In the Spirit of 'Wintel,' Meet 'Quadroid'
"Wintel" is the term that for years defined Windows-based computers running Intel chips. Now a similar expression is emerging for smartphones: "Quadroid."
Quadroid is a term that refers to the Qualcomm chips used inside smartphones running the Android mobile operating system. The term, recently coined in a report by the PRTM consultancy, could catch on, largely because Qualcomm provides 77% of the chips in Google's Android phones. And the Quadroid alliance is expected to grow.
Like Wintel has been for PCs, Quadroid could push down profit margins for smartphone manufacturers, some analysts said. That might seem like a good thing to consumers, but may not be so good for many phone makers.
Android itself is getting bigger each quarter. A dozen phone manufacturers worldwide have produced more than 90 different Android phone models. The platform is growing fast, having increased to 25% of all smartphones in the third quarter, up from nearly 4% in the third quarter of 2009, according to market research firm Gartner. Many analysts believe Android will be the number two smartphone OS by the end of 2010, behind Nokia's Symbian.
PRTM recently issued a report that called Android a "game-changer" for its sizable market share and fast growth. Android's role is enabled partly by a "warp speed" cycle time for starting and finishing a new phone design using Qualcomm chips inside Android phones. Cycle time is critical to how a manufacturer can improve its gross profit margin.
In 2008, PRTM noted, Qualcomm's QSD8250 chipset and Android's Donut 1.6 release led to an average product cycle time for various manufacturers of eight months. By late 2009, the cycle time was dropped to 4.5 months with the Qualcomm MSM7227 chipset used with Android's Eclair 2.1 release, PRTM said.
May not be a win for phone makers
In its report, PRTM questioned whether the Quadroid combination could become the new Wintel, which is not necessarily a good thing for phone manufacturers. "Over the years, Microsoft and Intel have captured far more value than the makers of the PCs," PTRM's report said. "Will Quadroid become the new Wintel?"
PRTM believes that the emergence of Quadroid and other factors will drive down gross profit margins for handset makers to new lows, in the 8% to 10% range, that major PC makers such as Acer or Lenovo have seen. "Some handset companies may not survive," PTRM said.
Many analysts have predicted a number of factors will lead to fewer major phone manufacturers, perhaps only three to five.
Dan Hays, a partner at PTRM, said in an interview that it is natural for industries with multiple players to consolidate down to a few. With Quadroid, he said, "it's becoming hard to tell one Android-based phone from another, and while app developers love that fact, it raises the bar for the minimum features a phone needs to do well ... Standardization on Quadroid is driving in the exact same direction as occurred in the PC industry. It's increasingly difficult to tell one laptop from another, and the makers are fighting it out on price and have to be operationally excellent."
Jack Gold, an analyst at J. Gold Associates, also foretells smartphone vendor consolidation, although not right away. "Will all the Android vendors ultimately survive? Probably not, but I don't expect to see much fallout for the next two to three years." He said the market is growing too quickly to eliminate smartphone makers. After another two years, however, "there very well could be that fallout and/or acquisitions and mergers, but that is the way of tech."
Gold said in the long term, Apple and BlackBerry maker Research in Motion will continue to have the highest profit margins, since they control their own destiny with their own ecosystem, where they make an OS and control hardware components and manufacturing. In a similar vein, industry leader Nokia, with its Symbian OS, has the potential for higher smartphone margins, although it has not been successful in the U.S.
At the chip level, Gold said Qualcomm clearly has the advantage in selling ARM-based chips used in smartphones and other devices, and it should continue to dominate for the next one to two years. But Gold said not to count out several contenders, such as graphics chip maker Nvidia in tablet computers, as well as Marvel, Samsung, and TI in smartphones and other devices. Intel is also developing mobile chips.
Gold agreed with PRTM that the Quadroid alliance will ultimately mean that vendors will "compete brutally to win customers," and Hays added that it;s hard to say who would lose. Several Asian makers of Android devices such as Samsung, HTC and LG have come on strong in the past year in a market that also includes Motorola, Sony Ericsson, ZTE, Huawei, Acer and Dell.
Will Quadroid ultimately be good for customers? It might seem that if manufacturers are taking lower profits, that itself would lead to a lower costs for consumers.
But PRTM noted that manufacturers facing a dramatically lower profit margin under Quadroid will try to differentiate themselves by considering new phone designs, new users experiences and new business models. "In short, they will need to act more like Apple while staying different from Apple," PRTM's report said.
In coming months and years, PRTM said that consumer demand for smartphones is bound to become more volatile. "Faced with many similar products based on the core technologies [such as Quadroid], fashion and viral enthusiasms will drive volume highs for successful products," PRTM said. "Meanwhile, good-but-not-great products will languish, calling for exceptional agility in vendors' manufacturing and supply chains."
Gold agreed that lower profit margins, while potentially lowering the cost of devices, will mean less investment by the manufacturers in research and new technologies since they lack the money to fund it. "Short term consumer gain is offset by longer term loss of compelling and leading edge devices from the vendors," Gold said.
Hays said that since PRTM published the Quadroid report in mid-November, many phone manufacturers have contacted the firm about the foretold pressure on profit margins and ultimate consolidation. "They are quite concerned," he said. "Apple is watching all of this closely and may be content to allow Quadroid to take its course ... with consolidation likely."
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His e-mail address is firstname.lastname@example.org.