Recently, reports surfaced of an Apple iPhone 5 miraculously emerging in China.
Of course, the device was not a real iPhone 5. It was the “HiPhone 5,” made available for sale on Taobao, one of the country’s largest e-commerce websites. The cost? Around 200 yuan, or approximately $30.
Knock-off mobile phones are nothing new in China. In fact, they are the products from a vast technological ecosystem that operates in the southern province of Guangzhou. Locally, it’s known as the infamous “shanzhai shoji” (which means bandit phone in Chinese) industry.
There are literally countless companies – located in basements, apartments, kitchens, or formal offices – that purchase cellphone parts from manufacturers in the area. The components are then put together as imitation Nokia, BlackBerry or other brand name handsets, and sold not only in China, but also throughout much of the developing world.
The shanzhai handsets are cheap, they’re functional, and they’ve made a big dent in the business that legit manufacturers once had in China and elsewhere. What made all of this possible is actually a Taiwanese semiconductor company known as MediaTek, or MTK.
Around half a decade ago, the company developed a turnkey solution to make circuit boards for cellphones. Basically anyone could buy a chipset from MTK, download some software onto it, put a case around it and sell it.
Since then, the industry has exploded. The global penetration of mobiles with MTK chips (pretty much all made in China) is astonishing. At a mobile Internet conference in Beijing earlier this year, Ming-Kai Tsai, MTK CEO, shared figures of his company’s chip penetration. In China, between up to 45 percent of handsets have MTK inside. In Southeast Asia, around 40 percent do. In Latin America, the company has 20 percent penetration. Five hundred million handsets in Europe use MTK chips.
At the conference, Tsai highlighted features of MTK software that enable those who buy it to easily tweak phones for localized needs, such as adding functionality for rural China, or loading games which are popular in India.
“In Southeast Asia, they may need some other complicated functions, or in Africa, they probably just need the price to be low, they don’t need the functions to be so complicated,” the CEO said.
However, what Tsai neglected to mention during his speech was the growing popularity of smartphones and the proliferation of 3G networks. MTK’s golden chipsets are not smart chipsets, only functioning as 2G or 2.5 G systems.
In China, mobile operators have been beefing up 3G infrastructure while manufacturers have been working to create low-cost smartphone solutions. India is following a similar pattern and not all, but certainly many other developing countries are not far behind.
The elephant in the room for MTK is how will the smartphone revolution impact the company? Or will it impact the company at all? And the bigger question is whether MTKs biggest customers, the poorer population of the developing world, will eventually opt for an Android or iPhone, or a cheaper phone with functions that truly matter to their everyday lives.
If the past half-decade is any indication, it seems almost a sure bet that the HiPhone 5 – along with any companies that develop money-making services to run on it, will be a winner by a long shot.
“In developing countries, they don’t care whether it is a smart phone or a feature phone,” Tsai said. “Only if they can get the Internet, that is all right with them.”
