On December 17, 2013, China-based touch panel maker Truly Optoelectronics announced that it had entered a joint venture with the Huizhou City Government to invest in a 4.5G AMOLED line that will go into production in the second half of 2015 and have a production capacity of about 15,000 substrates a month. This marks the fifth AMOLED line to be built in China, following on plans by China-based Tianma, BOE, Visionox and EDO to establish plants, as well as developments for future plans by Century and China Star Optoelectronics Technology (CSOT) to invest in AMOLED production in the future. As such developments unfold, from 2016 onwards China's handset vendors are likely to use AMOLED panels from local makers, according to Digitimes Research.There are three main issues related to China developing AMOLED panels, namely capital, technology and applications. Since China implemented its twelfth 5-year plan, there has been no shortage of funding from both local governments and the central government. The makers have close relations with smartphone vendors such as Huawei Device and Lenovo, which are continuing to produce high-end models in addition to expanding their influence outside of China. The makers also have close connections with touch panel makers yielding better supply chain integration and exports, so solidifying applications will not be a concern. However, achieving high yields for the technology will be the biggest challenge for China-based panel makers.Taiwan-based panel makers such as AU Optronics (AUO) are struggling to increase yields for AMOLED panels, with limited supplies going to HTC. Innolux meanwhile is supposed to supply to Nokia, but shipments were suspended due to Nokia's limited sales as a result of certain Microsoft's policies. Therefore, it is uncertain how much further Taiwan's AMOLED panel industry will develop in the near future.Additionally, China makers are heavily reliant on recruiting talent from Taiwan to develop AMOLED panels, which poses challenges for Taiwan's panel industry, as top engineers are continuing to transfer to companies in China. Moreover, Taiwan's panel makers face yield issues and lack enough resources to make sufficient profits from the segment, which are obstacles that expected to remain standing in the way. As AMOLED panel demand in China grows, however, China's smartphone vendors will turn to the local panel industry, making AMOLED makers in China the main suppliers of the technology to smartphone vendors by 2016, added Digitimes Research.

Mobile World Congress (MWC) kicked off with a bang, with Mozilla announcing a US$25 smartphone built around a turnkey solution that features silicon from China-based Spreadtrum and software from Firefox.According to a Mozilla press release, Spreadtrum and Mozilla have now completed the integration of Firefox OS with several of Spreadtrum's WCDMA and EDGE smartphone chipsets, including the SC6821, unveiled by Spreadtrum as the industry's first chipset for a US$25 smartphone.So the key to the solution is the SC6821, which Spreadtrum stated is "designed with a unique low memory configuration and high level of integration that dramatically reduces the total bill of materials required to develop low-end smartphones." Mozilla added that with this chipset, handset makers will be able to bring to market smartphones with 3.5-inch HVGA touchscreens, integrated Wi-Fi, Bluetooth, FM and camera functions, the advanced phone and browser features of Firefox OS, and access to an ecosystem of web and HTML5 applications.With a clearer picture of the specs Mozilla envisions for a US$25 smartphone, I approached Digitimes Research Analyst Luke Lin to ask if he thought it was possible to deliver such a product to the market at this time. According to Lin, the simple answer is that it would be "impossible" to see a US$25 Firefox phone hit the shelves this year, unless operators are willing to provide subsidies.Lin explained that currently, the absolute lowest smartphone BOM in China is estimated to be around US$22 (and most are significantly more than that) and that manufacturing costs are highly unlikely to go below US$20 this year, which would be the cost needed to deliver a US$25 smartphone to end users. The cost would need to get to US$15-20 FOB in order to get a selling price of US$25, Lin said.In terms of Spreadtrum's claims it has produced a level of integration and memory requirements that can reduce the BOM cost significantly, Digitimes Research Analyst Anthony Chen commented that Spreadtrum's