The System-on-Chip market is changing. Today's wearable devices, smartphones and tablets need to process more and more data, from more sources such as different sensors, using less power and producing less heat, than ever before. There are a large number of businesses producing chipsets for mobile devices and one of the most brightest stars is MediaTek. MediaTek started their business building reference featurephone designs that could easily and quickly be relabelled, but moved into tablet chips and subsequently into smartphone chipsets. For a time, MediaTek's chipsets were considered relatively unrefined compared with the competition: they were cheap, relatively inefficient designs found in entry and mid-range devices at best. MediaTek were the first chipset manufacturer to introduce an octacore application processor module - that is, eight processor cores designed to operate at the same time. Although for the majority of applications, having more than two processor cores is a waste, MediaTek's demonstration of technology did catch the attention of the chipset industry and their marketing departments all over the world. In recent years, MediaTek have refined their chipset designs to include more and more powerful GPUs and integrated, high performance LTE modems. However, as their end products have become more sophisticated, so their prices have risen and this has changed how the business operates and competes with the likes of the established, mainstream brands familiar to Western device buyers: Intel, Qualcomm and NVIDIA. As MediaTek changed its business to look closer to their high tech competition, so they have suffered from the same pricing pressure.
Against this backdrop, MediaTek have recently released business performance data for the first quarter 2016 and some of the numbers are eyebrow raising. Gross margins dropped to 38.1% from 47.1% this time last year. Consolidated revenues dropped by over 9% to just under NT$56 million (approximately US$1.75 billion). The reason for the drop in margins is down to intense competition amongst the chipset manufacturers in the mobile universe. However, as MediaTek competes with other chip vendors it was expecting the drop in gross margin and the reported 38.1% is in line with the expected range of 37% to 40% for the quarter. Furthermore, overall revenues were up: over 17% higher compared with the same period in 2015. MediaTek's guidance stated that the reason why revenues were higher is because of a combination of selling more of their higher end chipsets and the integration of Richtek's revenue - which kicked in from October 2015.
Looking forward, MediaTek are working to diversify their chipset make up. As well as leaks of new device chipsets such as the Helio X30, we've seen how the company are working on investing into the Internet of Things arena, which is expected to be a massive push for bsuiensses around the world. The business is evolving and changing with the times.