Origins of chip design companies in China
Starting from about 2004, an increasing number of chip design companies has been appearing in China, mostly targeting the high-volume consumer devices for which China has a dominant role in terms of manufacturing capacity. Additionally, some Chinese device companies have started to gain brand recognition and grown very large, with several of the largest smartphone brands now being based in China, for a large part based on export sales.
Some of the earliest Chinese chip companies that were succesful targeted earlier product trends that have since waned, such as the MP3 players that peaked around 2006. Actions Semiconductor was one of those companies. Several companies that now target newer markets such as tablet processors have their origins among the older MP3 chip player companies. For example, Rockchip and Actions Semiconductor, which still exists, both started as MP3 player chip companies, and Allwinner Technology was started by former Actions employees. The three mentioned companies have been among the largest providers of tablet processors for Chinese manufacturers in recent years, covering a significant amount of worldwide unit shipments of tablet processors.
Another area where Chinese chip companies achieved success is basic and feature phones. Speadtrum and RDA Microelectronics achieved significant sales levels with complete chipsets, including cellular baseband and radio, for the numerous low-cost mobile phones manufactured in China, with many of being them exported to other parts of the world. Both Spreadtrum and RDA Microelectronics have since been acquired by the government-affiliated Tsinghua Unigroup. Spreadtrum has also developed smartphone SoCs, while another company in this segment is Leadcore Technology. HiSilicon, Huawei's chip division, is a well funded chip designer that, amongst several other product areas, designs SoC chips incorporated into Huawei smartphones.
Allwinner and Rockchip have dominated Chinese tablets
Allwinner and Rockchip have traded places a few times as the top supplier of SoCs for Chinese tablets (and indeed worldwide in terms of unit volume). Rockchip was prominent up to the beginning of 2012 when volumes were still low. In 2012 Allwinner gained the upper hand with their cost-effective, integrated A10 series of processors, targeting mostly the lower priced segment of the market. Subsequently, building from its foothold in higher-performing processors Rockchip regained lost ground and was reported to be the largest provider of tablet processors from Q4 2013 until recently.
A few years ago, the tablet processor market was profitable. However, competition has increased and profit margins have come under pressure. Apart from being affected by inventory cycles among Chinese tablet manufacturers (the white-box tablet market stalled significantly at the end of 2013, with significant inventories), competition between tablet processor providers has eroded the selling price of the chips.
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Cellular data functionality transforms market
Relatively recent competitors, most prominently Taiwanese company MediaTek that dominates the smartphone chip market in China, have provided further pressure because of their ability to integrate functionality into a single chip that reduces external components (such as WiFi functionality and 3G modems), while also having advantages in power consumption and performance (also through better device drivers and firmware). Other Chinese companies, such as Leadcore and Spreadtrum have also introduced tablet processors with integrated 3G modems. Increased demand from various parts of the world has made tablets with 2G/3G cellular data or voice capability an increasingly large part of the market (between 25% and 50% currently).
Crucially, Rockchip and Allwinner do not possess wireless baseband technology, or are only in the early stages of licensing or obtaining it (for example, Rockchip has made a deal to integrate an Intel 3G modem and Atom processor into a chip targeting tablets). Even for WiFi-only tablets, the ability by competitors to integrate WiFi functionality results in a cost disadvantage for Rockchip and Allwinner. This puts great pressure on their ASPs, so it is not surprising that Allwinner announced that their new quad-core A33 chip targeting low-cost tablets has a selling price of only $4.
Rockchip unlikely to make much profit on chip sales
In this context, you can ask whether Rockchip will continue to be able to reap any profit from selling chips such as its existing RK3188(T), which is manufactured at GlobalFoundries using a 28nm HKMG process and uses Cortex A9 cores that are relatively expensive in terms of manufacturing cost (as well as non-optimal for power consumption). Rockchip's lower-end products (such as RK3168 and RK3026) also use Cortex-A9 cores. Nevertheless, Rockchip continues to ship very high volumes, leading to questions about how it is able to continue to do so despite the potential for significant negative cash flow on its product sales.
However, based on a reported roadmap of upcoming chips, even Rockchip is finally moving to more cost-effective and less power-consuming chip architectures. Rockchip's RK3126 and RK3218 are low-cost quad-core Cortex-A7-based tablet processors with Mali GPU, closely matching Allwinner's new A33 chip. Additionally, the future "MayBach" SoC will contain an octa-core ARM Cortex-A53 CPU, the type of configuration that has already started to show very impressive performance test results in early benchmarks while likely relatively low power-consumption, which is likely to be much more viable than big.LITTLE for the higher-performance segment. However, it still take to time for these new designs to appear in the market and fully replace existing Rockchip tablet processors, during which Rockchip will continue to have limited profit margins on its chips and moderate power efficiency when compared to chips from competitors.
