(Reuters) – Savvy U.S. chipmakers are hitching their wagons to Chinese smartphone makers, willing to sacrifice profit margins to boost sales volumes in the world’s second-largest mobile phone market.
As demand in developed economies stagnates, a handful of component suppliers, including Qualcomm Inc and Synaptics Inc, have left competitors in their wake by expanding in China, where sales of cheap phones made by home-grown companies eclipse pricier models made by Samsung Electronics Co Ltd and Apple Inc.
Increased exposure to China has diluted chipmakers’ gross profit margins to somewhere in the mid-40 percent range from an average of nearer 50 percent in developed markets, analysts estimate. The rewards lie in the huge volumes demanded by Chinese handset makers.
“The guys that have traditionally been focused on the developed markets are now starting to see a slowdown,” said Stewart Stecker, research analyst at asset management firm AlphaOne Capital Partners.