Big Changes Rock Global Smartphone Market

First of two parts: The widespread availability of 4- and 8-core processors is driving growth of low-cost-yet-capable smartphones in Asia.

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BANGKOK — One of the many draws for Western travelers here in Thailand and throughout much of Asia, including China, is the availability of cheap consumer electronics. Unfortunately many of these electronic goods — little-known off-brands mimicking better-known counterparts, or white-label devices being passed off as name-brand products to unsuspecting consumers — typically are technologically inferior to their leading brand brethren.

But that’s changing quickly. The advent of the mobile quad-core processor — and soon the eight-core processor — is helping not only to drive smartphone sales but to level the playing field in terms of the technical prowess of these off-brand devices, particularly when it comes to smartphones. This is particularly true here in Asia, which encompasses the largest geographical smartphone market: China.

“Everybody’s going quad-core,” said Mark Hung, wireless research vice president at Gartner. “Just to be competitive in the marketplace, (a mobile applications processor) has to be quad-core. It’s going to be the measuring stick for high-end processors.”

Smartphones lead mobile handset growth
Smartphone sales now surpass sales of so-called feature phones in the global mobile handset market. In Q2 of this year mobile phone sales worldwide totaled 435 million units, an increase of 3.6% year over year, according to Gartner. In contrast, worldwide smartphone sales for the period reached 225 million units, up 46.5% year over year. Meanwhile sales of feature phones totaled 210 million units, down 21% from Q2 2012.

Asia-Pacific had the highest smartphone sales growth rate of any geographic region, growing 74.1% year over year, while smartphone sales grew in all regions of the globe, Gartner said.

That growth continued in Q3 with more than 250 million smartphones shipping globally, as the market grew 44% year over year, according to market researcher Canalys. Not surprisingly, Samsung and Apple are the top two smartphone brands, respectively holding 34% and 15% of the market, according to Canalys. Gartner showed Samsung as holding 31.7 percent of the market in Q2, followed by Apple with 14.2 percent.

Of the global market, most market research firms now place China as the biggest geographical chunk, accounting for approximately 40% of the world market.

It’s been big news in the mobile market this year that lesser-known Chinese smartphone suppliers are making inroads in the global market. Of the top five global smartphone suppliers, two of them, ZTE and Huawei, are based in China (South Korea’s LG comes in on the list in the No. 3 spot, behind Samsung and Apple, No. 1 and No. 2, respectively — as figured by market researcher ABI Research. That’s also distinct from handset shipments as a whole, and doesn’t include feature phones). Another Chinese maker, Lenovo, better known for its PCs, is currently the sixth-largest maker of smartphones.

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Even more notable has been the stiff competition domestic Chinese smartphone makers have been putting up on their home turf, and consequently elsewhere in Asia as well. Upstart smartphone maker Xiaomi, for example, which only began selling phones two years ago, has staked a claim on the Chinese market — and kept abreast of rival Apple — by providing feature-rich smartphones at a fraction of the cost of newer iPhones or the flagship Samsung models. Xiaomi holds about 5% of the domestic Chinese smartphone market, ahead of Apple’s 4.8%, according to Canalys.

Domestic players Lenovo, Yulong, ZTE and Huawei round out the No. 2 through No. 5 spots in the Chinese smartphone market, respectively; Samsung holds the top spot with 17.6% of the market.

Quad-core processors usher in cheap, capable smartphones
One reason behind this phenomenon has been the availability of multiple-core applications processors, particularly quad-core devices, which has enabled Chinese tier-1 and even lesser known tier-2 players to produce smartphones that are technologically competitive with the iPhones and Samsung Galaxies, yet cost significantly less.

Aforementioned Xiaomi has made domestic waves with its MI1 and MI2 phones; the MI2 shipped with a 1.5 GHz Qualcomm Snapdragon quad-core processor and an Android 4.1 OS. The rest of the phone’s technical specs match what one would expect a quad-core-based smartphone to have, including a 4.3-inch IPS screen with a resolution of 1280×720 pixels.

The phone hit the market in November of last year retailing for 1,999 yuan, or about $320. The company said in September of this year that it had sold more than 10 million MI2 phones in the preceding 11 months. More recently it launched a phone with similar specs in August, the Hongmi, but built around a MediaTek quad-core processor. Priced at just 799 yuan, or about $130, the first lot of 100,000 Hongmi handsets sold out in just 90 seconds, according to Chinese media reports (Xiaomi’s principal sales distribution method is online sales).

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And it’s not just in China that inexpensive quad-core-based smartphones are appearing. They’re popping up in smaller regional markets throughout Asia. Here in Thailand, for example, Samsung also has the lion’s share of a smartphone market, expected to grow this year in terms of units by 37% to 7.8 million, or about $1.72 billion U.S., according to Thai market research firm GfK Retail and Technology.

Notably, here as in most other markets, the smartphone market is outpacing handset market growth as a whole. Overall, the handset market in Thailand is projected to grow 10% this year, GfK says. Furthermore, one might expect Apple to be No. 2 in the smartphone market, but Sony holds the No. 2 spot behind Samsung in Thailand’s smartphone market.