solution is no more integrated than any other integrated solution on the market so there is no clear advantage there. And as for memory, the cheapest and smallest memory modules (ROM and mobile DRAM) for smartphones in China run about US$5 for a configuration of 256MB ROM and 256MB of mobile DRAM, and Chen highly doubts the Mozilla solution could run with a lesser configuration than that.One other argument being offered as to why Spreadtrum could offer lower pricing than competitors is that the China government has a stake in the company. The logic is that an edge in pricing could help Spreadtrum better compete with Taiwan-based MediaTek and US-based Qualcomm.Chen responded to the suggestion by pointing out that such a statement is not really an argument. It's merely speculation. Moreover, Chen noted that Spreadtrum's cheapest products currently sell in the US$3-4 range, and he doesn't see much chance for the price to be reduced significantly, with subsidies or without.While it is true that BOM costs are always falling, Lin and Chen agreed that component makers are much more likely to be squeezed in the higher-end segments, where they have margins. At the bottom of the market, the component makers are not really making any money. As a long term strategy for the low-end of the market, they would much prefer to provide improved specs at the same price rather than cut prices, Lin explained, while adding that it is unlikely that the BOM would drop much further at the bottom end of the market, as it is already close to US$20. Therefore, while prices may drop a little, Digitimes Research does not expect prices to drop all that much in the near future.Another perspective was offered by Digitimes Research Analyst Jason Yang, who stated that if there is any component that could influence the low-end smartphone BOM at this point, it was the touch panel, not the application processor. Yang indicated that currently the touch panel module, with LCD display, accounts for the largest portion of the BOM, at around US$7-8 for the cheapest modules. Yang did state that he believes the price may drop this year, but not enough to bring the overall BOM cost of the cheapest phones to below US$20.So, if ultimately the announcement was all about Mozilla driving the launch of a US$25 smartphone, Lin doubts that this will happen this year or anytime soon. Based on the current cost structure, Lin believes Firefox models priced in the US$60-80 are more likely to appear in 2014. Of course, users may be able to find spectacular deals and price cuts, but such a situation would more likely be inventory clearance or something similar, not a mainstream price point.However, if this announcement is not about Mozilla driving the market to low-cost smartphones and is more about a trend where emerging markets will become flooded with cheap smartphones, then it should be noted that this is a process that is already underway.Currently in China, entry-level smartphones - mostly white-box but even some brands - are already selling in the US$50 range. And these smartphones are not just being shipped to the domestic market. China vendors exported about 30% of their smartphones in 2013 and that proportion is forecast to rise in 2014. According to Digitimes Research data tracking smartphone shipments by vendor and the related market breakdown, the non top-10 segment (which is dominated by Greater China vendors and white-box players) accounted for 12% of global smartphone shipments in 2012, 21% of the global market in 2013, and Digitimes Research forecasts the share will rise to 25.6% in 2014.So the flow of cheap smartphones from China going to emerging markets has already started and the shipments are steadily increasing, it's just that the devices cost a bit more than US$25 and almost all of them feature Android as the OS.

Pay TV subscriptions in the US reached 84.5 million in the third quarter of 2013, with cable TV users making up 47.2%, while 40.3% were direct broadcast satellite users ,and 12.5% IPTV users. Since 2011, the number of cable TV users has dropped by 2.5 million while companies such as Verizon and AT&T have seen their IPTV users increase about 13% and 21% a year, respectively, indicating that the market is not declining but rather customer demand is changing, according to Digitimes Research.Companies such as Comcast and Time Warner meanwhile are continuing to see success in their services through service differentiation strategies rather than solely focusing on user amounts, added Digitimes Research.

