The global phone story

Smartphones are a very rich-country story (and so far great news for Apple and HTC)

The story you don't know is that Chinese chipmakers and Chinese phone designers have challenged Nokia/LG/Samsung and they are winning

– Big three share is lower overall in Q1 2011 vs. Q1 2010– Chinese are went from 0% to 40% since 2006– They are using different software and different methods than everyone else– Entirely new brands have been created in all the major developing markets

This newly fluid world...– New chipsets (MTK, SPRD, MSTAR)– New operating system environments (C/C++ on RTOS)– New phone designers (Huawei, ZTE, TCL, BYD...)– New local phone brands (Tecno, MicroMax, Mango...)

...creates tremendous opportunities for the software and cloud layer

Global phone market overview

“Whitebox phone” = Mediatek chipset with turnkey software package that makes phone design dead-simple. Think Windows-Intel : Dell :: Mediatek : MicroMax

Transformed the China market starting 2006, global developing markets starting 2008; today 40% of all mobile phones are based on MTK or MTK-clones (Spreadtrum, Mstar)

That 40% = 500mm phones in 2011. MTK is 400mm, rest is mostly Spreadtrum.

Each region (India, SE Asia, Lat Am, Africa, China) has a “king” with runaway share and many pretenders. In India it is MicroMax (30mm 2011 units); Africa is Tecno (50mm 2011 units); America Moviles (20mm 2011) in Lat Am

There is a major cloud services player for China that went public in 12/2010. NASDAQ: MOBI that makes an app store and homescreen widget platform for Chinese MTK

Push mail is a huge priority in India, Messenger in Africa and Lat Am, SE Asia is app store

MTK has set up MOBI clones for other regions – these are partners courting Peek – General Mobi (Taiwan), Mo Magic (India)

Spreadtrum (150mm chips 2011) has none of the above, but they are planning an assault on the featurephone market from below and could use Peek's help to match features.

What platforms US app developers are focused on...

3939

3636

77

44

55

99

iOS

Android

Blackberry

Mac OS

WM7

9.69.6

55

33

6.56.5

33

33.633.6

9.49.4

29.829.8

Symbian

Mediatek

BREW and Samsung, Nokia, LG RTOS

Spreadtrum

...by global market share...%, 2011 Q1

%, 2011 Q1

Source: Comapps US dev survey, 2011; IDC mobile survey 2011

...leaves a vast, open app market

Mobile phone shipments worldwide Millions

Total

Smartphones

Feature/basic

Q1 2010 Q1 2011 Y-o-Y

55 101 +84%

256 271 + 6%

Q1 2012 straightline

185

287

311 372 +20% 472

Source: 2010-11 IDC; 2012 est; Canalys 2011

“Other” = MTKOr about 500mm chips per year

MTK's spread in an image

2004

2007

2008

20092007

2009

2010

2011

2011

India handset market overview

Size: 150mm in 2009, 350mm handsets sold in 2013. Growing fast

Mix: 1/3 sub-$50, 1/2 $50-100, 1/10 $100-200

Replacement users are the driver of growth. Indians replacing faster

Featurephones are 1/2 the market in 2011, Feature/smartphones become 2/3 by 2013

Rankings: Nokia (32%), G-Five (11% – all sub-$100), Samsung 8%, MicroMax (7% – strong in $100-150), LG 4%, Spice 2%, Maxx 2%

G-Five is a Chinese brand. MicroMax is the top Indian brand and positioned as premium

2011 is the year of 3G adoption in India

MicroMax revenues 2010 = $500 MM, EBITDA 30%, IPO filed with Bombay market; top investors = Sequoia India, TA Associates

MTK is dominant chipset by far. Spreadtrum is widely in lowest-end bar phones

So far featurephone = qwerty and big screen. MicroMax Q80 with Peek will be first push mail, video calling, 3G → first truly powerful MTK-based 3G phone

Peek alternatives in the low-speed chip market

Synchronica listed in London. $30mm revenue. Makes push mail for MTK and other platforms – has a key Russia customer (Fly Mobile). Been seen in India. The “default” IM app of AMX in Lat AmHensin internal MTK acquired solution for push mail. Used by Spice Mobile in India. Generally considered less good for some reason. Saw something very impressive in Delhi Emoze push mail app – not shown up anywhere yetShangmail very crappy China appNimbuzz IM java app on many phonesEbuddy IM aggregator, java, on many phonesMyryd – swiss ImappMioa? - IM appNeustar US IM provider

