Chipset price war may pull down 5G handset prices

“The chipset brands are expecting the demand slowdown to be reversed in the September quarter. Chinese OEMs (original equipment makers) will look to release more mid-range models to bring back the volumes,” said Sravan Kundojjala, independent semiconductor analyst.

With the supply chain constraints easing up, the chipset players will have more leeway to bring down the price and gain back more market share, he said.

MediaTek had an around 45% market share in India in the January-March quarter, according to Kundojjala, compared with Qualcomm’s around 25%. The US company, though, leads in terms of revenue share, due to a higher mix of premium products.

Both companies have also said that there would be price competition. But they differ on which products would see it more.

“Given supply constraints, we were able to exercise some pricing leverage that gets neutralised in the current excess inventory environment,” Qualcomm chief financial officer Akash Palkhiwala said, answering an analyst’s question recently.

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MediaTek chief executive Rick Tsai said during a recent earnings call that the company faced intense price competition, but that it was limited mainly to “certain entry smartphone products”.However, MediaTek will not be chasing the bottom-of-the-barrel pricing, Tsai said, since that strategy does not lead to end market demand or change overall market share materially.

Kundojjala said he expects both players to launch new chips with aggressive pricing. They are reworking their designs of 5G chipsets with better cost structure by reducing the number of 5G radios and 5G bands, he said.

Wafer costs for leading edge nodes continue to remain high, so cutting down on the radios and other features will be a way to bring down costs. This will bring down the price difference between 4G and 5G chips.

Industry experts said while 4G chips are priced under $10, 5G chips are still being sold above $20. With the supply chain constraints going away and economies of scale kicking in, they expect 5G chip price to go down below $18, making it palatable for budget smartphone brands to bring out 5G smartphones under $120.

“5G is still missing in the lower-mid and entry-level segment, so that is where they will be concentrating. There is some room to cut pricing for 5G chips, by removing individual bands for chips making their way to India,” Kundojjala said.

Counterpoint Research analyst Parv Sharma, however, said price competition will only be seen on end-of-life products, adding that the foundry costs are still quite high to trigger a price war.

“In order to maintain their growth margins, a price war is not the key thing that will take them out of the inventory crisis. That will take its own due course of time,” Sharma said.

“Meanwhile, the players will try to maintain their profit margins. Even if there is a price war, it will be for some end-of-life products,” he added.

IDC’s Navkendar Singh said even if there is a price cut on chipsets, smartphone makers may not immediately pass the benefits down to the consumer.

“Since the low demand in the entry and mid-tier segments are more structural in nature, smartphone brands may instead look to add more components or more features to offer better value instead of lower prices,” he said.