June 15, 2017 10:34 pm JST

MediaTek seeks to recoup China market share

Taiwanese chip provider suffering from fierce Qualcomm competition

CHENG TING-FANG, Nikkei staff writer

MediaTek wants to invest in artificial intelligence to boost its long term prospects.

HSINCHU, Taiwan -- MediaTek, the biggest mobile chip provider to China, says it will work hard to regain market share in the world's second-largest economy within 18 months.

"In the past year, we made some mistakes in product roadmaps, which led to our losing market share this year," chairman and chief executive Tsai Ming-Kai told reporters after the annual general meeting on Thursday.

"Our most important plan currently is to recover our core smartphone business," Tsai said, adding that he wants to recoup market share in China in 12 to 18 months.

MediaTek has been lagging behind U.S. chipmaker Qualcomm in baseband modem chips, a component determining call quality and data transmission speed.

Consequently, some major Chinese smartphones brands, including Oppo, Vivio and Gionee, have shifted some orders from MediaTek in favor of Qualcomm this year.

MediaTek has also been suffering from a fierce price war with Qualcomm in China that hit margins and profits.

For the January to March period, the Taiwanese company's gross margin and operating profit margin plunged to record lows of 33.5% and 2.2% respectively, down from 38.1% and 7.9% a year ago. Revenues were flat at $56.08 billion New Taiwan dollars ($ 1.85 billion).

Tsai said his company will roll out modem chips with a better cost structure in the second half, and make it a top priority to stabilize the gross margin before the end of 2017.

He reaffirmed his commitment to continue a NT$200 billion, five-year program that began in 2016 to build new chips for emerging areas including artificial intelligence, automobiles and 5G mobile technology.

MediaTek expects its portfolio of emerging products, including voice assistant gadgets, connected devices and power management chips, to account for over 30% of the company's revenue, up from 20% now, over the next two years. It supplies chips for Echo Dot, an Amazon voice assistant gadget.

To prop up MediaTek's operations and reshape long-term strategy, Tsai Ming-kai brought in Rick Tsai, a former executive at Taiwan Semiconductor Manufacturing Co. in June to be the company's co-chief executive and board member.

TSMC is MediaTek's longtime manufacturing partner. It is also the world's largest contract chip manufacturer, producing chips for some 450 clients including Apple, Qualcomm, and Huawei Technologies' chip arm Hisilicon Technologies.

Closest partner

Rick Tsai told reporters that MediaTek will continue to build cutting-edge chips using TSMC's advanced chip production technology.

"For leading chip technologies, TSMC will definitely remain our closest partner. We can confirm that we are working with TSMC to use its most advanced 7-nanometer technology to develop product and create new businesses," said Rick Tsai.

Nanometer refers to the size of a transistor on a chip. The smaller a transistor is, the more of them can fit on a chip, making it more powerful, but also more challenging and expensive to build.

Apple's new core processor chip for the iPhone in 2018 will adopt TSMC's most advanced 7-nanometer technology, according to industry sources.

Rick Tsai said that MediaTek is seeking other manufacturing partners for mid-to-low end chips.

MediaTek already works with Taiwan's United Microelectronics and China's Huali Microelectronics on chips for mid-to-low end smartphones and connected devices. It has been widely reported that U.S.-based Global Foundries may become a new supplier for MediaTek.

Both executives denied speculation that MediaTek would cut as many as 3,000 jobs, or nearly 20% of the workforce, to slash expenses in order to boost its bottom line.

Rick Tsai said MediaTek had added some 400 staff in the first quarter and planned to add more positions in the year, as his company "has no plan to lay off and will not lay off any employees." The chip designer employed some 16,409 people as at the end of April.

Tsai Ming-kai said he would not rule out possible new acquisitions, or the restructuring or sale of its subsidiaries for long-term strategic purposes.

"MediaTek has lost market share to Qualcomm substantially in China this year especially in the mid-to-high end segment," said Roger Sheng, an analyst at Gartner.

"MediaTek has lost up to 60 million units or so in China especially because its existing customers Oppo and Gionee both moved a large portion of orders to Qualcomm this year while its other customers including LeEco and TCL lost market share." MediaTek's problems are being exacerbated by slowing demand in the Chinese smartphone market, Sheng added.

New orders for entry-level and midrange smartphone chips from Samsung Electronics may add 40 million units in shipments and help bolster MediaTek somewhat, Sheng said.

Qualcomm would control some 34% of the global mobile processor market this year, while MediaTek's share would fall to around 27% to 28% this year, from 31% last year globally, according to Sheng. Qualcomm's share was 33% for 2016.

MediaTek's shares closed up 0.4% at NT$251 on Thursday. They have advanced nearly 9% over the past 12 months while Taiwan's benchmark index rose more than 15% in the same period of time.

Asia300

MediaTek, Inc.

Taiwan

Market(Ticker): TAI(2454)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 15,032.1M
Shares: 1,581.46M
Asia300

Taiwan Semiconductor Manufacturing Co., Ltd.

Taiwan

Market(Ticker): TAI(2330)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 198,909M
Shares: 25,930.4M
Asia300

United Microelectronics Corp.

Taiwan

Market(Ticker): TAI(2303)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 6,168.27M
Shares: 12,624.3M
Asia300

TCL Corp.

China

Market(Ticker): SHE(000100)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 7,319.12M
Shares: 12,213.7M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 333,846M
Shares: 147.34M

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