While Digitimes is known as a media outlet, the company also includes a business unit that solely focuses on market research. Run independently from the Digitimes news organization, Digitimes Research provides market intelligence and data analysis on a number of different IT and high-tech industries to its customers. Digitimes recently spoke with Digitimes Research senior analyst & director Joanne Chien to learn more about the seismic shift that is underway in the mobile device supply chain, the concept of Chaiwan (China+Taiwan), and the new English language data services that Digitimes Research is rolling out.Q: The IT industry has been going through a major change over the past couple of years, with the rise of tablets and smartphones and the shrinking of the PC market. How has this shaken up the supply chain in Greater China?A: At this point, I guess it is fairly well known that the tablet and smartphone market is rising at the expense of the PC market, especially the notebook market. Digitimes Research estimates that while demand for mobile devices (smartphones, tablets and notebooks) rose 30% in 2013, notebook shipments dropped 12%, the biggest on-year drop on record. And we expect the slide to continue in 2014. Digitimes Research forecasts that 165-170 million notebooks will be shipped worldwide this year, down from a peak of 204.5 million in 2011.What is less well understood is how this change has shaken up the IT device supply chain. For example, if you look back at the PC industry, it has been the driving force behind Taiwan's dramatic growth over the past 30 years. That growth came about because PC brands started outsourcing their manufacturing, which in turn gave rise to the ODM model where large international brands partner with equally large manufacturers like Quanta, Compal or Wistron to produce devices. And now Taiwan dominates the global market for notebook PC manufacturing, with about an 85% market share.But as I mentioned earlier, while the notebook market is still huge, it is shrinking. If you are looking for growth, you need to look at the smartphone and tablet sectors, where design and manufacturing have either become much more consolidated or become completely decentralized, which is a phenomena that we call the Chaiwan model.Q: Can you provide a bit more color on that last statement?A: In terms of consolidation, you have huge brands like Apple and Samsung, who continue to pursue a vertical integration strategy whereby they can control more of the design, component choice (including software) and manufacturing of their products in order to give them differentiation. These brands still rely heavily on the Greater China supply chain, such as with Apple using large EMS manufacturers like Foxconn or Pegatron. However, this is a much different business model than that seen in the notebook industry, where ODMs provide designs to the brands and choose their own components. ODMs do a lot of heavy lifting in terms of product development, while EMS firms simply provide manufacturing services. The brands have much more control over the overall design and component choice.Q: What about this so-called Chaiwan model of decentralization?A: We use the combination of China and Taiwan (Chaiwan) to describe how the supply chains in Taiwan and China are becoming increasingly more integrated and intertwined and this has given rise to a mobile device supply chain that is producing unheard of time-to-market scenarios while remaining flexible and responsive to market demand.Q: How does it work?A: As I mentioned, a brand like Apple or Samsung controls everything in the process of bringing their products to market. Under the Chaiwan model, each sector does what it does best. For example, it starts with the key component provider, which in the case of smartphones is the application processor (AP). Companies like MediaTek or Qualcomm provide a turnkey solution and reference design to the players in the market.Those other players include independent design houses (IDH), which provide design services and recommendations for components (such as connectors, casing, etc) that are not included in the AP turnkey solution. You also have EMS players, who do the manufacturing. And ultimately you have the customer, which could be a large brand, a small white-box brand, or any vendor that wants to bring a smartphone to market. Moreover, under this model, the order volumes don't need to be very large, which means pretty much anyone who wants to can bring a smartphone to market in China, and it can be done quickly and cheaply.Originally, this business model was developed by white-box players but it has been increasingly adopted by larger brands, such as Huawei, ZTE and Lenovo in China. A vendor such as Lenovo can direct development of one model through one IDH and EMS provider, while working with another pair of manufacturing partners for development of another model.This has been a seismic shift for the market, but players are adapting. If you look at at AP provider MediaTek, the company no longer follows a strict roadmap. It simply reacts to what the market wants. In 2013, for example, MediaTek sometimes went a couple of months without releasing a new product and then would release two products in the same month. They weren't following a roadmap, they were chasing demand.This is also a new model for EMS providers, since they have been used to dealing with huge orders and following longer-term manufacturing plans. They now have to become more nimble and are learning how to cooperate with the IDHs and smaller brands for small orders and quick delivery.Players adapt because this is where the growth is. China-based vendors account for approximately one-third of global smartphone shipments and the region had four of the top-10 vendors worldwide in 2013. For 2014, Digitimes Research forecasts that China will have