While the Indian telecom Eco-system suffers, neighboring China leaps forward and is all set to enroll over 120 million 4G LTE subscribers by the end of 2014.
China Mobile [CM] LTE shipment goal of 100mln in 2014 is achievable due to CM’s strong push and the readiness of the LTE component supply chain. Together with the LTE shipment from China Unicom and China Telecom, Analysts estimate the total LTE phone shipment in China to be around 120-150mln units.
Mediatek, the fabless smartphone chip company was the biggest TD-SCDMA supplier for CM and the 3G chipset market share leader in China but a laggard in 4G LTE. Mediatek’s LTE chipset shipment forecast of 10-15 mln in 2014 translates to 10-15% of the market share in total, which would be way behind its 3G share of >50%. With the fast conversion from 3G to 4G but a low LTE share, Mediatek’s smartphone chipset shipment overall would be hugely impacted, despite 35-40% shipment to export markets remaining strong.
As the low cost smartphone supply chain is getting mature, we believe that most of the 3G smartphone makers are finding it difficult to differentiate their products from others. Octa-core chipset is a good market gadget for their product to stand out despite a higher price.
B2C Smartphone Sales Model
Xiaomi’s B2C business model eliminates the cost of channel distributors and means it remains profitable even if it has sacrificed additional 5-7% margin to Mediatek. We believe Coolpad is following Xiaomi’s business model footprint to sell its Octa-core 3G smartphone. While the overall 3G phone shipment is set to decrease meaningfully on the 4G conversion, the 3G Octa-core smartphone might be the last wave of 3G phone growth in China’s domestic market.