The price erosion for
smartphone chips in China is real. In recent weeks, Qualcomm reportedly
cut prices of its Chinese quad-core chips to below $10. As China
continues to see a growing demand for low-to-mid range smartphones, chip
suppliers--both foreign and domestic--are adjusting strategies
accordingly. They’re offering more complete “turn-key” solutions for
China’s domestic smartphone vendors at lower prices.
has been successful in China largely due to a well-known, reference
design-based business model. But MediaTek’s model has been closely
studied, copied and followed by everyone else in the market, including
Qualcomm and Spreadtrum.
Earlier this year, market research firm
IDC noted, “China, which supplanted the U.S. last year as the global
leader in smartphone shipments, is at the forefront of the shift [to
"While we don't expect China's smartphone growth to maintain the pace of a runaway train as it has over the last two years, there continue to be big drivers to keep the market growing as it leads the way to ever-lower smartphone prices and the country's transition to 4G networks is only just beginning," said Melissa Chau, IDC’s Asia/Pacific senior research manager, in a statement.
MediaTek maintains a shipment target of about 200 million smartphone solutions for 2013.
While MediaTek’s lead in China’s smartphone chip market appears solid, both Qualcomm and Spreadtrum are also cutting prices for their reference designs in China. As price competition heats up, expect everyone’s gross margins--including MediaTek--to erode in coming quarters.
Effects of the pending merger between MediaTek and Mstar on MediaTek’s operations in the future remain unclear. The intended merger, announced last June, won’t be consummated until early August, according to MediaTek. While the company got the South Korean government’s approval for the merger in March, MediaTek is still waiting to hear from China’s antitrust authorities.
Speculation over the delayed merger [its closing date was originally scheduled May 1 was rampant in China earlier this year. Some in China suggested that the original goal for the merger has been accomplished, since the announcement of the intended merger effectively killed Mstar’s budding interest in the mobile phone chip market.
As to why Chinese authorities are dragging their heels, or what is exactly preventing them from approving the MediaTek-MStar tie-up, few clues have emerged.