Does 1 + 1 = 3 in Chinese Smartphones?

We have a little conundrum on our hands, people.

Two weeks ago, radio-chip specialist Spreadtrum (Nasdaq: SPRD  ) announced to the world that it enjoys a better than 50% market share in TD-SCDMA chips. That's a high-speed wireless networking technology developed specifically for the Chinese market, and used by the Middle Kingdom's largest network provider, China Mobile (NYSE: CHL  ) . A dominant market share in that massive market would make Spreadtrum a no-brainer investment.

But then Marvell Technology (Nasdaq: MRVL  ) comes along with some seemingly conflicting data. Marvell has "TD smartphone market share of over 70%," according to CEO Sehat Sutadja. "While we expect increased competition from followers in TD smartphones, we expect to maintain our leadership position and grow revenues next year."

Uh-oh. This sounds like two companies owning 120% of the TD market. Should we call one or the other a liar? What's going on here?

To me, it looks like a bit of gerrymandering gamesmanship from both Spreadtrum and Marvell. The companies don't seem to define the TD market exactly the same way -- Spreadtrum very specifically talks about 50% share in TD-SCDMA handsets while Marvell broadens the scope to everything TD. That includes the older TD-CDMA standard and also the upcoming TD-LTE technology. Slice these various flavors of market pie just so, and you might end up with more than a full pie between these two.

In any case, it's clear that TD-SCDMA is helping both companies. Marvell's TD sales helped drive 6% sequential growth in total revenue and $0.40 of non-GAAP earnings per share.

It's not all wine and roses for Marvell, though. The company is a huge player in controller chips for hard drives, and will suffer alongside major customers Western Digital (NYSE: WDC  ) and Seagate Technologies (Nasdaq: STX  ) as that industry recovers from flooding damage in Thailand.

We've also invested in another less-than-obvious play on the mobile market, seizing the opportunity as that company moves out of the aging computer systems industry and into "The Next Trillion-Dollar Revolution." There's a free report right here with your name on it, itching to explain the whole trillion-dollar market play in great detail.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Marvell Technology Group, China Mobile, and Western Digital. Motley Fool newsletter services have recommended buying shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


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  • Report this Comment On November 21, 2011, at 6:06 PM, cupertinokims wrote:

    The delta is the difference between low-end clamshell "feature" phones and fully featured, websurfing "smart" phones. Spectrum and Mediatek are in mostly the feature phone market and Marvell is mostly in the smartphone market.

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