Smartphone chipmakers cut customers' costs by finding phone components

TAIPEI Fri Jun 13, 2014 11:31am IST

Visitors walk past the Qualcomm stand at the Mobile World Congress in Barcelona, February 24, 2014. REUTERS/Albert Gea/Files

Visitors walk past the Qualcomm stand at the Mobile World Congress in Barcelona, February 24, 2014.

Credit: Reuters/Albert Gea/Files

Related Topics

Stocks

   

TAIPEI (Reuters) - Suppliers of chips to smartphone makers are taking the unusual step of helping customers procure other phone components such as speakers and camera lenses in a bid to win more business in an increasingly competitive sector.

Demand for smartphone chips, needed to support capabilities ranging from voice recognition to flash photography, is growing in part due to a spurt in the low-end but feature-packed phone segment.

As phone makers rush to push out more budget handsets with features formerly reserved for premium models, they need to keep their costs in check as they incorporate more chips into their lower-tier models.

The spotlight on costs has ramped up competition among chipmakers like Qualcomm Inc (QCOM.O) and MediaTek Inc (2454.TW). Besides cutting prices, they are also saving phone makers the expense of finding and testing, for instance, the speakers and camera lenses that get the most out of their audio and photography chips.

"In the past, Qualcomm would just offer the chips and the manufacturer would do the whole device," David Tokunaga, a senior director in product management at Qualcomm, told Reuters. "Now we offer a whole hardware ecosystem that makes it very easy for customers to just plug and play what they want."

Offering chips, hardware and even the phone design helped Taiwan's MediaTek capture half of the Chinese market for smartphone chips, according to one analyst. In that market, handsets priced under $150 accounted for almost 70 percent of all smartphones sold in the first quarter of this year, said researcher IDC.

"MediaTek gets all the components ready for the client, so all the manufacturer has to do is put the phone together," said analyst Sherman Shang at SinoPac Securities.

Qualcomm, the world's No. 1 smartphone chipmaker, has had a more difficult time in China, which accounts for the sale of one in every three smartphones globally.

The high-end chipmaker recently posted its smallest quarterly revenue rise in four years, in part because of the shift of smartphone growth to the lower end of the market in emerging economies.

The company has since stepped up its game by mimicking high-end features. It has developed audio technology one Qualcomm executive dubbed the "poor man's Dolby", to sidestep the cost of licensing a pricey equivalent from sound specialist Dolby Laboratories Inc (DLB.N).

"Today's high-performance phone will quickly become tomorrow's standard model," MediaTek Chief Executive M.K. Tsai said in a recent interview, noting the shift in demand growth to cheap but feature-rich phones.

Global shipments of smartphones priced below $150 are likely to grow 17 percent each year though 2018, said Chief Executive Simon Segars of ARM Holdings (ARM.L), which designs chips found in almost all smartphones.

By comparison, phones priced $150 to $300 will grow 14 percent, and those over $300 just 4 percent, he said.

    

TRICKLE-DOWN EFFECT

As the sales and specifications of low-end phones rise in tandem, pricey phones such as Apple Inc's (AAPL.O) iPhone will begin to lose their technological advantage over offerings from such cut-rate smartphone makers as China's Xiaomi Inc.

"The smartphone market is turning into the TV market," said Jeffrey Ju, MediaTek's senior vice president of smartphones. "If you hide the logo on a TV you really can't tell the difference. The smartphone market is getting similar."

But not every feature is destined to trickle down. Some functions, like fingerprint sensing, not only have technological constraints keeping prices high for the foreseeable future, but also face a sceptical and fast-changing consumer base.

"You have to look at who will be buying these entry-level phones, and it's largely customers in developing countries," said ARM's Segars. "The tastes of these consumers - for cultural or other reasons - is bound to be different."

(Editing by Christopher Cushing)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

FRESH RULES

A man speaks on his mobile phone in front of the Reserve Bank of India (RBI) seal at the RBI headquarters in Mumbai July 30, 2013. REUTERS/Vivek Prakash/Files

RBI says all companies must apply 2-step payments for credit cards

The Reserve Bank of India said that all transactions involving domestic credit cards must follow rules requiring additional verification, a stance that could impact companies such as Uber Technologies Inc that provide more simple app-based purchases.  Full Article 

REUTERS SHOWCASE

Record Highs

Record Highs

Nifty touches record high; software stocks gain.  Full Article 

New Adviser

New Adviser

Arvind Subramanian likely to be chief econ adviser.  Full Article 

Pricing Mechanism

Pricing Mechanism

Govt sets up a four-member panel to re-examine gas pricing.  Full Article 

Royalty Rates

Royalty Rates

India to hike iron ore royalty, miners may struggle to pass on extra cost.  Full Article 

Diesel Deregulation

Diesel Deregulation

Oil ministry to seek Cabinet nod on diesel deregulation - sources  Full Article 

Commodities

Commodities

Gold near two-month low; set for weekly drop on interest rate fears  Full Article 

Reuters Exclusive

Reuters Exclusive

Apple iPhone 6 screen snag leaves supply chain scrambling   Full Article 

Helping Regional Mills

Helping Regional Mills

Govt raises sugar import duty to 25 pct from 15 pct.  Full Article 

Curbing Risks

Curbing Risks

RBI to lower ceiling on bank loans to a single corporate group.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage