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.