Global smartphone shipments reached 420 million units in the first half of 2013 and are expected to top nearly 950 million units for the full year, Digitimes Research has estimated. The supply of mobile RAM and NAND flash chips, which was tight and costly in the first half of 2013 in part due to price manipulation by suppliers, will ease in the second half, but that for HD and Full HD displays will remain tight in latter half of the year. Shipment growth in China will be limited in the second half as vendors will continue to digest their high inventories of 3.5-inch TD-SCDMA models, but shipments in India, Russia, Eastern Europe, Southeast Asia and Latin America will remain robust during the period. Some handset design houses and OEMs in China have been shifting their focus to overseas markets, alleviating price competition in the homeland. Meanwhile, the top-four telecom carriers in the US have begun offering one-year subscription contracts, which is expected to stir up demand for high-end models. Four out of the top-10 smartphone vendors in 2013 will be China-based brands, and Taiwan-based HTC will be excluded from the top-10 ranking. Samsung Electronics, Apple and LG Electronics will be the top-three vendors, with Lenovo, Sony Mobile Communications and Huawei taking the fourth to sixth positions. ZTE will rank seventh, followed by Yulong (Coolpad), Nokia and BlackBerry, with each of the last four vendors shipping about 30 million smartphones in the year, Digitimes Research estimated. This article is an excerpt from a Chinese-language Digitimes Research report. Click here if you are interested in receiving more information about the content and price of a translated version of the full report.

The latest gossip and speculation floating around the supply chain, with none of the news being substantiated, is that Apple's plans for an inexpensive iPhone will focus on the China market and will include a TD-SCDMA version through cooperation with China Mobile.The rumors are probably based on the fact Apple CEO Tim Cook recently visited China Mobile and that a partnership there would be a way of paving the way for cooperation to sell TD-SCDMA versions of the inexpensive iPhone. The story is that a WCDMA version of the inexpensive iPhone would be sold through cooperation with China United Network Communications, an existing iPhone sales partner.In the China smartphone market, Apple is expected to continue its strong status in the high-end segment but faces increasing challenges from China-based smartphone vendors in the mid-range segment.China-based smartphone vendors, in order to maintain their market shares in the China market, have continued to upgrade product specifications with sales prices remaining unchanged or even lowered, bringing increasing competitive pressure on international vendors, thus leading to increased speculation that international vendors will address the issue with new low-end products.

Following declining on-year TV sales in 2012, vendors have looked to various strategies to bring a turnaround in 2013, including increasing the value-added features and sizes of their products as well as finding ways to reduce costs to bring lower pricing to end consumer markets. These efforts have proven successful to an extent, but consumers are still looking more out of their TVs that they otherwise can't get from their mobile devices, which has led many vendors to start focusing on increased panel resolution in 2013, most notably Ultra HD or 4K resolution.Most consumers as of mid-2013 have probably been exposed to an Ultra HD TV provided they have recently browsed a TV section at a major retailer. If they are anything like me, they were most likely drawn to the fine details and crystal clear images 4K has to offer. But will consumers still see the same results if and when they purchase a unit and hook it up at home?As of 2013, there is actually little 4K content in the market. There are a number of reasons for this, however, which pretty much boil down to cost. For starters, to upgrade the filming technology used when making TV shows or movies is costly as is providing the proper bandwidth.TV vendors are aware of this and many such as Sharp claim they have ways to turn Full HD content into 4K content without virtually losing any quality. Sharp recently unveiled a THX-certified 70-inch 4K TV for US$8,000 equipped with a dual-core processor