One Day It’s There, Next Day Gone
Smartphone chipsets and processors are designed to be highly specific to their use cases, and while they can also be used in tablets, laptops, wearables, and some smart TVs, they are designed to be the hub that controls most of the functions of your mobile devices. There are only a few major independent smartphone processor brands, Qualcomm (QCOM), Mediatek (2454.TT), and UniSoc (pvt), but a number of smartphone brands produce their own application processors and have for many years. These processors are either exclusive to the brand or are sold externally, but in most cases, they remain internal, with independent suppliers designing and supplying the majority of smartphone brands.
That is not to say other brands have not tried their hand at designing their own silicon, with Samsung (005930.KS) among the earliest with its Exynos 3 processor, used in the 2009 Galaxy S, and Apple’s A4 processor, used in the iPhone 4 in 2010. 2016 was a big year for self-designed application processors, with Lenovo (992.HK) releasing its Tiantian processor in its Vibe K5+ phone, and ZTE (000063.CH) releasing its N1 processor in its Axon 7 model that same year. Huawei (pvt) joined the club with its Kirin processor series in 2020, although that was made expedient when the US banned exports to the company, and Google (GOOG) more recently with its Tensor processor series. The remaining brands typically use Apps from Qualcomm and MediaTek, who battle each other on a model-by-model basis.
The problem with commercial application processors are designed to perform a variety of tasks well, but are not designed specifically for a particular smartphone brand or model, which tends to make smartphone models and brands more generic. For example, there are currently 32 smartphone models that use the Qualcomm Snapdragon 8 Gen 1 processor, across a broad swath of brands, from Samsung to Xiaomi (1810.HK), and 16 models use the MediaTek Dimensity 9000, including One Plus (pvt), Honor (pvt) and Vivo (pvt), while 3 models use the internally designed Samsung Exynos 2200 processor, all of which are Samsung phones. With all three having release dates withing 3 months of each other, the commercial Aps tend to reduce the diversity between models and brands.
Then there is price, and while with so few AP producers there is likely less price competition than there should be, custom APs are considerably more expensive to produce considering the smaller number of units. That said, as noted above, a number of smartphone brands do design and have produced their own APs. However, as the smartphone business is facing another year of declining volume, the cost-effectiveness of such development programs is being questioned, and only 3 days ago, Oppo (pvt), the 4th largest global smartphone brand (~10% share in 4Q ’22) shuttered its chip design company ZEKU (pvt) with no advanced warning to employees, customers, or HR, who was hiring new employees up to the 11th.
Oppo had released its first self-developed chip in 2021, along with its own power management and Bluetooth audio silicon and had been said to be taping out its own 4nm processor recently, while building a $650m chip R&D center. The company’s CEO said that current revenue did not meet expectations and that the investment in self-developed chips was so large that the company could no longer afford to support the project and issued its termination. That said, some employees seem to differ with those comments, noting that the AP processor tape-out is not due back from Taiwan Semi (TSM) until late Jun, and if successful, would have put considerable pressure on Qualcomm. They take it further in that they say that company executives have been in the US earlier this month and were warned by the US that Oppo faced sanctions if it continues with its current self-developed processor path, in order to protect Qualcomm’s position.
None of these allegations are supported with documentation at this point, but it seems that a warning from the US, after the devastation that has been done to Huawei’s smartphone business, might be enough to shutter what has been a ~$7b investment for Oppo, rather than be added to the US ‘naughty’ list and see its share of the smartphone market disappear in a few months’ ala Huawei. Shades of Teddy Roosevelt’s 1901 speech where he said, “Speak softly and carry a big stick”. Maybe they were smart enough to realize that the economics were not good no matter what the situation was in a market that is not growing or maybe they realized that they would not be able to buy an semiconductor equipment going forward and would fall behind commercial AP manufacturers. Too soon to tell but its not a good sign for the Chinese semiconductor industry and one that will empower US politicians to continue to keep the pressure on China.
That is not to say other brands have not tried their hand at designing their own silicon, with Samsung (005930.KS) among the earliest with its Exynos 3 processor, used in the 2009 Galaxy S, and Apple’s A4 processor, used in the iPhone 4 in 2010. 2016 was a big year for self-designed application processors, with Lenovo (992.HK) releasing its Tiantian processor in its Vibe K5+ phone, and ZTE (000063.CH) releasing its N1 processor in its Axon 7 model that same year. Huawei (pvt) joined the club with its Kirin processor series in 2020, although that was made expedient when the US banned exports to the company, and Google (GOOG) more recently with its Tensor processor series. The remaining brands typically use Apps from Qualcomm and MediaTek, who battle each other on a model-by-model basis.
The problem with commercial application processors are designed to perform a variety of tasks well, but are not designed specifically for a particular smartphone brand or model, which tends to make smartphone models and brands more generic. For example, there are currently 32 smartphone models that use the Qualcomm Snapdragon 8 Gen 1 processor, across a broad swath of brands, from Samsung to Xiaomi (1810.HK), and 16 models use the MediaTek Dimensity 9000, including One Plus (pvt), Honor (pvt) and Vivo (pvt), while 3 models use the internally designed Samsung Exynos 2200 processor, all of which are Samsung phones. With all three having release dates withing 3 months of each other, the commercial Aps tend to reduce the diversity between models and brands.
Then there is price, and while with so few AP producers there is likely less price competition than there should be, custom APs are considerably more expensive to produce considering the smaller number of units. That said, as noted above, a number of smartphone brands do design and have produced their own APs. However, as the smartphone business is facing another year of declining volume, the cost-effectiveness of such development programs is being questioned, and only 3 days ago, Oppo (pvt), the 4th largest global smartphone brand (~10% share in 4Q ’22) shuttered its chip design company ZEKU (pvt) with no advanced warning to employees, customers, or HR, who was hiring new employees up to the 11th.
Oppo had released its first self-developed chip in 2021, along with its own power management and Bluetooth audio silicon and had been said to be taping out its own 4nm processor recently, while building a $650m chip R&D center. The company’s CEO said that current revenue did not meet expectations and that the investment in self-developed chips was so large that the company could no longer afford to support the project and issued its termination. That said, some employees seem to differ with those comments, noting that the AP processor tape-out is not due back from Taiwan Semi (TSM) until late Jun, and if successful, would have put considerable pressure on Qualcomm. They take it further in that they say that company executives have been in the US earlier this month and were warned by the US that Oppo faced sanctions if it continues with its current self-developed processor path, in order to protect Qualcomm’s position.
None of these allegations are supported with documentation at this point, but it seems that a warning from the US, after the devastation that has been done to Huawei’s smartphone business, might be enough to shutter what has been a ~$7b investment for Oppo, rather than be added to the US ‘naughty’ list and see its share of the smartphone market disappear in a few months’ ala Huawei. Shades of Teddy Roosevelt’s 1901 speech where he said, “Speak softly and carry a big stick”. Maybe they were smart enough to realize that the economics were not good no matter what the situation was in a market that is not growing or maybe they realized that they would not be able to buy an semiconductor equipment going forward and would fall behind commercial AP manufacturers. Too soon to tell but its not a good sign for the Chinese semiconductor industry and one that will empower US politicians to continue to keep the pressure on China.
Theodore Roosevelt -Source: history.com
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