges from
100MHz to 10GHz making them ideal for 4G/LTE and 5G sub-GHz. FBAR filters
have complex manufacturing challenges, though they provide superior
performance than other filter types, thus carrying the highest ASP on this list. We
estimate ASP of about ~$0.45 per filter. Due to its superior performance, handset
OEMs have chosen to use FBAR on its premium flagship models. Broadcom is
the only supplier shipping FBAR filters in high volume.
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Exhibit 42. Filter Type
Source: EverythingRF, Murata, EDN
Power Amplifier, Low Noise Amplifier, Switches, Tuners, Diplexer, Transceiver
The RF front-end module contains a sophisticated level of circuity that incorporates
multiple functions between the receiver’s antenna and the baseband, ultimately allowing a
mobile device to transmit and receive data over the air. In addition to filters, there are
supporting components from power amplifiers, switches, tuners, and diplexers that don’t
get as much attention but are just as critical in the RF. In this section, we discuss some of
the other components in the RF module.
Exhibit 43. RF Front End
Source: Qualcomm
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TECHNOLOGY / SEMICONDUCTORS & COMPONENTS
Power Amplifiers (PA) convert (amplify) low power radio RF signals with data
encoded and modulated at the desired frequency into a higher powered signal for
antenna transmission. The PA sits on the transmit side of the RF signal chain.
GaAs (gallium arsenide) is used mostly today, but at higher frequencies in 5G,
GaN (gallium nitride) will become more attractive semiconductor compound.
Low Noise Amplifier (LNA) is similar to a PA but is positioned at the receiver
channel of the front end. It takes the weak low-power, low-voltage signal received
from the antenna and amplifies it to the desired level without adding distortion or
noise. The signal then gets sent to the RF transceiver.
Antenna Tuners are used to recover performance loss that comes from reduced
efficiencies in antennas. Antenna performance is reduced from challenges in: 1)
industry trends toward smaller antennas, and 2) need for more antennas to
support high data rates (carrier aggregation, Wi-Fi, GPS, 5G). Aperture tuning
and Impedance tuning are two tuning methods used to recover some of this loss
performance.
RF Switches are components used to route (switch) signal paths of high
frequency circuits through transmission paths in a wireless devices. There are
multiple RF switches in a smartphone for various functions. The most common
application is the primary antenna transmit/receive (Tx/Rx) switch, used to
connect the main antenna to either the transmission or reception function.
Diversity Switch is a type of RF switch. Growing demand for 4G/LTE and 5G
band support as well as non-cellular services (WiFI, GPS, Bluetooth) presents a
challenge for maintaining high data integrity. To alleviate burden and support for
multimode/multiband functions, smartphones have a dual antenna system. A
primary antenna is the main antenna that performs Tx/Rx functions while a
secondary diversity antenna does Rx only. The diversity switch enables support
between the two antennas, resulting in higher data quality and reliability.
Diplexer is a simplest form of a multiplexer. A diplexer combines two different
frequency bands, one from the receive path and the other in the transmit path,
into one path. Conversely, it can act as a splitter to enable the signal from one
path to split into two separate paths. The two frequency bands are usually far
apart in frequencies for a diplexer to perform ideally.
RF Transceiver houses both the transmitter and receiver modules in a single
package. The device is located between the baseband and PA/LNA. The
transmitter (Tx) side takes modulated data from the baseband and up-converts
into a RF signal suitable for transmission through the antenna. The receiver (Tx)
does the inverse operation. It takes RF signals received and down-converts to a
data for demodulation at the baseband.
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Exhibit 44. RF Transceiver Market; Power Amplifier Market
Source: Akoustis, Oppenheimer & Co.
RF Front-End Vendors The RF front-end market is dominated by three incumbent leaders—Broadcom, Skyworks,
and Qorvo. Technology shift into 5G opens the landscape for new entrants each targeting
various opportunities. Qualcomm is looking to provide a complete modem-antenna
solution, whereas Akoustis and Resonant are innovating new techniques to take share in
the $40B RF market. Knowles is one of the few companies that are developing a
mmWave filters, albeit starting at the infrastructure side.
Broadcom is a formidable company in 4G/LTE with a broad portfolio of front-
end modules and looks to extend its lead in 5G with its leading FBAR filters. Its
modules include filters, power amplifier, and multiplexer components, but its
competitive advantage come from its leading and industry first commercial
FBAR filter. Due to its superior ability to function more effectively at congested
spectrum, Broadcom’s FBAR gain significant market share in the handset
market in 4G/LTE. With high barrier to entry from innovative design and high
manufacturing costs, Broadcom sees little competition to no competition at high
frequencies. Its FBAR filters are designed into Apple and Samsung flagship
premium smartphones. Broadcom signed a two-year supply agreement to
provide RF components to Apple in June ’19.
Skyworks has worked with 3GPP since 2015 to develop 5G standards. It has a
portfolio of RF components including amplifiers, switches, tuners, and filters.
