In the middle of the pandemic, the trade-war, the stagnant device market and the potential game-changing semiconductor acquisition, the year 2020 saw record-breaking mobile processor revenue. 2021 is likely to be no different in terms of growth. What is driving this growth? Who is capturing this growth? Which company is affected by the trade-war?

5G Price Point Expansion: Each cellular network technology transition brings new opportunities, market participants and challenges and stretches the pie available to all stakeholders. The current boom in mobile processor markets is undoubtedly driven by 5G. 5G, introduced first 2019, took off rapidly and is growing faster than 4G did in the initial years. To spread new network technology benefits, ecosystem vendors usually push the technology to lower price tiers to accelerate the adoption. 5G is precisely at that point now and 2021 and 2022 will see a massive push from the ecosystem in terms of price point expansion. Qualcomm and MediaTek will play a pivotal role in this and are well-positioned to capture 5G share.

However, the industry needs to address some of the key concerns around profitability, semiconductor content expansion and opportunities beyond the smartphone.

• Will 5G price point expansion pressure vendor profit and financials?
• Which vendors are well-positioned to capture more dollar content in 5G?
• Will 5G momentum sustain beyond 2022? Which segments will benefit from Release 16 and 17 that are designed to address opportunities beyond smartphone?

Non-handset Revenue: Smartphones represent a big chunk of the cellular-enabled devices market but there is a growing demand for non-handset cellular devices. The contribution from non-cellular devices is still not big enough. The industry tried to address this with 4G but fell short, in our view. 5G is marketed as a solution to connect everything and the industry is still waiting to deliver on that promise. Companies such as Qualcomm are aggressively pursuing 5G-driven non-handset opportunities. Qualcomm is investing in ADAS, Edge AI, infrastructure SoC, Windows on Arm and server CPUs.

While the focus on non-handset is a step in the right direction for cellular chip companies, we think companies need to complement their offerings with mergers and acquisitions.

• Which companies are well-suited to help cellular chip companies to expand beyond smartphones?

Trade-war: Trade-war continues to create uncertainty and multiple companies including foundries, chip companies, device vendors and OS providers all caught up in this. Huawei's suppliers including TSMC and HiSilicon have already taken a big hit. We think trade-wars will intensify from now as nationalism and security take over business priorities.

• Which companies will be affected by trade-war in 2021 and 2022?
• How can handset manufacturers manage their supply chain in this volatile environment?
• Will vendors continue to stockpile components?

NVIDIA-Arm: As NVIDIA embarks on its arduous journey to convince over a dozen regulators and security agencies around the world to justify its acquisition of Arm, the kingpin of smartphone chip CPU and GPU IPs, we cannot help but wonder whether NVIDIA will be successful in its pursuit. While the ecosystem has not rejected this acquisition outright, it failed to show enthusiasm needed to get approvals done. Competitors are already taking cautionary approaches to NVIDIA-Arm (increased investments in RISC-V and Qualcomm's acquisition of Nuvia).

• When will we see RISC-V-based smartphone SoCs?
• What is the outlook for Arm in smartphone SoCs?
• Will smartphone SoC vendors successfully pursue PC and server CPU opportunities in future?

Vertical Competition: Despite Qualcomm's rapid modem technology advancements, vertical companies continue to make strides and in recent years made a significant dent on merchant vendors' share. It would not be an understatement to say that Qualcomm lost billions of dollars of revenue due to Apple, Huawei and Samsung's efforts to design in-house chips. New players are likely to join the vertical camp in future.  

• What does it take to be a successful vertical SoC vendor? What will be the implications for merchant vendors?

Transistor Technology Advancements: Thanks to pandemic-driven demand, foundries are struggling to meet the demand in 5G, consumer electronics, automotive and other areas. TSMC and Samsung Foundry continue to push the envelope with their process technology with advanced offerings such as 5 nm EUV. We expect 3 nm-based smartphone chips to debut in 2H 2022 and 2 nm-based chips to debut in 2H 2023.

• What are the implications for SoC vendors due to foundry industry consolidation around fewer vendors and geographies?

Performance Gains: The smartphone SoC market continues to witness impressive performance gains across CPU, GPU, AI, modem and transistor technology enhancements each year. We still see over 20 percent CPU and over 30 percent GPU performance gains. Arm's next-generation Matterhorn and Makalu CPI IPs promise up to 30 percent performance improvement compared to today's Cortex X1.

• Which vendor is well-positioned to take advantage of these performance enhancements?
• Which markets will benefit from increased smartphone performance?

Strategy Analytics has been tracking baseband, smartphone SoC, tablet SoC, GPU, AI and foundry markets for a long time and has a wealth of analysis and data. Please let us know if you would like to explore this topic in detail and we will be happy to collaborate with you.

Sravan Kundojjala (@SKundojjala)