High Chipset Costs May Push Up Prices Of 5G Smartphones

The higher price of the key component is likely to squeeze profit margins for leading mobile phone makers such as Xiaomi, Samsung and OnePlus, the executives said on condition of anonymity.

The prices for both Qualcomm and MediaTek’s 5G chipsets, the two biggest providers of smartphone processors today, are about $60-80 more than the 4G ones. While Qualcomm declined to comment, MediaTek said in a statement that its mid-range Dimensity 800 5G chipset is a one chip solution that doesn’t require OEMs to pay extra for a 5G modem.

The higher chipset prices will, in turn, increase the average selling price of premium smartphones that support 5G, the executives said. “There is a lot more cost associated with a chipset than its shelf price alone. If a chipset’s price increases by 40-50%, then you can safely assume that the phone’s price will increase by nearly 60%,” said Sudhin Mathur, a former managing director for Lenovo and Motorola in India. Mathur, though, stated that he wasn’t aware of any change in chipset prices at the moment.

The smartphone market, globally, has been stagnating with users holding on to their phones for longer. Apple had attributed falling iPhone revenue to slower upgrade cycles last year, as have other phone makers.

The Indian market, though, has been showing an uptick in the premium segment recently. Experts said that companies will keep 5G as a premium feature meant for more expensive phones. Since margins are higher in this segment, it will be easier to absorb the cost of chipsets. Also, the segment requires the newest tech to be offered, which in this case, is 5G.

That said, 5G right now is a useless feature for consumers in India. Telecom minister Ravi Shankar Prasad said in September last year that the government plans to auction 5G spectrum by the end of 2020 or early 2021. So, consumers buying 5G phones here will not be able to benefit from the same before at least 2021, or closer to 2022. Till then, 4G phones will remain the most popular in India.

Navkendar Singh, research director at the International Data Corporation (IDC) expects that brands that have 5G devices in their portfolio “will also launch a 4G version” of their products because of India’s price conscious market and “almost nil visibility of 5G network roll out”.

Counterpoint’s Pathak, on the other hand, said, “brands like Xiaomi will probably make 5G phones for the premium segment, while still selling 4G devices on the lower $100-200 price bracket,” Pathak said.

The increase in prices is because 5G modems and components that go with them are expensive. In a 2018 report, investment bank JPMorgan had said that the average price of such components would be about 1.85 times more than those on 4G LTE chipsets.

For instance, BBK Electronics-owned Realme recently launched a phone called the X50 5G, which is priced at ¥2499 (approx Rs. 25,000) in China, similar to rival Xiaomi’s Redmi K20 Pro’s launch price there. The Realme X50 5G runs on Qualcomm’s Snapdragon 765, a chipset launched last month, while the Redmi K20 Pro runs on the Snapdragon 855, which is the company’s flagship chipset from 2019.

The prices of chipsets will be almost the same as display panels “and even more in some cases,” one of the two unidentified executives said. The display, chipset and battery are the most expensive components of a smartphone, said Faisal Kawoosa, founder of techARC.

In a June 2019 report, researcher IHS Markit, noted that the first 5G smartphone in the US was a compromise of cost and design. “Together, the Moto Z3/5G Mod combo carries a bill-of-materials (BoM) cost of $499.79,” wrote Wayne Lam, principal analyst, mobile devices and networks, IHS Markit. BoM is the cost of all the components that go into making a smartphone.

Lam went on to note that the Z3 has “an estimated $224.59 worth of electronic components,” while the 5G Mod has a BoM cost of $275.20, more than the phone itself.

But prices of both 5G chipsets and smartphones are unlikely to fall this year. “There will always be early adopters, who spend $300-400 to adopt new technologies,” said Mathur. “But for mass adoption, prices have to come down,” he added.―Livemint