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Rise of the $50 Smartphone: Impact on Analog

The analog chip industry is facing more commoditization in mobile device products thanks to the boom in $50 smartphones produced by companies like Spreadtrum and MediaTek for China and emerging markets. Companies such as Texas Instruments have not been successful in gauging the analog IC mobile device market and offering competitive solutions. As a result, these companies are shifting their efforts toward industrial-scale power control applications instead.

As Junko Yoshida reported in a recent EETimes post, even though high-end smartphones, such as the latest offerings from Apple and Samsung, tend to garner the most attention, lower-end products are boosting China to the top spot in the global smartphone market. The market research firm Canalys has forecast that 240 million smartphones will be sold in China this year (versus 125 million in the US).

Leo Li, chairman and CEO of Spreadtrum, told Yoshida that the smartphones spurring this growth in China, India, and Southeast Asia are much different from those being sold in the US. “Handsets purchased by China's first-time smartphone buyers are cheaper, usually under $50 per handset, and feature typically a 3.5-inch screen. They run on an Android 2.1 operating system.” (What's more, the Chinese government supports smartphone connectivity for its citizens, especially in rural areas, because of the devices' Internet capacity.)

India is following a similar trend. “Eighty percent of handsets sold by Micromax, India's leading mobile handset brand [in which Spreadtrum invested], are the low-end smartphones designed to work in India's EDGE network,” Li told EETimes.

Despite the lower prices, smartphones in emerging markets possess the core digital and analog components that enable them to function well enough for the average consumer. Li cited Spreadtrum's 1GHz Android platforms such as SC8810 and SC6820. “While both are based on an integrated baseband/apps processor using a single ARM Cortex A5 core, they can drive low-end smartphones with performance as good as Apple's iPhone 4.”

Companies such as Mozilla (known for the Firefox Web browser) have recognized the emerging trend. Mozilla recently announced that it plans to produce phones that cost less than $50 for emerging markets.

In Spreadtrum's first-quarter earnings release, Li cited the success of products like its TD-SCDMA line:

These handsets, which are the lowest cost 3G smartphones available in China, are helping to speed the transition from feature phones by improving affordability for the first time smartphone buyer. EDGE smartphone shipments were also very strong, which reflects growing demand for entry-level smartphones in overseas regions as well.

Li also announced plans for new products:

We have now expanded our smartphone portfolio further with the commercial launch of our dual-core smartphone chipset, which combines exceptional graphics performance with one of the lowest cost dual-core platforms in the TD-SCDMA market. Further, we have started sampling our single-core WCDMA/HSPA+ smartphone chipset as well as our quad-core smartphone chipset.

Even though most people in the US have never even heard of Spreadtrum, this company and others are changing the competitive landscape for smartphones. Its progress should be concerning to companies such as Apple, which happens to be losing serious marketshare. It approached the market from the high-end perspective, whereas Spreadtrum has done just the opposite. As Yoshida put it in her post:

As global smartphone chip suppliers like ST-Ericsson, Renesas Mobile, Marvell and Nvidia struggle to break into the high-end smartphone market dominated by Qualcomm and Apple, Spreadtrum and MediaTek, are having a field day in sharing what appears to be a wide-open mid- to low-end smartphone segment.

The rise of the $50 smartphone puts price pressure not only on apps processors, but also on analog chips. Profit margins will dwindle, and the focus will be on volume and meeting the enormous capacity targets for cheaper smartphones in China and emerging markets. This will also stifle the technology progress of analog chips, as conventional designs and materials will be integrated. Therefore, production of older-generation analog chips will be continued — offering foundries in Taiwan such as TSMC and UMC a major advantage over integrated device manufacturers.

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48 comments on “Rise of the $50 Smartphone: Impact on Analog

  1. eafpres
    June 5, 2013

    Hi Brian–good heads up.  The low-end smartphone market is growing at 5 times the rate of the high-end smartphone market, and 10 times the rate of the mobile phone market overall.  It is only a matter of time until the line is so blurry between low-end and high-end and until these phones make an impact on Western/developed markets.

     

  2. Scott Elder
    June 5, 2013

    @eafpres — In other words, smartphones have become a commodity.

