Low-end smartphone fight

A woman using a smartphone to browse a news website. Along with the rapid growth of Chinese smartphone producers, the demand for smartphone chips is stronger than ever before. [Photo / China Daily]

China's low-priced smartphone manufacturers could face more fierce competition as demand booms and the cost of chips continues to decline.

Local smartphone makers are growing rapidly in mid- and low-end markets, said Hao Jian, an analyst at China academy of telecomunication research, part of the Ministry of Industry and Information Technology.

"The absence of the world's top players such as Apple Inc, Nokia Corp and Samsung Electronics Co (from low-end markets) has provided a stupendous opportunity for local makers," said Hao, adding that the rapid development of low-end chips has helped Chinese smartphone makers to reduce costs, a key factor to grab market share among price-sensitive buyers.

Shipments of smartphones on the Chinese mainland hit 18 million in April, accounting for more than half of the mobile phone market, data from the academy showed. More than 77 percent of the shipment was contributed by local brands targeting mid- and low-end customers.

MediaTek Inc, a Taiwan-based company that designs and sells components for wireless communication and is famous for its low-priced smartphone chips, plans to expand business on the Chinese mainland in the face of growing demand. On June 27, the company released a dual-core chip developed specifically for smartphones priced lower than $200.

"The new chip added the next level of performance and enhanced user experience to the MediaTek smartphone family, delivering enhanced user interactivity, mobile connectivity and rich multi-media experience previously only available on high-end devices," said Ching-Jiang Hsieh, president of MediaTek.

MediaTek's monthly revenue amounted to NT$78.45 billion ($2.6 billion) in June, jumping by more than 16 percent year-on-year, a company statement showed.

"Competition among chip providers will become more intense because China's smartphone makers are finding any possible way to try to reduce their costs. The price of smartphone chips is set to fall," said Hao.

The world's large chip makers, who previously ignored the low-end markets, are now looking at the sector as growing demand could help to generate higher profits.

In May, Intel Corp, the world's largest semiconductor chip maker by revenue, returned to the smartphone chip-making sector by teaming up with Lenovo Group's mobile phone department. The giant in the personal computer chip sector sold XScale, the company's cellphone chip arm, in 2006.

Qualcomm Inc is another example of a company that has joined the competition in the low-end market.

The increasing demand for smartphones in emerging economies helped Qualcomm to open up the low-end market. More Qualcomm-powered models are expected to join the market this year, according to Wang Xiang, president of Qualcomm Greater China.

Since the company launched its products targeting the low-end market late last year, nearly 30 types of smartphones had been released as of June. There were also more than 100 models in development that will enter the market soon, industry newspaper Communications Weekly reported on June 12.

"China's low-end WCDMA smartphone market is a vast blue ocean for cell phone makers. A chip with a fair performance and a reasonable price will enable its manufacturer to make huge profits," said the newspaper.

China's high-end market is dominated by global brands such as Apple and Samsung. The local companies have to dive into low-end markets where the profit margin is also lower because of the increasing number of competitors.

A number of Chinese Internet companies started to tap into the smartphone market this year, a move that will further stir up competition in the sector.

Tencent Holdings Ltd released six smartphone models targeting student customers. Baidu Inc, China's most-used search engine, introduced two smartphone models running on its self-developed mobile operating system.

Qihoo 360 Technology, an anti-virus company, teamed up with three manufacturers including the nation's home appliance giant Haier Group to offer new models to the market. "As an Internet company, Qihoo has more than 100 million users and we are good at online marketing. Both of our specialties can help mobile phone makers explore the market and boost sales," said Zhou Hongyi, chief executive officer of Qihoo 360.

Almost all the devices provided by the Web companies were priced lower than 2,000 yuan ($314), less than half the price of an iPhone 4S.

"The competition in the low-end market is poised to grow as more businesses enter it and telecommunication carriers start to cut subsidies to lower-end smartphone makers," said Hao from the academy of telecomunication research.

gaoyuan@chinadaily.com.cn