MediaTek Inc (聯發科), the world's biggest maker of chips used in DVD recorders, is likely to benefit from the fast-growing global positioning system (GPS) market, due to its strong design abilities, Merrill Lynch said in a recent report.
Hsinchu-based MediaTek is also the biggest maker of chips for handsets in China and it has diversified into new areas such as TVs, digital cameras and GPS.
"We believe MediaTek is best placed in the GPS field [among Taiwanese chip designers]," Merrill Lynch's Jonah Cheng (程正樺) said in the report issued last Friday.
Created by the US military, GPS uses more than 24 satellites in orbit around the Earth to provide always-on location information to any GPS receiver. A GPS receiver will take signals from the satellites, make calculations to identify user position, and send the signal to a graphics processor unit.
In the automotive GPS market, MediaTek has already secured a so-called "design-win" from Kansas-based Garmin International Inc, the world's No.2 vendor of portable navigation devices, for GPS receivers and may be able to ramp up in the future, Cheng said.
Design win refers to a collaboration agreement that allows participants to assign activities and tasks, work on their assessment of profitability and value, and discuss tactics and issues.
In comparison, local rivals Prolific Technology Inc (玖旺科技) and Himark Technology Inc (亞全科技) have yet to reach any breakthroughs or design-wins from the world's major GPS vendors.
Companies like MediaTek are banking on the potential growth of GPS receiver chips in view of their growing demand in cellphones, smart phones and personal navigation devices (PNDs).
Shipment of PNDs will grow at 43 percent composite average growth rate between 2006 and 2010 period, bringing the volume to 47 million units by 2010, compared to 11 million units last year, according to market researcher Gartner Dataquest.
Like its stronger rivals Texas Instruments Inc and Qualcomm Inc, MediaTek could be a major beneficiary of the growing navigating device market as it is able to integrate GPS function into their handset chips, reacting to handset makers' intention to add the navigating function to their phones, Cheng said.
Sales of chips used in PNDs were more than US$600 million last year, Cheng estimated.
MediaTek and other entrants such as San Jose, California-based Global Locate Inc could take some share from SiRF Technology Inc, he added. SiRF Technology is also headquartered in San Jose and dominates the GPS receiver chip market with around 80 percent market share.
But, GPS products might make up just 5 percent of MediaTek's total revenues over the next few years, Cheng said.
He raised slightly the target price for MediaTek to NT$430 from NT$420 earlier this month due to strong handset sales in China and better-than-expected shipments of TV chips. The new target price implied a 10.8 percent upside from the closing price of NT$388 last Friday.
Cheng also raised the earnings forecast for MediaTek this year and last year by 2.6 percent and 4 percent, to NT$28.1 billion and NT$30.1 billion respectively. He reiterated a "buy" call on the stock.
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