A fast-growing handset industry in China would offer a boon for Asian chipmakers such as Taiwan-based MediaTek Inc (聯發科) over the next few years due to their strong abilities to integrate multimedia functions and to provide total solutions, investment research firm Merrill Lynch said in its latest report.
China, which accounts for 16 percent of global handset chip demand, is expected to sustain growth momentum for the next few years, driven by the increasing number of mobile subscribers, Merrill Lynch analyst Jonah Cheng (程正樺) said in the report issued last week.
The number of mobile users expanded 17.4 percent at an annual rate to 437.5 million in August but that only resulted in 30 percent of mobile phone penetration, Cheng wrote, citing the statistics from China's Ministry of Information Institution.
Merrill Lynch projected handset shipments in China would expand 15 percent to 100 million units this year from 85 million units last year.
US and European chipmakers such as Texas Instruments Inc, Analog Devices Inc and NXP Semiconductor have been losing market share to their Asian peers in recent years, according to Cheng.
"We believe Taiwanese or other Asian companies will be the major beneficiaries in the long-term as they can offer competitive products and good local support to Chinese handset makers," he said.
Merrill Lynch said MediaTek, the world's biggest maker of chips for DVD players, is expected to safeguard its leading position in China, where it has a 40 percent market share, through next year.
"Strong capabilities in multimedia functions, total solutions and technical support are its strengths," Cheng said in the report.
MediaTek is expected to sell 50-55 million units of baseband chips for cell phones this year, up 47 percent at least from 34 million last year, mostly due to the demand in China, he predicted.
Shares of MediaTek rose 3.3 percent to close at NT$333.50 on the Taiwan Stock Exchange on Thursday. The company's sales climbed 26.8 percent last month from a year earlier to NT$5.8 billion, according to a company release.
In a recent report issued by the Fabless Semiconductor Association, MediaTek emerged as the top Taiwanese fabless firm and the world's ninth-largest in the first half of the year, with revenues of US$701 million. Qualcomm Inc topped the list with US$2.2 billion in revenues.
Despite the upbeat outlook about Asian chipmakers in the long-term, Cheng said he was conservative about short-term prospects on growing concern about pileup of excessive inventory in the current quarter.
Cheng gave a "sell" rating on MediaTek due to the inventory fear and growing competition with Texas Instruments and Taiwanese peers.
Cheng said he also held a cautious view about handset industry entrants VIA Technologies Inc (威盛) and Sunplus Technology Co (凌陽科技), both based in Taiwan, as their products were not mature yet.
In China, Spreadtrum Communications Inc (展訊通信), the first China-based chipmaker with the ability to sell main chips within an electronic system, appeared to have an edge in the home market due to domestic support, low cost and leadership of the TD-SCDMA market, or China's 3G market. But Cheng said major mobile phone companies doubt Spreadtrum's ability to make high-quality products.