Shanghai based chip maker, Spreadtrum, produces baseband chips for low end mobile phones.  The market was traditionally dominated by Taiwan based Mediatek, which supplies the chips for over 90% of the low-end mobile phones in China.

But early last year, Mediatek made a mistake in its new product.  The new model of chip was not stable enough.  This gave Spreadtrum an opportunity to quickly gain market share, with a lower price and a more stable product.  By the end of last year, Spreadtrum’s market share increased to 25% and Mediatek dropped to about 70%.  (The remaining 5% is taken by privately held Taiwan company M-star.)

This was reflected in their share prices.  Mediatek dropped from about 575 Taiwan Dollar in beginning of 2010 to about 350 TWD recently.  During the same period, Spreadtrum increased from US$ 5 to US$ 20.

Mediatek started a price war last October, so as to stop its market share from sliding further.    The situation was temporary established.