Android and Qualcomm are the new Wintel
Credit: CNN (http://edition.cnn.com)
By David Goldman, staff writer
NEW YORK (CNNMoney.com) -- Google's Android mobile operating system has been credited with saving struggling handset manufacturers, but it may ultimately be the thing that kills a number of them off.
Before Android came around, mobile devices typically had hardware integrated with custom operating software, which differentiated LG phones from Samsung phones from Motorola phones, and so on. No two devices from rival manufacturers were at all alike.
But now, for the first time ever in the wireless ecosystem, a standard platform is emerging: At least a dozen handset makers have brought to market more than 90 different smartphones that run Android, and more than three quarters of those handsets have Qualcomm chips embedded in them, according to a new study by consultancy PRTM.
The Qualcomm-Android standard, or "Quadroid" as PRTM calls it, is becoming a parallel to the Windows-Intel, or "Wintel," standard that developed in the 1990s.
Like with Wintel PCs, Quadroid devices' software and hardware is essentially a commodity -- they're very similar on every phone, making differentiation a difficult task. Form factor is still a battleground -- some people want keyboards, some don't -- but drop past the top-tier of the very newest devices and the distinctions are tiny. Kickstands, dual screens, very high resolution cameras and OLED touchscreens are among the features Quadroid smartphone makers are using to set themselves apart.
It was a problem that Wintel PC companies tried to solve -- mostly unsuccessfully -- with customizability (Dell), unique design (Alienware), and cow-print boxes (Gateway).
But Quadroid has an added wrinkle: Android is open source, meaning it's free for device manufacturers to use and manipulate. That makes the barrier to entry almost nil, opening the door to a number of no-name manufacturers to produce smartphones that compete with the big guys. Two years ago, no one had heard of HTC or Kyocera, LG had virtually no smartphone presence, and Motorola (MOT, Fortune 500) had been left for dead. Now they're at the industry's vanguard.
In the changing smartphone landscape, handset makers have needed to innovate faster to outrace their competition. At the beginning of this year, the average lifecycle for smartphones with Qualcomm (QCOM, Fortune 500) chips was just 4.5 months, down from 8 months in 2008, PRTM found.
That's going to squeeze profit margins dramatically. Though handset margins are now between 30% and 35%, according to PRTM's research, it expects the new economics of the Quadroid standard to push that down to the wafer-thin 8% to 10% margins of the Wintel PC manufacturers.
As a result, PRTM believes the ranks of Quadroid handset makers will be whittled down to a small number of very, very big companies that have the resources to execute, with practically no room for error -- just like what happened with PC companies.
"An emerging standard doesn't mean that's the only way to build a phone," said David Van Oss, principal at PRTM. "But if you're a handset manufacturer who wants to make simple, lower-end phones, then your life is going to get tough, because a number of other companies are going to try to sell the same thing."
To say Android is an emerging standard isn't an exaggeration. Its growth is stunning: Android was the operating system for 25.5% of the world's smartphones in the third quarter, up from just 3.5% a year ago, according to Gartner.
Google's (GOOG, Fortune 500) mobile OS has eaten away market share from every one of its competitors, including Apple (AAPL, Fortune 500), Research In Motion (RIMM) and especially Nokia (NOK), which is hanging on for dear life to its status as the No. 1 handset manufacturer.
Qualcomm is the market leader by a long way in virtually every segment of the mobile semiconductor market. But analysts say its partnership with Android gives it the potential to grow by even more. Analysis firm Trefis believes Qualcomm's share of chips for CDMA phones -- a wireless standard used by Verizon and Sprint -- can rise to 75% in 2016, up from about 66% today. Qualcomm blew past analysts' revenue forecasts last quarter, in part because of booming Android sales.
Still, not everyone is quite ready to draw explicit parallels between Wintel and Quadroid.
"The opportunity for new entrants trying to establish themselves in this market will be made much more difficult because of the sameness of Android devices," said Charles Golvin, analyst at Forrester Research. "But Texas Instruments still has decent market share, and I wouldn't count out Intel, which is trying to claw its way into that market."
Also, Quadroid isn't the only way to skin the cat. Apple, RIM and Nokia are still doing quite well with the integrated architecture business model, building around their own custom software stacks
And then there's the industry's dark horse: Microsoft's just-released Windows Phone 7. If it catches on the way Microsoft hopes, the company that dominated the Wintel world could threaten the rise of the Quadroid era.
Credit: CNN (http://edition.cnn.com)
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