Chinasmartphone:4Gvs.3G;Qualcomm(QCOM)vs.Mediatek.
TakeawaysfromourAug20-21ChinaTechnologyTriponwhichwemetwithHuaqin(smartphonedesignhouse)andsemicosTongfangandFudanMicro:(1)ChinasmartphonedemandwasweakinJune-JulybutshouldimproveseasonallyinAug-Septdrivenby4GgrowthaccordingtoHuaqin.InJan-July,China4Gsmartphonesell-inandsell-throughwere50-55mnand29mn,respectively.Weseelimited4Ginventoryriskassell-throughalreadyreached9mninJuly,buttherecouldbepotential3Ginventorycorrectionmostlyatthedistributorlevel.(2)Weexpecttelcos’subsidycutstodepresssmartphoneASPbutnotunitdemandinChina.Huaqinsaiditsoverseasshipmentshaveincreasedsteadilyytd.(3)Onthechiplevel,QCOMstilldominates4GdesignasMediatek’s6732ismoreexpensivethanQCOM’s8916.WebelieveMediatek’supcomingSOC(i.e.,6735M)willbemorecompetitivein2015oncostperformance.Separately,Mediatek’s3QguidancewasabovepriorGSe,whichwethinkmaybeduetoQCOM’schallengesincollectingroyaltypayments;someChinesevendorsmayselectMeditek’sSOCsinceunderMeditek’sQCOMagreementitnolongerhastodiscloseitscustomers’chipsetshipmentsforroyaltyreporting.Weexpectittomeet3QguidancebutGPMtodeclineintomid-2015duetocompetition,whichmaycapsharepriceupside.
Chinasemiconductorinvestments:OverseasM&Aisthenewtrend.
BeijingandShanghaigovernmentsaresettinguporinvestingindedicatedsemiconductorPEfunds(e.g.,HuaCapital,whichhasproposedtoacquireOmniVision)aspartofthegovt.’sRmb1tninvestmentinthesemiindustry.
Thecentralgovt.andothercitiesarealsosettingupadditionalfunds.Webelievethesefundsmaytargetacquisitionsinoverseassmall-tomid-capsemicoswithcompetitiveproductsandthatwanttoexpandinChina’ssmartphone,homeapplianceandtabletmarkets,andeventuallylistintheA-sharemarket.
ChinaMobilecoulddominateinlow-endLTEsmartphonemarket.
ChinaUnicomhassaidthatitwillprocureonly4-mode4Gsmartphones(FDDandTD-LTE,HSPA,andGSM)whileitschannelpartnercansell3-mode(FDDLTE,HSPA,andGSM)LTEsmartphones.HuaqinbelievesMIITwillnotpermit3-modeFDD-LTEphonesforChinaUnicomandChinaTelecomsotopromoteintegratedFDDandTD-LTEnetworks.Iftrue,onlyChinaMobilecouldsell3-modeTD-LTEsmartphones;theretailpriceisatleastUS$8-10lessthan4-modephonesandweestimateshouldrepresentover50%ofthetotalTD-LTEsmartphonemarketin2014.WeviewthisasincrementallypositiveforCM.