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Digitimes Research: 3-mode smartphones to dominate China entry-level market
Eric Lin, DIGITIMES Research, Taipei [Wednesday 2 April 2014]

When announcing its LTE product lineup in 2013, China Mobile originally set 5-mode support for five major networking standards in China as a basic requirement for its 4G products, but the company lowered it to 3-mode at the end of 2013, as most chipmakers were unable to supply 5-model single-chip products and Qualcomm, who was able to supply such chip solutions, was tough about its licensing fees.

The change allowed chipmakers such as China-based Spreadtrum and Leadcore Technology to join the LTE supply chain immediately. However, in early March 2014, after evaluating the market's demand/supply status, the telecom carrier decided to restore its original requirement and will only offer subsidies to 5-mode smartphones.

Since 3-mode smartphones carry much lower costs compared to 5-mode ones, Digitimes Research expects 3-mode smartphones' average selling price (ASP) to drop below CNY1,000 (US$161) by the end of the first half of 2014 and could drop to CNY800 in the second half, replacing existing low-price 3G and 2G smartphone products.

China Mobile will continue to subsidize 3-mode smartphones until the end of May and starting from June, the carrier will withdraw all subsidies and only give sales commission to smartphone vendors. However, Digitimes Research believes 3-mode smartphones will continue to replace existing 3G/2G handsets due to their pricing advantages.

Since cheap 2G and 3G smartphones still have high penetration rates in tier-2 and tier-3 cities of China, potential demand for handset upgrade is rather large. Spreadtrum's upcoming 3-mode SoC smartphone application processor (AP), set to be released later in April, and MediaTek's 3-mode baseband solution are both aiming for such a market segment.

Despite an end to subsidies from telecom carriers, demand for 3-mode smartphones will remain strong because of their low prices. The pricing advantage has been partly enabled by their sales through the Internet and some other special channels, which helps reduce marketing costs.

In terms of the LTE smartphone chip market prior to mid-March, Qualcomm's LTE chip shipments were contributed mainly by its Snapdragon 400 and close to 90% of LTE devices available in the market used the solution. The remaining share was contributed by Marvell.

As for other chipmakers, MediaTek's LTE AP plus baseband solutions have yet to ship, while Huawei's P7 using Hisilicon's LTE solution is also not yet available. Since most chipmakers are expected to release their 3-mode chip solutions later this month with related devices to become available in May or June, Digitimes Research expects Qualcomm's LTE solutions to account for 80% of China's LTE smartphone shipments in the first half of 2014.

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