Fast Fashion in Chips? Mediatek beats Qualcomm

The Wall Street Journal had a great profile of Indian handset company Micromax yesterday. It was one of those articles I love – comparing one company’s model to that of another in a totally different industry and making some nice conclusion about a big theme.

The headline says it all “India’s Micromax Churns out Phones Like Fast Fashion”. The point being that Micromax is taking cues from clothing retailers that iterate quickly through product lines. The Economist, the Journal and many others have written extensively about the supply chain that enables stores like H&M or Uniqlo to churn out a new item from concept to shelves in 30 days.

So the article on Micromax opens up the interesting question – how does Micromax come out with 30 phone models a year? It turns out that the answer says a lot about the handset industry.

First, Micromax does not really hold the record for phone models produced in a single year. I think Samsung did 50 models in 2013. But Samsung is orders of magnitudes larger than Micromax. So there is clearly something about Micromax that lets it be much more efficient. And it is worth keeping a bit of history in mind. Just as Micromax seems to be gaining on Samsung’s share in India, Samsung itself used the same tricks ten years ago to beat out first Motorola and then Nokia. Up until the very end, Motorola struggled to release new phones in a timely manner. I remember times when Motorola’s entire stock price depended on whether or not they would ship certain flagship models in time for the Holidays. Remember the U700? No? Well it did NOT ship on time.

It should surprise no one that Micromax relies a lot of the Taiwan/Shenzhen electronics complex to accomplish what it does. Micromax seems to take full use of that ecosystem. In particular, they seem adept at managing phones utilizing all the silicon options available. This is actually very hard to do efficiently, so Micromax has probably created something a bit differentiated here. But at the heart of the ability to churn out phones quickly sits the main chip in a phone – the baseband.

Micromax works with multiple baseband and OS vendors, but most of Micromax’s competitors in India and China, work with just one OS – Android, and only two baseband vendors – Mediatek and Qualcomm. And when you dig down, only Mediatek can really provide the ‘Fast Fashion’ adaptability that the article highlights.

Funny as it sounds, Fast Fashion trends apply almost as much to chips as they do to mobile phones. Admittedly, no one can turn out a new chip design in 30 days, but one of the big drivers of Meditaek’s success has been the speed with which it does bring out new designs.

I know that I lose a lot of readers whenever I talk about chips, but I think that too much commentary in the Industry focuses on consumer devices without regard to the enabling technologies that come packed inside. Micromax can attempt to be a Fast Fashion company because it can turn to Mediatek to come out with new chips at a steady pace.

I used to spend a lot of time asking small handset companies in China when would they start using Qualcomm chips instead of Mediatek. And for years, the answer has been the same. Almost every one of them has considered using Qualcomm, or even designed a model or two around them. But they always return to Mediatek for the bulk of their volume.

This is not because of price. Qualcomm has been the price leader in China for a several years already. And it is not because of Qualcomm’s licensing regime, which has been getting easier (and leakier) for years. The real source of loyalty to Mediatek is that company’s ability to respond to customer demands. I have heard this time and again. Even relatively small customers can get firmware updates and new features almost by request. Mediatek has a giant force of sales support engineers working in China (and probably India now as well). And more importantly, this group has the ability to get headquarters to change chip designs. And quickly too.

By contrast, the view of Qualcomm from Asia is the opposite. The OEMs and ODMs will all concede that Qualcomm usually has better products, but they say the company is too rigid. All changes have to be made at headquarters in San Diego. Even the team in Santa Clara, where Qualcomm has a massive presence, struggles to get the design changes they need. While Qualcomm now has a massive team in South China, it has done little to change the competitive perception versus Mediatek.

Maybe this is a deliberate strategy, and Qualcomm’s Centralized Planning department has some strategic benefits that I cannot see. However, as the centers of phone design and demand shift further to Asia, this strikes me as an area where Mediatek has built up an important advantage.

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