For some carriers mobile data traffic has grown to require nearly 90
percent of network capacity, up from less than 30 percent three years
ago. However, most carriers will be able to manage the increased
traffic without buying new gear with a few exceptions such as AT&T
which has seen congestion due traffic from Apple iPhone users.

Only five percent of users generate as much as 60 percent of
mobile data, and only five percent of base stations ever hit 95 percent
of their capacity, said one Barclays analyst.

"There are underlying network congestion issues that vary by
carrier and market, but with the exceptions of AT&T and O2 it seems
more like a question of time rather than money to solve them," said
Andrew Gardiner, a Barclays analyst covering comms systems in Europe.

Opportunity 1: Chips ahoy!

Semiconductors serving a wide variety of mobile data systems
should see growth on several fronts despite the tight climate for
capital equipment spending by carriers, said Tim Luke, lead chip
analyst at Barclays.

To deal with increasing traffic carriers are generally not
putting in more base stations, but they are taking a variety of other,
lower costs measures that will drive needs for new silicon. They
include deploying femtocells and Wi-Fi to siphon off mobile data
traffic as well as moving to higher speed networks such as HSPA+ which
requires new silicon, Luke said.

Altera and Xilinx are already seeing demand for FPGAs to serve
HSPA+ systems. A wider group of mobile data chip companies are seeing
increases in sales due to the rise of China's big communications
systems makers Hua Wei and ZTE that use merchant chips rather than
their own ASICs, he added.

Opportunity 2: Backhaul

The piece of the carrier's network that links a base station to
a core network—the so-called backhaul—is facing the greatest congestion
and thus is the focus of most network upgrades. Backhaul utilization
rates are running at much higher levels than the 30-40 percent in the
overall wireless network, Barclays said.

System vendors such as Alcatel-Lucent, Hua Wei, Adtran, Ciena
and TellLabs will benefit from this situation given their focus on this
part of the net. Makers of IP networking equipment such as AlcaLu,
Cisco Systems and Juniper networks will also benefit from the trend,
Barclays said.

Mobile data vendors more focused on base stations such as
Ericsson and Nokia Siemens Networks will not fare as well, given
carriers are not adding significant numbers of new base stations.


Opportunity 3: U.S. drives 4G

The move to 4G networks is happening first in the U.S., driving
opportunities for new systems. For example, Clearwire has already
deployed as many as 30 million points of presence (POPs) for its WiMax
network and plans to have a total of 130 million installed by the end
of the year, Barclays estimates.

Verizon Wireless has announced it will end development of its
CDMA network and transition early to LTE. It is expected to deploy
about 100 million POPs by the end of the year, covering a third of the
U.S.

AT&T is somewhat behind in the U.S. drive to 4G, as it
focuses on relieving congestion in its backhaul nets. TMobile faces a
lack of spectrum to drive a shift to 4G, Barclays said.
With the exception of Sweden, most European carriers are still
deploying HSPA+ and will move to 4G slowly, in part stung by snags
being the first to deploy 3G technology based on wideband CDMA.
However, the HSPA nets may only deliver end users about 1.8 Mbits/s,
not the promised 11 Mbits/s, Barclays estimates.

Opportunity 4: Femtocells, Wi-Fi

One of the ways carriers will handle increases in mobile
data—and avoid big capital equipment expenses—is by deploying
femtocells and Wi-Fi to siphon data traffic off their core cellular
networks.

The move makes sense because more than 60 percent of mobile data use is
in homes and more than 95 percent is in buildings, noted Jeff Kvaal, a
Barclay analyst covering comms systems in the U.S. "It's worth it for
carriers to put in the effort to work through challenges with
femtocells and Wi-Fi, and some deployments are underway," he said.
Wi-Fi business systems maker Aruba and femtocell chip designer
PicoChip will be among the companies that benefit from the trend,
Barclays said.

Opportunity 5: China on the rise

China's two top communications systems makers--Hua Wei and
ZTE—have grown to hold as much as 15 percent of the market for
communications equipment in Western Europe, Barclays estimates.
"It's become clear the quality of their products has improved to the
point that Western operators have become comfortable purchasing it,"
said Gardiner. "Hua Wei may have had a start as a low cost vendor with
questions of quality, but today that's less the case," he said.
Indeed, Hua Wei now claims Nokia Siemens Networks is driving
the lowest prices in the sector. Meanwhile the Chinese OEMs' appetite
for merchant silicon is driving opportunities for a growing array of
chip makers.