The company is best known for its strong position in SAW and TC-SAW filters
after fully purchasing its JV from Panasonic in August 2016. Limited in BAW
and in preparation for 5G, Skyworks is investing to develop BAW in-house.
Expect 35-45% handset content gain, going from $18 content in 4G to $25 per
device in 5G. Core 2G/3G/4G RF systems remain mostly the same, going from
$18 to $20, with sub-6GHz 5G adding another $5.
Qorvo is a broad supplier of RF components to handset device. Formed from
the merger of TriQuint and RFMD, Qorvo is a broad supplier of RF front-end
components. Higher complexity in 5G drives content at high-end handset from
$18 to $25. Its RF Fusion integrates PA, transmit/receive, and switch solutions
into a single package to enhance performance and reduce size. Its portfolio of
modules serves the high-band, mid-band, and low-band at cellular connection.
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Qualcomm is a leader in the application and baseband processor markets
where industry conditions (OEM in-sourcing, competitive pricing) make it
difficult to achieve sustained growth. In an attempt to bolster growth, QCOM is
hoping to use the introduction of 5G technology to expand its presence in the
RFFE market—primarily limited to envelope tracking solutions during the 4G
cycle—by bundling its 5G baseband with its portfolio of RF products and
offering complete modem-to-antenna solutions. We expect this strategy to be
somewhat successful early in the 5G cycle, especially at tier-2 and tier-3 OEMs
without internal silicon ventures, but our checks suggest most OEMs prefer to
work with their existing RFFE supplier base and plan to revert back to traditional
RF players as alternate baseband solutions come to market. It’s worth noting
that QCOM has been unsuccessfully attempting to make a splash in the RFFE
for roughly a decade. QCOM initially hoped to transform the market with its low-
cost but “good-enough” CMOS-based PAs but never gained significant traction
as performance was never quite “good enough” relative to incumbent GaAs
solutions. QCOM transitioned away from CMOS in the middle of the 4G cycle
and now works with its foundry partner, Win Semiconductor, on GaAs-based
PAs. QCOM doubled down on its RF efforts and added in-house filter design
and manufacturing capabilities to its portfolio by entering into a joint venture
with TDK Corporation. Historically, 51% of the JV was owned by Qualcomm
and 49% by EPCOS (a subsidiary of TDK); however, QCOM recently exercised
its right of first refusal and acquired the remaining TDK shares for $1.15B,
valuing the entire JV as $3.1B. QCOM now has the capability to offer complete
end-to-end solutions with the SnapDragon 5G Modem-RF system, which
includes 5G sub-6 and mmWave modem, PAs, filters, multiplexers, antenna
tuning, LNAs, switching, and envelope tracking.
Murata is a Japan-based electronic components manufacturer that specializes
in the design and manufacture of ceramic filters, high-frequency parts, and
sensors. The company specializes in IHP-SAW filters, which has a limited
market, though it looks to position in 5G with BAW. Murata invested $7M out of
the $10M equity raise from Resonant. As part of the agreement, Muranta gains
access to Resonant’ s filter design technology.
Akoustis plans to make a mark in 5G handsets with its proprietary single
crystal XBAW technology. The company’s XBAW process enables development
of RF filters in the 1 to 7 GHz frequencies that are 23x smaller than legacy
dielectric resonators. Its value proposition includes: 1) wider band support; 2)
improved power handling; and 3) high acoustic performance than incumbent
solutions. Akoustis is positioning for the large handset market but is also
leveraging its tech for development in WiFi and base stations.
Resonant aims to address development of filters through a software approach.
The company’s software platform, Infinite Synthesized Networks (ISN), looks to
design filters through software simulation rather than current processes that are
through iteration. The goal of ISN is to reduce development time and open
access to designing new filter types more cost effectively. ISN is compatible for
SAW, TC-SAW, and recently into BAW, which they call XBAR.
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Knowles is an early entrant developing a filter solution to address the set of
new challenges in mmWave. Current market filters are applicable for sub-6GHz,
but mmWave requires a new type of filter. Cavity, Planar Thin Film, and
Waveguide are three candidates that support coverage in mmWave frequency
range. Many criteria need to be evaluated, but at this stage, Knowles notes
Planar Thin Film filters is a leading candidate due to its smaller size, cost
advantage, and performance.