Snaptu Social/blog/content viewer in java, on MicroMax. Acquired by FbookOpera micro web browser written in java, on 100mm phones, “Mobile” is std on MTK highObigo browser for low end featurephones, Korean, default MTK licenseeAccess Netfront mobile browser

Sky Mobi Very successful “cloud for cheap phones” in China (MOBI ticker)General Mobi and Mo Magic – MTK-backed startups (partners too)Google Android – perceived to be “where featurephones are going” but only 5-10% this year 2011. So catching the timing of shift will be key

MTK in India is building- Facebook- Yahoo- Gtalk- AIM- Yahoo IM

COMPETITOR IM apps myryd - zurich - universal imebuddy - dutch company. aggressivenimbuzzsnaptu - acquired by facebookmioa?neustar from usiskoot - acquired by qualcomm

fetion - IMPS solutionalibaba trademanager - There's a alibaba phone or taobao MTK phonein market, alibaba is planning for an IM, maybe named qunqunsina UCClickoo – mail/IM - TCLbedo LBS app, like foursquareQQ

How Mediatek got big, the rise of “whitebox” phones

MTK is the core inside ZTE/Other: 50mm unit y-o-y qtrly growth

Mediatek growth metrics – more units, lower price

Wow.

Advanced phone growth faster than smartphones

Nowhere else in the world

Source: InMobile 2011 Jan

Advanced > Smart

InMobi put more ads on Advanced phones by 6x than smartphones. Counting WAP, it is 15x

Top manufacturers (by Ad Impressions)

Indonesia India China

USA Vietnam Latin America

Nigeria

Top MTK brands by market

2004

2007

2008

20092007

2009

2010

2011

Source: MTK, 2011

TCL / AlcatelOperator-led

TCL / AlcatelOpen

Tecno Open

MicroMaxOpen

FlyOpen

NexianOpen

WHITEBOX PHONE MARKET STRUCTURE MODELMillions of units

MEDIATEK BRANDS

Brand Region gmobi global est

MicroMax India 12 15 per mmx 2011/01Spice India/SE Asia 6 12 per general mobi 2011/06Karbonn India 6 10 per ktouch 2011/06Maxx India 6 10 estOther India India 73 73 estIndia total India 103 120 120 per gmobi 2011/06

Nexian SE Asia 8 10 per general mobi 2011/06MiPhone SE Asia 3 8 per general mobi 2011/06Cherry SE Asia 3 8 per tinno 2011/06K-touch/Tianyu SE Asia 2 4 per ktouch 2011/06Other SEA SE Asia 40 50 estSEA total SE Asia 56 80 80

Alcatel/TCL LatAm 5 8 per tcl 2011/06Lamix LatAm 3 5 estZonda LatAm 5 7 estBrighstar/Avvio LatAm 0 0 estPCD LatAm 6 6 estOther LatAm LatAm 20 15 estLatAm total SE Asia 39 41 40 per gmobi 2011/06

Tecno 7 15 per gmobi 2011/06Other Africa 33 65 estAfrica total 40 80 80 per gmobi 2011/06

Fly 3 5 per gmobi 2011/06Other Russia 17 25 estRussia total 20 30 30 per gmobi 2011/06

China market approx 150 175 175 per gmobi 2011/06

TOTAL GLOBAL 408 526 525 per gmobi 2011/06

2010//est

2011//est

2011//per Gmobi

MEDIATEK ODMs and OEMs

China ODM/OEM

ZTE 22 30Alcatel/TCL 25 30K-touch 6 12Techfaith 1 1Tinno 12 12Cellon 6 6Huawei 20 30

Total ballpark known 92 121

G-Five India/Af player 30 30Ragentek Tecno partner 10 10Huaqin Tecno partner 10 10Bird Tecno partner 15 15Longcheer Tecno partner 15 15

Konka 10 12 guessBYD 10 15 tao/guessUmeox 5 5 guessInventec 5 5 guessAnydata 5 5 guessMitac 5 5 guess

