The chip market is one that has been wrought with fierce competition over the years. Intel (News - Alert) has dominated when it comes to PCs and servers, yet the mobile market has long remained elusive. A $55.9 billion company, Intel’s mobile division accounts for just $202 million. As Qualcomm dominates in both the U.S. and Europe, Intel is looking to make inroads in China.
According to a recent Bloomberg (News - Alert) piece by Christina Larson, there are significant smartphone opportunities in China. Fewer than half of the country’s 500 million mobile phone subscribers use a smartphone. Still, the majority of high-end phones in China have Qualcomm chips inside and MediaTek (News - Alert) dominates the cheaper end of the market. Intel could strive for third place, but Gartner analyst Mark Hung suggests that such an effort would be meaningless.
Still, the company is putting all of its force into this endeavor, paying $1.5 billion in September for a 20 percent share of Tsinghua Unigroup, which currently controls two domestic chipmakers. In December, the company said it would pay $1.6 billion in factory upgrades in central China, a build that cost only $300 million just a decade earlier. These and other investments are expected to help Intel work its way into the supply chain in China while also enabling leaders to better understand the Chinese consumer, a critical element in application deployment.
Such a strategy may be imperative as the market for traditional PCs continues to soften, eating into revenue and profit opportunities for Intel in the long-term. Immersing itself in the Chinese market could help Intel with its positioning as the next battle for chip contracts is likely to include wearable technology developed by local startups. Frost & Sullivan experts suggest that in this area of application deployment, the advantage is not held by Qualcomm (News - Alert) or Intel, leveling the playing field.
Larson suggests that Chinese regulators may treat Intel a bit more favorably given its stake in Tsinghua Unigroup and its willingness to build high-end labs in the local market. And while China continues to crack down on foreign companies, Intel hasn’t been touched. Qualcomm, on the other hand, spent a year negotiating with antitrust authorities and still had to pay a $975 million settlement to quiet allegations that it inflated its licensing fees.
To truly have a chance to dominate in the Chinese market, Intel will have to be in the government’s good graces. It’s doing the right things to try to earn it, and long-term strategies to stay in good standing will be critical. Whether or not the company truly can pull itself to second place is yet to be seen, but it will be a fun journey to watch.