five vendors in the top 10.Looking at the rest of the market (non top 10 or "Other" segment) is even more interesting. This portion of the market is dominated by Greater China vendors and white-box players. The Other segment accounted for 12% of global smartphone shipments in 2012, 21% of the global market in 2013 and Digitimes Research forecasts the share will rise to 25.6% in 2014.This means that the global smartphone industry is opening up rather than consolidating and it is directly a result of the dynamic interplay seen in the Chaiwan model. Moreover, China vendors are now exporting about 30% of their smartphones (as of 2013) and that proportion is forecast to rise.Q: Where are they shipping their products?A: Mostly developing markets like India and Southeast Asia, where "Local King" brands (regional and local brands) are using their knowledge of local markets and ability to get good pricing from China on relatively small orders to compete successfully with top-10 smartphone brands. The interesting dynamic of this relationship is that many of these exported smartphones are supplied by IDHs, which function in a very similar way as ODMs do - providing design and manufacturing services for the international customers - though on a much smaller scale.Q: Is the same thing happening in the tablet market?A: In terms of tablets, if you remove Apple and Samsung from the equation, Greater China vendors account for pretty much the rest of all tablet shipments. And it's not just for local consumption. China players export about 70-80% of their tablets now, with more than 50% of exports going to developed markets. Greater China pretty much dominates the lower end of the market worldwide.Q: It sounds as if you are tracking these markets quite closely.A: This industry transition has been taking place for the past couple of years and Digitimes Research has been watching it closely for our customers. We have analysts on the ground monitoring the market dynamic in China and we have been working with a number of international suppliers to help them get a better understanding of how to compete in this market.We realize that this is a different kind of market dynamic and that it can be confusing, especially for players new to the China market, and we are seeing more and more requests for information about the market. Therefore, we are launching a new off-the-shelf data tracking service in English to help more international players understand the scope and structure of various component and device markets in Greater China. We will start with four data tracking services: China smartphone application processors (AP) shipments; China smartphone shipments; China touch-panel shipments; and Global tablet shipments.Q: What will the services entail?A: Each quarter, Digitimes Research will provide preliminary shipment data from the previous quarter as well as a data forecast for the upcoming quarter. We will follow that up with an analysis report and mid-term data update.In addition to the expertise we have in the local China market, I think one of our key advantages is our supply-side approach. We monitor shipments made to the vendor from the supply chain, rather than from the vendor to the end-user, which other research firms do. This means our shipment results from the previous quarter are actually leading indicators for a shipment forecast for vendors in the following quarter.Q: What do you mean by that?A: For example, when Apple is getting a product ready for the market, the product is in the supply chain pipeline 6-9 months before Apple even announces its launch. So we may provide shipment data for Apple 1-2 months before it even begins selling in the market, because that is when the supply chain delivers it to Apple. Q: Many people consider Digitimes Research to be the same as Digitimes. Is this is correct?A: The slogan at Digitimes is "Media, Marketing, Consulting" which means there are basically three different businesses run independently from each other. So while Digitimes may be best known as a media company, Digitimes Research is actually a business unto itself. We do our own market intelligence gathering and our analysts have a different operating mode than reporters at the Digitimes newspaper, who are more interested in real-time analysis. Digitimes Research is a market research firm, so our goal is to provide our customers with in-depth analysis and market forecasts.Q: Who are those customers, and what kind of in-depth analysis do you provide?A: All of the top ODMs and IT vendors in Taiwan are clients. Name any well-known Taiwan IT company and it is likely to be a Digitimes Research customer. We have been able to build up a customer base of more than 1,000 companies based on our ability to tie together data from the various industries that use Greater China as a supply chain hub. We offer 10 different research areas, including PC and Digital Home, Mobile Telecom, Computing, Mobile CE, Mobile Communications, Broadband and Wireless, Large-size FPD, Small-to-Medium (SM) size FPD and IC design, among others.Q: Do you serve international customers as well?A: We currently provide two data services, which we call Greater China ICT and Taiwan FPD. These services focus on shipment data from key Greater China industries. The ICT service focuses on data for notebooks, digital cameras and handsets, while the FPD service provides quarterly data for large-size LCD panels, small- to medium-size panels, LCD TVs, and monitors. These services are provided on an annual subscription basis. We are also excited to begin providing our new data tracking services for international customers as well.Joanne Chien, senior analyst & director, Digitimes Research

