Chipset designer and manufacturer, MediaTek, is facing a difficult business environment. MediaTek started out as a company designing blueprints for feature ‘phones, which other companies would license and apply their own logo to. However, MediaTek soon started developing more advanced chipsets for use in tablets and then smartphones, offering these for sale to China’s rapidly evolving consumer electronics sector. The early MediaTek chipsets were very competitively priced compared with Qualcomm’s, Samsung’s, Intel’s and NVIDIA’s offerings. However, as these chipset designs matured so MediaTek has evolved and refined their designs, which has also pushed up the price of their designs. Because of this, MediaTek have become something of a victim of their own success and are facing a challenging headwind in the chipset markets: they are being undercut by less sophisticated chipset manufacturers and their products are similarly refined compared with the established premium chipset manufacturers, but the brand is still seen as being a less hi-tech product.
The business has just released their Q4 2015 results, disclosing that their growth margin dropped to 38.5% over the period and net profits fell by almost 50% to NT$4.18 billion. This decline of profits was against an increase of over 8% in consolidated revenue to NT$61.71: MediaTek sold more components but at a reduced margin, although the main reason why consolidated revenue increased was because of the acquisition of Richtek Technology, the analogue chipset specialist. Over half of this revenue was generated by MediaTek’s smartphone and tablet System-on-Chip business, with around one third generated from the home entertainment products and the remaining revenue from the Internet of Things chipset business.
Looking forwards, the company’s president, CJ Hsieh, does not believe that the gross margin is unlikely to rebound to the 40% the business has seen in the past because of the intense chipset competition. MediaTek were working to keep internal costs under control and he believes business costs will rise between 3% to 5% during 2016, but the business are seeking to grow their overall revenue by 10% during the calendar year. The company expect to ship between 100 to 150 million smartphone System-on-Chips during the first quarter of 2016, but no longer wish to disclose full year shipping projections. We have already seen the “Helio” brand being applied to existing and new chipsets such as the Helio X20 and newly revealed Helio P20, which is partially about raising the profile of the business in consumer minds. MediaTek are set to introduce newer generation, 16nm process size chipsets in the second half of the year with more advanced, smaller 10nm process chips set to enter volume production by this time next year.