Intel Corp. (INTC) and Qualcomm Inc. (QCOM), the
two largest U.S. chipmakers, are under threat in the fastest-growing part of the tablet market from a band of upstarts with
names like Allwinner Technology Co. and Fuzhou Rockchip
Electronics Co. that are little known outside southern China.
Allwinner, based in Zhuhai near the manufacturing center of
Shenzhen, became the No. 2 tablet-processor maker behind Apple
Inc. in 2012 as demand for cheaper tablets stoked sales of its
low-cost chips, according to IDC. Qualcomm ranks third, while
Intel comes in at No. 6, following Rockchip.
The Chinese chipmakers’ rapid rise has been fueled by their
quick response to a shift in the tablet market toward budget
machines, which are providing many consumers in emerging regions
with their first access to the Internet on a larger screen. The
young companies have jumped on that trend by providing the
devices’ manufacturers — many of them based around Shenzhen —
with low-cost components based on ARM Holdings Plc designs, the
same technology used by many of their more established rivals.
“It’s really thrown open the competitive stakes,” said
Michael Palma, an analyst at market researcher IDC. “It’s a
sizable chunk and it’s growing the fastest — so much of this
market is going for this good-enough solution.”
The new entrants owe their rapid start to the availability
of ARM’s technology, which dominates in chips for the tablet and
phone industries. They’ve also benefited from their access to
chip foundries such as Taiwan Semiconductor Manufacturing Co.
and Samsung Electronics Co., which provide contract-based use of
some of the most advanced production facilities.
Success at Allwinner, which was founded in 2007, and
Rockchip, established in 2001, is being driven by increasing
demand for inexpensive tablets in their home market, where some
devices sell for as little as $50, and in other developing
economies. Sales of tablets that retail for less than $150 and
don’t carry a brand name will rise 36 percent this year, IDC
estimates, driving a 22 percent increase in total tablet
shipments. The market for tablet processors grew 32 percent in
2013 to $3.6 billion, according to Strategy Analytics.
Local chipmakers benefit from their proximity to the device
manufacturers because it bolsters their ability to anticipate
and react to new features that are in demand, said Ben El-Baz,
head of U.S. marketing for Allwinner.
“Shenzhen is really the electronics hub for the world,”
El-Baz said in a phone interview. “We are so close to the
market that we’re able to come out with new solutions faster
than our competitors. We can do it at lower cost.”
Allwinner accounted for 18.2 million of the 88.3 million
tablet processors shipped in the fourth quarter of 2013, IDC
said. That was more than three times what Santa Clara,
California-based Intel, the world’s largest chipmaker, shipped
in the same period. Rockchip sold 9 million.
Rockchip representatives didn’t return messages for
The closely held Chinese companies’ ascent reflects the
broader shift of consumer computing to mobile gadgets, away from
Intel-powered personal computers sold by U.S. companies. While
Apple, which designs its own chips, has bridged that transition,
others such as Hewlett-Packard Co. and suppliers like Intel have
failed to deliver products that have made an impression.
Intel Chief Executive Officer Brian Krzanich — who has
made catching up in mobile computing a priority since taking
over the company in May — said he’s aiming to quadruple tablet-chip sales to 40 million this year and processors from his
company will make their way into devices costing less than $100.
To speed adoption, Intel will provide tablet makers with
subsidies — what it calls “contra revenue” — to make the
cost of its chips competitive. That will cut into profitability
Kathy Gill, a spokeswoman for Intel, said the company is
“absolutely accelerating” its roadmap for its Atom line of
low-power, low-cost processors for phones, tablets and budget
The surge in cheaper devices hasn’t gone unnoticed by more
established computer makers. Hewlett-Packard this year began
selling the HP 8, a $170 tablet that runs on an Allwinner quad-core processor.
The Chinese companies are following a trail blazed by their
neighbor, Taiwan-based MediaTek Inc. (2454), which some analysts say is
best placed to challenge Qualcomm for leadership in the
smartphone-chip market. MediaTek, which now provides about 40
percent of the chips that power lower-end phones with limited
features, projects its smartphone business will surge 50 percent
to 300 million units this year.
Like MediaTek, Shanghai-based Spreadtrum Communications
Inc. is building on its relationship with handset makers serving
the China market and exporting from there. The company, founded
in 2001, supplies both processors and modems for smartphones
that can retail for as little as $25, said Diana Jovin, a U.S.-
based vice president at Spreadtrum.
Her company, which is owned by the Chinese government, has
learned that quickly providing adaptable solutions is needed to
succeed in a rapidly changing market, she said.
“A significant part of the mobile-handset ecosystem is
centered in China,” Jovin said. “We’re the only vendor located
in China serving those customers. We’ve expanded our portfolio
quite rapidly and have the breadth and depth to compete
effectively on a global basis.”
Spreadtrum, which has supplied chips used in Samsung’s
Galaxy Star model and HTC Corp.’s Desire, is looking to build on
its China base just as Qualcomm, the largest maker of
semiconductors used in phones, is trying replicate its worldwide
market dominance in that country, the biggest global mobile-phone market.
Qualcomm has already responded to the demand for lower-cost
devices made in China with new chips, said Cristiano Amon, the
head of the company’s chip division.
The adoption of a faster wireless-data technology called
long-term evolution, or LTE, particularly by No. 1 wireless
carrier China Mobile Ltd., will open the door for Qualcomm, the
San Diego-based company says. While other companies including
Intel, MediaTek and Broadcom Corp. (BRCM) have announced LTE-capable
chips, Qualcomm has been in the market for more than two years
and has 100 percent market share in devices that have integrated
modems, according to IDC.
Qualcomm’s advantage in LTE modem chips will be tough to
beat. Unlike for stand-alone processors, there’s no source of
off-the-shelf modem designs, and building one takes years of
experience, testing and qualification work with phone-service
providers, according to Will Strauss, an analyst at Mesa,
Arizona-based Forward Concepts Co.
In processors, “everybody can get in, thanks to ARM and
the ease of implementing your own applications processor.
They’ve lowered the bar,” Strauss said. At the same time, “the
barrier for entry for LTE modems is still very, very high.”
Still, Chinese companies have created an obstacle that
their more established rivals may struggle to overcome, said Jim McGregor, an analyst at Tirias Research. While the volumes are
huge in China and emerging markets, the devices’ low prices
leave little room for profits — particularly for companies like
Qualcomm and Intel that have shareholders who are accustomed to
wide margins, he said.
“We are not just talking about a billion here, but several
billion units,” McGregor said. “It’s foolish to avoid that
kind of market. The problem is with a publicly traded company,
it’s against their instincts to go for it.”
To contact the reporter on this story:
Ian King in San Francisco at
To contact the editors responsible for this story:
Pui-Wing Tam at
Jillian Ward, Reed Stevenson