Wearables offer hazy hope for mobile chip growth

As smartphone and tablet growth slows, watches and other devices have room to grow, an analyst says

Wearables could become the next big growth market for mobile devices, but they'll have to get more useful and less expensive first.

That's how things look to Linley Gwennap, principal analyst at The Linley Group, which is hosting a conference on mobile processors this week in Silicon Valley. Smartphones and tablets have stopped feeding the kind of chip growth they used to, and new devices like fitness trackers and smartwatches aren't soaring yet, he said.

While high-end mobile chips keep getting faster to handle increasingly powerful applications and more demanding content, smartphones and tablets aren't taking the market by storm like they were a few years ago. Wearables might give chipmakers another steep growth curve in the next few years, but it's too soon to say, according to Gwennap. The wearables market is less than 10 million units per year, he said.

For now, surveys indicate too many wearables such as fitness trackers are ending up in desk drawers, and the stars of the segment are too expensive for consumers to pull off the shelves in huge numbers, he said.

"We're talking about [US]$200 or $300 for a smartwatch today. That's kind of a two-spouse decision," Gwennap said.

It will take devices priced under $100 to reach big consumer volume, he said. One way wearables will get there is through smartphone vendors: Samsung's Galaxy Gear watches are already paired with its phones, and Gwennap thinks manufacturers or carriers will go one step further and sell the two as a bundle, charging as little as $50 for the watch. "The big phone guys are going to be driving the wearables space," he said in an interview at the conference. If half the buyers of high-end smartphones bought those accessories, that would mean about 250 million units, he said.

The smartphone market dwarfs that, with total unit sales expected to reach 1.85 billion per year by 2018, according to The Linley Group. But that market is getting saturated, and it's growing fastest in developing countries where consumers are buying their first smartphones for as little as $25, he said. Many of those don't even have LTE, because that technology is just starting to get built out in those countries.

Tablets are also slowing down, with sales growing about 13 percent annually over the next few years, he said. The bright spot is cheap, so-called "white box" products from no-name brands, Gwennap said. Allwinner, a Chinese chip vendor catering to those brands, sells more tablet processors than any other company, he said.

Driven partly by demand for cheaper devices, mobile silicon vendors are integrating more functions into their application processors. But in a reversal of a longtime trend, that will change next year, Gwennap said. The next generation of application processors, with components packed in just 20 nanometers apart, will be more expensive than the last, he said. When that happens, vendors will start dedicating those chips to applications and put other functions, such as connectivity, into separate chips.

Another big trend in the coming months will be 64-bit mobile processors, which phone makers are demanding even though most applications can't take advantage of them, Gwennap said.

"I think people weren't really expecting things to move so quickly," Gwennap said. Apple's introduction and heavy promotion of its 64-bit processor in the iPhone 5s has set off that chip envy, he said. Arm now says it has signed 30 licenses for its 64-bit V8 chip architecture. The 64-bit trend will probably reach midrange smartphones by the end of this year with chips based on Arm's Cortex A53 technology, Gwennap said.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

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