The global smartphone market is blossoming and carrying everyone associated with it up as well. The smartphone application processor market saw a strong growth of 61% in the first half of 2012 over the same period last year, according to a recent report by Strategy Analytics.  Market leader Qualcomm (NASDAQ:QCOM) continued its dominance of the market with a 48% revenue share, banking on its early LTE leadership to register multiple high-end integrated design wins this year. Intensifying competition, especially in the emerging markets where both Broadcom (NASDAQ:BRCM) and MediaTek benefited from the growing popularity of low-end Android handsets, however ate into Qualcomm’s revenue share causing it to fall by 3% over last year.
Emerging market threat
The rising demand for smartphones in emerging markets is providing an opportunity for smaller chipset manufacturers to compete better with dominant players such as Qualcomm. China, for example, is poised to overtake the U.S. as the biggest market for smartphones by the end of 2012 despite having a 3G penetration of only about 18% currently. Other emerging markets such as India and Brazil are also seeing strong growth and both are expected to break into the top five markets by 2016, according to the IDC’s latest report. The low penetration of smartphones in these markets is offering most chipset players an even ground to grow their market share.
In order to defend its market share better, Qualcomm is lowering chipset prices as well as broadening its portfolio of Snapdragons to include high performing entry-level chipsets. The mobile chipset manufacturer recently introduced two new entry-level versions of quad-core chipsets, MSM8225Q and MSM8625Q, in order to be able to tap the demand for smartphones in emerging markets better. However, MediaTek plans to launch quad-core chipsets of its own for entry-level devices at about the same time as Qualcomm next year, so it won’t be getting any easier for Qualcomm. Competition in the low-end market is getting fiercer by the day, but having a quad-core solution will help Qualcomm defend its market share better without having to cut prices drastically. (see Qualcomm Introduces Three New Entry-Level Chipsets To Target Emerging Markets)
While emerging markets may prove to be a bigger threat down the road, Qualcomm seems to have the high-end of the smartphone market figured out pretty well. With most of the high-end flagship smartphones being launched with LTE support, Qualcomm has been able to rely on its LTE baseband leadership to secure high-end design wins. Being three generations old already and built on a new 28nm technique that conserves both space and power, Qualcomm’s LTE baseband chipsets are not only mature but also come integrated with its Snapdragon app processors. This is what caused Samsung and HTC to launch their respective flagships, Galaxy S III and One X, in the U.S. with a LTE-compatible Snapdragon core while using rival chipsets for the international versions without LTE support. Competition is however slowly catching up with Nvidia’s and Samsung’s app processors recently achieving LTE compatibility. (see Nvidia Takes On Qualcomm With Its 4G LTE Compatible Tegra Processors)
Despite the competition, Qualcomm will be looking to maintain its leadership by carrying its LTE momentum into China. China’s largest wireless carrier, China Mobile, which controls a huge 65% of the Chinese wireless market, runs its 3G network on a home-grown TD-SCDMA network which is largely incompatible with many of the popular handsets that are released worldwide. Qualcomm plans on eliminating this handicap with its recently launched all-in-one chip solution, the MSM8930 S4 Plus, which supports not only other commonly available 3G technologies but also TD-SCDMA. China Mobile is also looking to mitigate its 3G shortcomings with a high-speed LTE network, and Qualcomm’s chipset which comes with with additional LTE support could be the perfect solution to China Mobile’s 3G problems.
While Qualcomm has a lot going for it in the smartphone market, where it faces the most headwinds currently is the tablet space. Nvidia has, on the other hand, leveraged its superior graphic know-how to rack up some impressive design wins with its quad-core Tegra 3 such as the much-touted Google Nexus 7. However, the tablet market is still in a very nascent stage with the iPad cornering about 65% of the market. Since Apple uses its own A-line app processors for the iDevices, this leaves precious little for the rest of the chipset industry. The recent entry of Amazon and Google has, however, shown the potential of the $199 low-end market, and Microsoft’s Windows 8 launch this holiday season could help the non-iPad market grow further.
In order to tap this demand, Qualcomm has brought out its quad-core S4 Pro chipsets and is close to launching the first smartphone, the LG Optimus G, with the same. Dell’s and Samsung’s recently launched line of Windows RT tablets are also being powered by Qualcomm’s chipsets, which allays concerns that Qualcomm might be facing issues with getting Windows drivers to work with Snapdragon. Moreover, Texas Instruments’ recently announced exit from the tablet market leaves about 30% of the non-iPad market for existing players, which Qualcomm can look to capture.Notes:
- Smartphone Apps Processor Market Share Q2 2012: Qualcomm Captures 48 Percent Revenue Share, Strategy Analytics, October 4th, 2012 [↩]