Is 'Quadroid' the new 'Wintel'?

Quadroid, like Wintel, could pose profit, consolidation challenges for manufacturers

"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 consultancy PRTM, could catch on, largely because Qualcomm provides 77% of the chips used 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 No. 2 smartphone operating system 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 chip set 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 chip set, 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," PRTM'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," PRTM said.

Many analysts have predicted that a number of factors will lead to fewer major phone manufacturers, perhaps only three to five.

Dan Hays, a partner at PRTM, 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 predicts 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."

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