    I recall many years ago when Intersil sold off their 802.11 technology before everyone started calling it wifi.  Smart move.  They knew where that business was headed.

    CSR sold off Bluetooth.  Same story.

    Innovators need to keep innovating and followers will always be there to run the margins down.  I think the free enterprise system is working like it is supposed to.

  3. Davidled
    June 5, 2013

    It is carefully thought that some of $50 smartphone might have a counterfeit chip. Counterfeit chip contribute to the lower price of smart phone. I heard that there is a big issue for counterfeit chip and component in the global electronic market. Consulting company inspects the counterfeit chip.

  4. eafpres
    June 5, 2013

    The total volume of grey market phones has been slowly dropping each year, as consumers in emerging markets get smarter and won't buy them, and legitimate Chinese companies gain market share in China and other emerging markets.  In 2013, the grey market is about as large as the “low end smartphone” market, but I cannot say what fraction of the $50 smartphones are in the grey market.  But from the figures it is clear that a good percentage of the cheapest smartphones today are grey market, which are the most likely to have counterfeit components.

    If you look at the market trends, in a few years the grey market falls to less than 10% of phones shipped, while low-end smartphones grow to almost 30% of the market.  When these low-end smartphones move out to mature markets, they will almost surely be the “real” ones, leaving perhaps 1 in 6 sold in emerging markets possible fakes.

  5. goafrit2
    June 6, 2013

    >>  It is only a matter of time until the line is so blurry between low-end and high-end and until these phones make an impact on Western/developed markets

    I think that is the key point. Some of these cheap tablets do all that one expects from the expensive ones. In 3 years, smartphones will be commoditized products if the trend continues.

  6. goafrit2
    June 6, 2013

    >> Innovators need to keep innovating and followers will always be there to run the margins down.

    These days I do not think one really needs to innovate. All you need is to have a strong business model of picking what works and ramping it up at great price. Apple will make iWatch and suddenly people will think they create the sector. You need not lead in innovation because price is the “innovating factor” in the devices.

  7. goafrit2
    June 6, 2013

    >> Counterfeit chip contribute to the lower price of smart phone.

    Is it truly fair to call any IC product that can power a smartphone a counterfeit? I mean the person that can make the counterfeit could have made  a new product line since most of the ideas are off-patents at least when you take out the pioneering ideas. To counterfeit a mobile processor is very challenging. It is not the same as faking resisor, caps and LEDs.

  8. goafrit2
    June 6, 2013

    >> The total volume of grey market phones has been slowly dropping each year,

    Notice that most of these products are not grey products. They have brands and are marketed as owned by legit firms. The only difference is that they are affordable. The price must not be used a reason to make them grey products. Most are simply cheap because they are Android phones and pay not OS royalty unlike the world of Windows.

  9. bjcoppa
    June 6, 2013

    Thanks for the comments. The low-end smartphone biz is not getting much press in the US. Actually, the 1st I heard about it was on CNBC a few weeks back. However, it's a hot commodity in China and emerging markets for 1st time buyers of these products. They are priced at a sweet spot to gain the most market share. Eventually, they will be baited to purchase more expensive versions once they get hooked as in the US. Ah, the beauty of materialism and capitalism…:+)

  10. eafpres
    June 6, 2013

    Hi goafrit2–my comments on grey market and pricing have to do with counterfeit parts.  Although some of the branded products are subject to counterfeit parts in the supply chain, the likelihood is much higher for “too good to be true” low priced phones and non-branded phones.

    Regarding the counterfeit parts, I'm not sure exactly which chips DaeJ was talking about.  There is plenty of IP in various integrated parts like power management, voltage regulation, etc.  There are baseband ICs outside the processor.  I've known of counterfeit LNAs out there for very specific applications.

    About your comment on not needing to innovate.  That is a long standing question.  Some companies have part of their strategy as “fast followers”.  But I think it is hard to grow continuously and get good margins without innovation.

  11. goafrit2
    June 6, 2013

    >> But I think it is hard to grow continuously and get good margins without innovation.

