MTK pioneers complete designs and garners de facto monopoly in handsets
One Chinese handset designer, MTK Inc (MediaTek), has over the past few years had a profound impact on the attitude of the local vendors toward reference designs.
By Jeff Lu, Executive Editor, EDN China -- EDN, November 8, 2007
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The concept of a reference design was exclusive to a handful of semiconductor vendors when the concept first emerged, but it has become part of the standard offering that any semiconductor vendor that wants to do business in China must provide. Chinese vendors especially rely on reference designs in consumer electronics. "It is not that we do not devote more resources to design on our own. Rather, neither the boss nor the market gives us time," says a Shenzhen-based handset-design engineer.
One Chinese handset designer, MTK Inc (MediaTek), has over the past few years had a profound impact on the attitude of the local vendors toward reference designs. By today’s standards, many traditional semiconductor companies, including many international companies, provide incomplete reference designs because they provide only a hardware reference based on their chip sets. Such designs often lack optimization for commercial use. Moreover, these designs generally lack supporting software, so developers must undertake software development or deal with third-party-software vendors.
MTK’s business model, in the words of Oliver Xu, a principal analyst at Gartner, is "buy one, get one free," meaning that vendors bundle software with chip hardware. Customers need to pay only for the chips, because the software is free. In the case of a mobile handset, a design team with an MTK reference design must design only the user interface and shells.
MTK’s move dramatically lowers the technical threshold of handset design. It means that players can enter the mobile-phone market in China, assuming they sufficiently resolve investment, manufacturing, and sales-channel issues. China’s huge mobile-phone market becomes an incubator for these emerging mobile-phone companies. More than 70 vendors in China now have handset-manufacturing licenses, and many "underground" vendors without licenses are conducting activities in the market.
Xu estimates that MTK had a market share of 40% in China’s mobile-phone market in 2006. Many industry insiders estimate that MTK has a higher market share, which translates into a de facto monopoly.
"In Japan, we need to sell only chips," says Frank Liu, marketing manager of emerging multimedia-process vendor C2 Microsystems. "Usually, we do not know what products designers will develop with these chips. Yet, in China, to sell chips, we must provide total solutions covering hardware plus software."
Certainly, MTK’s model also has produced a negative impact on Chinese consumer-electronics vendors: undifferentiated products. When you open the shell of competing products, you will find that the components inside are the same. This lack of differentiation spells at least two risks for IC customers: They can survive only through price competition, and they rely excessively on a single vendor.
Some homegrown-semiconductor vendors are looking to establish new business models to break MTK’s monopoly. Chipnuts (Shanghai) recently introduced a smart-handset-design platform. Unlike MTK, Chipnuts integrates different vendors’ software and hardware products on the platform, leaving more choices for the design engineer’s customers. "We hope that each link of the industry chain can capitalize on our platform," says Jun Zhan, vice president of Chipnuts.
