Industry Voices—Blaber: Trickle-down spec-onomics in the chip market

Smartphone millennials
Demand for high-end features in midrange phones is increasing.
Industry Voices Geoff

Although not a new theme, the launch of new Snapdragon 600 series chipsets further accelerates the trickle down of high-tier specs and reiterates a broader industry theme. Moreover, the Snapdragon 660 further blurs the distinction with its flagship Snapdragon 835 platform with key features such as the Hexagon DSP, Spectra ISP and Kryo CPU coming to the Snapdragon 600 series.

There is undoubtedly a balancing act at play given the scope for cannibalization of Qualcomm’s flagship Snapdragon 835 platform. But there is also a much bigger picture that points to the changing market structure and new spheres of influence on the semiconductor industry beyond traditional smartphone channels.

High-end features expanding into midrange handsets

One reason for growing and increasingly segmented chipset portfolios is intensification of specific market requirements. The growth of open market channels means less carrier influence in both emerging and mature markets including China. This is enabling manufacturers to prioritize chipsets based on other requirements for differentiation.

Consequently, the speed at which high-end features are shifting into midrange handsets is accelerating, a trend which is evident across the smartphone component supply chain. Much of this is being driven by market dynamics. The growth of the China ecosystem in particular, and the emergence of players such as Huawei, Oppo and Vivo with significant scale, means ambitions are ramping in parallel. Demand for premium-tier feature sets is increasing. While that helps Qualcomm’s flagship platform, it also means there is opportunity at lower price points made possible by a substantial volume opportunity. And with volume comes scale and margin.

Subsequently, with sharpened focus on a portfolio of chipset platforms, Qualcomm can maximize both demand and margins and manage the risk of customers choosing a lower priced Snapdragon 600 series versus 800 series product. Moreover, through a clearly defined portfolio and a high level of software and IP compatibility, Qualcomm is making it simple for manufacturers to select the appropriate chipset. Inevitably that will mean the occasional design opting for a very capable Snapdragon 600 series when the sale could have been Snapdragon 835.

However, the reverse is also likely to be true. The growth of Chinese OEMs with scale, mounting international focus, and an emphasis on specific experiences for differentiation means manufacturers once focused largely on midtier designs are moving up the price curve to more premium offerings. As attributes such as DSP and ISP become more important, Qualcomm becomes an almost inescapable choice by virtue of feature set and limited competition in the mid- to high-tier market. Indeed, Qualcomm’s launch of the Snapdragon 660 and 630 is a clear move to consolidate its position and exacerbate the challenge for players such as MediaTek and HiSilicon (Huawei).

Cloud companies and AI developers will increasingly influence the chipset segment

Qualcomm is benefiting from the maturity of the China ecosystem. Manufacturers’ ambitions are becoming bolder, demands are increasing, and Qualcomm has made it as simple as possible to select chipsets that closely correlate and scale to changing requirements. While Qualcomm can’t escape the ever-present threat of verticalization as companies such as Xiaomi try to follow in the footsteps of Apple, Samsung and Huawei, it is consolidating its position as the only real option for the long tail of manufacturers seeking to deliver mid- to high-tier devices.

Connectivity is becoming increasingly complex, and artificial intelligence increasingly requires close partnerships with cloud companies and deep levels of integration and optimization. So the requirements to compete in chipsets beyond the midtier smartphone market are now substantial.

MediaTek and HiSilicon remain formidable competitors, but the pressures of mid- to high-tier development are ramping. We are entering another phase of mass disruption that goes beyond mobile and is driving considerable change in chipset design and positioning. Carrier requirements defined 3G and 4G, but it will increasingly be cloud companies and artificial intelligence that heavily influence chipset design and competition in the 5G era. Rather than core count, integration and optimization for neural processing and deep cooperation with the key protagonists will become major differentiators.

Geoff Blaber is vice president of research for the Americas at CCS Insight. Based in California, Blaber heads CCS Insight’s Americas business and supports the range of clients located in this territory. Blaber's research focus spans a broad spectrum of mobility and technology, including the lead role in semiconductors. He is a well-known member of the analyst community and provides regular commentary to leading news organizations such as Reuters, the Financial Times and The Economist. You can follow him on Twitter @geoffblaber.