    Great comments. You are right. The Samwer brothers in Germany who are some of the richest guys in Europe focus on replicating U.S. Internet firms in the EU and now Africa and Latin America. They make money but they have no innovation. They cloned eBay, Amazon.com, etc (of not not any IC firm). If they have spent all the years trying to crack an idea, they might not be successful. Also notice that as people anticipate iWatch from Apple, many have stopped buying from other companies as they know Apple is releasing theirs in few months. If Apple does that, they are not innovators – they just design things better. Unless if that is seen as innovation because they have great industrial engineers but technically they are following!

  12. Scott Elder
    June 6, 2013

    Are you claiming that Apple became the most valuable company in the world by waiting until smartphones sell for $50.

    Are you claiming that Facebook became the most valuable social networking company by waiting to copy someone else? 

    Either you lead (innovate) and make or lose alot of money or you follow and you make or lose a little money.  Big risk, big reward.  Little risk, little reward.  No rocket science here.

    The biggest mistake companies make is they start out as innovators, then the entrepreneurs leave the building.

    Your suggestion for success is targeted towards businesses planning to make a little money.  And by little, I don't mean everyone makes a little.  I mean that everyone doesn't make a lot.  Lots of Apple millionaires besides SJ.  Lots of Facebook millionaires besides MZ.  1000's. Microsoft, according to many estimates, produced over 10,000 millionaires many of whom have gone on to create more innovative businesses.   Those scenarios won't happen for companies that aim low.

    I almost forgot.  You can also make a lot of money by stealing…which is also a big risk, big reward scenario.  Of course, there you might be risking your life which is infinitely more valuable than money.

     

  13. Scott Elder
    June 6, 2013

    Here's a quote from Oliver Samwer. “Ideas are nothing special. There are thousands of ideas. But of thousands of ideas, only one succeeds. And that's the real point.” The most important thing, he says, is to bring this idea “onto the street,”.  

    That's the perspective from one type of entrepreneur.  Let others take big risks with most finding big failure.  Then when one of the risk takers figures it out, copy him.

    Ask yourself, is the world a better place with entrepreneurs like the Samwer brothers or Elon Musk?  Who do we want future entrepreneurs to emulate?

    I think the world is much better off with idea entrepreneurs like Musk who built Paypal and became wealthy, then Tesla Motors, Space X, Solar City.  All huge risks. All bold and brazen ideas.  And that's just the short list so far.

     

  14. Davidled
    June 6, 2013

    I heard that fake iphone is sold in some country.  I am not sure the functionality difference between real and fake iphone. But, it looks very similar shape and design.  I am wondering how many counterfeit components are used in the fake iphone.  I wish that someone figure out the total percentage of counterfeit components in the fake iphone. It is a kind of scare. I believe that this is a huge grey market.

  15. Brad Albing
    June 6, 2013

    @analoging >>Ah, the beauty of materialism and capitalism… Indeed – paying the bills for you and me….

  16. goafrit2
    June 12, 2013

    >> Either you lead (innovate) and make or lose alot of money or you follow and you make or lose a little money.  Big risk, big reward.  Little risk, little reward.  No rocket science here.

    Actually I will like to see the contribution of Apple in some fundamental science. We tend to see innovation from the lens of selling many products. You can sell iPhone by copying other ideas and making them better. To my knowledge, Apple did not pioneer any sector. They just have a gift in nearly perfecting them.

  17. goafrit2
    June 12, 2013

    >> I almost forgot.  You can also make a lot of money by stealing…which is also a big risk, big reward scenario.

    Shere with me the contribution of Apple in electronics. I know they make great products. But in my world, they perfect what others have done. That innovation is largely design innovation and not core electronics innovation.

  18. goafrit2
    June 12, 2013

    >> Ask yourself, is the world a better place with entrepreneurs like the Samwer brothers or Elon Musk?  Who do we want future entrepreneurs to emulate?

    I think we now agree. I am happy your brought the case of Samwer brothers who copy others and make money. Imagine if BlackBerry had excluded others from the smartphone business, there will not be iPhone. So, if that cannot happen in hardware, why will copying Amazon in Germany be a bad thing?

