Since 2014 global smartphone shipments have declined annually after enjoying a long period of high growth that began with the launch of the first iPhone.
This is according to the latest analysis from global research firm TrendForce. The company revealed smartphone shipments for 2016 will grow by only 7.3% year-on-year, stating this forecast may be subject to corrections at a later stage.
The company says this is because more and more smartphone vendors are investing in the development and production of their own application processors (AP) instead of importing mobile chips from outside suppliers.
Due to the tight competition within the smartphones market, vendors are now vigorously finding ways to differentiate their own products, says Avril Wu, TrendForce smartphone analyst.
"Designing processor chips in house has become one of the main strategies that vendors adopt to maintain their market shares and margins during this period.
"This rising trend will benefit Taiwan Semiconductor Manufacturing Company, (TSMC), the global leader in the semiconductor foundry business," she explains.
Wu predicts in order to get the best performance out of their in-house APs; smartphone vendors will line up to use TSMC's leading-edge 16nm technology to manufacture their chips. Their contracts with the foundry giant may even include the use of integrated fan-out wafer-level packaging technology.
Below is an analysis by TrendForce of several major smartphone vendors that have been developing their own APs and their reasons for pursuing this strategy:
Apple: Leading software integration
According to TrendForce, Apple's strategy is based on maintaining the highest level of hardware-software integration. Hence, Apple develops its own APs for iPhones and over the years has become exceptional in hardware-software co-design for its mobile devices.
This advantage makes Apple the leader of the industry as its products are the best in overall performance as well as user experience, even though some of iPhone's key components (e g memory, display and camera) are not of the highest specs, says the company.
Samsung: Manufacturing smartphone chipsets
TrendForce says Samsung's manufacturing of their own smartphone chipsets not only gets rid of excess capacity of its foundry unit, but this also helps the company gain integrated circuit design experience.
Samsung has established its own line of APs known as Exynos to power its products.
TrendForce's findings reveal that Samsung will ship 323.5 million smartphones by the end of this year, while the shipments of Exynos chips are estimated to reach around 50 million units.
This will contribute to the share of Samsung smartphones carrying in-house APs to being around 20%, which is a step toward the gradual reduction of buying chips from outside suppliers.
Huawei: Developing APs to improve bargaining power
According to TrendForce, smartphone vendors that achieved a certain level of economies of scale and those being capable of shipping at least 40-50 million devices a year such as Huawei, will benefit from designing their own APs.
This strategy will help stem the reliance on integrated circuit (IC) design companies, including Qualcomm, MediaTek and Spreadtrum. The most immediate impact of the strategy can be seen in the price negotiation in the smartphone chipset market, says the company.
Huawei, for instance, is able to use its IC design subsidiary Hisilicon to put pressure on Qualcomm to obtain better prices. Additionally, Hisilicon also helps Huawei improve its hardware-software integration, leading to a win-win scenario.
China's semiconductor unit
In these two years, China has been aggressively building a domestic semiconductor sector and supported various deals and ventures such as ZTE Microelectronics, a subsidiary of a local telecommunication equipment provider and mobile phone vendor ZTE, says TrendForce.
ZTE Microelectronics, which specialises in the development of APs, has sold a 24% stake of the company to the National Integrated Circuit Industry Investment Fund.
TrendForce predicts Chip Company will have an important role in the implementation of China's semiconductor policy in future.
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