Global smartphone AP suppliers will see their shipments to China grow only 13.5% on year and drop 3.1% on quarter in the first quarter of 2014. Shipments will total 91.8 million in the first quarter, according to data from a recently published data service report from Digitimes Research.The report explains that in China the first quarter is now transitioning into the slow season for the smartphone industry, as China's mobile communication industry moves from explosive growth to behaving more like a maturing industry. Moving forward, seasonality is expected to have more of an influence on China smartphone vendors' performance, Digitimes Research explained in the report.Decreased orders from smartphone vendors should relatively impact chip suppliers' shipments in the quarter. The largest AP supplier MediaTek is seeing its shipments weakening and its LTE products so far have not been able to help cover its existing product lines, Digitimes Research noted.The report, titled "China Smartphone AP Shipments" is part of the newly launched quarterly data services from Digitimes Research.TOCChina smartphone AP shipments, 4Q13 review, 1Q14 forecastKey factors affecting China smartphone AP shipments in 1Q14China AP shipment share by applicationChina smartphone AP shipments, 2Q12-1Q14 (k units)China smartphone AP shipment share by supplier, 3Q12-1Q14China smartphone AP shipment share by architecture, 2Q12-1Q14MediaTek smartphone AP shipments, 2Q12-1Q14MediaTek shipments by baseband type, 1Q13-1Q14MediaTek smartphone shipment share by architecture, 4Q13MediaTek smartphone shipment share by architecture, 1Q14Qualcomm smartphone AP shipments to China, 2Q12-1Q14Qualcomm shipments by baseband type, 1Q13-1Q14Qualcomm shipment share by architecture, 4Q13Qualcomm shipment share by architecture, 1Q14Spreadtrum smartphone AP shipments to China, 2Q12-1Q14Spreadtrum shipments by baseband type, 1Q13-4Q14Spreadtrum shipment share by architecture, 4Q13Spreadtrum shipment share by architecture, 1Q14Leadcore smartphone AP shipments to China, 3Q12-1Q14 (k units)Leadcore shipment share by architecture, 4Q13Leadcore shipment share by architecture, 1Q14HiSilicon smartphone AP shipments to China, 2Q12-1Q14Nvidia smartphone AP shipments to China, 2Q12-1Q14 (k units)About DIGITIMES Research China smartphone AP (application processor) Data ServiceTo provide a better understanding of the dynamics seen in the local China AP market, DIGITIMES Research provides a quarterly tracking service that updates customers with the latest shipment data and technology trends in the market.Customers of the DIGITIMES Research China smartphone AP (application processor) Data Service are provided with comprehensive data updates, market intelligence and quarterly shipment forecasts in key research areas, including Core Architecture, Top AP Vendor performance, and the shipment structure of top vendors. Data sets are first made available in Excel format and then quickly followed with data analysis and trend updates provided in presentation style.Research scopeThe DIGITIMES Research China smartphone AP Data Service tracks AP shipments made to local China device makers for use in smartphones, including for devices sold in the domestic and international market.Each quarter, customers are provided with previous quarter results and the forecast for the upcoming quarter for the following data sets:1. Overall AP shipments to the China market2. Shipments and forecast by core architecture (Cortex A5, A7, A8, A9, A15, Krait, Scorpion, etc.)3. Shipments by Top Vendors (The vendors DIGITIMES Research tracks currently account for more than 95% of the total market)4. Shipment structure of top vendors: a. Overall Shipments; b. Baseband (LTE, WCDMA, CDMA, TD-SCDMA, EDGE); c. Architecture (Broken down by product line)5. Other content may be included in each quarterly report based on trending topics or important market shifts.Product and scheduleWithin the first month of each quarter, DIGITIMES Research provides preliminary data from the previous quarter as well as a data forecast for the upcoming quarter. These data sets are quickly followed by comprehensive and to-the-point analysis of the data provided in a presentation style report. As DIGITIMES Research continues to monitor the market, approximately midway through the quarter customers are provided with an updated version of the data sets.Pricing and licensingThe DIGITIMES Research China smartphone AP Data Service is priced at US$2,500. DIGITIMES Research is currently offering an early-bird discount of 20% for new subcibers. For more information, contact DIGITIMES. Corporate rates are also available. China smartphone AP research team leader: Eric Lin (eric.lin@digitimes.com)Service Window: Shannen Yang (shannen.yang@digitimes.com)

Taiwan's top-three IC foundries will see their combined revenues drop 6.2% sequentially in the first quarter of 2014, due to seasonal factors and continued inventory adjustments at their clients, according to Digitimes Research.A fall in 28nm chip ASPs was another factor causing the revenue drop during the quarter, as a result of lower capacity utilization rates, said Digitimes Research.Combined revenues for Taiwan Semiconductor Manufacturing Company (TSMC), United Microelectronics (UMC) and Vanguard International Semiconductor (VIS) totaled US$6.15 billion in the fourth quarter of 2013, down 9% from US$6.76 billion in the third, Digitimes Research disclosed. Disappointing sales of PCs and high-end smartphones and a seasonal slowdown in orders coming from the games console industry led to the revenue decrease.The top-three IC foundries are expected to see their combined revenues register another sequential decline in the first quarter of 2014, but rebound to growth in the second quarter thanks to a pick-up in end-market demand and rising product ASPs, Digitimes Research indicated.Top foundry TSMC is set to ramp up production of 20nm chips in the second quarter of 2014, while benefiting a pull-in of orders for 28nm chips, Digitimes Research noted.

