Taiwanese chipset maker TSMC is raising costs for leading-edge 5nm and 3nm processors that are majorly utilised by smartphone chipmakers. Meanwhile, chipset designer ARM is also raising licensing costs for companies like MediaTek, even as it is embroiled in a lawsuit against Qualcomm for its use of custom CPU cores in its latest generation mobile chipset. Experts believe Qualcomm will likely settle ahead of the hearing in December, with ARM pushing to raise license fees with Qualcomm as well.
The chipset manufacturing cost increase may very well be passed down to consumers as chipmakers said it will look to maintain its current gross margins, executives said. “I think our goal is trying to maintain the gross margin within the range, which is 46% to 48%. For next year, in general, I guess that’s still going to be our range. We’re trying to sell our value and pass down some of the costs to our customers. I think that still remains our strategy and goal,” said David Ku, chief financial officer, MediaTek, during a recent earnings call.
Industry executives said the latest generation chipsets, set to power high-end Android handsets, are already around 20% more expensive than their predecessors due to a more complex circuitry and advanced manufacturing process. High demand for premium handsets is also contributing to improving the product mix of chipset makers towards more high-end chipsets.
“The big story for us has been content increase. We’ve kind of seen the chipsets becoming a lot more capable. And as those solutions get adopted, we get to see the benefit on the ASP side,” Akash Palkhiwala, CFO, Qualcomm, said in a recent earnings call. The executive added that devices priced higher than $400 have gone up from being 21% of the market to 30% of the market, which is benefiting the company’s financials.
“We launched our new premium-tier chipset, and OEMs are actively taking advantage of it by accelerating their launches and increasing scale of their launches,” the executive said. Counterpoint Research in a note said globally, smartphone average selling prices are expected to rise 3% on-year to $365 in 2024, and further to 5% on-year in 2025.
“This increase is attributed to several factors including the ongoing transition to 5G technology, enhanced computing capabilities, and a notable shift towards premium smartphones,” Counterpoint Research said, adding that rising consumer interest for GenAI in 2025 will drive the trend shift towards more powerful processors, increasing the bill of materials (BoM).
“A primary contributor to this escalation is the SoC,” the research firm affirmed, adding the costs associated with wafer manufacturing are expected to rise starting in 2025, leading to single-digit percentage increases in price of high-end chipsets from Qualcomm and MediaTek.