inside the TV, which is claimed to be able to upscale regular HD video into what Sharp calls "4K-like" 3,840 by 2,160 resolution. However, many market observers believe that this upscale technique is merely a marketing gimmick and that the 4K content is essentially lost, as the content is merely compressed into a different format rather than streaming at its appropriate resolution.To put it another way, imagine trying to take YouTube video which only can be streamed at 720p and trying to force it to 1080p. Could you do it and truly get 1080p quality? Perhaps you may try to attach some kind of converting device that will somehow increase the resolution to 1080p, and you may see increased color saturation and images somewhat modified, but that gives more of an illusory effect rather than actual 1080p content.There are other options that vendors are turning to, however. Sony has released its 4K Ultra HD Media Player set as of July 15 at US$699. Media reports stated that the device is compatible with Sony's new KD-65X9005A 65-inch 4K TV and comes pre-loaded with 10 4K movies. Sony also reportedly has plans to later release its Video Unlimited 4K service in 2013, which will reportedly allow consumers to purchase various movies in 4K content at US$29.99 and rent at US$7.99.Developments in 4K streamingAround the world there are a number of measures being taken to implement 4K content into the market no later than 2014, according to Digitimes Research analyst Tom Lo. Germany-based Sky Deutschland is reportedly making efforts to make the content widely available in TV and film formats throughout Germany while Eutelsat Communications announced it is launching a dedicated demonstration Ultra HD channel for Europe on the EUTELSAT 10A satellite, which will be encoded in MPEG-4 and transmitted at 40 Mbit/s in four Quad HD streams.Additionally, Netflix chief product officer Neil Hunt said in a recent media interview that "Streaming will be the best way to get the 4K picture into people's homes. That's because of the challenges involved in upgrading broadcast technologies and the fact that it isn't anticipated within the Blu-ray disc standard. Clearly we have much work to do with the compression and decode capability, but we expect to be delivering 4K within a year or two with at least some movies and then over time become an important source of 4K. 4K will likely be streamed first before it goes anywhere else."Lo also believes that gaming industries at large will not adopt 4K content in 2013, and that China-based companies are working to provide more 4K outlets for local consumers.So what are 4K TVs good for?At the very least, 4K TVs can help stream 3D content at 1080p. Normally, content viewed in 3D is cut in half due to the pattern retarder technology that is used, but having twice the resolution will help increase the format back to 1080p formats.The TVs also give consumers bragging rights, but those rights may be sacrificed upon viewing the technology from consumer's home entertainment area when they realize that 4K content is still not in abundance to make a $7,000 TV worth purchasing.

If Apple builds its own silicon at its own chip fab, the risk it will face will be greater than the benefits for the company, according to Nobunaga Chai, analyst for semiconductors at Digitimes Research. But if Apple has to own a fab, either Globalfoundries' Fab 8 in New York or IBM's 300mm (12-inch) chip plant - B323, also located in the same state - should be more favorable choice for Apple than any other fabs, said Chai.Chai was commenting on recent rumors that Apple may be looking to take full or partial ownership of a fab.But Chai noted it is unlikely that Apple is targeting TSMC's 12-inch facilities. For TSMC, having strategic investment from Apple will likely hurt the foundry's existing partnerships with Qualcomm and many other mobile processor developers.Globalfoundries will strive for a big customer like Apple at any cost, Chai believes. Globalfoundries is a relatively newcomer to the foundry industry and still needs to build up its customer portfolio.As for IBM's 12-inch fab, Chai pointed out that IBM has in recent years moved towards a fab-lite strategy. Besides, acquiring IBM's facility could allow Apple to gain access to IBM's advanced chip-making technologies, Chai said.Owning a fab will definitely give Apple greater control over its supply chain and help