Even China's Shanzhai cellphone has to rely on Taiwan's Mediatek

antimatter

Banned Idiot
China can clone the look, the feel, but couldn't clone the main chip used in the cellphoe
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MediaTek rides high in bandit territory
By Sherman So

HONG KONG - The Chinese call them shanzhai ji, or "bandit phones", and the proliferation of the cheap mobile-phone handsets has moved MediaTek - a Taiwan-based designer of chips that make the gadgets work - towards a dominant market position, even as sales in China by Nokia, the world's biggest mobile phone-maker, stall.

The secret of MediaTek's success is that its products go into both branded mobile phones such as Motorola and non-branded devices so cheap they are almost given away. That demand drove the company's first-quarter profit up 59% from a year earlier to NT$11,134 million (US$343 million) as sales jumped 36.8%. MediaTek's share price has jumped 24% on the Taiwan Stock Exchange in the past year, far outpacing the 8.7% gain in the enchmark TSEC weighted index in the same period.

Bandit phones are made mainly by small factories dotted around Guangdong province in the south of China, their low prices and superb functionality making them ideal for students, factory workers, soldiers or anyone else without much cash. They now come in such a prolific variety of styles and shapes, sometimes identical to world-famous brands, sometimes quite unique in their functions and style, that the term "counterfeit" hardly seems appropriate. Yet it is possible in China to buy what is to all appearances and functions an iPhone for US$100, and it works. They are also exported to Russia and India by small traders in China.

As researcher Karl J Weaver of Newport Technologies explains, the Putonghua word shan means mountain, zhai means fortress or hideout, and ji is the short form of shouji, or mobile phone handset. "Shanzhai Ji is, therefore, bandit handset."

About 100 million bandit phones were sold in China last year, JP Morgan analyst Alvin Knock estimates, while industry insider Wayne Zhang suggests a more conservative 50 million, with the difference possibly accounted for by exports by small traders to the likes of Russia and India. That compares with 176 million branded cell phone sales, according to the Ministry of Industry and Information Technology. About 90% of all bandit handsets use chips from MediaTek.

As MediaTek, led by chairman Ming-Kai Tsai, thrives in bandit territory, Nokia, the world's biggest mobile phone-maker, is struggling. In the past three years, mobile phone sales in China have jumped 22%, from 220 million units in 2007 to 250 million in 2008 and 270 million last year. In the same period, Nokia's sales have stagnated at 71 million units in 2007, 71 million in 2008 and 72 million last year, according to Knock.

"All the incremental growth was taken by MediaTek phones," said Knock.

Founded in 1997, Forbes by 2007 ranked it as one of the Asia's Fab 50 companies. It has overtaken Texas Instruments as the biggest supplier of integrated circuits in low-end handsets in China. Among companies that farm out the actual fabrication, or manufacture, of chips that they design (fabless companies) it is the world's fourth-biggest.

MediaTek, which originally focused on making chips for DVD players, switched to designing mobile-phone chips after recognizing that cheap locally made phones from China's Ningbo Bird and DBTel of Taiwan could not match the functionality of Nokia and Motorola, which 10 years ago dominated the China mobile handset market.

MediaTek's response was to create "complete solutions" for mobile phones - the so-called "system-on-a chip". It integrated the handset's motherboard with other major components and the software for practically any desired feature onto a single circuit board. Most important, the products were extremely cheap. According to industry insiders, a set of such systems sells for as little as 100 yuan (US$12.50) to 200 yuan.

Practically all that is then required to produce a mobile handset is the addition of a battery and a casing to hold MediaTek’s "semi-product". The combination of innovative Taiwan technology and mainland China's low-cost mass manufacturing makes such handsets available at less than a third of the price of branded rivals.

"MediaTek revolutionized how cell-phone handsets are made in China," said Zhang, formerly a general manager of Motorola’s Mobile Software Solutions Group for Asia-Pacific and now president of Yostar.net. "It makes it possible for toy factories to manufacture mobile phones."

