In regions where customers typically buy smartphones coupled
with a two-year contract, smartphones actually seem pretty cheap.
As of writing, an iPhone 5s --
's premier smartphone -- costs just $199 with a two-year
What customers generally don't think too much about is the
fact that this "$199" smartphone actually sells for $649 without
that two-year contract. See, the subsidy isn't
a subsidy -- it's more like a two-year payment plan. The
remaining $449 is actually baked into customers' monthly service
fees to the tune of $18.71 per month for a two-year contract.
While such carrier subsidies are ubiquitous in the United
States, they're far less common worldwide, where the opportunity
for further smartphone growth is. To enable that growth, handset
vendors will need to focus on driving down unsubsidized
smartphone prices at the low end.
's Android One initiative, for example, seeks to bring $100
smartphones to emerging markets, beginning with India.
thinks it can do even better.
PC giant Intel wants to drive it lower
According to a report from
, Intel hopes that its first integrated applications processor
and 3G modem, codenamed SoFIA, will allow it to sell chips into
low-cost 3G smartphones. How low cost? Well,
quoted Intel's Bill Calder as saying that SoFIA "could pave the
way for smartphones costing as little as $50 in emerging
Now, this is all well and good - the lower the costs of these
phones, the higher smartphone penetration ultimately becomes,
which means more chips sold -- but the real question here is
whether SoFIA will ultimately make a difference to Intel or the
fundamental competitive dynamics of the smartphone chip
Intel needs some mobile credibility
As a PC and server chip vendor, Intel simply cannot be beaten --
it's a technological powerhouse that consistently delivers.
However, as a mobile chip vendor, it has a very real credibility
For example, in February of 2012, Intel announced it would
bring to market its first LTE-capable smartphone platform by
early 2013. It didn't happen, and to this day, there do not
appear to be any Intel-powered LTE smartphones in the market
(there are a few LTE-capable tablets, though).
Then, earlier this year, Intel announced two smartphone
platforms -- Merrifield and Moorefield -- as well as a cutting
edge, LTE-Advanced modem known as the XMM 7260. Intel had told
the press that the 7260 would be in devices, on shelves during
the second quarter of 2014 and that multiple design wins would be
announced in the spring. Merrifield was supposed to show up
during the first half of 2014, while Moorefield was scheduled to
follow shortly thereafter.
None of that happened. Neither Merrifield nor Moorefield can
be found in a single commercially available smartphone, and the
XMM 7260 is missing in action, with Intel's latest statements
suggesting that devices packing this modem are still a ways out.
This kind of execution leads investors and customers alike to be
cautious on Intel's offerings, particularly as the competitive
environment for smartphones is brutal, and missing a beat can be
Can SoFIA build this credibility?
Though Intel played up its upcoming SoFIA 3G and LTE parts in the
aforementioned piece published at
, the reality of the situation is that a dual-core processor --
as fast as that processor is -- paired with a 3G modem probably
isn't going to have too much appeal in this market. The LTE
version -- which should have a quad-core processor and be
substantially improved relative to the 3G variant -- should be
much more competitive.
However, with these initial SoFIA products, Intel isn't
playing to its strengths. These first chips are still going to be
built at an external foundry (eliminating its cost structure
edge) and they're going to be built on the same manufacturing
technology that its peers will be using (eliminating its
manufacturing technology edge).
That said, if Intel can deliver SoFIA on time and with the
promised performance and feature-sets, it could serve to build
real credibility for the company's future mobile efforts. That
credibility, particularly as Intel builds its next-generation
SoFIA products with its own manufacturing technology at its own
plants, could go a long way to ensuring Intel's mobile
So, about those $50 smartphones...
It's worth noting that -- whether Intel is on-board or not -- the
market is naturally going to try to find ways to enable
ultra-cheap $50 smartphones. With SoFIA, Intel doesn't really
have a fundamental cost advantage -- if anything, competitors
like MediaTek and
probably get better chip pricing from
because of their much larger scale -- and the jury's still
out on whether Intel is cramming in more performance than its
This all means that if Intel can power a $50 smartphone with
its SoFIA platform, its rivals can, too -- at least for as long
as Intel relies on the same external manufacturing partner for
its chips as its rivals do.
Foolish bottom line
The smartphone chip market has proven exceptionally tough for
Intel, and while it's great to hear that the company is planning
on participating across all segments and price points alongside
the rest of the industry, it'll be important to see if -- under
the new CEO -- Intel can deliver on some of these big mobile
promises. SoFIA will likely mark the beginning of this journey
for Intel, but there's a long way to go, still.
More from The Motley Fool:
Warren Buffett Tells You How to Turn $40 into
This Technology Giant Wants to Bring $50
Smartphones to Emerging Markets
originally appeared on Fool.com.
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