Industry Spotlight: Is the iPhone Just the Tip of the Mobile Iceberg?


The mobile electronics industry is second to the PC industry in microchip consumption for personal electronics. Handsets are increasingly feature-rich and components’ technological advancements across the board improve their agility, power efficiency, memory capability, and broadband receptive capacities. As a result, industry researchers suggest that mobile electronics will soon rival the PC segment in chip consumption. 


The mobile electronics industry is second to the PC industry in microchip consumption for personal electronics. Handsets are increasingly feature-rich and components’ technological advancements across the board improve their agility, power efficiency, memory capability, and broadband receptive capacities. As a result, industry researchers suggest that mobile electronics will soon rival the PC segment in chip consumption. 

Apple iPhone manufacturer Foxconn recently announced a US$1 billion budget to double its cellular manufacturing production capacity and grow its capabilities to reach US$20 billion in revenue for 2008 and 2009. Forecasters predict a US$10 billion market for mobile chipmakers by 2011, and expect WiFi revenues to reach US$5.6 billion by 2012 through consumer and enterprise adoption. iSuppli predicts that the mobile phone content market will grow to US$36 billion by 2010 – translating into the need for components that can support increased digital imaging, interactive gaming, video and audio streaming, and internet features. Apple announced on September 5th that the latest version of the iPod, iPod Touch, will have the look and feel of the iPhone and will access the internet via WiFi. Additionally, Apple has slashed prices on the top iPhone in a move to increase sales during the holiday season. While the iPhone is still in the upper price range, and not yet a mass-market product, it has spurred the entire industry as demand for similar products at varying price levels is strong. 

The mobile internet device/ultra mobile PC market is poised for significant growth as technology matures and lower prices encourage more mass-market consumption. Intel and AMD are well underway in the development of chipsets to fulfill this demand. The most notable developments are Intel’s Silverthorne chip and AMD’s competing Bobcat chip, as well as Intel’s advances in WiMax, WiFi, GPS, and Bluetooth radio chips. GPS advancements from SiRF Technology Holdings, a GPS chip maker, and Clearwire, a WiMax service provider will also help the expansion of mobile internet devices.

3G and Femtocells
Ongoing global adoption of 3G standards points to the mobile industry’s health and future strength. Competition in this segment is increasing now that Nokia has made official its new outsourcing strategy for 3G design and licensing to STMicroelectronics. This strategic shift reverberates to Qualcomm and Ericsson, who have been the leading suppliers of 3G chips. 3G demand is strong and growing based on the continued global adoption of the standard.

3G is also seeing support from the recent push of femtocell development by some designers, OEMs, and communication equipment makers. Femtocells enable reliable 3G connectivity within buildings, providing a WiFi functionality. Research has been costly, and while there is considerable growth and revenue potential, it remains to be seen whether femtocells will be adopted on a scale that will ensure profitability and service provider support. 

In early July the Femtocell Forum was formed in order to unite development around open standards, interoperability, and related issues. Some entrepreneurial companies are staking their claim to the market, with trials run in Japan, Europe, and the US. However, a price point below $100 is not expected to be reached until 2009.

4G and WiMax
As high-end consumers demand more feature-rich handsets and mobile services such as mobile internet, 4G standards that support rates of data transfer up to 10 times faster will become necessary. Hand-in-hand with 4G network evolution is the development of equipment for orthogonal frequency division multiple access (OFDMA), notably WiMax devices. “4G networks will make high-quality multimedia access available everywhere. The key to achieving this higher level of service delivery is a new air interface, OFDMA […]” (source:

While 4G technologies are still being prototyped, on the nearing horizon, reports abound that Intel and partners are readying for 2008 as the WiMax alternative to 3G is offered by Sprint Nextel and Clearwire. Intel’s upcoming processor technology supports both WiFi and WiMax, with PC manufacturers likely to begin similar announcements. WiMax is being offered as a continuous connection service within supported areas (metropolitan areas initially), as opposed to current DSL or cable broadband services which are restricted to relatively small areas. WiMax is also a competitor to 3G, the closed system used by cellular companies, as WiMax enables connectivity as long as the user’s device supports WiMax. The US Federal Communications Commission’s (FCC) recent rulings regarding the 700 MHz spectrum require that this spectrum be made accessible to any device, application or carrier (source: This ruling supports the likelihood of more widespread adoption of WiMax.