So not surprisingly, it’s quite common to see Samsung smartphones — leading-edge Galaxy S4s and previous generation S3s, as well as lower-cost models — in the hands of Bangkok’s socially-networked youth and fashionable, status-conscious professionals. Bangkok, incidentally, a city of 10 million people, reportedly has 8 million Facebook accounts; social networking can hardly be underestimated as a driver of smartphone adoption in this part of the world.

Yet here and there one also can see Oppo smartphones as well — Oppo Electronics being a tier-2 Chinese handset maker. In fact, in Bangkok Oppo advertising is ubiquitous, recently featuring A-list celebrity Leonardo DiCaprio hawking its flagship smartphone, the Find 5 (built around a Qualcomm Snapdragon quad-core processor). Even domestic Thai handset makers are taking advantage of low-cost quad-core processors to get into the smartphone market — and into the hands of cost-conscious yet tech-savvy Thai folk.

In Bangkok, the shopping centers, technology malls and market places are legion. Typically those that cater to buyers of electronics are filled with tens or even hundreds of independent vendors selling all types of electronics, from leading-edge, brand-name devices to bargain-basement Chinese white-label tablets. Galaxy S4s, Note 3’s and iPhone 5’s are, of course, shiny, new and for sale everywhere (if not always 100% genuine), along with smartphones from Sony, Lenovo, Huawei and LG. But those Oppo handsets and even MediaTek-based smartphones from indigenous Thai handset maker I-Mobile are starting to appear in smartphone displays alongside those Samsung and Apple models.

Even in upscale shopping venues, such as Siam Paragon in Bangkok’s central business district, one can find Oppo and I-Mobile smartphones on display, something one wouldn’t have seen a year or so ago.

I-Mobile seems to be taking a page from Samsung’s playbook and offering devices spanning a wide-range of price points and technical capabilities. Late last year and continuing this year it began marketing several smartphones based on Taiwanese chipmaker MediaTek’s MT6589 integrated chipset. The MT6589 incorporates an Arm Cortex A7 quad-core processor (with cores typically operating at 1.2 GHz or 1.5 GHz, depending on the configuration) fabricated with 28nm process technology, an Imagination Technologies Power VR Series5XT GPU, and its own MediaTek modem chips. The chipset also boasts a 13 megapixel camera with integrated image sensor pipeline (ISP), high-definition (1080p) playback and recording at 30fps, support for a full high-definition (1920×1080 pixels) LCD, as well as support for 802.11n Wi-Fi, Bluetooth 4.0, GPS and FM radio. I-Mobile’s MT6589-based smartphones range in price between approximately 5,000 Thai baht and 9,000 baht, or about $160 to $290.

The I-Mobile IQ X2, for example, hit the market in late Q3 and features among the usual smartphone features a 5-inch display with full HD resolution, dual SIM card support — an important feature in Southeast Asia where rural network coverage can vary greatly — 4 GBytes of ROM, 1 GByte of RAM and an 18 megapixel image sensor. It is built around the MT6589T (“T” for turbo; the ARM cores in this version operate at 1.5 GHz). The suggested retail price is 9,490 baht, or about $300, although it can be had for less (bargaining and haggling over price is often still an important part of the retail culture here).

At the other end of the spectrum is I-Mobile’s IQ 5.3. For just 5,800 baht currently (again, give or take, depending on the retailer and one’s bargaining prowess) or $185, one gets a respectable mid-range smartphone. The big difference between the 5.3 and the X2 are the image sensor, which is only 12 megapixels, and the screen resolution, which is only 480×854 pixels. The four CPU cores in this version of the MT6589 clock in at 1.2 GHz, as well.

Those specs aren’t going to make Samsung or Sony nervous, but still, for less than $200 one gets a capable smartphone that, while not leading edge, certainly isn’t trailing edge, either. Moreover, it is more than adequate for all but the most demanding power users or mobile media consumers.

By contrast, one likely won’t find a Galaxy S4 — a real one, at any rate — in Bangkok for less than 19,000 baht, or $600.

While these inexpensive smart phones are available and they are making inroads, they aren’t making any big dents just yet in the markets for Samsung, Sony or Apple.

In Bangkok’s MBK shopping center — a few blocks away from the Siam Paragon but considerably less upmarket — there is one whole floor dedicated to mobile phone and tablet vendors. In an area seemingly occupying an acre or two there must be hundreds of various independent retailers occupying various stalls, counters and shops.

A small, informal survey of several of these handset retailers in MBK would seem to indicate that most people here would rather fork over more baht for the brand names, even if it means a less technically capable smartphone.

“Yes, some people who worry about money will buy an I-Mobile or a Chinese phone,” said one proprietor, whose Thai nickname translates (perhaps somewhat ironically) as Apple. “But most want a Samsung or an iPhone. Most people buy older or used iPhones, Galaxy S3s, or even a Note 1, if they do not have money for a new model. Or maybe one of the cheap Samsung models, like the Duos,” she said. Most of her colleagues agreed when asked about local customers’ buying habits.

Nevertheless, low-cost quad-core processors such as those offered by MediaTek, are leveling the playing field. Smartphones built around the M6589 definitely have started to approach the capabilities of higher end phones, said Gartner’s Hung. In fact, MediaTek-based smartphones could start making inroads even in more mature markets in the future. “That perceived gap (in ability) is shrinking,” he said. “Overall, definitely, MediaTek products are starting to compete against phones in mature markets.”

To view part one, click here.