Top-tier smartphone makers going to in-house processors: report

Qualcomm phone processor
According to an IHS Markit | Technology report, top-tier smartphone vendors are increasingly incorporating their own application processors in their products, causing market share to shift away from the leading third-party supplier, Qualcomm. (Qualcomm)

Look inside a new smartphone from Samsung or Huawei and you may find the company’s own applications processor, rather than a familiar chip from Qualcomm or other third-party supplier.

According to a new report from IHS Markit | Technology, both top-tier smartphone vendors are ramping up use of their own application processor solutions in their products, causing market share to shift away from the leading third-party supplier, Qualcomm. The report said that Samsung and Huawei both expanded their in-house smartphone application processor shipments by more than 30% during the third quarter of 2019, compared to the same period in 2018.

In the “Smartphone Model Market Tracker – Q3 2019” report, IHS Markit noted that Qualcomm’s share of the smartphone processor market fell by 16.1% during the same time.

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“Samsung and Huawei both are taking strategic steps to realign their smartphone product lines and supply chains away from third-party processor solutions and toward their own self-made alternatives,” said Gerrit Schneemann, senior analyst, smartphones, at IHS Markit, in a statement. “Each company has its own distinct rationale for making the shift. However, the aggregate impact on the smartphone market is a major shift away from third-party processors.”

According to IHS Markit, the trend is most pronounced for Samsung in its mid-range smartphones. Samsung used its own Exynos processor in 80.4% of its mid-range smartphone devices, the Galaxy A Series, shipped in the third quarter of 2019. This is up from 64.2% during the same period in 2018. For Samsung’s entire smartphone line, Exynos processors were in 75.4% of all devices during the third quarter, up 61.4% from the same quarter in 2018.

In contrast, IHS noted that the share held by third-party processor suppliers MediaTek and Qualcomm in Samsung smartphones declined to 2.3% and 22.2% respectively, down from 9.0% and 27.5% a year ago.

The marketing emphasis Samsung placed on equipping its mid-range phones with new features and technologies may have a bearing, according to Jusy Hong, smartphone research and analysis director at IHS Markit | Technology. “The shift in strategy requires a more pronounced reliance on in-house processor solutions to maximize cost and development efficiencies.”

Huawei also going in-house

Chinese smartphone maker Huawei has also chosen to go in-house, employing its own processor chipset, dubbed Kirin, in 74.6% of the smartphones it shipped in the third quarter of 2019, up from 68.7% one year earlier.

Previously, Huawei used its Kirin chips mainly in flagship devices. However, Huawei is expanding the reach of its in-house solution to more price ranges, including the Nova and Y-series mid-range phones.

In Huawei’s case, the escalating trade tensions between U.S. and China are having an effect. “The U.S. government ban is prohibiting Huawei from sourcing technology from U.S.-based firms, including Qualcomm,” said Anna Ahrens, senior analyst, smartphone and mobile, at IHS Markit. “As a result, Huawei is working on removing U.S.-based components from its supply chain by finding suppliers from different regions or by providing its own solutions.”

Stats seem to bear this out. According to IHS Markit, U.S.-based Qualcomm’s portion of Huawei shipments decreased to 8.6% in the third quarter of 2019, down from 24% in the third quarter of 2018. On the other hand, Taiwan’s MediaTek increased its share of Huawei phones, rising to 16.7% in the third quarter, up from 7.3% a year earlier.

According to IHS Markit, the in-house processor sourcing practices of Samsung and Huawei have ratcheted up the fierce competition between Qualcomm and MediaTek to maintain their market share among second-tier companies.

IHS Markit noted that the top six OEMs—Samsung, Huawei, Apple, Xiaomi, OPPO and Vivo—accounted for 77% of the global smartphone market in the third quarter. As Apple exclusively uses its own processors, Xiaomi, OPPO and Vivo are left as the major customers of Qualcomm and MediaTek.

Xiaomi's adoption of MediaTek has gradually increased since the second half of 2018. However, Qualcomm's deployment by Xiaomi accelerated rapidly in the third quarter.

Qualcomm's share of OPPO smartphones steadily declined from 82% in the first quarter of 2019 to 42% in the third quarter. MediaTek’s share of OPPO shipments accounted for 58% in the third quarter. This development was due to OPPO’s increasing shipments of low-end models, resulting in a higher adoption rate of MediaTek chips.

Moreover, Vivo is steadily increasing its adoption of MediaTek chipsets. Vivo shipped 46% of its smartphones with processors made by MediaTek in the quarter, up from 27% during the same period in 2018. Like OPPO, increased sales of mid-range and low-end series smartphones such as the S, Y, and V resulted in an increase in MediaTek's penetration rate.

Despite its problems, IHS Markit noted that Qualcomm retained the highest share in the global mobile processor market in the third quarter, with a 31% share, followed by MediaTek at 21% share. Samsung’s Exynos and Huawei’s Kirin recorded 16% and 14% respectively.