shorten time-to-market as a result of an integrated design and manufacturing approach, in addition to ensuring a steady supply of mobile chips during periods of high demand, Chai indicated. Nevertheless, these beneifts will only exist when the fab is able to produce advanced chips in commercial volumes.Apple will also need to brace itself for higher operating costs if the company decides to produce its mobile processors in-house, Chai pointed out. As the industry is about to enter the sub-20nm era, chipmakers are encountering technical and financial challenges. If Apple moves to operate a fab, the company will face considerable risks and uncertainty especially in the migration to 1Xnm process manufacturing, Chai said.In fact, many IDMs such as Renesas and STMicroelectronics have pursued a fab-lite strategy, Chai noted. Qualcomm, at least for now, would not want to run its own chip plant, Chai said.Chai also does not think Apple is going to buy a UMC fab. The Taiwan foundry's 12-inch manufacturing capability is not even ready to fabricate Apple's current A5 processors, Chai said.UMC is expected to move its 28nm process technology to commercial production as early as fourth-quarter 2013. In terms of process technology, UMC is already lagging behind TSMC, and even Globalfoundries and Samsung, Chai said.Rather than running a wafer plant, Apple should stay focused on its core mission and work with its foundry partner/s, Chai suggested. Companies with advanced manufacturing capabilities are the ideal partners for Apple, especially those which are now engaged in the development of EUV and 450mm manufacturing and will certainly be capable of making sub-10nm devices, Chai said.Chai commented that if Apple is returning to Samsung as the primary producer of A-series chips, it would make no sense for Apple to place 20nm chip orders with TSMC.Korea Economic Daily cited unnamed sources as saying in its July 15 report that despite the loss of 20nm chip orders from Apple, Samsung already signed a new deal with Apple to supply A9 chips that would be built on its 14nm FinFET process.A Digitimes report in June 24 cited industry sources as claiming that TSMC has struck an agreement with Apple to supply 20nm, 16nm and 10nm A-series chips, followed by more rumors suggesting Apple could be exploring possible deals with other foundry chipmakers.

Following speculation that Taiwan Semiconductor Manufacturing Company (TSMC) already struck a deal with Apple to supply foundry services for the next A-series chips built using 20nm, 16nm and 10nm process nodes, more rumors have surfaced recently suggesting Apple is also looking at other options in addition to TSMC.A Digitimes report on June 24 cited industry sources as saying that TSMC and its IC design service partner Global UniChip had secured a three-year agreement with Apple to supply 20nm, 16nm and 10nm A-series chips. TSMC would start to produce A8 chips - made using 20nm process technology - in small volume as soon as July and substantially ramp up the output after December.And most recently, rumors circulated late last week suggesting Apple could be exploring possible deals with other foundry chipmakers. Globalfoundries and United Microelectronics (UMC) are both identified as Apple's potential new partners.SemiAccurate claimed in its July 12 report that UMC could play a part in Apple's efforts to have better control over its supply chain. Apple may make a huge investment in UMC, and buy into one of the Taiwan foundry's wafer plants.The SemiAccurate report is followed by CNET's story that indicated Apple is "kicking the tires" on a potential deal with Globalfoundries. CNET cited its own sources as saying that "Samsung's fab in Austin and GF's fab in New York could both ramp a similar product and GF could offset capacity that Samsung can't fulfill."The Korea Times reported on July 10 that Samsung's contract with Apple would be valid until the first half of 2014. However, another Korea media outlet The Korea Economic Daily cited industry sources as saying in its July 15 report that despite the loss of 20nm chip orders from Apple, Samsung already signed a new deal with Apple to supply A9 chips that would be built on its 14nm FinFET process.No matter the outcome, whether the new iOS devices would continue Apple's growth will still be fundamental, and only companies benefiting from Apple's continued momentum are the winners.

