MediaTek sees turning point for smartphone

Smartphones will reach the mass market in emerging economies as soon as their prices fall below $100, according to the head of MediaTek, the biggest supplier of mobile phone chips to China.

Tsai Ming-kai, the Taiwanese company’s chairman and chief executive, said in a rare interview that the touchscreen phones, which give users internet access through third-generation networks, should follow other phone technologies in becoming quickly a mass consumer product sold at a relatively low price.

“All end-products – besides televisions, from our experience – if [they are] to become very widespread then they have to sell for less than US$100 or even under US$50,” he told the Financial Times; this was usually achieved when market penetration breached 30 per cent.

Standard second-generation, or 2G, phones already sell for just $20-$50, while smartphone prices could drop as low as $100-$120 by the end of this year, according to one analyst.

“From a technology perspective, from 2G [second-generation] phones to 3G the difference is just one generation, so the basic pattern or the underlying factors are about the same,” Mr Tsai said.

MediaTek can play a big role in this process. The company was spun out of United Micro-electronics, Taiwan’s oldest chip company, and has grown to be the biggest supplier of chips into China for first optical disc drives in computers, then DVD players and now mobile phones.

Its relatively cheap chips have helped Chinese manufacturers to take on companies such as Sony, Panasonic or Samsung with far cheaper products.

CK Cheng, analyst at CLSA, said MediaTek’s new smartphone chip would be an important factor in lower smartphone prices, partly because it had provoked other wireless chipmakers, such as Marvell and Broadcom, into cutting prices.

MediaTek saw hundreds of Chinese phonemakers sign on in April alone when the company’s smartphone chip was ready, Mr Cheng said. “With 100 new vendors all on the same platform, that drives down prices pretty quickly,” he said. “I think you will begin to see US$100, US$120 phones by the end of the year.”

MediaTek expects to ship 450m mobile phone chips, as many as Nokia will ship phones. Almost all of those chips are destined for China, where about half will be made into phones to be exported to other emerging markets such as India and Brazil. The other half will be for the domestic Chinese market.

While telecoms operators in developed markets provide subsidies for handset purchases, this practice is much less common in emerging markets, making affordability an issue.

Most of MediaTek’s chips are for regular 2G phones, but this year it began shipping a smartphone chip using the Windows Mobile operating system. A similar chip for Google’s Android platform is to be released “in a month or two”.

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