In a previous post, I discussed that Clayton Christensen’s “Law of Conservation of Attractive Profits” predicts that attractive profits will move from the Android OEMs towards adjacent layers in the value change.
One possible layer is the SoC component manufacturers. I am very unfamiliar with this market, but I think that in this market, Qualcomm has historically been very strong with its Snapdragon series of chipsets. The new rising star is MediaTek which is very popular among the new OEMs like Xiaomi and MicroMax which sell their smartphones at very low costs. It seems like the rise of MediaTek is recently pressuring Qualcomm.
Unlike the Smartphone OEMs, many of which are having trouble generating profits, Qualcomm and MediaTek are quite profitable. Apparently due to its focus on emerging markets, MediaTek’s revenue growth is quite remarkable, up 62.7% year-on-year.
Whether or not the SoC component layer will earn attractive profits depends on the structure of the market, barrier to entry, capital intensity, commoditization or Android hardware, bargaining power relative to Android OEMs, bargaining power relative to Fabs, etc. It will be fascinating to watch how this market evolves. Unfortunately, I don’t have enough understanding of the market to make a reasonably informed prediction. My gut feeling however is that the situation may eventually resemble the PC market, where Intel owned a huge proportion of the attractive profits.
Naofumi Kagami 