Many of these phones are imitations of major branded products, with similar (or the exact) functionality and style. But a lot of innovative handsets are also produced - mobile phones with seven speakers, for students to reproduce dance floor or boom-box music environments; handsets with four bright LED lights to serve as a cell phone and a powerful flashlight. For senior citizens, devices have big displays, big keys and a loud sound. For people who work outside in the fields, there are handsets with longer battery life. There are handsets with two sim-card slots for people traveling between different cities - allowing use of, for example, both a Hong Kong number and a Beijing number. Some are even equipped with a reader to check whether cash is counterfeit. Others look like a pack of cigarettes, or have a built-in laser pointer, a global positioning system, or a TV signal receiver.

The adaptability of small manufacturers also means that whatever is the latest trend - a new iPhone design, for example - can be almost immediately matched by a bandit version.

Big-name Chinese phone-makers such as TCL, Lenovo and Konka are now using MediaTek chips for their products, followed more recently by foreign brands like Motorola and Sharp for their low-end products.

"The local Chinese phone-makers made huge losses in 2005-06 due to the rise of shanzhai ji," said Knock of JPMorgan, to the extent that the top 20 local Chinese brands have used MediaTek chips for their phones. "The mobile phone companies have outsourced their R&D [research and development] to MediaTek and now focus on marketing and manufacturing only."

In 2008-09, US giant Motorola restructured its global operation, significantly cutting back its R&D department. "That is when Motorola started to use MediaTek chips," said Knock, "In this way, Motorola only needs to keep a research team for cutting-edge technology, leaving MediaTek to work on the more mature or mainstream technology research."

MediaTek has now captured about 30-40% of the branded handset market in China, estimates Knock. Moreover, demand for affordable phones in places such as India and Latin America has made it one of the top five global suppliers of all handset chips. Last year, only about half of the 360 million phone mobile chips made by MediaTek were shipped to China, with the remainder going to the rest of the world.

With Apple having shown with its iPhone Apps Store how availability of handset applications, often designed by independent software creators, can help boost popularity of a handset, some companies in China have already set up similar online stores for MediaTek-based applications. Leading the way is SKY-MOBI in Hangzhou, with more than 1,000 applications covering the likes of games and music. Zhang's Yostar.net is also building an apps store platform for MediaTek-linked products.

Soon they will face competition from MediaTek itself. In March 2009, the company invested in a small apps store platform operator, Vogins Technology (Shanghai).

"Although Vogins is small, MediaTek plans to use it to standardize the app store platforms," said Knock. "MediaTek knows that if there are many different platforms, application developers will have difficulties. They don’t know which platform they should choose. Therefore, MediaTek wants to unite the market. Just like the Apple Apps Store, there should be only one app store for MediaTek phones."

When that becomes fully operational, the Taiwanese company can expect to see those already stellar profit figures climb ever higher.

Sherman So is a Hong Kong-based correspondent and co-author of Red Wired: China's Internet Revolution.

(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)


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rhino123

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VIP Professional
So? And by the way, do you actually understand what does Shanzai means?

("山寨”一词,代表那些占山为王的地盘,有着不被官方管辖的意味, 山寨”是依靠抄袭、模仿、恶搞等手段发展壮大起来,反权威、反主流且带有狂欢性、解构性、反智性以及后现代表征的亚文化的大众文化现象)

Which roughly translate,

"In the past, it means a group of people who actually took over a mountain and proclaim themselves lords of that mountain. Something like Heroes of Liang Shan. So it is not actually good."

These companies do not care for quality and stuff, they simply clone something and make some cash. There are hundreds of them in China. If you are going to look at real technological advances, don't look at Shanzai brand... or even if they have a permanent brand.

Better mobile phone or MP3 companies like Meizume had their own properietory technologies.
 

antimatter

Banned Idiot
So? And by the way, do you actually understand what does Shanzai means?

("山寨”一词,代表那些占山为王的地盘,有着不被官方管辖的意味, 山寨”是依靠抄袭、模仿、恶搞等手段发展壮大起来,反权威、反主流且带有狂欢性、解构性、反智性以及后现代表征的亚文化的大众文化现象)

Which roughly translate,

of course, shanzhai products are cloning products.
but even its cloning products have to rely on foreign parts.
Basically, CHina's shanzhai products are very superficial.