Total guessed value 120 127

Total all ballpark + guess 212 248Total unkown universe 313 452 200+ playersGrand total China ODMs 525 700

2011MTK

2011 All chips (Mstar, SPRD, Q)

MASS MARKET CHIPSETS Ecosystem value ($ MM)

Chipset 2011 Chips Phone Software Software $/unit

MTK high 10 100 1,000 15 1.5MTK mid 75 450 3,750 37.5 0.5MTK low 440 1,760 8,800 88 0.2Mediatek total 525

Spreadtrum 6800 25 125 1,250 12.5 0.5Spreadtrum 6600 125 375 2,500 25 0.2Spreadtrum total 150

Morningstar 50 150 2,500 25 0.5Morningstar total 50

Qualcomm MSM 7277

Total whitebox chipsets 725 2,960 14,500 203 0.28

Leading featurephone players 550 5,500 22,000 1650 3

Smartphones 450 11,250 90,000 4500 10

Stealing Android: China Mobile

Handset industry structure today: China

Soucre: January 2011, Nomura

India, Indonesia, Thailand, Phillippines – low ARPU = handset makers rule

Mediatek's “whitebox” cycle is hitting a transition point to smartphones

...and presents an opportunity in the “featurephone chipsets are a commodity” phase – use software to make MTK's featurephones better than SPRD's

JPM: Smartphones probably don't just “take over”. Featurephones will get smarter

Notice Sky Mobi and the focus on instant messaging (QQ)

All that will soon change as MediaTek has developed software called Maui Runtime Environment that enables downloads and applications on a standard feature phone … so phones that are almost smartphones. MRE software will overcome the drawback of limited pre-installed apps and no content downloads, turning MediaTek phones into smart feature phones – Shanzhai.com

The MRE platform is quite similar to the Java platform. MediaTek said that MRE offers several benefits including the smaller amount of space needed to deploy the OS compared to Java. – Malaysianwireless.com

MTK's next gen platform and UI

MTK's chipset mix shows where Peek is focused

MicroMax Q80, e.g., top tier featurephone

Volume leader for all players - Where Tecno is putting us for Africa launch

End of life, but reincarnated by ODMs- ZTE's #1 phone- Ktouch #1 phone

MTK is readying for Android push but it will be a significant premium in cost to featurephones

MTK cost = $15/chip

MTK cost = $5/chip

Qualcomm = $10 (2G mode) - $20 (3G)

Spreadtrum = $3-4

Source: India budget 2011 summary from BNP Paribas

Indian tax exemption for importing phones = no home grown factories coming soon

Key apps for featurephones – now and future

MTK SDKPhoneContactsSMSBasic mailBrowser– Obigo (low end)– Opera Mobile (high)Input methodVideo codecJava

Ecosystem drivenChat – NimbuzzSocial– Snaptu– Facebook, TwitterContent– YahooPush mail– Peek– EmozeMiddleware– Sky Mobi– G MobiVideo Chat– SX Mobi

Latest smartphone app trendsSocial news reader– Flipboard, PulseCamera Plus – Instagram, PicplzMaps– Google MapsGames– Gameloft, etc

App store / Widget platform with simple development interface that is installed on 5,600 phone models by 450 handset/IC companies with 250 content and 110 service providers...

500mm phone users with Sky Mobi App Store; 50% of China app store market revenues. Also 60mm users of Sky Mobi social network (Maopao)

Revenue 2010 = USD 100mm. Downloads growing at 300% y-o-y

What does success look like? Sky Mobi

App store

Sky Mobi ecosystem

What's next in India? Look at China

Featurephone growth very high

What's next in India? Look at China

Mobile Internet growth rate is huge

* Indonesia * Thailand * Malaysia * Philippines * Mexico * Brazil * India

Top emerging countries on Foursquare, in order

Source: Foursquare, May 2011; CheckFacebook.com

1. United States 155,122,9202. Indonesia 36,533,6803. United Kingdom 29,745,7804. Turkey 28,464,1405. India 25,664,3206. Mexico 24,179,3607. Philippines 23,412,6408. France 21,990,6009. Italy 19,237,28010. Germany 18,462,320

Top countries on Facebook, in order