The Analysis of Chinese Mobile Chip Market

Smartphone is increasingly finding more ways in Chinese civilians’ home. Although Chinese consumers often buy iPhone or Galaxy series to show position, growing consumers began to be appealed to large-screen, high-quality camera function and a number of vogue applications of smartphone. Chinese low-price smartphone market shows robust growth, benefiting from the sharp decline of feature phone sales. With low-price smartphone largely grabbing the market of feature phone, the increasing purchasing power of Chinese consumers also contributes to it; in addition, the cost-effectiveness consideration of such mobile chip design and manufacturing giants as Qualcomm Company and Media is also an important promoter.

According to strong growth momentum, we foresee, there is a year-on-year growth rate of 14% for Chinese smartphone market shipments, increasing to 304 million units in 2013 from 267 million units of 2012. The Feature phone’s continuous transformation to low-price smartphone is driven by the MediaTek MT6575 reference design to a great extent. Besides, due to the hardware advantage of touch screen and appearance on smartphone as well as the more convenient mobile Internet access, consumers are more favorable to smartphone, as such feature phone manufacturers in China is facing huge inventory pressure.

Despite the undoubted sales growth for mid-to low-end smartphone, tremendous price pressure presses the cellphone chip market. Due to fierce competition, the ASP application processor price of low-cost smartphone will be eroded by at least 30%, some profitability weak handset chip companies are difficult to sustain in such fierce competition, gradually withdrawing market; only few suppliers successfully survive the low-end smartphone chip market competition.

In Chinese 2G market, MediaTek is certain leadership with market shares exceeding 60%. However, MediaTek in the 3G market faces the strong competition from Qualcomm Company, who has important patents in 3G network construction and requires handset chip manufactures to pay related patent fees. IC design companies (like MediaTek) also need to pay to IP suppliers such as ARM to get CPU core; offer CPU core to Imagination Technologies will greatly pulls down the profit rate of design companies. Therefore, pricing pressures, intellectual property costs have an impact on the sustained profitability of IC design companies in low-end smartphone chip market. As a result, these handset chip price becomes a great problem; slightly higher price, small market demand; slightly lower price, there will no profit for chip companies, which develops into a dilemma situation.

Comprehensively, MediaTek occupies the low-end smartphone chip market, while Qualcomm is the lead of high-end smartphone market. Based on a strong on-site technical support and cost-effective platform, MediaTek is the biggest beneficiary in the feature phone’s transformation to low-end smartphone. MediaTek and Qualcomm, though, provide reference design platform to the OEM and white box suppliers to shorten handset development cycle, MediaTek has succeeded in penetrating into the second and third-tier OEM manufacturers, establishing long-term cooperation relationship due to consideration of the background of white box suppliers. This ensures MediaTek’s advantage to compete in different places, enabling MediaTek better adapting to the local business environment, reducing IC supplier delivery time.

However, for higher-level OEM manufacturers such as Huawei, ZTE and Millet, Qualcomm significantly has a larger influence than MediaTek. The strategy Qualcomm adopts in high-end smartphone forum is using state-of-the-art products to maintain OEM customers, most relatively value-preserving smart phones such as iphone, galaxy, Millet all adopt the discrete baseband or Sanpdragon the system-on-chip. The strategy of Qualcomm in low-price smartphone market indeed is not evident, albeit reference design platform and competitive prices, it has lost its market shares since the first quarter of 2012.