Handset chips bolster MediaTek

MediaTek Inc (聯發科技), the world's largest maker of chips for DVD players, had better-than-expected profit for the second quarter on demand for chips used in mobile phones and lower costs after the company added another supplier.

Profit rose to NT$4.166 billion (US$131 million), or NT$5.46 a share, from NT$3.23 billion, or NT$4.23, a year earlier, Hsinchu-based MediaTek said in a statement yesterday.

It said sales rose 3.2 percent to NT$9.97 billion.

MediaTek, which supplies chips for about half of the world's DVD players, is relying more on semiconductors used in handsets that can function as cameras and music players.

The company said these chips will make up 21 percent of third-quarter sales, up from 19 percent in the previous three months.

"It's on the right track," said Winnie Tiao (刁明華), chief investment officer at HSBC Asset Management Taiwan. "Handset chips proved to be MediaTek's growth driver."

Mediatek started making cellphone chips in the third quarter last year, when there was a big glut of chips used in DVD players and recorders.

The handset chips contributed to 2 percent of MediaTek's revenue at that time.

The company forecast third-quarter revenue would rise 15 percent from the previous three months, while the profit margin would remain at the same level.

MediaTek's profit margin, or percentage of sales after deducting costs, widened to 54.4 percent in the second quarter from 47.9 percent a year earlier, the company reported.

While the company's lofty profit margins came under attack last year from competitors such as Sunplus Technology Inc (凌陽科技) and Zoran Corp of the US, Mediatek has started to retake ground this year, analysts said

MediaTek designs most of its chips based on technology that uses spaces of 0.18 micron or less to try to include more functions on each semiconductor.

The company cut production costs by ordering from a South Korean chipmaker in the first quarter.

The move ended United Microelectronics Corp's (UMC, 聯電) role as MediaTek's sole supplier of semiconductors with spaces of 0.18 micron or less between transistors, Albert Hsu, an analyst at UBS AG, wrote in a July 27 report.

The added competition prompted UMC, the world's second-largest supplier of made-to-order chips, to cut prices.

Shares of MediaTek soared by the 7 percent daily limit to close at NT$349 on the Taiwan Stock Exchange yesterday before the earnings were released.