Notwithstanding the pandemic, the smartphone applications processor (AP) market returned to growth in 2020 for the first time since 2016. The smartphone AP market went through a stagnant phase between 2016 and 2019, thanks to 4G price erosion and a lack of growth in the device market. Then came 2020 and the COVID-19 pandemic. One would think that the downward trend would continue in 2020, but the smartphone AP market turned the corner and even managed to post all-time high revenue. So, what changed in 2020?

The smartphone AP market grew 25 percent to $25 billion in 2020, driven by solid demand for 5G-attached APs. 5G, first introduced in 2019, took off rapidly in 2020. 5G APs command a significant premium over 4G APs and this dynamic contributed to all-time high revenue. 5G APs accounted for over 25 percent of all smartphone APs shipped in 2020. The smartphone AP market took a hit in unit terms, primarily due to lockdowns and retail store closure in 1H 2020. However, the market rebounded well by mid-2020 and saw significant shipment growth in 2H 2020.

Here are some top AP industry trends including AI, foundry, process node technology highlights.

• TSMC and Samsung Foundry benefited from robust demand for 5G APs in 2020. TSMC captured the leadership position in the smartphone AP foundry market with over two-thirds share.
• Leading-edge 5 nm and 7 nm APs accounted for 40 percent of all smartphone AP shipments in 2020, boosting overall average selling prices (ASP). Apple beat the industry to market with the world’s first 5 nm AP in 2020.
• Artificial intelligence (AI) continues to be a key pillar in AP vendors’ strategies. Smartphone AP shipments with on-device AI engines crossed 900 million in 2020, up from over 700 million in 2019.
• Octa-core and hexa-core AP shipments represented over 90 percent of all smartphone AP shipments in 2020. We believe that increased multi-core CPU shipments is a good trend for IP vendors such as Arm.

Here are some vendor performance highlights from our smartphone AP research findings.

• Qualcomm fully capitalized on 5G demand and re-affirmed its smartphone AP leadership with a 31 percent revenue share in 2020. Qualcomm’s broad Snapdragon portfolio, including the Snapdragon 865, 765 and 665, saw strong traction in 2020. Qualcomm will repeat its 2020 success with the new Snapdragon 888 and mid-range 5G chips such as Snapdragon 690 and 400 series of 5G chips in 2021. Qualcomm recently acquired Nuvia to boost its CPU capability, and the company is promising step function CPU performance improvements with its Nuvia acquisition. Nuvia-enabled Snapdragons will likely debut by late 2022. Qualcomm’s premium tier and Windows PC chip efforts will benefit from this acquisition in the near-to-medium term. Qualcomm’s automotive, XR, AI, and data center chips will see Nuvia CPU IP in the long-term.
• Apple captured 23 percent revenue share with its A-series APs. The A14 Bionic, the world’s first 5 nm AP, gained strong traction despite the late iPhone launch in 2020. Strategy Analytics believes that Apple’s momentum will continue in 2021 with increased 5G iPhone shipments.
• HiSilicon took a big hit in 2020, thanks to the US sanctions on its supply chain partners, including TSMC. Apple, Qualcomm, MediaTek and Samsung LSI will grab the market share left by HiSilicon in 2021. Qualcomm aims to capture the premium tier share left by HiSilicon as Huawei exclusively used HiSilicon’s chips in its Mate ad P smartphones.
• MediaTek saw massive revenue growth in 2020, driven by 4G and 5G AP share gains. MediaTek’s 7 nm-based Dimensity 5G SoC family of chips adopted by all leading Chinese companies, including Xiaomi, Redmi, Oppo, Vivo, Realme, Huawei, Lenovo and others.
• Samsung LSI saw good traction in 5G APs. The company’s in-house customer’s underperformance in the smartphone market limited its growth. Samsung LSI has had success with its Vivo 5G chip relationship in 2020. Strategy Analytics feels that Samsung LSI has good potential to be a merchant vendor in the wake of market consolidation and HiSilicon’s challenges.
• Unisoc showed signs of life after a long time with its competitive Tiger-branded APs. The company has an excellent opportunity to capture long-tail 4G demand in emerging markets.

Despite the return to growth, the smartphone AP industry continues to face challenges.

• How will increasing mid-range and low-end 5G shipments will affect AP vendors’ profit and revenue? What strategies do vendors need to adjust their cost structures?
• Will semiconductor shortages limit the AP market growth? How do shortages impact AP wafer and chip pricing? With semiconductor foundries overflowing with orders, how can AP vendors forecast capacity planning? Which company is executing better in this environment?
• How will trade tensions affect the smartphone manufacturer landscape? For example, any sanctions on Xiaomi, Oppo or Vivo will likely affect Qualcomm and MediaTek’s shipments. How can smartphone vendors align their supply chains in this dynamic environment?

Strategy Analytics can help the industry ecosystem vendors with our data-driven actional insights. Our research and advisory services can help you stay on top of the component industry ecosystem. Please let us know how we can help you.

Sravan Kundojjala (@Skundojjala)