TAIPEI: Global chipmakers are tapping booming demand for entry-level smartphones costing 1,000 yuan ($160) or less apiece in China, the world’s largest mobile phone market, by introducing chips that pack powerful performance into low-cost processors.
Chip companies such as Qualcomm Inc and Broadcom Corp hope to play the volume game selling low-cost chips on razor-thin margins, executives and analysts said during Computex Taipei, the world’s second largest PC show.
As a sign of growing demand, China’s three mobile phone carriers are aggressively subsidising affordable smartphones, such as Huawei Technologies Co Ltd’s C8650, ZTE Corp’s U880 and Lenovo Group Ltd’s Lephone A65.
“We’re continuing to waterfall our technology down into the mass market tier,” Rob Chandhook, a senior vice president at Qualcomm, told reporters in Taipei.
The US-based chipmaker launched its Qualcomm’s Reference Design (QRD) programme last year to target vendors making low-cost handsets, a category long dominated by chips made by Taiwan’s Mediatek Inc and MStar Semiconductor Inc and China’s Spreadtrum Communications Inc. So far, Lenovo’s A780 and the Coolpad 7260 uses Qualcomm’s S4 Snapdragon chipsets, executives said.
“It’s still a very good outlook for them (sub-1,000 yuan phones) because we think there is still a large pool of feature phone users who haven’t had their first smartphones,” said TZ Chuang, Beijing-based analyst at research firm IDC.
“These phones will be the first route for these people to upgrade.”
The percentage of these sub-1,000 yuan smartphones versus total smartphone shipments in China has grown to 21 per cent in the first quarter from just 12 per cent a year earlier, IDC said.
In late February, US chipmaker Broadcom announced a series of chips and solutions targeted at smartphones priced at below $299 and running on Google’s Android 4.0 operating system.
When asked about the sub-1,000 yuan market, Broadcom executives at Computex said they were committed to the entry-level smartphones space in countries such as China using those chips.
GROWING MARKET Although Apple’s iPhone and Samsung Electronics’ Galaxy carry most cachet in China’s wealthy coastal cities, there is growing interest in targeting consumers in second and third-tier cities with cheaper smartphones.
Underlining the trend, China’s Haier Electronics Group and Alibaba Cloud Computing launched a 999-yuan smartphone on Wednesday that will run Alibaba Group’s Aliyun mobile operating system.
Last month Baidu, China’s largest search engine, said it would launch a cheap smartphone, retailing for under 1,000 yuan in conjunction with Foxconn Technology Group, Sichuan Changhong Electric Co and China Unicom.
China now has 1.02 billion mobile phone users, but only a little over 10 per cent are 3G users, with the rest low-end 2G subscribers who use call-and-text feature phones.
Analysts say China Mobile, China Unicom and China Telecom have been offering huge subsidies to entice subscribers to upgrade to 3G and use more data.
Last week, China Unicom said it expected its revenues from 3G services to exceed that of 2G this year, compared with a roughly 7:3 ratio last year, while China Telecom sees data revenues rising to exceed voice revenue this year.
“What’s really selling like hot cakes now is sub-1,000 yuan smartphones. It’s really popular among the younger generation, especially students and people who have just started working,” China Telecom Chairman and CEO Wang Xiaochu told a news conference last week.
As margins are low in the entry level smartphone category, vendors hope that sheer volume will ensure profits.
“The chipset landscape for low cost smartphone ICs (integrated circuits) will also be very competitive and may limit margin expansion,” said Randy Abrams, an analyst at Credit Suisse in Taipei.
Abrams said Asian chipset suppliers were shipping about 800 million units into the feature phone market last year and within a few years most of that volume would convert into smartphones.
“Even Intel is trying to move down market and has introduced handsets with Lenovo and Lava, although these are still at much higher price points so has not yet had a lot of designs in the cost sensitive entry level channel,” Abrams said.