In the mobile phone chip industry, China still faces significant challenges in core technology. While domestic chips have become more stable in recent years, the next step is to launch a "core attack" and overcome the limitations that have held back the industry. Domestic mobile phone chip manufacturers are striving to break through these obstacles, and with progress in two key areas, they may eventually reach a leading position globally.
The mobile phone industry has long been a source of pride for Chinese manufacturing, with seven Chinese brands among the top ten global phone manufacturers. However, chip production remains a major bottleneck. Most domestic phone companies still rely entirely on imported chips. In fact, China imports approximately $200 billion worth of chips annually, making it the country's largest imported product. Despite being one of the world's largest markets, China's own chip production accounts for only 6% to 7% of global output.
A small fingernail-sized chip has become the critical issue for Chinese mobile phones. To move into the mid-to-high-end market, China must solve this "core problem," which is the only viable path forward.
The chip is the heart of any mobile phone and represents the most critical technology in the industry chain. Since chip design and manufacturing are often handled by the same company, the industry remains highly closed and capital-intensive. This has led to an oligopoly dominated by a few major players, making it extremely difficult for new entrants to compete.
Currently, companies like Qualcomm control the global mobile phone chip market. Among Chinese phone manufacturers, only Huawei has managed to develop its own chips and meet most of its needs. However, due to a late start and lack of core technologies and skilled talent, the situation in China's chip industry hasn't fundamentally improved. In 2017, China's chip design industry employed around 140,000 people, generating about $30 billion in revenue, with an average per capita output of $215,000. In comparison, Qualcomm, a leading chip manufacturer, had 30,500 employees in 2016, generating $22.3 billion in revenue, or about $731,000 per employee. Industry forecasts suggest the Chinese chip market will reach $700 billion by 2020, but the current talent pool is less than 300,000, highlighting a growing gap.
Over-reliance on imported chips has brought several negative consequences. On one hand, high-end Chinese phone manufacturers lack full control over their production, as they depend on chip suppliers. On the other hand, chip prices have been volatile, creating cost pressures for domestic manufacturers. Additionally, foreign chip companies hold strong patent positions, requiring all users to pay licensing fees, which increases manufacturing costs and weakens the competitiveness of Chinese phones.
Due to the uneven quality of some imported chips, many are still in experimental stages and not fully mature when released. This forces Chinese phone makers to constantly adjust and compensate for these issues. For example, overheating problems from certain imported chips have negatively impacted sales across multiple brands. The declining reputation of some chip suppliers has also damaged the image of Chinese phone brands.
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