Tue, Nov 01, 2005 - Page 11 News List

MediaTek Inc gains in 3Q profit on handset chips

BLOOMBERG

MediaTek Inc (聯發科技), the world's largest maker of chips for DVD players, had a 42 percent gain in third-quarter profit on the success of an expansion into making microchips for mobile phones.

Net income soared to NT$6 billion (US$178 million) from NT$4.2 billion a year earlier, according to figures derived by Bloomberg by subtracting first-half profit from nine-month earnings announced yesterday in a company filing to the Taiwan Stock Exchange.

The company, which supplies chips for about half of the world's DVD players, started making cellphone chips in the third quarter last year as its main business suffered from a supply glut. Global mobile-phone shipments this year will rise 9.5 percent more than estimated on higher demand from emerging markets, industry researcher ISuppli Corp said Oct. 27.

"Profit outlook for MediaTek is very positive in the next few quarters," said Victor Shih, who helps manage the equivalent of US$2.4 billion at HSBC Asset Management Taiwan in Taipei.

"Demand for chips used in handsets is strong, though for consumer-related chips it may slow in the annual weak season in the first quarter," he added.

Shih's funds still hold MediaTek shares, he said.

Sales, reported earlier, rose 14 percent. MediaTek was expected to post profit of NT$5.4 billion, according to the median estimate of three analysts surveyed by Bloomberg.

Shares of MediaTek rose 6.8 percent to close at NT$279.50 on the Taiwan Stock Exchange yesterday. MediaTek started making cellphone chips in the third quarter last year, when there was a glut of chips used in DVD players and recorders. The handset chips contributed to 2 percent of MediaTek's revenue at the time. Mediatek said Aug. 3 handset chips will make up 21 percent of third-quarter sales, up from 19 percent in the previous three months.

Handset shipments will climb to 810 million this year from 713 million in 2004, El Segundo, California-based ISuppli said. The researcher earlier predicted shipments of 740 million for 2005.

Motorola Inc, which is the world's second-largest maker of mobile phones, on Oct. 8 said profit more than tripled to US$1.75 billion in the period, as demand for handsets with Internet access and video players pushed revenue higher.

MediaTek's gross margin may expand to more than 58 percent in the third quarter, up from 54.4 percent in the second, as a result of the Taiwan dollar's depreciation and limited price increases from MediaTek's wafer suppliers, Merrill Lynch analyst Jonah Cheng (程正樺) said in a Sept. 27 report.

Cheng said he maintained his "neutral" recommendation on MediaTek given the heightened concerns with regard to the fourth quarter.

"Our channel checks suggested that some of MediaTek's customers overbooked their chip demand in the third quarter under supply constraints of main chips," Cheng said. "If the sell-through situation in the fourth quarter doesn't meet market expectations, inventory correction would be unavoidable."

Cheng forecasts MediaTek will report net income of NT$4.45 billion in the fourth quarter.

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.

Shares of MediaTek have gained 41 percent since Jan. 1, compared with a 7.2 percent decline in the benchmark Taiwan Taiex stock index.

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