How mainland Chinese factories pump out $65 smartphones with a lot of help from Taiwan

By the time they grow up, paying $600 for a smartphone might seem like a crazy idea.
By the time they grow up, paying $600 for a smartphone might seem like a crazy idea.
Image: AP Photo/Hye Soo Nah
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As you contemplate the just-launched Samsung Galaxy S IV, which will retail for hundreds of dollars, do you wonder how Chinese firms churn out Android smartphones that sell for as little as $65? Well, MIT Technology Review will tell you. It carries an interview with a Chinese entrepreneur who explains how he buys up smartphone components and then sends them to a range of factories in Shenzhen, near the Hong Kong border, for assembly.

The rapid spread of smartphone technology began in 2011 when companies from Taiwan—the self-governed island near mainland China with a huge high-tech industry—started selling “turnkey” systems comprising phone designs and sets of chips.

That smartphone-by-numbers idea was revolutionary, as The New York Times explains very well here. Taiwan’s MediaTek has been a huge driving force behind the massive smartphone sales now being achieved by Chinese firms such as Lenovo. Rather than simply providing manufacturers with a chip, writes the Times’ Lin Yang, MediaTek “offers instructions for building a phone, the software architecture to run it, and dedicated consultants to advise phone makers during the production process.”

These “turnkeys” are also used to make “bandit phones”—counterfeits of big brand smartphones such as iPhones. And MediaTek also supplies companies in other emerging markets such as India and Brazil.

The trend suggests that Apple and Samsung may end up locked in a price war for the growing markets of China, India and Brazil. Or they may simply become irrelevant, as even the most brand-conscious consumers increasingly realise they can own the same phone, using exactly the same technology, for less.

It may also not be long before Westerners wake up to bargain turnkey phones. Chinese manufacturer TCL has big designs on challenging Apple and Samsung in the top-end smartphone market in the US as well as China.

The iPhone’s unique operating system gives it an edge over Samsung’s Galaxy line, which runs the same Android OS as countless other phones so can compete with them only on the hardware specifications. Apple is also the only high-end mobile manufacturer that designs its own chips, meaning the next generation of iPhones could potentially leap ahead of all the Android competitors.

But on the other hand, being the best in a crowded market may not be such an advantage forever. Consumers may feel smartphones have got as good as they need to, and stop buying $600 phones on the basis of new and apparently groundbreaking technology that many of us have no idea how to use or appreciate anyway.