Apple’s iPhone release and latest price cuts continue to be lead stories from the consumer through to the manufacturing side, due in large part to pure unit demand and related revenue opportunities along the supply chain. While there is some debate among analysts, Apple’s choice to have exclusive sourcing for the iPhone dampened most direct demand dynamics that could have boosted average selling prices (ASPs). However, a secondary effect of demand for new features and capabilities of mobile phones and smart phones is increasing the unit demand for NAND flash, and driving up NAND spot prices. The latest US$200 price cut to the top iPhone (now selling at US$299) and the discontinuing of the low-end model, is Apple’s latest strategy for continued market share dominance.

As Electronic News reported in mid August, the iPhone and the iPod together are believed “to be on track to consume a whopping 25 percent of the industry’s NAND flash production in Q3.” With the new iPod Touch now announced (5 September 2007), along with the lowered iPhone prices and the recent iPhone release in Europe, there is little question that flash memory demand will be up during 2H07 as the holiday season arrives. Samsung, as the main supplier of NAND to the iPhone and iPod, stood to benefit the most from Apple’s market savvy products. However, with the early August power failure that shut down lines at one of Samsung’s Korean facilities, there is now a new opportunity for NAND manufacturers. Samsung reported on 17 August that it will only be able to meet 85% of NAND obligations.

As the entire electronics market enters a seasonal upturn, the demand for products such as Apple’s iPhone and iPod family is set to increase. Demand for similar products in the feature-rich mobile phone and personal music player (PMP) markets, particularly those priced more moderately than Apple’s, will likely increase as well. The industry result is a growth cycle for OEMs positioned with the right partners to produce similar products cheaper, according to Gartner. 

Harmonious Mobile End-Markets Spur Opportunities
There are two distinct markets for the mobile handset industry. The expanding low-end mobile markets in developing nations such as India and China offer the greatest opportunities in terms of sheer unit sales. The ASP for low-end market handsets is US$30-40, meaning that the competition is tightest for these markets among the existing mobile phone giants such as Nokia, Samsung, Sony-Ericsson, and Motorola. In terms of sheer pricing and ASP per unit, the greatest revenue opportunities are found in the high-end mobile markets, primarily in the US and Europe, where ASPs are US$200-$300+. 

The high-end markets are the leading arena for new chip technologies, standards, and the race to provide feature-rich handsets and smart phones. Developing technologies go into these newer handsets, while legacy components are absorbed by demand from low-end markets. Having two distinct end markets is a fortuitous development for the mobile industry, and is the lead driver in moving mobile phones into the second position for chip consumption, surpassed only by the PC market. This dual end market also creates a harmony between demand- and supply-side dynamics, helping boost the mobile industry’s health and the semiconductor market as a whole.

Understanding the economics of mobile handsets involves monitoring end-market cycles, specific product leaders, evolving standards, and chip technologies. As barriers to entry move lower, demand across all end markets is increasing; and as competition heats up among the lead firms for market share, the mobile industry is experiencing significant growth. The mobile industry is managing to both mature and innovate simultaneously as healthy demand and supply cycles support regionally and economically diverse end-markets. The mobile giants (e.g., Nokia, Motorola, Samsung, and Sony-Ericsson) are exploring strategic re-positioning, as component and service partnering determine market position. This will likely impact the financial backing of various emerging technologies and standards. Furthermore, this quarter the industry witnessed the direct and indirect impact that specific products, such as the iPhone, can have on the entire industry. 

Along the lines of ‘hockey stick’ growth potentials, the mobile industry is the site of interesting technological developments: femtocells, 4G, and WiMax, to name the news leaders. While these technologies are somewhat high-risk, they hold the potential for high returns. And with rising consumer and business demands for increased speed and data transfer rates for business and leisure purposes, the likelihood for success may be worth the risk.
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