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TI expects solid revenue on 2.5G chips

Although the cell phone industry remains in a funk, Texas Instruments expects to garner half of its revenue in the wireless market from high-speed cellular chips by the fourth quarter.

Although the cell phone industry remains in a funk, Texas Instruments, the leader in cell phone chips, expects to garner half of its revenue in the wireless market from high-speed cellular chips by the fourth quarter.

TI's projections and current revenue trends indicate that, despite the downturn in the communications market, the move toward faster networks that will be able to deliver voice, streaming media and data is proceeding.

In the fourth quarter of 2002, half of TI's revenue will come from sales of GPRS (General Packet Radio Service) or 2.5G chipsets for cell phones and cellular base stations, TI CFO Bill Ayelsworth said at Merrill Lynch's Hardware Heaven Conference in San Francisco. In last year's fourth quarter, only 15 percent of TI's revenue came from GPRS. It rose to 25 percent last quarter.

"The early market activity will be in Europe and Asia," Ayelsworth said. "We will pick up some 3G on top of that."

AT&T and others are also going to expand high-speed wireless service in the United States this year, the companies have said.

TI is something of a bellwether for the cellular industry. The company controls around 50 percent of the market for cellular chips, said Will Strauss, principal analyst at consulting firm Forward Concepts.

"It is indicative of where the industry is going," Strauss said. GRPS "is not so much targeted at new users as the replacement market."

The shift toward GRPS helps TI in that these chips sell for more than standard cellular chips. The average selling price of TI's cellular chipsets, in fact, has been rising as a result of GPRS sales. Overall, wireless accounts for around 20 percent of TI's revenue.

The shift toward these networks, long delayed, is the result of a variety of factors, Ayelsworth said. First, carriers can actually improve voice coverage by installing 2.5G base stations because more phones can feed off a single station. Customers are also acclimating to the additional applications that can be delivered through these networks. Consumers aren't going to use phones and high-speed networks to tinker with spreadsheets, but they will use them for streaming audio or entertainment.

Finally, despite the recession, consumer demand has not flagged nearly as much as corporate buying.

"The consumer sector has been remarkably resilient through all of this," Ayelsworth said. "The tough part is when are corporations going to spend more on IT equipment and infrastructure."