It's a GaAS: Critical Component for Cell Phone

Circuits Grows in 2010

Dec. 15, 2010 1:57 PM ET | Includes: ANAD, HITT, RFMD, SWKS, TQNT
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Strong wireless demand created the best growth in Gallium Arsenide (GaAs) integrated circuits -
a critical component for supporting cell phone functionality - since 2003, according to the
report The GaAs IC Market, recently published by The Information Network.
Every cell phone contains power amplifiers (PA), which enable the handset to transmit voice and
data back to the base station tower, which routes a call to another phone number or Internet
address. PAs, the most critical radio frequency component in the phone, are currently dominated
by circuits made with Gallium Arsenide (GaAs).
GaAs ICs grew 36% in 2010, led by strong demand in wireless - both cell phones and WiFi. This
represents the largest growth since a 52% gain in 2003. Strong momentum will drive the GaAs
IC market to register an 18% gain in 2011. Leading companies in the U.S. include RF Micro
Devices (NASDAQ:RFMD), Anadigics (NASDAQ:ANAD), TriQuint (NASDAQ:TQNT),
Skyworks (NASDAQ:SWKS) and Hittite (NASDAQ:HITT). By way of comparison, the silicon-
based semiconductor market (silicon also is used within cell phone components) grew 33% in
2010.
3G handsets often contain up to five PAs, and GaAs makes up 100% of the market, which is
close to $5 billion. In addition, the number of PAs per handset is growing due complex 3G
systems, global roaming support and data roaming support. Pricing for PAs has increased from
$0.80 per handset to $2.90 currently, and is projected to increase to greater than $3.50 once Long
Term Evolution (LTE) and Advanced Wireless Services (AWS) spectrum emerge in advanced
handsets in the marketplace.
While industrialized countries are using 3G networks, todays world is a mixture of 2/2.5G and
3G networks. The heavy majority of subscribers are actually on 2G-based networks and
predicted to remain so for a number of years. Of new handsets sold in 2010, about 50% will still
be 2G. Between 70 to 80% of Skyworks and RF Micro Devices GaAs business is in PAs.
2G handsets contain 1 PA, so it represents a sizable market. Because they arent as
technologically advanced as 3G cell phones, particularly smartphones, silicon is making inroads
in the GaAs domain. For 2009, 90% of PAs were made in GaAs, 5% in silicon CMOS
(Complementary Metal Oxide Semiconductor), and 5% in silicon LDMOS (Laterally Diffused
Metal Oxide Semiconductor).
Besides the technical dynamics, Skyworks has positioned itself in the market with the mid-2009
acquisition of CMOS PA supplier Axiom Micro Devices. Also, in September 2009, privately
held Black Sand announced the worlds first 3G CMOS RF PA. Black Sands proprietary CMOS
PA architecture offers a breakthrough in combined performance, cost, battery life and reliability
for mobile devices. Other CMOS PA companies of note include Javelin and Amalfi. Another
rumored to be working on CMOS PA is ACCO.