  19. goafrit2
    June 12, 2013

    >> I think the world is much better off with idea entrepreneurs like Musk who built Paypal and became wealthy,

    @Scott, that depends. For all I know the Samwers are investing millions of dollars in Africa, Russia etc. Those guys hail them for coming out with funds to seed them. Elon may not care to help them. So, in U.S., Elon may be hailed but in most parts of the world, he is not directly impacting them. The deal is to understand that people see things differently. I still think that Samwers are creating legal products by entering markets American firms are slow to enter. There is no reason to make them feel less inventive. That they did not pioneer the sector is no excuse

  20. goafrit2
    June 12, 2013

    >> I wish that someone figure out the total percentage of counterfeit components in the fake iphone.

    Except the A5 microprocessor, they can source from the same vendors Apple is buying from. However, they may no request the same quality as Apple. So, it is going to be hard to know what is fake.

  21. Scott Elder
    June 12, 2013

    @goafrit2

    Did Intel invent the transistor?  No.  But they sell more transistors than any other company on the planet.

    Did Ford invent the wheel?  How about the engine?  How about axles?

    Apple is like Ford and Intel.  Apple is like all great companies founded by great entrepreneurs.  They move society to the next level by taking innovations of the past and packinging them at the next higher level for the future.

    Isn't this the same as the charter for Integration Nation and Planet Analog?

     

  22. bjcoppa
    June 12, 2013

    Just because, a smartphone sells for $50 doesn't mean it has counterfeit chips. Slower processor and smaller screen along with less bells and whistles can enable that price point. The top foundry in the world, TSMC, had the vision to recognize the rise of mid to low tier smartphones for 1st time buyers in emerging nations and is expecting a boom of selling into this market. Samsung and Apple were slow to predict the growth of lower end smartphones. Not everyone wants to pay big bucks for a new device, as in more wealthy countries.

  23. goafrit2
    June 17, 2013

    >> Isn't this the same as the charter for Integration Nation and Planet Analog?

    I agree with your points. Ideally, you do not need to invent these things to innovate on them. My challenge has been that invention is described from the constructs of market success. Maybe that is good. Who cares if you are creating great ideas no one cares about? That is the story of most green tech projects today. They want to break grounds but because they are not making money, few care about what they do.

  24. goafrit2
    June 17, 2013

    >> Not everyone wants to pay big bucks for a new device, as in more wealthy countries

    Good points. That is the point I have been making. My friends in America think that anything cheap is fake. Why not? But that is not the case. The notion that it is not great if it is cheap is not good economics. I see great products shipped out of Asia that are genuine products. They price them well to get volume. Simply, it is a business strategy.

  25. Brad Albing
    June 17, 2013

    @Scott >>Isn't this the same as the charter for Integration Nation and Planet Analog? Well, of course. No one could, would, or will ever deny that.

  26. PCR
    June 30, 2013

    True eafpres, I believe that the low-end smart phones is capturing the market because of the affordability and it is a good deal when comparing with the traditional phones. 

  27. PCR
    June 30, 2013

    Yes DaeJ Not only the Fake iphone but also fake ipads are available especially in India and Sri Lanka

  28. SunitaT
    June 30, 2013

    Just because, a smartphone sells for $50 doesn't mean it has counterfeit chips.

    @analoging, I agree with you. Low cost doesnt necessarily mean that the counterfeit chip is used inside the smartphone. But how to check if the components used inside the smartphone is geniune or counterfeit ?

  29. SunitaT
    June 30, 2013

     I believe that the low-end smart phones is capturing the market because of the affordability

    @Ranasinghe, true. price is one of the major criterias when buyer makes the decision. Companies like Samsung are releasing lot of low-prices smartphones which is attracting the buyers.

  30. SunitaT
    June 30, 2013

    Not only the Fake iphone but also fake ipads are available especially in India and Sri Lanka

    @Ranasinghe, we should be careful when we buy the product. Most of these fake products are manufactured in China. We should always buy products in geniune shop with full warranty.

  31. SunitaT
    June 30, 2013

    My friends in America think that anything cheap is fake.

    @goafrit, I dont agree with this obsevation. Cheap doesnt necessarily mean fake. If companies take effort to reduce the cost of the product then we shoudl appreciate it  rather than assuming that it is fake.

