According to the latest forecast from market research firm IDC, 2014 will be a year of significant change for the mobile phone market. Smart phone growth is expected to decelerate sharply, falling off from 43 percent last year to 19 percent this year.

All sorts of surprising new "high tech devices" are cropping up everywhere, presenting the market with ever more variables. In the wake of the 2014 Mobile World Congress recently concluded in Barcelona, Spain, what is the outlook for the future of mobile phones, and what challenges do Taiwanese corporations in the industry like HTC and MediaTek face ahead?

HTC Slashes Prices to Take on Xiaomi

During its early February institutional investors' conference call leading up to the Mobile World Congress, HTC unveiled a score card and financial forecast that once again fell short of outsiders' expectations: earnings per share was just NT$0.4 in 2013, and the company could very likely end up chalking up more losses in earnings during the first quarter of 2014.

Major securities firms have accordingly lowered the target price for HTC significantly, with Crédit Lyonnais and Morgan Stanley pegging an all-time low of NT$90. This essentially amounts to telling investors that HTC's current share price of NT$130 has more than a 30 percent margin to fall.

Under heavy pressure, HTC chairwoman Cher Wang declared in Barcelona that she is determined to back the fight with everything she has.

In an unprecedented move, she and CEO Peter Chou appeared together at a new product presentation pitching the mid-range HTC Desire 816, an updated version of the well regarded but commercially disappointing New HTC One from last year with a 5.5-inch screen and colored plastic case at a drastically reduced price.

Zeroing In on the Mid-range Market

Following the presentation, Wang explained in an interview, "Last year we failed to do well in the mid-range unit sector, so this year we're putting our best designs on this production line."

The Desire 816, which has generated buzz across the internet as the new "mid-range king," hits China's market this month. HTC is going after China's current middleweight champion, the Xiaomi Mi3, with this model.

Although the company remains tight lipped over the retail price for the HTC Desire 816, it is generally believed in the industry that it will be listed no higher than the price of the Mi3 – 1,999 renminbi. Word has even gotten around on Chinese websites of a super low retail price of 1,799 renminbi, leading on-line commentators to exclaim, "HTC finally gets it!"

The telecommunications industry has widely greeted HTC's bold move enthusiastically. For instance, Chunghwa Telecom's new CEO, Dr. Rick L. Tsai, publicly embraced it, offering, "There is a lot of room for growth in China" in the low- to mid-level sector and affirming that HTC is moving in the right direction by targeting it this year.

During an interview with Chinese media, HTC chief financial officer Chia-Lin Chang revealed that the company would be partnering with China's top three telecom firms, and the assembly line was set to go into full gear to produce a 1000-Rmb low-end customized mobile phone.

One top executive at one of HTC's components suppliers likes this move. He relates that in the past he had urged HTC executives on numerous occasions to "go out and whip Xiaomi," only to receive the response time and again, "They're selling them for 2000 (Rmb) per unit. How are we supposed to survive at that price?"

However, even if the product is competitively priced, HTC is in for a tough battle due to low name recognition in China. "HTC is not a big brand in China, even compared with Xiaomi and Coolpad," he observes.

Apart from taking on the mid-range market, HTC must still try to compete with Apple and Samsung. Cher Wang and Peter Chou will simultaneously unveil HTC's new high-end offering at product launch presentations in London and New York, respectively, representing the company's foray into the high-end mobile phone battle ground, the world's most intensely competitive mobile phone territory.

MediaTek Storms the 'Qualcomm Line'

Across the global smart phone industry, the brightest horizon has been saved for Taiwan's chipset maker MediaTek. Despite the rapid deceleration of growth in the global smart phone market, MediaTek is breaking out of the low-end market and going after the high-end market with gusto.

In addition to consistent growth in turnover, profits and units shipped, compared to chip design maverick Qualcomm, with five times the turnover, MediaTek is better able to define and create its market.

"Qualcomm is already like a cornered animal, having lagged behind MediaTek by three months in introducing a quad core (handset chip), and six months with its own eight-core technology," one European trade and investment analyst incisively observes. MediaTek appears poised to finally break through the Qualcomm Line and stride forth into the realm of major high-end smart phone brands, preparing to overtake Qualcomm within two years.

How is MediaTek able to go against the tide of the slowdown of China's smart phone market and plummeting prices to find its own way?

The Chinese market is transitioning from 3G to 4G starting this year, while other emerging markets are also shifting from functional phones to smart phones. Both created business opportunities and gave MediaTek a big boost of momentum.

"We can still see healthy growth in the new super middle-class market between 79 and 399 US dollars. Especially in emerging markets, many people are purchasing smart phones for the first time, or upgrading from entry-level units to higher level ones, all of which is to MediaTek's ongoing benefit," relates MediaTek CFO David Ku.

At the same time, MediaTek is adjusting its strategy to go after the global market, unveiling a fresh new image campaign at the MWC. The keystone of the makeover is a bright orange logo with a fresh, young feel that replaces the original plain and sober blue design.

MediaTek and Qualcomm are now battling at close quarters, engaging in cutthroat price wars.

In the 4G-LTE handset chip battleground, "In order to defend the China market, Qualcomm made a calculated move against MediaTek and cut prices by 30 percent. If Qualcomm's gambit succeeds, it will hold back MediaTek's inroads into the 4G sector," offers analyst Alvin Kwok in JP Morgan Chase's latest report.

On the other hand, the anonymous Eurozone trade and investment analyst asserts, "The top dog goes on the offensive against those below, and attackers move up. Since taking the battle to a lower level also harms your own profitability, MediaTek's business model will ultimately prevail over the long term."

PRC Government Is the Chief Nemesis

However, even greater cause for concern has surfaced.

Recent speculation within the market claims that the PRC government could aggressively toss 100 billion renminbi per annum to foster the semiconductor and IC design industries. Last December, the Chinese state-owned IT corporation Unisplendour (UNIS) moved quickly to acquire two major up-and-coming Chinese IC design houses, SpreadTrum Communications Inc. (SPRD) and RDA.

In the annual shuffling of employment following the Chinese New Year, a number of MediaTek engineers have already been recruited over to SpreadTrum or other Chinese IC design firms.

In the final analysis, it is the PRC government, and its predilection for going against established market protocol, which poses the greatest threat to MediaTek in the future.

Translated from the Chinese by David Toman