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Apr 11

MediaTek chip may trigger smartphone price war in China

Taiwan-based mobile chip maker MediaTek in March launched its MT6575 chip in China, providing a 3G platform for mid-range and entry-level smartphones running Google’s Android operating system and targeting the market for devices costing 1,000 to 1,500 yuan (US$158-$238). MediaTek has been relatively late in its entry into China’s growing 3G smartphone market.

Devices using the MT6575 chip will offer more features than most of the 1,000-yuan smartphones that caught on in China last year, though they will be similarly priced.

“The MT6575‘s function-to-price ratio is higher than similar chips in the current market,” a market expert told the 21st Century Business Herald, a prominent Chinese business newspaper. The chip’s frequency was raised from 800MHz to 1GHz, while its processor was upgraded and operating memory increased from 512MB to 1GB.

Industry insiders say the chip’s launch could trigger a price war in the domestic smartphone market. Taiwanese mobile phone manufacturers mainly compete on prices and advanced configurations, and their main market is the 1,000-yuan segment. Last year, devices costing between 1,000 and 2,000 yuan (US$158-$317) captured the largest market share of any price range, at about 46.8%.

Zopo Mobile, the first Chinese manufacturer to produce mobile phones on MediaTek’s new platform, said its strategy for entry into the smartphone market is to offer mid- to high-end features at low to medium prices. This strategy, however, has put cost pressures on the company. This and the growing cost of its multi-level distribution channels have more than doubled smartphone prices.

Lin Chih-hung, director of global marketing for MediaTek, said that 300 million mobile phones are expected to be sold in China by the end of 2012, including 164 million smartphones. The explosive growth in the smartphone market has led Chinese device makers Huawei and ZTE to raise their sales forecasts for this year.

Yet given competition in the market, several manufacturers have seen sales growth accompanied by drops in profits. ZTE‘s 2011 revenue grew 23.39% year-on-year to 86.25 billion yuan (US$13.67 billion), but profits fell 36.62% year-on-year, to 2.06 billion yuan (US$326.52 million). This has mainly been the result of aggressive promotional campaigns, which brought about a decline in terminal device sales.