HTC may follow Apple to its own processors

HTC is reported to be developing customized processors for future smartphones, emulating Apple and Samsung. The Taiwanese firm, according to China Times, has signed a memorandum of cooperation and will turn to ST-Ericsson for the silicon.

There is a growing trend for vendors of advanced smartphones to customize their processors to gain greater control and technological edge. Apple has its own A5 design and Samsung Mobile uses Exynos from its electronics sister firm. This could squeeze the addressable market for vendors like Qualcomm, HTC's usual supplier, though the San Diego giant has bitten back by wielding its WP7 headstart to gain a close alliance with Nokia which comes close to a customized platform.

However, if HTC turns to STE, Qualcomm will lose revenue from a key customer - HTC already turned to Nvidia for a quad-core processor for its new HTC One X superphone, which also uses custom silicon for image capture. STE would certainly welcome a new tier one client, though NovaThor did turn up in the recently unveiled Sony Xperia Sola. But the company has been going through a difficult transition to its NovaThor app processor and combined processor/baseband platforms.

Although Nokia has indicated it will welcome its old supplier back into the smartphone fold once it has full WP7 support, STE has suffered from the Finnish firm's decline, and has seen its main strengths in China in the past two years. This week it announced a further move in its ongoing cost cutting program, transferring its app processor R&D activity to co-parent STMicro.

The reports indicated that HTC was looking to create processors for midrange Android models, which would be an odd move in such a cost sensitive segment. Most companies aim for differentiation in the scrum of midmarket Android phones through content, software or media features, as HTC has done with the Sense user interface and Beats audio technology - not through expensive processors.

A more likely scenario might be a bid by HTC to seize back its lead in Windows smartphones, which it lost for the first time ever at the turn of the year, to Nokia. STE will have a processor optimized for WP7 and Microsoft's tough hardware requirements this year and could create something to give HTC a new differentiator.

Meanwhile, STE will reduce its workforce by 1,700 via the transfer of the R&D unit to STMicro. It says its new strategy will bring about annual cost savings of $320m by the end of 2013, although it will incur restructuring costs between $130m and $150m. This looks likely to be just the first step in a far broader effort to put more activities into partnerships to reduce costs. The company said it will continue to develop app processors, modems and connectivity products as well as power, RF, analog and mixed signal platforms, either directly or through alliances and implied that it would favour deals which allowed it to offload R&D expenses. It also hinted that, as well as developing modem IP, it could potentially license this to third parties.

The STMicro agreement may be a template for deals with less closely related firms. The processors will be used in STE's integrated platforms under a licensing agreement and the two firms have also signed a commercial agreement to promote and sell standalone processors and thin modems jointly, to a broader range of customers.