SHANGHAI – Let’s face it. All along, we knew how this movie would end. The game is over for Western chip companies — except for a sole survivor and the mobile chip industry leader, Qualcomm.
Earlier this week, upon returning to my hotel from an interview with Spreadtrum CEO Leo Li at his office here, I found in my e-mail inbox the announcement on the breakup of the ST-Ericsson joint venture.
Ericsson is taking over the 4G LTE multi-mode slim modem product line. ST alone will oversee existing products including the legacy modem business, RF, Power Management and NovaThor integrated apps processors, according to the announcement.
A week ago, Renesas Electronics back in Japan announced that it’s “reviewing” the direction of its mobile business. The implication is that it has decided to divest Renesas Mobile or explore alternate business models for its mobile subsidiary.
Both ST-Ericsson and Renesas Mobile, in search of buyers, are likely to ditch their mobile baseband business, just as Texas Instruments, Freescale and Analog Devices did years ago.
Strategy Analytics’ analyst Sravan Kundojjala, in his commentary posted Monday (March 18), blamed ST-Ericsson’s breakup on “duplication among legacy products, transition to a new product roadmap and constant management changes.” The analyst said that the JV struggled to integrate multiple companies and execute on its original plan.
Other industry observers might posit similar reasons for Renesas’ failures, since Renesas Mobile, too, is a company based on the integration of several different companies — including Nokia’s former modem team.
Kundojjala may be correct. But I think his analysis misses a crucial point: both companies failed to recognize how a traditional business model — serving tier-one handset customers — became irrelevant to ultimately winning the global mobile battle.
As Li put it, 10 years ago, “you were OK,” if you got design wins from handset vendors in the United States and in Europe. It’s because “those tier-one guys — Motorola, Nokia, Samsung, Sony-Ericsson, etc. — held 90 percent of the global market share.”
Today, the share of the traditional tier-one companies is only 40 percent. The rest of the market is China, according to Li.
Further, China’s smartphone market today, estimated to be 240 million units in 2013, is much bigger than that of the United States, projected to be about 125 million units, according to market research firm Canalys.
And guess what?
Practically every smartphone–regardless of brand–is manufactured in China today.
Without addressing the burgeoning Chinese market and the needs of local handset vendors who demand chip suppliers to do a lot more hand holding, mobile IC vendors like ST-Ericsson or Renesas Mobile have seen their market share sharply plummet in recent years.
Global market beyond China
Another reason for paying attention to China’s handset vendors–including the many local design houses — is that they hold the key to the global market beyond China, in such countries like India, Africa and South East Asia.
Spreadtrum’s plan to sell into such markets outside China is comprehensive and elaborate. The company follows a few different routes. First, Spreadtrum directly works with design companies in Shanghai and Shenzhen, who will sell their handsets to branded handset vendors like India’s leader, Micromax. (It’s important to note that Spreadtrum also invested in this popular Indian handset vendor.)
Second, Spreadtrum plays an active role in “match-making,” said Li, between local branded handset vendors and local design houses.
Third, getting design wins in global handsets such as those by Samsung also helps get Spreadtrum’s chips into handsets sold in developing countries outside China, he added. Spreadtrum’s baseband chip last fall got a design win from Samsung Electronics. Spreadtrum is supplying a 40nm 2.5G baseband, the SC6530, to power Samsung E1282 and E1263 Trios mobile phones.
In Africa, Li noted, “We also work very closely with Orange, the French operator,” who has a big presence there. Noting Spreadtrum’s close relationship with Orange, Li said, “They understand the needs of the African market, and we offer chipsets that pass their certification.”
As EE Times previously reported, the availability of popular IP cores including ARM, Imagination and CEVA, foundry services based on cutting-edge process nodes at Taiwan Semiconductor Manufacturing Co. or others, and various design tools and design services, have created an unprecedented level playing field, contributing to the emergence of countless fabless companies in China over the past several years.
Of course, that doesn’t mean that every Chinese fabless has been winning this war.
The reality is that many fabless companies, especially apps processors in China, plagued with me-too products, are struggling to find differentiations.
Among them, Spreadtrum in China is deemed an exception to the rule. Spreadtrum differs, because “we pay a lot of attention to R&D, technology and quality,” said Li.
The company has also steadily built its baseband portfolio, first by developing its own TD-SCDMA baseband technology for China, then adding WCDMA solutions through MobilePeak acquisition. Later on, Spreadtrum licensed LTE baseband technology (CAT 4) from a company based in Egypt. While Li declined to name the Egyptian company, he said that it is the same company from which Beceem–now owned by Broadcom–also licensed LTE technology.
“By the end of this year, I will have in my portfolio every technology handset vendors need and what Qualcomm and MediaTek already have. I will be there,” said Li.
More significantly, “I can drop the price by half,” compared to those developed by the Western chip companies, he claimed. “We do so by offering not inferior products, but that are as good as those of my competitors, in terms of quality and performance.”
Why could he say that? “Because my cost structure is low,” Li smiled.
Junko Yoshida / EE TImes