Shoppers check out mobile phones at Shenzhen's Huaqiangbei electronics market.
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Taiwanese semiconductor maker MediaTek, the major chipmaker that helped bring about the spread of knock-off and off-brand smartphones in China, may now be closing the door on the once highly profitable business of selling cheap devices.
Small smartphone makers of questionable legality and operating in coastal China's manufacturing hub Shenzhen are complaining that MediaTek has deserted them for legitimate brands, according to the Southern Metropolis Daily based in Guangzhou, the capital of Guangdong province.
Shenzhen's Huaqiangbei electronics district has enjoyed a decade of tremendous sales, becoming a major supply center for cheap DVD and MP3 players and mobile phones. MediaTek played a key role in the expansion of these markets by supplying chips and solutions catered to the thousands of handset manufacturers and retail outlets in the district.
Incomplete statistical data show that companies in Shenzhen shipped out 150 million handsets in 2007, almost equivalent to the total sales of mobile phones in China that year. Manufacturers also reaped handsome profits on exports to overseas markets in Asia and Africa.
But the rise of smartphones is causing problems for these small device manufacturers. The number of mobile phones in use passed the 1 billion mark in the country earlier this year; 230 million of these were smartphones. Shipments of smartphones rose to more than 94.85 million in the first half of 2012, accounting for 48.66% of all handsets sent to the market. The total number of smartphones shipments expected to reach 180 million for the year.
A bad bet by MediaTek — which threw its lot in with the Windows Mobile operating system over Google's Android platform — created a rare opportunity for the rise of a new crop of cheap smartphone manufacturers, while the upscale market is still dominated by foreign brands like Apple and Samsung.
Yet operators in Shenzhen that could not keep up with the transition to smartphones have been forced to shut down or switch to other business lines. Some manufacturers have been trying to stay alive by offering devices resembling those made by international brands like Apple, Samsung, HTC and Nokia.
Some have even been copying handsets made by Xiaomi, a Chinese brand that has found success through its low-cost devices.
The copycats were first happy to see MediaTek change its policy and begin developing chips and support systems for Android. But they have since found that their former ally has given top priority to large Chinese smartphone suppliers who are able to strike deals with telecommunications service giants, or possess stronger and more extensive marketing networks for smartphones.
Small and medium device makers complain that MediaTek has reduced its support for them. The company's general manager, Lu Hsiang-cheng, acknowledged that the company can only allocate 25% of chip deliveries to these smaller manufacturers in 2012.
Some analysts say MediaTek is unable to account for smaller operators as in the past because of lowered production capacity. Yet the chip supply market has changed. MediaTek is not likely to continue to enjoy the dominant role in catering to small smartphone makers. Other major players like MediaTek rival Qualcomm have moved into the sector.
The increased competition among chip suppliers could help halve the average price of smartphones from 1,000 to 500 yuan (US$157 to US$78).
For the small companies in Shenzhen, some have turned more aggressively to cultivating markets in South Asia and Africa, where most consumers still stick to low-cost multi-function mobile phones — as opposed to smartphones — because of lower average income and less developed telecom infrastructure
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