Market Insight

Intel becomes #1 gateway chip supplier with Lantiq acquisition

February 20, 2015  | Subscribers Only

John Kendall John Kendall Associate Director – Research and Analysis, Service Provider Technology

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Intel is acquiring Lantiq, provider of DSL broadband access and home networking technology. Terms of the deal remain undisclosed, and the process is expected to take 90 days to fully close, pending any regulatory approvals and transaction stipulations.

Our analysis

This acquisition represents part of a larger strategy that Intel has pursued in an attempt to operate in the service provider business. In 2010, Intel acquired the cable modem business of Texas Instruments (TI), and has expanded that business successfully by offering more complex system-on-a-chip (SoC) products using the TI Puma chip alongside DOCSIS technology. Intel originally planned to parlay the Puma-DOCSIS combination to set-top boxes as well. Intel has had some success in the STB space, but has been unable to gain significant market share. However, there has been success in the cable modem sector, most notably more than doubling their DOCSIS 3.0 shipments significantly year-on-year since the Puma acquisition.

More than 60% of Intel’s revenue is derived from its PC Client Group. In the first quarter of Intel’s 2014, business groups were switched to include set-top box and gateways business into this core unit. Previously these groups were categorized under “Other” as the Service Provider Group. Intel also included their Tablets business into the PC Client Group, which was previously listed under its own business unit Tablets in “Other.” As this group is responsible for the majority of revenues, this is an indication that Intel has recognized that the core of its business may be shifting. However, even after the reallocation, the set-top box and gateways portion of the business accounted for 3.2% of the total PC Client Group revenue in 2012 and 2.0% of the group’s revenue in 2013.

To date, Intel has had very limited success in competing in the STB and tablet space, but the past four years have seen Intel preparing itself for a post-PC world. In the past, the PC was the hub of the home network, but that has shifted in more recent years with the success and proliferation of smart phones and tablets, and, more specifically, the Apps that run on such devices. It is now these Apps that power many of the smart home devices. In the past, one would buy a piece of equipment and install software upon the PC in the home in order to include that device into the home network. Now those intermediary steps can be waved away with a simple installation of an App that handles the device management. This has caused a profound shift of how the home network operates, frequently resulting in consumption of content on devices that are not traditional displays such as TVs or computer monitors. It has also resulted in the central pillar of home network management shifting from the PC to the broadband gateway, and it seems that Intel have recognized the strategic importance of that piece of CPE.

Acquiring Lantiq represents a logical second step for Intel into the broadband CPE business. The two companies had partnered in 2014 to produce an LTE gateway SoC, the GRX330, in order to provide solutions for more rural broadband deployments. While North American cable is a strong market, DSL represents a much larger global opportunity. Second to Broadcom, Intel does own a large market share in the cable sector. The acquisition of Lantiq, one of the larger suppliers of DSL, and, more specifically, VDSL, technology represents a move toward diversification and a more firm foothold in the service provider space. In 2013, Lantiq was second in market share to Broadcom for VDSL unit shipments, and this acquisition will propel Intel past Broadcom into the number one spot of Broadband CPE semiconductor supply in the combined cable and DSL sectors.

Lantiq was acquired from Infineon in 2009 for $280M by private equity firm Golden Gate Capital based in San Francisco. In the intervening years, Lantiq has significantly grown its market share, surpassing Broadcom in total DSL from 2012 – 2013. Much of Lantiq’s recent growth has developed in the VDSL space, as new technologies such as bonding and vectoring have given DSL service providers the ability to offer higher bandwidth speeds in order to more effectively compete with DOCSIS on the cable side.

More recently, Lantiq has committed to G.Fast technology. G.Fast is a VDSL standard that can deliver much faster broadband speeds provided the copper loop lines are shorter than 250 meters. With G.Fast technology entering into trials with several telcos, such as British Telecom which announced in February 2015, this acquisition no doubt indicates that Intel believe that G.Fast is a technology into which investment would be of significant strategic importance. Indeed, Broadband CPE VDSL revenues are expected to top $5.6B in 2018, up from $3.5B in 2014, driven primarily by VDSL equipment upgrades and G.Fast deployments.

This forecasted growth indicates that the timing of this acquisition positions Intel very well in the service provider business. While they have had success with DOCSIS 3.0 deployments, and with DOCSIS 3.1 on the horizon they are well positioned to evolve that segment, the scalability of that business is somewhat limited geographically to the Americas and Europe. DSL brings a much larger potential market, and Lantiq brings to Intel knowledge of this market as well as significant market share. Additionally, VDSL presents a significant opportunity for growth, as currently VDSL is somewhat under-deployed in certain markets, though service providers are looking to shift their product mix to more advanced options. This presents a rich opportunity, as does G.Fast technology.

While primarily it seems that Intel’s acquisition strategy seems to be aimed at DSL CPE, Lantiq also offer significant infrastructure share, as well as GPON ONT technology. Lantiq had provided technology for Huawei’s VDSL DSLAMs throughout Europe, though it has since lost that business to HiSilicon. As a result, the company has developed a lower cost GPON SoC, seeking to gain inroads into the China market, but has experienced limited success on that front. This gives Intel the means to compete more broadly throughout the service provider value chain.

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