New Ultra-Cheap Chipset Heats Up Smartphone Wars
I don’t usually write about new product announcements from chip makers, as such companies are continually rolling out new offerings in their attempts to drum up more business. But the case of a super-cheap new smartphone chipset from Spreadtrum (Nasdaq: SPRD) is causing me to make an exception to my rule, since this new product looks so cheap that it could actually point to similar products from rival chipmakers and result in a new round of smartphone price wars. I’ll end the suspense right now by revealing the new chipset, which includes the free Firefox open-source mobile operating system (OS), carriers a price tag of just $25. (company announcement)
China surpassed the US last year to become the world’s largest smartphone market, with nearly 100 million units sold in each of the final 2 quarters of last year. (previous post) But in a potentially significant trend, the number of units shipped actually dropped 4 percent from the third quarter to the fourth, the first such decline in more than 2 years for the rapidly expanding market. Analysts pointed out that the slowing trend could continue not only in China but throughout the world this year, since most higher spending consumers had already purchased smartphones and the most price sensitive ones were unlikely to want to pay the $100 or more for the cheapest models now on the market.
This latest announcement from Spreadtrum could challenge that assessment, since the $25 chipset price tag could easily result in a flood of new smartphones potentially costing as little as $50 or even less. Spreadtrum, which is in the process of being privatized, announced the new ultra-cheap chipset in Barcelona at the World Mobile Congress, one of the top global trade shows where most of the world’s top cellphone and mobile equipment makers are showcasing their latest offerings this week.
According to its announcement, Spreadtrum has teamed up in the new initiative with Mozilla, creator of the popular Firefox web browser and the Firefox mobile OS that hopes to challenge the current dominance of Apple’s (Nasdaq: AAPL) iOS and Google’s (Nasdaq: GOOG) Android, which is also free but is subject to a certain level of oversight by Google. Those 2 operating systems now power the vast majority of smartphones on the market.
Spreadtrum’s new chipset integrates its own lowest-end smartphone chip with the Firefox OS to create a product that can power handsets that run on WCDMA and EDGE, the world’s 2 most popular 2G technology standards. The pair point out the new chipsets will allow the manufacturers to make smartphones “at prices similar to much more minimally featured budget feature phones.” I recently purchased one such phone, a Nokia (Helsinki: NOK1V), and can report that this kind of low-end model, which included touch screen technology, cost me just 130 yuan, or less than $22.
Spreadtrum didn’t say if it has found any buyers for the new chipset package, but I suspect that most of China’s handset makers like Huawei, ZTE (HKEx: 763; Shenzhen: 000063), Coolpad and Lenovo (HKEx: 992) could all become customers. I also suspect that Mozilla is working on similar products with other low-end chipmakers like Mediatek (Taipei: 2454) and Marvell (Nasdaq: MRVL), which may already have similar packages or be preparing to announce such offerings.
All this means we’re likely to see the cost of entry-level smartphones plumb new depths throughout 2014, potentially even dipping below the $50 level that I mentioned above. That will add new price pressure to the already overheated market. An important factor will be whether users embrace the Firefox OS, which is relatively new and untested. If the system gets a reasonably positive reception as it goes mainstream, look for 2014 to see a continuation of smartphone price wars in China and other developing markets as many of the lowest-end consumers begin to purchase models.
Bottom line: Spreadtrum’s new ultra-cheap chipset could drive smartphone prices down to $50 or lower this year, resulting in a new round of price wars at the bottom end of the market.
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