Top phonemakers will need hardware edge

Not every phonemaker will need control over their chip design and manufacturing processes, but such capabilities will become increasingly vital for those looking to lead the pack.
Written by Kevin Kwang, Contributor

As the mobile industry moves assuredly toward an era when ecosystems matter over device innovation and software sophistication, top phonemakers will need to have more control over the chip design and manufacturing components of their business to drive up the value of their products.

That said, not every vendor will need or have the means to do so and partnerships, for the most part, will be sufficient to create a viable, competitive ecosystem.

According to Shiv Putcha, principal analyst of emerging markets at Ovum's telecoms department, Apple and Samsung personify the ecosystem approach of having a semi-closed infrastructure to drive up the value of their products and services. Microsoft, too, is moving toward this with the launch of its self-branded Surface tablets, he added.

Samsung, for one, relies on research and development (R&D) innovations at its South Korea and Israel facilities to continuously finetune its Exynos processors. Its Exynos 5 runs faster and cooler than previous editions of the chip, including the Exynos 4 Quad which is used in the Samsung Galaxy S3.

Apple also is looking to increase its chip design capabilities and reduce its reliance on Samsung for the manufacturing of its mobile chips. In September, it reportedly cut down its order of memory chips from Samsung and will offload the volume to other suppliers such as SK Hynix, Toshiba and Elpida.

Apple also hired Jim Mergard, formerly a chief system architect at Samsung, to bolster its internal chip design talent pool and further the development of its mobile processors.

Putcha said: "There are definitely advantages to this in that a vendor has better control over the supply chain and can execute to their targets faster and more cost effectively." He said companies with global ambitions will need increasing control over their ecosystem--whether they do so by owning all the pieces or establishing close partnerships to have control over the overall supply chain.

Nicole Peng, research director for China at Canalys, agreed. She said the ownership of important component manufacturing capabilities such as mobile processors could provide many advantages. These include having better hardware integration, control over the building cost, internal pricing, and visibility into the product's future roadmap, the Canalys analyst added.

Partnerships work too
However, Peng noted the control over hardware components is just one piece of the puzzle and not many smartphone makers have the capabilities to own their supply chains via acquisitions.

Putcha added not every mobile phone vendor will find it "mandatory" to own every aspect of the ecosystem.

"If the vendor's core competency is not software but hardware, there is still a great opportunity for them by aligning with the right ecosystem," he explained. "Several vendors have aligned with Android with great success, as are those which have licensed Windows Phone."

He said having an assured, always-available supply of hardware components is equally, if not more, important given that component shortages are an increasing factor vendors need to take into account. He pointed to the floods in Thailand and earthquake in Japan which significantly impacted the global IT supply chain.

One phonemaker, Nokia, reiterated Putcha's point, saying it prefers to work on partnerships with chipmakers.

A Nokia spokesperson told ZDNet Asia: "Qualcomm is the chosen processor supplier for the Windows Phone platform [at Nokia]. We worked closely with Qualcomm on the development of the Lumia 820 and Lumia 920, and we believe the close collaboration shines through in the performance of those phones. We are very satisfied with that collaboration."

The executive, though, declined to comment on whether the Finnish phonemaker had plans to acquire hardware component manufacturing capabilities in the future.

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