Q1 results re-affirm lead in China's smartphone market, but departure of Hisang-cheng Lu under cloud of suspicion raises questions.
MediaTek’s first quarter financial results, disclosed Monday (May 6), re-affirmed what the mobile chip industry has known for months: MediaTek continues to ride the growth of China’s smartphone market. But a fiercely price-competitive mobile chip race in China--fought among Spreadtrum, Qualcomm and MediaTek, with MediaTek blamed for starting it--will likely come back to bite the gross margins of all combatants.
What remains unknown is whether there’s anything behind the recent resignation of MediaTek’s head of Chinese operations, Hisang-cheng Lu, beyond alleged insider trading charges related to a tie-up between MediaTek and MStar a year ago, now under investigation by Taiwanese authorities. Lu, who supposedly deserves credit for the Taiwanese company’s runaway success in China, resigned last Friday “for personal reasons,” according to MediaTek.
Lu announced his resignation after Taipei prosecutors said they had begun
investigating him in connection with alleged insider trading. The Taiwanese authorities are reportedly
investigating three MStar employees and one other person about
suspicious trading linked to the tie-up between the two companies.
MediaTek is downplaying the potential impact of the charges on the
timing of the merger, noting that investigators are looking at employees
rather than the conduct of the companies themselves. The merger was originally supposed to have closed May 1, but has been delayed. The new target date is Aug. 1.
In the company’s first quarter revenue, MediaTek showed a solid 22.2 percent increase over the same period last year. The company said that growth was primarily driven by smartphone demand.
MediaTek also showed strong growth in profit, with its first quarter net income up 51 per cent over last year, to NT$3.7 billion ($126.4 million).
If there were any concerns over MediaTek’s otherwise stellar first quarter results, it would be over its gross margin. This number grew only 0.6 percentage point from the previous quarter, to 42.1 percent. Despite the company’s anticipated sequential revenue growth in the second quarter by more than 20 percent, MediaTek said that the company’s gross margin will make only modest gains during the same period.