With more NAND flash memory chips designed into embedded applications, such as eMMC devices and solid-state drives (SSD), memory controller IC firms incapable of providing technologies for these storage solutions will either be acquired by their larger competitors, or eliminated from the market.The fast-growing market for mobile devices, including smartphones and tablets, has already hurt the traditional flash memory card and drive business. Suppliers of stand-alone NAND flash device controllers, which are mainly Taiwan-based, are being affected negatively.Taiwan-based suppliers of NAND flash device controller ICs including Alcor Micro, ASMedia Technology, Genesys Logic, JMicron Technology, Phison Electronics, Silicon Motion Technology, Skymedi, Solid State System (3S) and VIA Labs have long focused on mass-market USB flash drives and memory cards, and enjoyed a majority share of the stand-alone NAND flash device controller market segment. However, with SSDs, eMMC and other embedded storage devices seen as tomorrow's promising areas, the Taiwan players' less-complete and less-competitive technologies compared to their international peers such as SanDisk are now a major constraint to their business development.The NAND flash controller industry already went through a period of consolidation, when microSD and other small-size cards started to see growing adoption among consumer digital cameras and were first found in mobile phones. Manufacturing microSD cards requires COB (chip-on-board) packaging – identified previously as a technical problem facing several makers incapable of finding a backend partner.Meanwhile, due to the entry of upstream chip firms Toshiba and Samsung into the microSD card market, a number of memory module makers decided to purchase cards directly from their chip partners. Controller suppliers were then forced to seek cooperation with chip vendors to keep their business in the microSD card space.Phison, Silicon Motion and Skymedi, which have drawn strategic investments from vendors such as Samsung, Toshiba and Kingston Technology, have helped Taiwan-based suppliers as a group to control as high as 90% of the stand-alone NAND flash device controller market. Nonetheless, the segment has been stagnant as the transition to embedded storage solutions takes place.Samsung's disposal of Skymedi shares earlier in 2013 could signal some changes in chip vendors' strategies for their partnerships with memory controller companies.Sluggish growth in the flash drive and memory card market is propelling Taiwan-based NAND flash device controller companies to diversify their offerings to include solutions for non-memory products. Nevertheless, they will still be capable of fighting for a piece of the embedded NAND device controller pie.LSI and Marvell collectively hold a more than 50% share of the SSD controller market. The two companies are expected to put their ultimate focus on cloud computing applications, leaving the consumer electronics segment to their smaller peers.As for eMMC controllers, Taiwan-based firms could put their focus on China's white-box market rather than international brands such as Apple to avoid direct competition with NAND chip vendors. Alternatively, diversifying their base to industrial and other application-specific areas is another tactic for Taiwan-based NAND device controller suppliers.

Based in Santa Clara, Tensilica has been around the semiconductor industry for around 15 years, providing customers with what it calls configurable dataplane processors (DPUs). The company has more than 200 licensees worldwide and is approaching 2.5 billion cores in the market but in March 2013, the company entered into an agreement with EDA provider Cadence to be purchased for US$380 million.Just after the purchase, Digitimes had the opportunity to sit down with Chris Rowen, chief technology officer and founder of Tensilica to talk about the acquisition and what Tensilica brings to the table with its technology.Q: Very briefly, what is Tensilica's role in the market?A: What we are able to do is complement standard control CPUs and add significant opportunities for customers to differentiate their products, be more flexible and add value in terms of new algorithms, and we can do that in minutes rather than in months. Our focus is handling computation on the most critical data, whether it is images in a camera, audio in a multimedia device, or wireless communications. If you look at semiconductor companies, a majority of those focusing on smartphones and a great majority of those focusing on digital TVs are likely to be using our technology. As a company we have become one of the major suppliers of processor technology.Q: How did the interest from Cadence develop?I think it is the combination of two things that has made Tensilica so attractive to Cadence.First of all, we have been able to develop a very unique processor technology as I previously mentioned. The second area is our deep architectural and market knowledge in key domains, especially around baseband, audio and imaging. When it comes to system architects and the software ecosystem, we are able to get into the dialog and discussion at a very high and very early level to help customers figure out where they are going with their product lines and what kinds of fundamental technologies they are going to use.That ability to engage with customers high and early changes the nature of the relationship between vendor and supplier and when Cadence looks at that, it recognizes that it really wants to change the way it engages with customers as well. It is not just about better tools but being able to have a seat at the table for key decision making or to be invited to discuss