I spoke with Greg Fischer, Vice President and General Manager of Broadcom's Broadband Carrier Access line of business, into whom the new subsiduary will report, for his views on the femtocell market, how Percello will be integrated into Broadcom’s organisation and their future plans.
Broadcom are probably the largest silicon chip vendor specialising in telecommunications, with revenues of $4.5Bn in 2009. Chances are that if you communicate electronically, you will be using one or more of their products. Mobile handset components (such as Nokia), DSL broadband (both at home and at the telephone exchange), cable modem chips and Wi-Fi are all part of the portfolio. With femtocells forecast to become an important part of the wireless communication space, perhaps it isn’t surprising that Broadcom have decided to complement existing products with femtocell chipsets by acquiring Percello for an agreed $86 million.
We see femtocells as a disruptive technology which has strong synergy with our existing market space. Broadcom has a strong portfolio in both residential and office communication equipment, from set top boxes to modems, routers and Wi-Fi.
We mainly see opportunities in the residential and enterprise space – for example, we are not currently in outdoor basestation designs today. Percello’s femtocell design achieves the low price point best suited to our target market.
How will Percello be integrated into Broadcom?
We like to let successful companies continue to operate as they are. Percello will report into Greg as a separate group, but can draw on the support of the wider resources that a larger organisation provides, such as sales channels (Broadcom already sells to the same ODM/OEMs who would manufacture femtocells), global marketing, Intellectual Property [Ed Note: Broadcom has over 14,000 patents] etc. This allows Percello to maximise what they are best at – first class engineering design.
Carriers are more interested in supplier diversity today. They are risk averse and often don’t want to rely on single source small companies for critical parts of their operation. Becoming part of a much larger organisation with the resources to deal with unforeseen events removes this concern.
Other femtocell chip vendors have built up strong eco-systems involving a range of partners and standard solution designs. Will Broadcom follow a similar path?
We expect to build up a broader base and open up the eco-system of partners we work with. At first Percello have been focused on the success of the Ubiquisys development but many ODMs have shown interest. [Ed Note: Ubiquisys seem to be pleased about the acquisition too – as their CTO Will Franks comments on his blog http://femtocellpioneer.blogspot.com/2010/11/broadcom-acquisition-confirms-percellos.html]
I’d say there is still a fair degree of complexity in femtocells, which are not yet fully standardised. Specifically that’s around the aspects of Radio Resource Management (RRM) and Interoperability Testing (IOT) between femtocells and gateways (Iu-h interface/Management). ODMs feel that the price of femtocell application software is prohibitive and so have tried to build their own using commercial components. These do work in the labs but are not deployed on a wide scale today.
The few femtocell specialists today have a strong lead and it will be several years before the mass market of vendors will commoditise this expertise. By comparison, it took several years for VDSL technology to be developed to that state, after which the market exploded. The key to accelerating this interoperability lies with the carriers requiring and facilitating it.
picoChip have recently expanded their solution to cover metro-femto (Local Area Basestations). Will Broadcom follow?
Metro-femto is an opportunity space and another disruptive technology. We are interested in making the most of the technology that Percello has brought us.
What are your views on LTE femtocells?
Broadcom already have invested substantially in both WiMAX and LTE handset chips. Percello have also done some background LTE research. But we think it’s just too soon to be starting on LTE femtocells. It's a good time now to work on the technology, but too soon to expect deployment – the market focus is on today’s 3G networks. Critical factors will include the pricepoint and whether dual-mode 3G/4G femtocells are required.
What is your view of the competitive space?
Large OEM/ODMs prefer dealing with larger suppliers. As the market grows, the bigger players such as Qualcomm, ourselves and others can achieve the scale and have the financial and organisational resources to support very high volumes.
picoChip, who have pioneered this space and have the majority of design wins to date, are still a relatively small company.
There are several other large companies who have expressed interest in femtocells, with rumours that Freescale (formerly Motorola chipset arm) may enter with product. TI are already in the larger enterprise/metro femtocell and of course Qualcomm have recently launched their own chips. Potentially other well known/large manufacturers could enter the fray.
What is Broadcom’s approach to the Femto Forum
We’ve been working quietly at the Femto Forum for over a year, up to now mainly as observers to understand the technology and business aspects. We hired experienced staff from RadioFrame [Ed. Note: Radioframe was a small company that abandoned its femtocell chipset design and exited the femtocell business in 2008] and formed a team to evaluate our approach. This helped us decide to buy rather than build our own solution. Percello have participated in a much more active role, which we see continuing.
The Forum has been a great vehicle to promote this disruptive technology, especially through its tie-in with 3GPP which achieved femtocell standards in such a short timeframe.
Standardisation and interoperability are key enablers for this industry to grow, as with that growth we must tackle the scalability issues. Those carriers with the largest femtocell deployments – almost certainly AT&T Wireless today – must set the agenda for work to be achieved within 3GPP standards.
And finally… any interesting observations you’ve found out through the acquisition?
The cost of femtocells still needs to drop to achieve the volumes being forecast. We’ve seen with Percello that it’s not a hardware technical issue anymore – Percello’s technology platform is very efficient, both in terms of power consumption and solution design.
The software is the next piece to come inline with the reducing price point.
I can envision that the femtocell hardware will soon be cheaper than the software.
It’s a chicken-and-egg problem – the tradeoff between cost and volume is a traditional one. As the carriers increase the size of their orders, we can expect the unit cost for both hardware and software to be driven down further.
This acquisition undoubtedly raises the game for the femtocell industry by giving it a significant $86 million hard cash validation of the industry’s potential. With large chipset businesses such as Broadcom and Qualcomm entering the fray, carriers can have confidence that this technology is here to stay and will continue to get the kind of investment it needs.
Some may say that Qualcomm may be hurt most by this move – they haven’t got an established customer base or proven product yet – but as a large, well established player they are one to watch. picoChip, having recently announced further technical features, will need to continue to match Percello’s price point to retain and grow their strong market share.
Others have commented on Broadcom’s ability to integrate femtocells into other residential equipment (e.g. modem/W-Fi/router etc.) I don’t see that being required at the silicon level (ie integrated into the same chipset) for some time – integrated boxes have been available for 2 years now, they just haven’t been taken up by carriers. In the longer term, if these prove popular, then new integrated chipsets might emerge in order to drive cost down further.
Shlomo Gadot, the CEO of Percello, and his venture capital backers should be very pleased with the price achieved for such a young and relatively small company. Having repeated the success of his previous startup, ModemArt, he and his team have made a significant contribution in a very short time. Clear focus of the business problem to be solved combined with excellent execution have provided a great example of how to succeed with a startup venture.