Abstract

Increased Industry Concentration

An examination of the strategies adopted by Taiwan's three leading mobile phone IC design houses confirms that large IC design firms will continue to dominate the market. Design houses will inject huge resources and investment in developing chips that provide new functions; under these circumstances, instead of focusing on SoC. New entrants that are just getting off the ground will find it increasingly difficult to survive in the mobile phone IC market.

The IC design industry is becoming more and more concentrated. In the future, only those companies that have substantial financial and other resources will be able to achieve success in the IC design market; smaller firms and new entrants will, increasingly, be forced to withdraw from the market.

It currently costs at least US$1 million for an IC design house to have a mask made for it by an IC foundry. Given that an individual IC can cost over US$10 million to develop, if the production of a single IC fails, a new entrant IC design house, with average capitalization of around NT$300 -500 million (US$), will be forced to exit from the market.

Mobile phone ICs are significantly more complex than most other types of ICs. Besides the baseband and RF chips, IC design firms now also have to integrate multimedia chips, making it necessary to invest more resources in new product development. This in turn raises the entry barriers, making it more difficult for new entrants to establish themselves.

Focusing on Emerging Markets

All three of Taiwan's main IC design houses have focused on emerging markets when developing their mobile phone IC businesses. There are three main reasons for this situation:

1.     Currently, it is in the emerging markets that market demand is highest.

2.     Customers in emerging markets are less concerned about quality and brand image than those in developed markets.

3.     Customers in emerging markets are more price sensitive, increasing the chances of achieving success with a low-price strategy.

As the Taiwanese IC design houses have so far been unable to win contracts from the top five international mobile phone vendors, for the time being they will have to make do with securing customers among mobile phone operators in emerging markets such as China, South America, and India, and among the second-tier international vendors. Once the Taiwanese IC design firms have established themselves within the global mobile phone supply chain, they will then be in a better position to secure orders from the first-tier international vendors.

Appendix

List of Companies