Intel threatening to conquer Chinese white-box tablets
An additional challenge may be provided by Intel, which is increasing its focus on the Chinese white-box tablet market with more cost-effective products, with signficant investments being made according to its "contra-revenue" strategy. Largely because Intel manufactures these SoCs using an advanced 22nm process, they have considerably higher CPU and GPU performance than competitors. Meanwhile, the competitive disadvantage within the Android software ecosystem of being a non-ARM platform is diminishing. Low-cost product such as the Atom Z3735E and Z3735G with a 32-bit memory interface, with lower but probably still respectable performance, which Intel is currently pushing in China, may be attractive for manufacturers even without significant "contra-revenue" subsidies.
Lack of focus, failed product introductions
Allwinner, to its credit, has been showing more interest in other applications apart from Android tablets, such as development boards used by the open source community as well as companies targeting specific applications. Allwinner chips were already relatively popular for this type of application due to reasonable driver support, source code availability, and flexible system boot ability of Allwinner-based devices, and a grass-roots volunteer development community for Allwinner chips had already existed for some time. However, outside of the Raspberry Pi, the chip sales volume for this segment is negligable compared to even one successful high-volume tablet model from a large Chinese manufacturer.
Meanwhile, both Allwinner and Rockchip have seen several major planned product introductions go pretty badly. Allwinner's dual-core A20 processor introduced in 2013, presumably manufactured at 55nm in order to be pin-compatible with the older A10, encountered hardware and software issues that prevented it from being a success in the tablet market. The use of a trailing-edge 55nm process for Cortex-A7 cores was unusual, and may have contributed to the problems. Their A23 also wasn't very successful. Rockchip for much of the last year has been relying on its higher end quad-core RK3188 and older devices, as its lower-end dual-core RK3168 was severely delayed (it has started appearing in devices in the last few months).
Risky, unfocused investment in high-end products
Both companies have also been ambitious in their design for new higher-performance chips for this year. Allwinner has been planning to introduce the A80, a ARM big.LITTLE configuration with four Cortex-A15 and four Cortex-A7 cores and PowerVR Rogue GPU, while Rockchip has been trying to ready their RK3288, which according to most reports is using a quad-core Cortex-A17 CPU and Mali-T764 GPU, although I would be inclined to have some doubts about that because of a previous indications (1) (2) from Rockchip that the cores could be Cortex-A12, which would fit well with an announcement from Rockchip's foundry partner GlobalFoundries a few months ago that it was the first foundry to have started manufacturing chips using the Cortex-A12. Both chips have CPU cores and GPU cores that are much larger and power hungry than cores previously used by both companies, and power consumption has already been reported to be a major issue. This is problematic, because this may make the products unsuitable for the high-volume tablet market that is the bread and butter of both companies, while causing problems even for lower-volume, less power-sensitive applications such as media boxes.
Both chips were supposed to be already broadly established in the market by now, but instead have been continuously delayed, with more careful examination suggesting that these chips may have had some hardware issues requiring redesigns, apart from problematic power consumption. On the internet, information on the availability status of these chips is chaotic since the definite availability or arrival of these chips is frequently trumpeted based on the fact that a pre-order of a vaguely described device with conflicting specs using the new chip can be made using some unreliable Chinese webshop. Rockchip appears to have significant numbers of half-functional RK3288 chips in the hands of customers, who have made limited production runs of devices, sometimes with attempted work-arounds for hardware bugs, many of which also appear for sale. However, a true chip respin and subsequent ramp of volume production can take several additional months, and the financial risk is even higher when material volume production has already occurred of a chip with defects apparently missed during earlier verification, because those chips can be effectively useless.
Conclusion
In summary, these Chinese tablet processor companies have seen the market for tablet processor SoCs targeting WiFi-only tablets commoditize, with greatly reduced profit margins. They currently lack the technology to effectively compete with competitors that already offer higher amounts of integration. They have also seen challenges with key product introductions, are currently having problems introducing ambitious, higher-performance chips that were announced some time ago but have been proven hard to bring to market in fully working order. When they eventually come to market, high power consumption/heat or other issues related to their complexity are likely to constrain their success in terms of sales volume. Allwinner appears to be doing the sensible thing with the new A33, a quad-core processor designed for low production cost. If the ramp goes smoothly, it will be popular and help Allwinner recover its market position to some extent, although the high profit margins of earlier days are long gone.
Sources: Digitimes, Wikipedia (Rockchip article), Wikipedia (Allwinner Technology article), Wikipedia (Actions Semiconductor article), Wikipedia (Spreadtrum article), CNXSoft, CNXSoft (Rockchip roadmap)
Updated September 28, 2014 (Add information about upcoming, more efficient Rockchip SoCs).
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