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 As low-cost, low-margin Chinese smartphone manufacturers such as
Xiaomi Inc and Huawei Technologies push into other developing
markets, they are driving down average handset prices - bad news for
San Diego-based Qualcomm, which collects royalties based on the
handset's value.
Qualcomm could see its margins slip, eroding its profits, as firms
like Xiaomi and Huawei push their budget devices into markets such
as India and Latin America.
"You've got all these Chinese companies - like Xiaomi, Huawei and
Lenovo - that want to go global and take share from Samsung
Electronics, HTC and presumably even Apple, but they're going to do
it at much lower price points," said Bernstein analyst Stacy Rasgon.
While sales of high-end devices like Apple's iPhone remain robust -
and generate hefty profits for Qualcomm - the average selling prices
for smartphones in developing countries will fall to $102 by 2018
from $135 last year, predicts IDC. In the United States, smartphones
often sell for more than $600 without a contract.
CHEAP CHINESE CHIPS
Qualcomm, a long-time leader in wireless chip technology, is also
under increasing competition from Taiwan's MediaTek and a handful of
small Chinese chipmakers that specialize in making chips for
low-priced phones.
Qualcomm has led the industry with LTE technology, giving it a major
advantage in the recent roll-out of the advanced technology in
China. But Intel, Marvell, MediaTek and HiSilicon, a unit of Huawei,
are making inroads.
In the second quarter of last year, Qualcomm's global share of LTE
baseband chips dipped to 89 percent from 95 percent a year before,
largely due to the success of emerging Chinese competitors, said
StrategyAnalytics analyst Sravan Kundojjala.
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Last month, Qualcomm cut its annual revenue outlook partly because a
major customer - reported to be Samsung - chose not to use
Qualcomm's newest processor in its next top-tier phone.
Qualcomm also said it expected increased competition in China in
medium and high-end devices, a part of the market it has
traditionally dominated. Huawei, which sold about 75 million
handsets in 2014, uses its own HiSilicon processor for its flagship
Ascend models.
Qualcomm rival Intel is also eyeing a comeback in the mobile market
after striking an alliance with the Chinese government, saying in
September it would invest up to $1.5 billion in state-owned
chipmaker Spreadtrum to jointly develop processors.
(Editing by Ian Geoghegan)
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