The global smartphone System-on-Chip (SoC) market grew 19% annually in Q3 2017 crossing $8 billion in chipset revenues. Qualcomm led the smartphone SoC market strengthening its position further capturing 42% of the total SoC revenues in Q3 2017. The San Diego based technology company saw rising adoption for its mid to high range SoCs by the fast-growing Chinese brands, boosting its SOC shipments 15% compared to last year. Apple took the second spot capturing 20% value share banking on steady performance for its iPhone portfolio followed by MediaTek, Samsung and HiSilicon (Huawei)
The vertically integrated players like Samsung, Apple and Huawei have been increasingly employing their own SOCs within their portfolio over the last few years. As a result, the combined share of the SoCs of these big three have rose from 20% level in 2015 to around 30% level in terms of volumes. This has somewhat hurt hare of some of the horizontal players such as MediaTek mainly and likes of Marvell, Broadcom and others which were forced to exit this space.
Exhibit 1: Smartphone SoC Market Share by Value Q3 2017
*Apple revenues does not include baseband from Qualcomm and Intel.
**Qualcomm revenues are exclusive of baseband shipment to Apple
The focus in the smartphone SoC market has shifted away from the number of processor cores to the integration of newer technologies driving newer experiences. For example: focusing on immersion to unlock new experiences such as AR/VR/Depth Sensing leveraging integrated ISP (Image Signal Processors) and GPUs, to other areas such as Artificial Intelligence engines, dedicated security architecture at chipset level, enhanced connectivity paving the path to 5G and higher performance at lower power consumption levels.
Apple and HiSilicon (Huawei) both launched SoCs with dedicated Neural Processing Units (NPUs) for AI processing at the edge. On the other hand, Qualcomm has kept the AI architecture dynamic & flexible leveraging three subsystems from Adreno GPU to Hexagon DSP and Kyro CPU to extract maximum performance. This is a better AI capability implementation on-chip as can be dynamically changed as per workload type and AI application leveraging three powerful sub-systems and thus is a much more advanced than competition.
Although native AI capabilities are present in premium segment smartphone SoCs for now, we estimate these capabilities to trickle down to high- to mid- tier segment of smartphones broadly, further driven by adoption of AI into other low-power non-smartphone IoT devices in near-to-mid-term. Thus, these AI powered SoCs will soon be seen in affordable flagship devices from Chinese smartphone makers, trying to keep up with the latest trends. According to our estimates, atleast one in three smartphones shipped in 2020 will have an SoC with native AI capabilities.
Exhibit 2: Native AI capable smartphone shipment forecast by 2020
Analysis for the top 5 smartphone SoC vendors:
- Qualcomm remained the largest SoC provider for smartphones in the Q3 2017 with 38% market share in terms of shipment.
- SoC revenue increased 23% annually for the company in the September-ending quarter.
- The company registered a 15% annual growth in shipments in Q3 2017, as the fast-expanding Chinese brands are adopting Qualcomm’s 400 and 600 series chipsets in mid-tier and affordable premium smartphones respectively.
- SoC shipments for Qualcomm are expected to grow as Chinese brands continue to expand overseas.
- Qualcomm’s SoC shipments almost doubled annually in the USD300 to USD400 wholesale price segment, driven by increased shipments of brands like OPPO, vivo, and Xiaomi.
- However, Qualcomm’s shipments in the premium segment (USD 400 and above) were down in Q3 2017, due to more vertical strategies by Apple, Samsung and Huawei.
- Apple SoC shipments increased 4% annually and recorded a 15% growth sequentially due the launch new iPhones in Q3 2017.
- Apple also introduced its A11 Bionic chip with dedicated AI processing unit called the ‘Neural Engine’. It will be used for facial recognition in the new iPhone X. Going forward we will see more use cases of AI in the field of AR/VR, virtual assistants, analysing user behaviour patterns and security.
- The company grabbed a fifth of total SoC revenues in the quarter though accounting for just 12% share of the total smartphone SoCs shipped in Q3 2017.
- MediaTek’s smartphone SoC revenues declined 10% annually, but increased 4% sequentially.
- The company is facing tough competition from Qualcomm in the mid-range segments, and from Spreadtrum in the entry level smartphone segments. Spreadtrum has been lately gaining ground with its low-cost 4G solutions.
- With more Chinese brands opting for Qualcomm solutions in the growing affordable flagship segment smartphones as they expand beyond China, resulting in MediaTek’s dip in share in the mid-to high-tier price segments.
- For the first time, MediaTek entered Samsung’s supply chain as a SOC supplier for entry-level Galaxy J series at end of 2016. This was a great win, however, it will be an uphill task for MediaTek to become a core supplier to Samsung. This is because Samsung is employing more in-house Exynos series chipsets into J series putting pressure on MediaTek on one end and Spreadtrum’s with its low-cost offerings is putting pressure on the other.
- The company’s high margin Helio range of SoCs accounted for over 15% of its smartphone SoC shipments. The mix of Helio SoCs in MediaTek shipments could potentially boost its SoC ASP in the coming quarters and thus challenge Qualcomm’s 600 series head-on.
Exhibit 3: Annual Revenue Growth of Smartphone SoC Vendor in Q3 2017
- Samsung was the fastest growing smartphone SoC player in Q3 2017 in terms of shipment but growing from a smaller base. The SoC shipments grew 59% annually for the Korean vendor benefiting its LSI division supplying to its own Mobile division.
- It remained the fastest growing SoC player in Q3 2017 in terms of revenue as well, with an annual growth of 69%.
- The fastest growing smartphone price segments for Exynos were the sub USD 100 because of Samsung’s rising adoption of Exynos 3475 Quad core SoC in the J series.
- To stay competitive Samsung will also be adding AI capabilities to its high end Exynos SoCs.
- Shipment of HiSilicon smartphone SoCs increased 42% annually, it was the second fastest growing SoC player in Q3 2017 from a smaller base in Q3 2016. HiSilicon is a wholly owned subsidiary of Huawei and its Kirin line of SoCs are just used within Huawei’s own smartphones.
- The revenues for the company grew 50% annually with an increased mix of higher and mid segment SoCs.
- Huawei is increasingly adopting HiSilicon SoCs in its product line.
- HiSilicon was the first to announce an AI integrated chipset. Launched in the third quarter. The Kirin 970 boasts an NPU (Neural Processing Unit) for AI-related processing.
- The USD 300~USD 400 was the fastest growing smartphone price segment for HiSilicon with a growth rate of over 150% annually.