Exhibit 44. Filter Spectrum Coverage
Source: Akoustis, Yole, Oppenheimer & Co. Estimate
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Acronyms 3GPP Third Generation Partnership Project 5G NR 5G New Radio ASIC Application Specific Integrated Circuit ASP Average Selling Price BAW Bulk Acoustic Wave BBU Baseband Unit BF Beam Forming BTS Base Station CAGR Compounded Annual Growth Rate CPU Central Processing Unit DFE Digial Front End EB Exabyte eMBB Enhanced Mobile Broadband FBAR Film Bulk Acoustic Resonator FDD Frequency Division Duplex FWA Fixed Wireless Access GaAs Gallium Arsenide GaN Gallium Nitride GaN-on-SiC Gallium Nitride on Silicon Carbide GHz Gigahertz IHP Incredible High Performance KT Korea Telecom LCD Liquid Crystal Display LDMOS Laterally Diffused Metal Oxide Semiconductor LG Uplus LGU LNA Low Noise Amplifier LTE Long Term Evolution M2M Machine to Machine MHz Megahertz MIMO Multiple-In, Multiple-Out mMTC Massive Machine Type Communication NEM Network Equipment Manufacturers NFV Network Function Virtualization NSA Non-standalone OEM Original Equipment Manufacturer OLED Organic Light Emitting Diode PA Power Amplifier RAN Radio Access Network RF Radio Frequency RRH Remote Radio Head SA Standalone SAW Surface Acoustic Wave SDN Software Defined Networking SiGe Silicon Germanium SIMO Single-In, Multiple-Out SISO Single-In, Single-Out SKT SK Telecom SLA Service Level Agreements SoC Systems on a Chip TCO Total Cost of Ownership TDD Time Division Duplex Tx/Rx Transmit/ Receive URLLC Ultra Reliable Low Latency Communication
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Stock prices of other companies mentioned in this report (as of 10/1/19): Ericsson Class B (ERIC.B-SE, €78.44, Not Covered) Nokia (NOKIA-FI, €4.49, Not Covered) Samsung Electronics Co., Ltd. (005930-KR, KRW48850, Not Covered) ZTE Corporation Class H (763-HK, HK$20.8, Not Covered) Xilinx, Inc. (XLNX, $92.04, Not Covered) Infineon Technologies AG (IFX-DE, €16.36, Not Covered) Lattice Incorporated (LTTC, $0.01, Not Covered) Inphi Corporation (IPHI, $60.24, Not Covered) MediaTek Inc (2454-TW, NT$376.5, Not Covered) Murata Manufacturing Co., Ltd. (6981-JP, ¥5328, Not Covered) Resonant, Inc. (RESN, $2.73, Not Covered) Knowles Corp. (KN, $19.9, Not Covered) SK Telecom Co., Ltd. (017670-KR, KRW239000, Not Covered) LG Electronics Inc. (066570-KR, KRW66500, Not Covered) MACOM Technology Solutions Holdings, Inc. (MTSI, $20.5, Not Covered) China Telecom Corp. Ltd. Class H (728-HK, HK$3.57, Not Covered) China Mobile Limited (941-HK, HK$64.85, Not Covered) China Unicom (Hong Kong) Limited (762-HK, HK$8.32, Not Covered) Cray Inc. (CRAY, $35.01, Not Covered) International Business Machines Corporation (IBM, $143.66, Not Covered)
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Disclosure AppendixOppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.
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Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered byOppenheimer & Co. Inc:Stock Prices as of October 2, 2019Analog Devices (ADI - NASDAQ, $109.78, OUTPERFORM)Marvell Technology Group (MRVL - NASDAQ, $24.00, OUTPERFORM)Texas Instruments (TXN - NYSE, $128.59, OUTPERFORM)Intel Corp. (INTC - NASDAQ, $50.76, PERFORM)Maxim Integrated Products (MXIM - NASDAQ, $56.83, PERFORM)Semtech Corp. (SMTC - OTC, $47.34, OUTPERFORM)Apple Inc. (AAPL - NASDAQ, $224.59, PERFORM)QUALCOMM Incorporated (QCOM - NASDAQ, $75.47, PERFORM)Broadcom Ltd. (AVGO - NYSE, $274.85, OUTPERFORM)Skyworks Solutions, Inc. (SWKS - NASDAQ, $77.41, PERFORM)Qorvo, Inc. (QRVO - NASDAQ, $73.17, PERFORM)Akoustis Technologies (AKTS - NASDAQ, $7.58, OUTPERFORM)Cree, Inc. (CREE - NASDAQ, $49.22, PERFORM)Cisco Systems (CSCO - NASDAQ, $47.74, OUTPERFORM)NXP Semiconductors NV (NXPI - NASDAQ, $108.97, PERFORM)Sprint (S - NYSE, $6.16, NOT RATED)AT&T, Inc. (T - NYSE, $37.41, OUTPERFORM)T-Mobile (TMUS - NASDAQ, $78.20, PERFORM)Verizon (VZ - NYSE, $59.85, OUTPERFORM)NVIDIA Corp. (NVDA - NASDAQ, $174.00, OUTPERFORM)Universal Display Corp. (OLED - NASDAQ, $165.41, PERFORM)
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TECHNOLOGY / SEMICONDUCTORS & COMPONENTS
please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department,Business Manager.
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Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:
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Distribution of Ratings/IB Services Firmwide
IB Serv/Past 12 Mos.
Rating Count Percent Count Percent
OUTPERFORM [O] 397 65.30 191 48.11
PERFORM [P] 210 34.54 68 32.38
UNDERPERFORM [U] 1 0.16 0 0.00
Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co.Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer& Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratingsto securities rated Underperform.Note: Stocks trading under $5 can be considered speculative and appropriate for risk tolerant investors.
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