what is going on. So while Tensilica is far smaller than Cadence, a much larger proportion of our activities fit into that strategic discussion about architectures and applications.Q: Can you talk about technology synergies?A: Let me explain by giving an example. If you look at an SoC, there are a lot of different things going on. There is a host CPU that runs some high-level applications like the operating system and user interface. But it is not terribly efficient, so it is increasingly common for chip designers to implement other kinds of processing or computation to handle things like voice processing, audio, video, vision, baseband and for other customized applications. Then there is a need to interface the device to the outside world, whether it is for flash, DDR, analog front ends for different kinds wireless interfaces, network interfaces, PCI and USB.What Tensilica brings is a mastery of processor hardware and software and engagement in key applications, Cadence brings a rich portfolio of complementary IP, particularly in interfaces - the analog and digital interfaces that connect with radios, USB, PCI, flash and DRAM. Those strengths represent all the things that form the boundary of the device, while we are providing more of the guts of the SoC.And our combined focus has most notably not been on the CPU. We've steered clear of the general purpose CPU market because that is much more about legacy. ARM (in RISC) and Intel (in x86) have taken a strong position in those respective markets and remain the dominant general purpose CPU architectures. However, the key takeaway here is that it is in most of the other areas I mentioned where differentiation takes place.And it's not just a niche that we've carved, but a broad territory of what you might call blue collar processing - all of the heavy lifting that is at the heart of applications such as imaging, vision, communications, networking, storage, audio and voice and we are a leading supplier in those areas.Q: Can you talk about your processor compared with a general processor? Is there a lot of overlap in what they do?A: MIPS and ARM overlap a lot, but with Tensilica there is much less overlap. I guess if you look at it one way, our underlying technology has a strong element of RISC processor in it so theoretically you can use Tensilica processors configured as general processors. But that really underplays our capabilities so we've never particularly emphasized that aspect of our technology. We think it is much more important that our dramatic extensibility and parallelism allow us to do so many things ARM cannot do. It is routine for our high-end processors to do the equivalent of 100, 200 or 300 RISC equivalent operations per cycle whereas for ARM it is typically a discussion about whether to do 1, 2, 3 or 4 general purpose RISC operations per cycles.Now there are some caveats that go with that. While it's true our processors can do more things at a time and more things at less power - because it does them in parallel - many applications don't require hundreds of operations to be done. But in tasks like imaging, where you can work on all the pixels in the image at the same time, it is possible.So you always need two ingredients - a processor that is capable of doing things in parallel and a problem that naturally exposes, and has a high degree of parallelism in the nature of the task itself. We're masters at finding those applications and then coming up with processors that can exploit the available parallelism in the application. That is why I referred to what we do as blue collar, because the focus is on applications where heavy lifting in involved (multiple operations at the same time), such as in imaging, audio, storage, security and network protocol processing.That kind of parallelism doesn't really apply when running the sort of general purpose code which ARM focuses on. The applications I just mentioned are much different from what you find inside the code of Angry Birds or for the Android operating system (OS) and one neither expects nor needs an ARM processor to run at that level.Q: Can you walk us through an example of how a customer would decide that it should implement Tensilica technology, say for an imaging application?A: Let's take a case for a hypothetical customer - a chipset maker targeting smartphones. Whether it is making chips for its own smartphones or one for the general public, the same challenges are there - different types of functionality need to be integrated while making sure the product stands out to differentiate it in terms of the features, because it is the features that the end customer is going to be most passionate about.For example, these days camera functions are critically important for smartphones. Many smartphone makers today recognize that having superior imaging in quality, resolution and richness of features - whether it is face detection and tracking, high dynamic range (HDR) photos or handling specialized low-light conditions - are things that will help sell the phone.Moreover these features are increasingly migrating from a focus on still image functions to continuous video. This is really the key divide, because if it is just a still image function, the application may be run on the main CPU, but to do video requires that the processor run at high rates continuously. Now, while there is a fair amount of computing power coming from a lot of ARM processors on the market, the issue is more of an energy problem. As one leading smartphone company described it to me, a little known fact in the market is that if you took a quad-core 1.5GHz ARM processor and actually ran the cores all together for any period of time the phone would overheat