China's smartphone application processor (AP) shipments enjoyed strong growth in the second half of 2014 as the country's 4G ecosystem gradually matured. However, the 4G growth came at the expense of 3G AP sales. Currently, the China market's 3G AP inventory has already piled up to tens of millions and even Spreadtrum, who sees the lowest inventory globally, also has a few million units in excess of demand.
To digest the inventory, the AP suppliers have been strengthening their sales in emerging markets. They are also considering selling them to tablet makers and increased competition from international vendors could damage China's domestic tablet AP suppliers, which may negatively affect Intel's SoFIA product lineup for the second half of 2015 and may even force Intel to halt its plan of reducing subsidies to partners, according to Digitimes Research's findings from a research on China's tablet upstream supply chain.
In the second half of 2014 when smartphone AP shipments to the China market were mainly 4G solutions, 3G solutions were mostly shipped to other emerging markets. However, currency fluctuations in some of the emerging economies undermined 3G shipments: Suppliers temporarily halted shipments to Russia and lowered the volumes shipped to India.
With demand from Latin America and Africa only had limited growth, 3G AP shipments declined dramatically in the second half of 2014, leaving a high level of inventory to suppliers including Qualcomm, MediaTek and Spreadtrum.
To digest inventory, MediaTek, which used to request its tablet partners not to use its smartphone APs for their devices, has now started to encourage them to do so. Meanwhile, Qualcomm also unveiled a new strategy for the tablet market, looking to clear its smartphone AP inventory via the tablet market.
The two firms are expected to start mass shipping their smartphone APs to the tablet sector in the second quarter of 2015, according to Digitimes Research's findings.
Rumors circulating in the market have also claimed that Qualcomm is planning to partner with China-based Allwinner Technology, which has seen shipments decline but still has tight partnerships with downstream clients. Qualcomm is looking to establish a cooperation model similar to that of Intel-Rockchip partnership in order to further penetrate into China's tablet supply chain.
For Intel, the second half of 2015 will be a critical time to promote its SoFIA platform, but if MediaTek and Qualcomm are offloading their smartphone APs into the tablet market, it could have significant impacts on Intel's promotion of its entry-level solution.
In fact, most of China's tablet players are waiting for Intel to unveil the 4G version of its SoFIA solution and only a few have adopted the current 3G solution for their devices to test the water. Although Intel's 4G SoFIA solution is expected to attract good demand, the 3G solution is the main product that Intel is pushing for 2015 as its 4G solution is not scheduled to be released anytime soon. If Intel fails to expand its market presence with the 3G solution, it could dramatically affect its plan and lineup for the SoFIA platform for 2015.
Therefore, Digitimes Research believes Intel is unlikely to cut its subsidies to clients in the short term and could even expand the coverage for some specific products in order to expand related shipments and ecosystem.