Hot spotlight: Should smartphone OEMs design their own chips?

Should OEMs design their own chips? Controversy about this often arises in the electronics industry.

You might think that the semiconductor market, which has been developing for nearly 40 years, is very mature, and there has been no such controversy for a long time; but the rapid pace of consumer device innovation continues to work to establish the life cycle of small ecosystems in the industry. These product life cycles force new and old manufacturers in the industry to constantly evaluate many of the same decisions we have faced in the past.

One of the decisions is whether device or system OEMs should design chips, especially those “processors” that function as device brains.

The reason for this controversy is that a market segment (such as the smartphone market) often has very limited options when it was first formed.

When the concept of a smartphone was born, the choice of processor products was quite limited. In fact, when the smartphone market appeared, many manufacturers were forced to combine multiple chips or make their own processors like Nokia. Even after Texas Instruments introduced the OMAP processor product line, it was sometimes used as a multimedia coprocessor instead of a main processor. Therefore, if you are a mobile phone OEM, you do not have many options.

In the early stages of market development, even the use of innovative products like OMAP may not seem to be an attractive option. First of all, the processor is continuously progressing, and the currently available products may not be suitable for future product design requirements.

Secondly, if you use a processor that is the same as the competitive product, it may make product design difficult to distinguish clearly from competitive products. As the market grows and competition intensifies, the number of semiconductor solutions usually also increases, and this has always been the case with smartphone processors.

Therefore, when about 30 manufacturers around the world develop different products for various parts and performance levels of smartphones, why should OEMs think about the problem of designing their own processors?

The reason why OEMs usually argue is that they want to "dominate their own destiny". The argument is that if the smartphone OEM can master the processor design by itself, it will be more capable than competitors to create some performance and time-to-market advantages.

In fact, thinking that OEMs have the expertise and resources to meet product performance requirements and maintain the desired time-to-market schedule-when designing a new processor, all these assumptions are difficult to achieve. In addition, the company must be able to afford the huge cost of this risky action.

It is currently estimated that the break-even point of a new processor is about 100 million. Although for some companies that design their own processors, this figure may be lower, but at least 800,000 units must be ensured to amortize the cost of the design.

In fact, the current smartphone market size can only accommodate a few processor suppliers with profitable space (according to In-Stat statistics, the global smartphone market had about 453.8 million sales in 2011). For OEMs or even most processor suppliers, it is not easy to get a good return on investment (ROI) here.

However, Apple and Samsung, which currently dominate the smartphone market, both design processors for their smartphones.

Due to the dominance of the two companies in the market, it is natural to assume that processor design is one of the reasons for its success.

Because Apple realized innovation earlier, there were not many options at that time, so it decided to set its own smartphone processor. And Samsung Semiconductor is already a semiconductor giant who is aiming to enter and dominate the logic market.

However, Samsung's smartphone division has been using processors from multiple vendors, and they focus on product performance, availability, and the requirements of its largest customer, the wireless manufacturer. Therefore, Apple does have its own uniqueness in designing its own processor model.

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