in about 20 seconds, maximum. There is a lot of peak computing power, but it can only be used for a sprint.But image processing, particularly as it moves to video, is not a sprint. It becomes a marathon. So the question is how long and how fast you can go. The gap between the performance you can afford to power when running on a general purpose processor, and the performance that you really want to have to do these video functions differs by a factor of 10x or 20x. You can do a little bit better with a GPU because it is a little bit more efficient than a general purpose CPU for image processing, but it is still probably 3-5x less efficient in terms of fewer ops per watt than an optimized imaging platform.What you would really like to do is turn off the CPU and GPU and turn on the image processor during those key periods in order to get that high throughput, but you still want to make sure you have the same programming model and the same ease of bringing the applications onboard.Q: What about hard coding as an alternative?A: One of the other potential alternatives to do imaging is to have it completely hard wired, meaning each function has a different block of IP and a different bucket of gates on your chip addressing it. That has worked reasonably well for applications like the simple standard imaging signal processing pipeline, which takes a pixel value off of an image sensor and sort of massages it and improves it in order to get sort of an OK image from the crude image that came raw off the device. However, that model works because image sensors are fairly similar and what you want to do with the images is fairly similar.However, with video there has been so much innovation taking place using more sophisticated processing. For example, using temporal information and spatial information when catching a sequence of frames and using that information from frame to frame to make each frame look better than it would have when viewed in isolation. Another application is one where you want to start extracting and processing image content information, whether it is facial features or gestures. Those examples are not at all suitable for putting into hard wired logic.Q: The reason being?A: Even if it can be expressed in hard wiring you probably don' want to go that way. Doing so would typically have you freezing the definition of the algorithm one to two years before you want that product in the marketplace. So your ability to anticipate and know what is the best possible algorithm, and what is the best and right set of features deployed in the phone is extremely limited.There are some functions that are governed by standards where you can do that. The H.264 standard has been around for about ten years and it is going to be around for another ten years, It is not a moving target and people doing completely or partially hard wired implementations have done a pretty good job with H.264.But when it comes to other functions in gesture, image improvement, and other vision applications, these areas are not governed by standards but by competition in the marketplace. Dozens of independent software houses as well as in-house imaging teams at the smartphone companies are constantly competing and coming up with the next new version of the application, so they need a platform that is good for imaging but is flexible enough to accommodate all of these different kinds of algorithms.Chris Rowen, chief technology officer and founder of Tensilica

A common set of standards for LED lighting firms in Greater China was announced recently and as the China government plans to expand the LED lighting market, this common set of standards can help Taiwan-based firms enter the China market.The common standards will be expanded to emerging markets such as India, Russia, Southeast Asia, and South Africa in the future. Competition over standards is about to begin.Taiwan-based LED firms have been aggressive in obtaining business in China in recent years, and with a common set of standards, the firms have an opportunity to expand market share.The LED lighting market is expected to boom and major markets around the world have been introducing standards and verification systems. Despite the booming market, products have been lacking consistent quality and this has become a barrier for commercialization. Lead by international brands such as Philips and Osram, the LED industry formed the Zhaga Consortium, aiming to standardize the interface of LED lighting. The consortium has been setting standards for the lighting engine interface for LED street lamps, spotlights, and indoor lighting. However, the standards are not mandatory.Some governments have been using standards as a way of nurturing the domestic LED lighting industry. For example, the US has Energy Star, an energy standard for consumer products introduced by the US Department of Energy. To enter the US market, LED components need to pass a testing process that lasts 6,000 hours to obtain Energy Star certification. Some firms obtained information on the verification process before the announcement, hence while other firms try to obtain verification, some firms have already completed self-verification. This has been seen as an entry barrier to the US market.Recently, the US Department of Energy selected five solid state lighting firms to allocate a total subsidy of US$10.10 million over two years. The five firms are Cree, which obtained US$2.3 million, Eaton, which obtained US$2.4 million, OLEDWorks, Philips Lumileds and PPG Industries all obtained subsidies of US$1-2.3 million. Most of these firms are based in the US. The verification and subsidy advantage could allow US-based firms to stay ahead of the game for 3-5 years.

