Feeling the heat, MediaTek seeks a comeback
12/20/2010 10:37 AM EST
'Turnkey' reference designs fueled rise
MediaTek entered the wireless market in 2004 with inexpensive silicon for handset manufacturers in China and other emerging markets. The report found that the key to MediaTek’s success in China was providing full "turnkey" reference designs—including supporting chips from other chip vendors—that let Chinese handset makers concentrate on the industrial design of their products without making circuit and software modifications, thereby slashing their development time.
Many of those handset vendors, however, operate in China’s gray market, where MediaTek’s share is as high as 90 percent share, TechInsights found. Because of a Chinese government crackdown begun last summer, gray-market growth is projected to have declined to 18.6 percent in 2010 from 43.6 percent in 2009. The crackdown will likely hurt MediaTek, which supplied an estimated 80 percent of the baseband chips for gray-market handsets in China, according to iSuppli.
MediaTek’s growth took off after it entered China’s wireless market. Will Strauss, principal analyst at Forward Concepts, says that by the time he began tracking MediaTek, it already had 10 percent of the global cellular baseband market. Since 2009, it has trailed only Qualcomm in the baseband market, according to Strategy Analytics.
"The market in China was really large. MediaTek went after that with a big focus," says TechInsights’ Holstead.
But MediaTek reportedly has lost significant share in China this year. A prime suspect in that slide is Shanghai-based Spreadtrum, which Strauss says offers 2G and 2.5G baseband chips that match MediaTek’s in performance but cost a good deal less. Competition from Spreadtrum and MStar Semiconductor forced MediaTek to cut prices on some chips in recent months.
Squeezed by the competitive pressure and the gray-market crackdown, MediaTek’s third-quarter sales were down 18 percent compared with the third quarter of 2009, and November sales were down 27 percent year on year.
Strauss looks at MediaTek’s slowing growth and loss of market share in China and sees the chickens coming home to roost. Earlier, MediaTek’s own low-cost chips had forced several chip companies to quit the cellular baseband market; now the company itself is being undercut by lower-cost rivals.
While MediaTek’s focus on wireless products and chip sales volumes may warrant its comparison to Qualcomm, the Taiwanese company differs from the San Diego-based fabless giant in some respects, Strauss notes. MediaTek’s R&D budget is a fraction of Qualcomm’s. While Qualcomm derives most of its revenue from licensing agreements, MediaTek has no such cash cow to milk.
The TechInsights study found that MediaTek owns roughly 3,000 patents and patent applications worldwide, with the majority in the U.S., China and Taiwan. Many of those patents and applications were transferred to MediaTek from other companies, including about 225 that were originally owned by IBM.
MediaTek does not "publicly demonstrate any particular core technology in the cellular baseband market," Holstead says; rather, "their R&D investment has been primarily focused on integration and reducing cost."