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MediaTek disappoints with fourth quarter results

MediaTek Inc (聯發科), the nation's top handset chip designer, said yesterday its fourth quarter net income dropped 46.7 percent quarter-on-quarter to NT$6.31 billion. The figure was down by 5.6 percent from a year earlier.

Revenue was NT$20.38 billion, which dropped by 23.6 percent from the previous quarter but rose 35 percent from the same period of last year, the company said at a teleconference yesterday.

The firm's outlook for the first quarter, however, would remain conservative owing to the US subprime mortgage crisis and the winter storms in China that were preventing people from traveling home to visit their families, thus depressing sales of mobile phones bought as gifts, company president Hsieh Ching-chiang (謝清江) said.

He forecasted that revenue during the first quarter would see a slight decline as opposed to the 23.6 percent quarter-on-quarter decline in the fourth quarter.

MediaTek forecast a 10 percent to 20 percent drop in its handset integrated chip shipments in the first quarter as the industry is still digesting inventory. Overall, the company's gross margin may shrink 1 percent to 2 percent from 54.7 percent in the fourth quarter as the result of price competition, Hsieh said.

Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities' Taipei branch, said the company's fourth quarter results were worse than he had expected.

Despite the fact that MediaTek attributed the high operating expenses last quarter to royalties, Chen said he suspected that rising personnel expenses were the main reason behind the 71 percent quarter-on-quarter increase in MediaTek's research and development budget.

Chen said MediaTek's projection of a 10 percent to 20 percent decline in handset chip shipments and a decrease of 15 percent to 20 percent quarter-on-quarter in revenue is close to the market estimation.

Chen provided a buy recommendation on MediaTek shares, which have dropped 19.96 percent since the beginning of the year and closed at NT$337 yesterday on the Taiwan Stock Exchange.

In the long term, Chen maintained a positive view on MediaTek because he believed the inventory adjustment in China would be completed soon and the company's plan to launch a new range of handset/TV products was on schedule.

MediaTek's gross profit fell by 26.8 percent quarter-on-quarter to NT$11.15 billion in the fourth quarter, as a result of the high operating expenses related to the acquisition of Analog Devices Inc (ADI).
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