TAIPEI — MediaTek’s rapid growth in 4G smartphones is likely to be undermined by handset makers in China who are designing their own chips, according to an analyst who covers the tech industry in Asia.
Emerging markets such as India, Brazil and Indonesia that are expected to lead smartphone growth in coming years are mainly buying phones based on 3G and even 2G technology. While MediaTek, the world’s third-largest chip designer, enjoys a market share of about 50% in 3G smartphones, Chinese rivals such as Spreadtrum Communications and Huawei are eroding that position on strong price competition, according to Mark Li, a senior analyst with Bernstein in Hong Kong.
“As the competitive intensity from Spreadtrum is unlikely to ease soon, we see further pressure in MediaTek’s 3G market share,” Li said in an August 12 report. “Spreadtrum has collected its toll on 3G and maybe on 4G later.”
In addition to Spreadtrum, which sells chips on the merchant market, Xiaomi, China’s largest smartphone maker, is hoping to design its own chips instead of buying them from MediaTek.
“The maturation of smartphones is favoring Chinese players, especially when the government happily funds their profitless expansion,” Li said. “Qualcomm is the first one to fall, and MediaTek unfortunately can’t escape the trend either.”
MediaTek, Spreadtrum and Chinese handset makers are aiming to capture momentum in emerging markets such as India that will lead global smartphone growth.
India, the biggest emerging market outside China, rose nearly 30% year on year in the first half of 2015, the Bernstein report said. For MediaTek, this shift has helped its customers, including Chinese and Indian brands, expand their share to over 50% of worldwide shipments in the second quarter of 2015, according to the report.
“Longer term, smartphone growth will inevitably wane, and it will be difficult for MediaTek to find a new market comparable in size to fuel the next wave of growth,” Li said. “The smartphone market is maturing faster than our forecast, and that limits the upside from emerging markets.”
(Source: IDC and Bernstein analysis)
Gaining in 4G
To be sure, MediaTek continues to gain market share from Qualcomm in the 4G and high-end segment, the Bernstein report said. MediaTek expects to ship 20 million of its high-end Helio chipsets this year, which represents a 4G market share of about 10%. This signals that MediaTek’s strategy for the new Helio brand is working, according to the report.
Nevertheless, “we find the gain in 4G/high end is not sufficient to offset the loss in 3G/low end,” Li said.
MediaTek may face increasing competition from Huawei’s chip design unit, HiSilicon, as well as Xiaomi, which has formed a joint venture with China’s Leadcore in chip design. Leadcore parent Datang is likely to acquire Marvell’s wireless chip division as it pushes into handset chips, the Bernstein report said.
One example of a recent success for Xiaomi is the company’s Redmi 2A smartphone, which supports only three modes — GSM, TD-SCDMA and TD-LTE — instead of the mainstream five modes in leading-edge smartphones. Even so, the company sold more than 5 million units of the handset in just four months, according to the Bernstein report.
“If Leadcore improves its technology and products, Xiaomi is likely to use more chips from Leadcore or its joint venture, and shift away from Qualcomm and MediaTek,” Li said.
Huawei is also increasing adoption of HiSilicon chips in its smartphones as it narrows the technology gap with Qualcomm and MediaTek and even leads the two larger companies in process technology, according to Li.
(Source: Company data, Bernstein estimates and analysis)
Such internalization efforts will be backed by China’s ambitious plan to cultivate the domestic semiconductor industry, the Bernstein report said. It will make the merchant IC market smaller and disadvantage MediaTek, according to the report.
—Alan Patterson covers the semiconductor industry for EE Times. He is based in Taiwan.