Telecom equipment makers Ericsson and Nokia are following China’s Huawei and expanding their in-house chip design capabilities to better compete in the 5G era.

Designing chips allows equipment makers to improve network efficiency and differentiate their wireless connectivity technology from rivals, though such efforts are not cheap.

Ericsson, the world’s second-largest telecom gear provider after Huawei Technologies, says that in the past six or seven years it has been investing more in chip development.

“We saw that with 5G, it becomes much more important to do [chip development] in-house than it used to be,” Freddie Sodergren, Ericsson head of technology and strategy for business area networks, told Nikkei Asia on the sidelines of the recent Mobile World Congress in Barcelona.

Sodergren said the company still purchases field-programmable gate array, or FPGA, chips for some of its products. But with 5G connectivity, the requirement for higher computing capabilities and lower power consumption has become more critical, prompting Ericsson to expand its chip development team.

FPGAs are “off the shelf” chips that users can program for specific purposes. They are power-hungry and far from cheap: A single base station FPGA can cost more than $1,000, according to industry sources.

Ericsson Silicon, the company’s department for application-specific integrated circuits, has set up a site in Austin, Texas, and enlarged its team in Sweden, Sodergren said, adding that the venture employs “several hundred” engineers.

He said for some of its in-house chips, Ericsson “always” uses the latest chip manufacturing node available and that it introduces a new generation of its chips every year.

“We are taking a bigger role now than we used to,” Sodergren said. “I think this has been one of the reasons Ericsson has really taken the leadership in the industry … we have done this ourselves.”

Ericsson’s Finnish rival Nokia has taken a similar approach, launching its ReefShark line of system-on-chip (SoC) products in 2018.

“We are aware that from 4G moving to 5G and now to 6G, the capabilities and understanding of what the requirements are are very much linked to how we can actually deliver a greater performance with lower power consumption,” Jane Rygaard, Nokia’s global head of corporate partnerships, told Nikkei Asia. “Of course, we could continue to go out and buy [chips], but when it comes to how we want to have the performance and how we want to have the stability, that means the design [needs] to be in-house.”

For example, Nokia’s latest massive MIMO radio is half the weight of the previous generation thanks to the company’s new ReefShark chipset boosting its power efficiency and increasing the radio performance, the company said.

Massive MIMO radios are a type of wireless technology that uses large numbers of antennas to boost efficiency.

Stephane Teral, founder and chief analyst of Teral Research, told Nikkei Asia that customization is increasingly important because “5G and AI require stronger and stronger computing power” from the network infrastructure.

But developing chips for telecom networks requires significant resources and access to cutting-edge production technology. Companies like Nokia and Samsung are thus collaborating with established developers like Marvell, the market leader in supplying chips for telecom and networking infrastructure.

Marvell and Nokia joined hands in 2020 to co-develop several generations of the ReefShark chipset for 5G applications. The partnership evolved in 2022 to focus on producing data processing units with lower latency, higher performance and improved energy efficiency, achieved partly through the advanced 5-nanometer chip production technology of Taiwan Semiconductor Manufacturing.

Will Chu, Marvell’s senior vice president and general manager of custom computer and storage, told Nikkei Asia that a desire to be competitive is the “No. 1” factor driving the rise of customized chips. “From 2G, 3G, 4G, 5G to 6G, every time they make a stair-step in those standards, they require better and better silicon,” he said.

According to Chu, another significant factor driving the rise of customized semiconductors is the convergence of 5G and the AI era, which is forcing cloud service providers to upgrade their infrastructure. “We see a large growing market for custom [chip] solutions. The main thing that’s driving this is the data economy and the computing demand for AI. You need a new infrastructure to support all the applications.”

However, only companies, primarily top telecom equipment makers and cloud service providers, have the capacity and resources to develop or co-develop customized chips, Chu said, citing his observations as a chip industry veteran.