Chipset vendors integral to China's mobile growth

Control over the hardware supply chain and influence over local manufacturers mean chipset makers play a decisive role in helping mobile phone companies establish their businesses.

SINGAPORE--Chipset manufacturers play a decidedly more important role in guiding the development and direction of China's smartphone market as they help organize the ecosystem and are integral in keeping production costs low.

This was the view of Roger Sheng, research director at Gartner, who said chipset vendors such as Qualcomm and MediaTek play their part in providing affordable reference designs to phonemakers. They also engage software partners, key hardware makers and original design manufacturers (ODMs) to develop targeted products which are priced for specific market niches, he explained. The analyst was speaking at Gartner's semiconductor briefing here Tuesday.

This contrasts with the trend seen in more mature markets globally where the operating system(OS) providers , such as Google and Microsoft, call the shots over the content providers, chipset makers, application developers, ODMs and OEMs (original equipment manufacturers). There, being a part of the OS ecosystem is critical for the other stakeholders to gain a foothold in the market, Sheng noted.

Manufacturing capabilities vital
Generally, getting in early on a relatively new mobile platform will be an advantage for phonemakers, he said, citing HTC as an example. The Taiwanese smartphone maker produced Google's first Nexus device in 2009, thus making its name in the Android ecosystem.

However, first-mover advantage will only carry a brand so far. Once other competitors with stronger manufacturing resources come into the picture, vendors such as HTC get pushed into the background. The entry and subsequent dominance of Samsung Electronics with its Galaxy series of Android mobile devices, due to the manufacturing and hardware innovation capabilities such as its processor and display screen plants, is proof of this, he explained.

Thus, control over the hardware supply chain is a big factor why chipset makers are thriving in China, helping phone manufacturers make the transition from feature phones to smartphones by providing low-cost processors.

Another research firm Canalys had made the same point earlier. In a September report , it said China's domestic feature phonemakers are quickly moving their businesses to smartphones, supported by low-cost offerings from chipset providers such as MediaTek, Spreadtrum and Qualcomm's QRD.

Chinese phonemakers reliant on domestic market
Sheng pointed out the ceiling for China's smartphone market remains high for the foreseeable future, and this will benefit domestic phone manufacturers. Smartphone penetration in China is 1 to every 11 users, whereas a mature market such as North America is at 1 to every 3 users, he said.

This is why despite competition from foreign vendors, local brands will be able to still carve a niche for themselves, he stated.

Additionally, many of these local companies have established multiple distribution channels to promote and sell their devices, which put them in a good position to compete with foreign brands. Smaller domestic players will also be able to address certain market segments that the larger smartphone companies are not able or willing to service, the analyst added.


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