US firms give up margins for China volumes

Savvy United States chipmakers are hitching their wagons to Chinese smartphone makers, willing to sacrifice profit margins to boost sales volumes in the world's second-largest market for mobile phones.

As demand in developed economies stagnates, a handful of component suppliers, including Qualcomm and Synaptics, have left competitors in their wake by expanding on the mainland, where sales of cheap phones made by home-grown companies eclipse pricier models made by Samsung Electronics and Apple.

Increased exposure to China has diluted chipmakers' gross profit margins to somewhere in the mid-40 per cent range from an average of nearer 50 per cent in developed markets, analysts estimate. The rewards lie in the huge volumes demanded by Chinese handset makers.

"The guys that have traditionally been focused on the developed markets are now starting to see a slowdown," said Stewart Stecker, research analyst at asset management firm AlphaOne Capital Partners. "The guys that are most focused on emerging markets are seeing healthy growth rates."

Brisk demand for low-priced Android devices on the mainland was the main driver of a 39 per cent jump in global smartphone shipments in the third quarter of this year, according to data published by market research firm IDC.

IDC forecast annual smartphone shipments on the mainland, already an US$80 billion market, would rise to US$120 billion by 2017. That is 460 million handsets in need of chips, filters and other components.