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Intel Corporation (INTC), Apple Inc. (AAPL), QUALCOMM, Inc. (QCOM), ARM Holdings plc (ADR) (ARMH): Another Smartphone Maker Wants In on Chips

Mobile hardware is evolving very differently from how PCs did decades ago, particularly when it comes to one of the most important components inside: the applications processor. Instead of Intel Corporation (NASDAQ:INTC) hegemony, the market for smartphone and tablet processors is much more competitive.

QUALCOMM, Inc. (QCOM)

There’s also another important trend toward vertical integration that OEMs are now pursuing, which has implications on third-party chip makers. Apple Inc. (NASDAQ:AAPL) took chip design in-house in 2010 with the iPad’s A4, which was subsequently featured in the iPhone 4. Since then, the iDevice maker has dramatically evolved its chip strategy to new heights, and hinted that even more to come from its new “Technologies” group led by Bob Mansfield.

Samsung is the other top dog in smartphones, and continues to utilize its own Exynos processors wherever possible, even if it still taps QUALCOMM, Inc. (NASDAQ:QCOM) from time to time. Just months ago, LG was also reportedly exploring chip design after confirming it had licensed numerous core designs from ARM Holdings plc (ADR) (NASDAQ:ARMH). LG was the No. 5 smartphone player in 2012.

Let’s add another smartphone OEM to the list of aspirational chip makers: Lenovo. While Lenovo doesn’t have much smartphone presence in the U.S., the company is currently the second-largest smartphone vendor in the world’s largest smartphone market. Smartphone shipments in China reached 186 million last year and are predicted to climb to 268 million this year — 44% growth.

Vendor China Smartphone Market Share 2012
Samsung 17.7%
Lenovo 13.2%
Apple 11%
Huawei 9.9%
Coolpad 9.7%

Source: Strategy Analytics.

Lenovo is reportedly planning to hire more chip engineers later this year, growing its team by tenfold to 100 engineers. Up until now, Lenovo has tapped a wide range of chip suppliers. Lenovo was among the first OEMs to give Intel Corporation (NASDAQ:INTC)’s Atom mobile processor a chance in its LePhone K800 last year.

The possibility of Lenovo getting into chip design is negative for its chip suppliers like Samsung, MediaTek, and Intel Corporation (NASDAQ:INTC). The larger trend of integration is bad news for the likes of QUALCOMM, Inc. (NASDAQ:QCOM) and NVIDIA Corporation (NASDAQ:NVDA) as the overall market for third-party silicon may shrink, particularly QUALCOMM, Inc. (NASDAQ:QCOM); it grabs 40% revenue share of mobile processors.

The article Another Smartphone Maker Wants In on Chips originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, owns shares of Apple and Qualcomm. The Motley Fool recommends Apple, Intel, and NVIDIA. The Motley Fool owns shares of Apple, Intel, and Qualcomm.

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