Newport Beach-based networking chipmaker Mindspeed Technologies Inc. will join with the world’s largest wireless carrier in a partnership aimed at improving China’s taxed communications infrastructure.
The company last week announced a research-and-development pact with Hong Kong-based China Mobile Ltd. in support of a plan to deploy thousands of small base stations across the country. China Mobile will leverage Mindspeed technology gained from its $51.8 million buy of U.K.-based Picochip Ltd. earlier this year, which makes systems-on-a-chip for small cellular base stations.
The partnership won’t immediately reap financial benefits for Mindspeed, but it’s expected to open new doors in that important growth market, improve business ties with manufacturers there and lay the ground work for future potential expansion and design wins in China, said Rupert Baines, vice president of corporate strategy and marketing communications.
“We’re much more plugged in as a result,” Baines said. “China is one of the most important markets for us.”
Mindspeed doesn’t break out revenue regionally.
The company saw $162 million in sales in its most recent fiscal year that ended Sept. 30. It employs about 65 people in China and has a software development team in Beijing.
Mindspeed also counts ZTE Corp., China’s largest telecommunications-equipment maker, and rival Huawei Technologies Co., both based in Shenzhen, as major customers in the region. China Mobile has more than 618 million subscribers, or some 70% of global market share, according to the most recent data collected by London-based market tracker Wireless Intelligence.
The largest U.S.-based wireless carrier Verizon Wireless, a unit of New York-based Verizon Communications, had 106.3 million subscribers through June 2011, the most recent quarter for which figures are available.
China Mobile is among a growing number of Chinese companies and government agencies taking lead roles to improve the country’s ailing infrastructure grid, which largely lacks faster 3G and 4G connections.
• Headquarters: Newport Beach
• Business: networking chipmaker
• Founded: 2001
• Ticker symbol: MSPD (Nasdaq)
• Market value: About $145.5 million
• Notable: Major customers in Asia include Shanghai-based telecom-equipment makers ZTE Corp and Huawei Technologies Co.
Expansion Plans
China Mobile recently announced plans to extend its trial 4G LTE, or long-term evolution network, to 10 Chinese cities while building 20,000 base stations this year and another 20,000 in 2013. That’s just a fraction of the 5 million base stations forecasted annually in China by 2017, according to Joe Madden, founder and lead analyst for mobile phone and infrastructure at Campbell-based Mobile Experts.
“More than 40 mobile operators around the world are watching China Mobile’s initiative and planning to take advantage of the economies of scale that come from early deployments in China,” Madden said.
The system overhaul is sorely needed for a nation with more than 1 billion mobile phone subscribers pushing demand for streaming video and music, as the proliferation of cloud data and storage escalates.
Stake holders and industry watchers are keeping close tabs on this development in China, which could serve as a case study for other developing countries.
“It’s not just about China, it’s playing out around the world,” Baines said.
Too Early
It’s too early to tell whether Mindspeed will reap any benefits from this shift. It appears investors are taking a cautious approach as the company wades through some choppy waters.
Mindspeed shares were punished recently when the company gave a revenue outlook for the current quarter below Wall Street expectations.
On its May 7 earnings call with analysts it projected quarterly revenue of $35.2 million to $36.3 million, below consensus estimates of $40 million in sales. That prompted a downgrade by Newport Beach-based Roth Capital Partners LLC, which lowered its target share price on the stock to $7 from $10.
Roth senior research analyst Krishna Shankar cited “weakness in wire-line telecom spending and some pockets of weakness in enterprise networking” for the downgrade in his note to investors.
Mindspeed took a $1.2 million restructuring charge in the recently ended quarter for severance costs. The company is eliminating job overlaps as it integrates Picochip operations.
Picochip had 162 workers before its acquisition. Mindspeed has cut about 25 jobs, primarily in support roles such as administration, human resources and financing, as part of the restructuring, a spokesperson said.