  32. SunitaT
    June 30, 2013

    Who cares if you are creating great ideas no one cares about?

    @goafrit, someday the idea will definitely be accepted. Companies should believe in  the idea and should persist with it. Sometimes it takes time for the bigger audidence to accept the idea. 

  33. amrutah
    June 30, 2013

    Its just like, open source software… 

      Open source doesnt really mean that it is good.  It is free, but the time that we spend in understanding and developing the software is huge… No support for open source eats up your time and time to market…

  34. SunitaT
    June 30, 2013

     Imagine if BlackBerry had excluded others from the smartphone business, there will not be iPhone.

    @goafrit2, Its all about competition. Look at how samsung is beating Apple in smartphone business. The company which brings lot of innvoation will definitely capture bigger market share.

  35. PCR
    June 30, 2013

    True Sunita we should allways go for the best. 

  36. Scott Elder
    July 1, 2013

    This is absolutely true.  But when a country or a company develops a reputation for fake products, the reputation will stay with them for a long time.  So it should be no surprise that the first reaction people have when a disrespected entity puts forth a new cheaper product is that the product must be fake.  Perception is reality.  That's why companies spend so much money on advertising.

     

     

  37. goafrit2
    July 2, 2013

    >> I believe that the low-end smart phones is capturing the market because of the affordability and it is a good deal when comparing with the traditional phones. 

     

    The price advantage of traditional phone has since evaporated as most cheap smartphones are now sub-$60

  38. goafrit2
    July 2, 2013

    >> But how to check if the components used inside the smartphone is geniune or counterfeit ?

    Check where the product is assembled. In U.S., possible all genuine. In some countries, you can then suspect.

  39. goafrit2
    July 2, 2013

    >> Companies like Samsung are releasing lot of low-prices smartphones which is attracting the buyers.

    Samsung plays both levels. They are at the extreme levels of both phones – expensive and cheap.

  40. goafrit2
    July 2, 2013

    >> Cheap doesnt necessarily mean fake. If companies take effort to reduce the cost of the product then we shoudl appreciate it  

    I think you agree with my observation. That it is cheap does not mean it is fake. That is the point.

  41. goafrit2
    July 2, 2013

    >> Sometimes it takes time for the bigger audidence to accept the idea. 

    Agreed. The problem these days is that the market may not give you the time to wait that long. You need both long and short term strategies.

  42. SunitaT
    September 30, 2014

    No support for open source eats up your time and time to market…

    @amrutah, I totally agree with you. I think companies should make sure sufficient support is available before choosing any open source product. I am sure there are many companies are giving support to open source products.

  43. SunitaT
    September 30, 2014

    Check where the product is assembled. In U.S., possible all genuine. In some countries, you can then suspect.

    @goafrit2, Apple is assembled in China, does it mean that we need to suspect Apple phones since its assembled outside US ? I think it would be very tricky to identify if the parts are geninue or counterfeit.

  44. chirshadblog
    September 30, 2014

    @SunitaTO: Not only apple all the other phones too including Samsung. So there is no wonder why there are so many copies coming out from China. 

  45. chirshadblog
    September 30, 2014

    @SunitaTO: Yes Open Source should be given fully support because it can cut down the cost in a major way. Also the technology is far more advanced  

  46. goafrit2
    October 11, 2014

    >> I think companies should make sure sufficient support is available before choosing any open source product.

    That is one of the problems with open source. It can provide a challenge where you have a free software and then suddenly there is no support from the creators of the solution. The key is to know when the savings from open source compensates for the lack of support.

  47. goafrit2
    October 11, 2014

    >> I think it would be very tricky to identify if the parts are geninue or counterfeit.

    There is no problem with that. When you have strong QA and QC, those things can be solved through the system. Apple uses great vendors and cannot fail into the hands of fakes and counterfeits.

  48. goafrit2
    October 11, 2014

    >> Not only apple all the other phones too including Samsung. So there is no wonder why there are so many copies coming out from China. 

    The problem is not just China. Every country is exposed to the problem of counterfeits and fakes. China is a developing nation and the problems they are having are not peculiar to them alone.

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