5G Phones Will Keep Getting Cheaper

In 2020, the difference in 5G and 4G manufacturing costs will fall to US$15-35 per phone. Xiaomi in January is offering a decent 5G phone for $285. The 4G version is only $55 less.

Huawei and Samsung, who make their own parts and have enormous volume, will have an advantage. Xiaomi, Oppo, and Vivo believe their prices must be especially aggressive or they will lose market share.

As the price goes down, more people will choose 5G over 4G phones. In the fall of 2019, a third of Korean sales have been 5G phones, as the carriers are using subsidies to bring down the price. LG Uplus has been particularly aggressive, seizing what it considers a “once-in-a-decade” opportunity to gain share with 5G.

Although the first 5G phones cost about US$1,000, by October prices were down to $536 (Oppo) and $570 (Vivo). In January, Xiaomi will sell 5G for $285.Prices will continue to fall after that, although the $50-150 phones are still a while off.

Low prices are being driven by intense competition, with nine companies shipping 5G phones. Several others will come in 2020, although Sony and perhaps other companies are severely cutting back.

Already in Korea, China, and Verizon, many are choosing 5G phones if the price difference is small. 4G will be functional for many years but definitely uncool.

Qorvo, a top producer of frontend radio frequency parts, estimates 5G RF will cost $5-7 more than 4G. http://bit.ly/2K9LBz1

I have no hard data on what chips cost, so these are best estimates. Huawei and Samsung make their own primary chips and modems. For them, the cost differential may be as little as $5-10. Almost everyone else buys from Qualcomm at a higher price. MediaTek ships 5G chips early in 2020 and that should bring down the price.

Other RF and power components, antennas, etc need to be somewhat better. Larger batteries are needed.

Moore’s Law and higher production volumes continue to bring down unit costs. The current 7-nanometer EUV chipmaking process can produce chips with 15 billion and more transistors. The initial costs of a design are extraordinary; a 5G chip requires a thousand or more engineers. The design costs are prohibitive unless they can be spread over as many as 100 million units..

Huawei, Samsung, Qualcomm, and MediaTek have sufficient volume to produce 7-nanometer and soon 5-nanometer chips. The unit costs of the chips are relatively low, bringing down the cost of 5G phones.

1/3rd and more of mobile phones will be 5G, although it’s not yet clear whether that level will be reached until 2022 or 2023.

Update Dec 13 with new lower prices.

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