Mobile Weekly Notes: What’s Cooking In Asia For Apple And Qualcomm

by Trefis Team
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The past week saw quite a few developments in the mobile sector. Foxconn, one of Apple’s (NASDAQ:AAPL) leading contract manufacturers, said that it will seek to renegotiate more favorable terms for its stake purchase in Sharp while remaining firmly committed to closing the deal. A study by Strategy Analytics found that Qualcomm’s (NASDAQ:QCOM) market share of application processors has slipped y-o-y from 51% to 44% in Q1 2012 as competition in the low-end market of emerging Asian economies intensified. This came in a growing market for smarphone app processors, that registered a strong 55% growth over the same period last year.

Foxconn-Sharp Deal

Foxconn announced recently that it will seek to renegotiate a lower price for its stake acquisition in Sharp following a plunge in the latter’s share price. Sharp’s shares have slumped to their lowest in almost 37 years after the company guided for an annual loss of 250 million Yen this year, bigger than its current market capitalization. While Sharp will want the deal to go through for the lifeline it provides in terms of cash and technological know-how to compete with Samsung, Apple needs Sharp to return to strength as well. If Sharp succeeds in staging a turnaround with Foxconn’s help, not only does it ensure the survival of one of Apple’s key suppliers, but also helps the latter reduce its dependence on Samsung and foster greater competition in its supply chain. (see Foxconn-Sharp Deal Will Give Apple Greater Control Over Its Supply Chain)

Decreasing Samsung’s influence in its supply-chain is important for Apple since the former is not only one of Apple’s major supply chain partners but also its chief competitor. Samsung and Apple are locked in smartphone patent battles around the world and are also competing fiercely for a greater share of the rapidly growing smartphone market. The latter could therefore be looking to diversify by helping Foxconn and Sharp form a partnership potent enough to compete with Samsung on a sustained basis. Over time, this will help Apple negotiate better and secure supplies for its products at a lower cost, thereby supporting margins as the mobile landscape gets increasingly competitive.

See our complete analysis of Apple here

Qualcomm

The global smartphone market is blossoming and carrying everyone associated with it up as well. In a recent report by Strategy Analytics, the firm found that the smartphone application processor market grew by a strong 55% in Q1 2012 over the same period last year. (see Qualcomm Dials Up $69 On Smartphone Demand In Emerging Markets) Market leader Qualcomm continued its dominance but saw its revenue share decline y-o-y from 51% to 44%. A big reason for the decline was increased competition from Broadcom (NASDAQ:BRCM) and MediaTek, both of which benefited from the growing popularity of low-end Android handsets in emerging markets.

Low-end smartphones are growing at a fast rate in emerging markets such as China which due to its low smartphone penetration is a sort of blank slate for most mobile semiconductor manufacturers. China, for example, has a 3G penetration of about 17% but smartphone sales are growing rapidly. This gives most chipset players an even ground to grow their market share.

Growing competition and an increasing penetration of smartphones in emerging markets may eat away into Qualcomm’s app processor market share further but the company still stands to make money off its 3G patents. Qualcomm charges most chipset manufacturers as well as handset makers a percentage of their ASPs as royalty for using its 3G technology. The company’s industry-leading CDMA patent portfolio will therefore help it rake in huge high-margin licensing revenues in the coming years as the transition from 2G to 3G in emerging markets continues at full swing.

See our complete analysis of Qualcomm here

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