As for as legit products, good luck, like CHina mobile has to rely on Qualcomm for chipsets.
 

crobato

Colonel
VIP Professional
Huawei has its own chipset, called the K3 HiSilicon.

China Mobile TD handsets don't use Qualcomm except on the high end Android sets. Lower end Qualcomm chipsets don't support TD-SCDMA. So they rely on Marvell, TI and MTK chipsets.

If you go to Shenzhen, there are a lot of tablets and touch screen smartphones that appears to be using Chinese modified Google Android.
 

rhino123

Pencil Pusher
VIP Professional
of course, shanzhai products are cloning products.
but even its cloning products have to rely on foreign parts.
Basically, CHina's shanzhai products are very superficial.

As for as legit products, good luck, like CHina mobile has to rely on Qualcomm for chipsets.

So what is your points? If foreign industries make better parts to local industries, of course any businessman in their right mind would use foreign parts.

As to the shanzhai products, I would tell you that they make cheap immitation and local chipsets which is bs to start with. But they win by selling it cheap and imitating functions of those brands that they are imitating.

By writing what you have posted, you have obviously no idea what business models are all about.

We are always going for fast, cheap and efficient parts to use, be it foreign or local products. And that is about all. Please tell me one product - even those of Motorola, Samsung, LG or even Japanese brand products used parts that are totally from their nations only?
 

antimatter

Banned Idiot
^foreign parts means more expensive compare to if they make it locally.

Shanzhai culture is all about cloning at everything they can. If Shanzhai has to go for foreign parts, it means it's something they can't clone. Of course, if they clone everything, then the product will go even cheaper.

and Taiwan's Mediatek is getting the lion share of profits on the shanzhai products.
 

rhino123

Pencil Pusher
VIP Professional
^foreign parts means more expensive compare to if they make it locally.

Shanzhai culture is all about cloning at everything they can. If Shanzhai has to go for foreign parts, it means it's something they can't clone. Of course, if they clone everything, then the product will go even cheaper.

and Taiwan's Mediatek is getting the lion share of profits on the shanzhai products.

Not true. Everything can be cloned... but sometime more money will have to be invested into something. It is not as if, you wanted to clone some means you could. Sometime certain machinery, equipments and stuff needed to be build so as to allow the making of certain chips.

These Shanzhai companies are not really huge and they do not have a big R&D. As I have pointed out before, their mode of business, is to go into the market, build on something that was already established in the market and rip as much profit as possible... then many would just fold up the operation and disappear, while other bigger players might continue to go for other brands products.

And as to the cost of the product... you are thinking of legal entities... let me tell you something... there are many shady companies in China... much more than other countries in the world... you wouldn't believe how they get hold of their chipsets. Have you bought a shanzhai cellphone in china before - 400-500RMB, even before I started bargaining. That is how low it goes. Think of Apple Iphone, think of Nokia cellphone... these shanzhai was only a fraction of the cost and with alot more features (many don't work as advertise though, but they are there).

Those 'shanzhai' products that actually bought chipsets from foreign companies with established name... are actually better ones.

So my point here is... you cannot look at Shanzhai as a normal business mode. They are not... and many are illegal...

However if you look at better companies like Meizume, Huawei, Haier, Changhong and the likes, well... they operate in more or less legal business framework and they do buy foreign parts for their products, not because they are incapable of developing them, but because it is easier to get these parts off the shelf.

Of course, you can argue that manufacturing of these chipsets locally is cheaper... but in real business world... it is not correct.

Manufacturing is the last thing that is going to happen, first and the most costly are the R&D part. So if others already had it, why bother reinventing the wheels? Just buy from them.

Oh... btw, many of these chips are manufactured in China too... they are foreign invested companies that developed these chipsets, and move into China to have them build (to cut down on labour cost).

So you see... when we look at cellphone or for that matter consumer electronic products, we think of the world as one big factory, with no boundaries. And if we look at pure ShanZhai products... we think of copies and illegality. Because pure ShanZhai products do not really operate in the legal framework and IP was of no concern to them.
 

crobato

Colonel
VIP Professional
Foreign or Chinese made makes no difference. Companies like Microsoft, Google, Motorola, IBM and so on and on, got "brain farms" where a lot of R&D is being done in China and incorporated into their products.
 
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