Analysis: In China's smartphone boom, market share trumps margins
By Sayantani Ghosh and Neha Alawadhi
(Reuters) - Savvy U.S. chipmakers are hitching their wagons to Chinese smartphone makers, willing to sacrifice profit margins to boost sales volumes in the world's second-largest mobile phone market.
As demand in developed economies stagnates, a handful of component suppliers, including Qualcomm Inc and Synaptics Inc, have left competitors in their wake by expanding in China, where sales of cheap phones made by home-grown companies eclipse pricier models made by Samsung Electronics Co Ltd and Apple Inc.
Increased exposure to China has diluted chipmakers' gross profit margins to somewhere in the mid-40 percent range from an average of nearer 50 percent in developed markets, analysts estimate. The rewards lie in the huge volumes demanded by Chinese handset makers.
"The guys that have traditionally been focused on the developed markets are now starting to see a slowdown," said Stewart Stecker, research analyst at asset management firm AlphaOne Capital Partners.
"The guys that are most focused on emerging markets are seeing healthy growth rates."
Brisk demand for low-priced Android devices in China was the main driver of a 39 percent jump in global smartphone shipments during the quarter ended September 30, according to data published by market research firm IDC.
IDC forecasts that annual smartphone shipments in China, already an $80 billion market, will rise in value to $120 billion by 2017. That's 460 million handsets in need of chips, filters and other components.
A new wave of Asian smartphone makers has emerged to help meet this demand for low-end handsets; companies such as Lenovo Group Ltd, ZTE Corp and Xiaomi Tech - the rising star of cheap, made-in-China smartphones. Continued...