To show the importance of labor rights, Apple became the first IT company to join the Fair Labor Association (FLA) in 2012 and through the association, Apple began inspections of its major supply chain partner, Foxconn Electronics (Hon Hai Precision Industry). Although Foxconn has been enthusiastic about cooperating with the inspections and implementing changes, the firm now faces the problem of lowering weekly work hours to 49 per week, including over time, before July 2013.For Foxconn, cutting work hours to 49 hours per week is not easy, as production has been steady and lowering working hours means the firm needs to hire more workers to fill shifts. This could pose a problem for the firm as the labor market in China has been changing and it has been challenging to find production line workers. In addition, workers actually do not care about working overtime as long as they get paid. But with lower working hours, firms need to find strategies to maintain salary levels for workers.In fact, overtime pay is an important part of the salary structure among Foxconn workers. Commonly overtime in China on weekdays is 100% of standard pay and 200% on weekends. Overtime pay during national holidays such as the Lunar New Year holidays is 300%. Lowering the number of working hours means falling salaries for workers, hence it would be difficult for Foxconn to keep workers from quitting. To maintain cooperation with Apple, Foxconn has to lower working hours. The problem lies on the profit-sharing between Apple and Foxconn. If Apple is not willing to share more profits, Foxconn has to sacrifice its own profits to lower working hours and maintain salaries to keep employees. But to do so is difficult as ODM firms usually have slim profit margins.Although automated processes may be able to take some pressure off Foxconn, it cannot fully replace human resources. In addition, if Foxconn adopts fully automated processes, then the firm cannot create employment opportunities and may not be welcomed by local governments in China.With growing globalization, labor relations have become a complicated issue. Firms cannot use a universal strategy to deal with local workforces.

In the past 2-3 years, Taiwan-based telecom firms have been seeking business opportunities in the growing wireless hotspot and broadband network market in China. However, only a small number of Taiwan-based firms have entered the market and succeed.China's Internet and telecom market has a lot of business opportunities, but gross margins are generally low.Taiwan-based Z-Com reported a gross margin of 26%m but the firm's China-based subsidiary Nanjing Z-Com Wireless reported a gross margin higher than the consolidated gross margin reported by the parent company.China-based wireless device provider TP-Link stated that the firm's average gross margin has been above 30% with profit ratio above 10%. Compared with China-based firms, Taiwan-based telecom equipment firms have relatively low profit ratios.Taiwan-based telecom equipment firms are not the only firms that are facing challenges in the China market as China-based firms have a combined market share above 60%.Z-Com was one of the first Taiwan-based firms to invest into the development of WLAN products for the consumer market. However, the firm decided to exit the consumer WLAN equipment market in 2005. The firm shifted focus to WLAN equipment for niche industries and entered the China market in 2005.The success of Z-Com in China is based on its Nanjing subsidiary. In China, only a few people know Z-Com but most know Nanjing Z-Com Wireless.Z-Com stated that China-based telecom firms can have opinions on the standard of wireless hotspot equipment during procurement, hence Nanjing Z-Com Wireless has been establishing strong relationships with local telecom carriers. In addition to superior technology and business development, the firm has been supported by local governments through tax benefits and this is the reason for the relatively high profits, said Z-Com.Z-Com stated that expanding capacity may be able to help the firm obtain a larger market share, but the firm needs to consider various business models and cooperation with the local ecosystem before expanding capacity.Localization is the key for firms developing the international market, and despite that fact that Taiwan-based firms have been aggressive in achieving localization in the China market, firms have been facing increasing competition. Localization has become a necessity but does not guarantee success.