Taiwan-based makers are expected to ship 7.96 million LCD TVs in the first quarter of 2014, down 16.3% sequentially, according to Digitimes Research.Competition and unsteady TV demand throughout the global market are the main reasons for the decline. About 46.7% of Taiwan makers' shipments go to North America while 25.2% go to Asia and 22.2% Europe.Going into the first quarter of 2014, 11.9% of the makers' TVs shipped will be for 50-inch and above size units while 43.5% will be for 37- to 39-inch units.TPV, Foxconn Electronics and Compal are expected to be the top-three Taiwan TV makers in the first quarter, said Digitimes Research.

Taiwan touch panel makers' shipments of handset touch panels dropped 3% in the third quarter of 2013. While shipments did stabilize in the fourth quarter, the makers expect another 7.5% decline in the first quarter of 2014 largely due to decreased iPhone 4/4S touch panel demand, according to Digitimes Research.Taiwan makers are also seeing orders from Samsung Electronics transferred to other makers, but still expect steady orders from China-based handset vendors in the first quarter.In terms of tablet panel shipments, Taiwan makers' 11-inch and below size units dropped 2.1% on quarter during the fourth quarter due to yield issues in producing Amazon entry-level tablets, said Digitimes Research.Taiwan makers' shipments of touch panels used in notebook applications grew 13.3% in the third quarter of 2013 but are expected to drop nearly 20% in the first quarter of 2014. The drop will come as China makers such as O-Film develop thin-film projected capacitive touch panel solutions such as metal mesh, and offer the technology at competitive prices in the market, added Digitimes Research.

Taiwan-based LCD TV makers' shipments reached 9.51 million units in the fourth quarter of 2013, according to Digitimes Research.Growth during the period represented an on-quarter rise of 5.8%, and an on-year decline of 9.5%.Digitimes Research said the makers' shipments were slightly below the 10 million plus mark market observers had originally estimated, which largely came as a result of lower-than-expected shipments during the latter part of the fourth quarter.About 45.1% of Taiwan TV makers' shipments go to North America while about 23% go to Europe. However, the proportion of shipments going to the Asia market is increasing due to developments between the makers and TV vendors in China.TV makers did see better-than-expected results for large-size TVs during the fourth quarter of 2013. Makers such as TPV saw its proportion of 50-inch units increase more than expected on quarter while other makers saw steady demand from Vizio for 60-inch and above size units.TPV, Foxconn Electronics and Amtran were the top three TV makers in Taiwan during the fourth quarter, noted Digitimes Research.

China-based handset companies are expected to see their shipments of smartphones decline lightly in the first quarter of 2014, after combined shipments posted a 13% sequential growth in the previous quarter, according to Digitimes Research.Efforts by brand vendors to clear out entry-level models in previous quarters and increased overseas shipments by Huawei, ZTE and TCL contributed to shipment gains the fourth quarter of 2013.Additionally, first- and second-tier vendors also launched a number of new models in the fourth quarter to meet demand during the year-end buying season, ramping up total shipments in the quarter.For all of 2013, China-based handset makers shipped a total of 314 million smartphones, increasing 62.4% from a year earlier, Digitimes Research said.Second-tier vendors, including Xiaomi Technology, TCL, Oppo Mobile and Gionee managed to ship over 15 million smartphones in 2013.More information about the report can be found here.About DIGITIMES ResearchDIGITIMES Research is the research arm of DIGITIMES Inc., Taiwan's leading high-tech media outlet. Operating as an independent business unit, DIGITIMES Research focuses on monitoring key high-tech industries, while also guiding clients toward suitable new business as well. Market intelligence and analysis is provided to more than 1,000 corporate customers worldwide. Research and consulting services cover a full range of industries, including information and communications technology (ICT), flat panel display (FPD), renewable energy and semiconductor design and manufacturing.