BEIJING, China As annual mobile phone shipments cross the 800 million mark, a handful of Chinese wireless design houses are hoping to score more design wins with both top-tier OEMs like Nokia and Motorola, as well as some of the contract manufacturers that do business with them.
But the going will be tough. Intense competition from Taiwan's increasingly powerful ODMs, as well as specialty players like PDA/smartphone maker High Tech Computer, will conspire to limit the growth potential of China’s handset design sector. Plus, by various estimates, there are anywhere from 30 to 50 handset design houses in China fighting for projects.
Still, a few look poised to survive future shakeouts by focusing on R&D, and quickly moving beyond the simple task of tweaking reference designs to fit form factors based on fashion.
"The so-called total solution doesn’t work that well anymore," said Howard Wu, president of CEC Wireless, one of China's largest independent handset designers. "You have the chipset integration getting better and better, the software is more mature, and after five or six years now you have the talent pool in the Chinese industry that can do the things that we have been doing."
When CEC started in 1998, they were the first on the scene in China, which was just on its way to becoming the world’s largest handset market. In 2002, after its parent company, Cellon International, took over the handset R&D division of Philips, CEC emerged as one of the country’s most promising design houses.
Since then, however, China’s explosion in designers and manufacturers of cell phones has put companies like CEC, as well as top rivals like China Techfaith, in very choppy waters. Wu predicts that within two years, most of the local engineers at rival design houses will have the skill sets the CEC has cultivated in-house.
That means a change in business model, he said. The Chinese handset design houses that survive will need to find niche strengths, such as in software and hardware integration of advanced systems that may include Bluetooth, Wi-Fi and DVB-H. “We need to be focused,” Wu said. "It doesn’t matter who you are, you need to be focused. You need to have one thing that stands out."
China Techfaith, for instance, is looking to strengthen its design skills in smartphones – a play that has paid high dividends for Taiwan's High Tech Computer (HTC), which partners with Microsoft Corp. to sell directly to network operators. Techfaith is also increasing its R&D on 3G, including opening a US lab, said Liu Jun, a senior vice president in charge of the smartphone division.
Despite the increased focus on innovation, many design houses will still be unable to survive. "It is more than a simple challenge. Even though we may see the problem, we in mainland China don’t necessarily have the particular strengths or the knowledge that's needed to build up an HTC type of focused operation," Wu said. "The challenge will be getting something that is No. 1 in the industry."
As China increases its phone shipments, several regions are looking to boost their attractiveness to the industry, too. Currently, Shenzhen is a major producer of cell phones, but so, too, is Tianjin, about an hour south of Beijing. Next week the city will host one of China’s largest handset-oriented conferences-- the International Mobile Industry Expo (IMIE). The show is part of a wider effort by Tianjin to become China’s center for manufacturing cell phones.
Currently, Motorola, Nokia and EMS giant Hon Hai are already part of the Tianjin supply chain, which produced 68 million cell phones last year, or about 8 percent of the global supply. Motorola alone purchases about $1.5 billion in components from the area. Foundry SMIC also has a fab there with many of the clients coming from the communications industry, said Esther Liu, an SMIC vice president based in Tianjin.
Along with attracting more downstream component makers to the city, officials are also hoping to increase the presence of handset design houses and fabless chip companies, said Zhang Jun, deputy director of the Tianjin Economic Development Area. "The number of IC houses isn’t very high yet, but we are making them a priority," he said.