Mediatek gains from new design

Mediatek Inc (聯發科技), Taiwan's largest designer of computer chips, announced better than expected second-quarter results yesterday, but the company's bottom line may not be so healthy in the second half of the year, analysts said.

In the period from April through the end of June this year, the company achieved a profit of NT$3.3 billion, up 27 percent from the same period a year earlier, the company reported yesterday. The figure is higher than the average estimate of NT$2.9 billion predicted by analysts surveyed by Bloomberg News.

Being first to sell a combination chip for DVD players that incorporates the functions of several chips into one increased Mediatek's profits in a traditionally slow season, the company said in a statement yesterday.

"There was no surprise in the results as we expected Mediatek to do well," said Benny Lo (盧志恆), an analyst at Primasia Securities Co. "But Sunplus Technology Co (凌揚科技) and ESS Technology Inc are offering single-chip DVD chips going forward and ALi Corp (揚智科技) already had a single-chip in the second quarter which will mean more competition and lower profit margins in the second half of the year."

In April, Mediatek said profit this year may rise 2.5 percent to NT$12.5 billion on sales of NT$32.4 billion.

The forecast implies profit growth may slow as more rivals, such as Via Technologies Inc (威盛電子), Sunplus and ESS enter the business, Bloomberg said yesterday.

New products such as GSM chips for cellphones and chips for recordable DVD players are expected to add to profits next year, the company said yesterday. However, Mediatek may not be able to gain the same lead over its rivals in the recorder market as it did in the player business, one analyst told Bloomberg.

"DVD recordable will be a long shot for Mediatek," said Albert King, chief investor at hedge fund Prophet Capital Inc. "A surprise attack for the company will be more difficult."

But another analyst was bullish about Mediatek's prospects.

"My view is still quite confident into the second half as Mediatek's profit margins remained firm in the second quarter despite increased competition," said Rick Hsu (徐禕成), a chip industry analyst with Nomura Securities in Taipei.

The strong sales results come as Mediatek fights legal claims that its products infringe the intellectual property of rivals. Last quarter, the company paid a license fee of US$45 million to ESS and may pay a further US$90 million to settle an outstanding patent dispute. In June, Via filed a suit in the US against Mediatek, alleging the chip designer infringed its patents for chips that control CD and DVD players.

Lo dismissed the law suits yesterday as a business tactic.

"The optical drive integrated circuit market used to be dominated by US players," he said.

"Taiwanese companies came in late and used lower prices to gain market share. Many companies launch suits to try their luck and see if they can get some money from local chip companies. I suspect Mediatek will settle out of court with Via as well; the two companies are good friends after all," Lo said.