MediaTek earnings set all-time high

MediaTek Inc (聯發科技), the world's biggest maker of chips for DVD players, yesterday said fourth-quarter earnings set an all-time high on the back of strong demand for its new handset chips in the emerging Chinese market.

During the fourth quarter, MediaTek's earnings jumped 26.1 percent to NT$6.69 billion (US$203 million), or NT$6.96 per share, from NT$5.36 billion, or NT$5.52 a share, a year earlier, according to a company statement.

But MediaTek said stiff competition is driving chip prices down further and eroding profits this quarter.

As a result, gross margin would fall 2 to 3 percentage points from last quarter's 57.7 percent, it said.

"We feel prices are declining quite fast because of new competitors ? We will begin pricing more aggressively to safeguard market share," MediaTek chairman Tsai Ming-chieh (蔡明介) told investors at a meeting.

Regarding overall performance, Tsai said: "We still have a solid outlook for the first quarter and shipments of chips for mobile phones and TVs will increase."

The robust demand for handset chips last quarter is expected to extend into this quarter because high demand is anticipated during China's Labor Day holiday in May, while demand for chips for DVD players will remain slack, Tsai said.

Revenues for the current quarter are expected to drop by 5 to 7 percent from NT$15.11 billion last quarter, Tsai said.

Tsai's predicted decline is less than the 13 percent drop projected by BNP Paribas Securities and the 25 percent drop MediaTek posted for the first quarter of 2005.

Tsai said MediaTek would begin to ship advanced chips to be used in handsets that have rich multimedia features and TVs for new customers this quarter.

Handset chips are the biggest earnings contributor for MediaTek, accounting for about half of the chip designer's revenues.

Chips for DVD players account for 45 percent of revenues.

MediaTek primarily sells chips for mobile phones to Chinese and Taiwanese cellphone makers.

It is also starting to supply chips to mobile carriers such as the China Mobile Communications Corp (中國移動).

Next year, MediaTek plans to start shipping chips for high-speed third-generation mobile phones.

BNP Paribas and Merrill Lynch both placed a "buy" recommendation on MediaTek stock. BNP Paribas gave a target price of NT$425 and Merrill Lynch NT$420 based on the chip designer's strong capability in developing new products.

For the full year last year, MediaTek's earnings rose 23.6 percent to NT$22.58 billion, or NT$23.5 a share, on revenues of NT$53.02 billion.

Separately, MediaTek said it would better utilize its cash by spending on acquisitions and technology research, rather than by reducing capital, chief financial officer Yu Ming-to (喻銘鐸) said.

Shares of MediaTek fell 2.16 percent to NT$362 yesterday, underperforming the 0.89 percent decline of the benchmark TAIEX index.