Thu, Aug 02, 2012 - Page 13 News List

MediaTek, MStar merger approved

POSITIVE GUIDANCE:MediaTek’s share price rose after the chipmaker gave better-than-expected margin forecasts on rising smartphone chip sales

By Lisa Wang  /  Staff reporter

The Fair Trade Commission yesterday approved MediaTek Inc’s (聯發科) application to acquire local rival MStar Semiconductor Inc (晨星半導體), saying the merger would not hamper market competition.

That will pave the way for MediaTek, the nation’s No. 1 handset chip designer, to complete its first-stage acquisition of the world’s top TV chip supplier later this month, by taking up a 48 percent stake in MStar. The mobile phone chipmaker will start including about half of MStar’s monthly revenue into its revenue next month, MediaTek told investors on Tuesday.

MediaTek plans to fully acquire MStar for NT$115 billion (US$3.83 billion) in a cash-and-share offer by the first quarter of next year.

“As the companies involved in this case export a massive portion of their products overseas, it is difficult to say the combination will significantly boost the new entity’s ability to increase product prices as they are facing competition from bigger global rivals,” the commission said in a statement yesterday.

Besides, the merger would not make it any easier for the new entity to take joint actions with its rivals to prevent new players from entering the market, the commission said.

The merger “will help enhance the country’s overall competitiveness in TV controller chips to compete with global rivals,” the commission said.

“The merger will create bigger business interests rather than the adverse impact of hampering competition,” it said.

The share price of MediaTek rose 6.86 percent to NT$272.50 yesterday after the chip company on Tuesday issued a stronger-than-expected revenue and gross margin forecast for this quarter.

Gross margin would improve to between 41 percent and 43 percent in the current quarter, compared with 40.8 percent last quarter, on expectations that shipments of higher-margin smartphone chips would outpace those of feature phone chips and become the company’s biggest revenue source.

Higher-margin 3G smartphone chips would account for a bigger share, or 60 percent of overall smartphone chip shipments this quarter, from 30 percent last quarter, MediaTek said.

The gross margin forecast was higher than the 40 percent projected by Barclays analyst Andrew Lu (陸行之), who said in a note on Tuesday that it would be the first improvement following quarter-on-quarter declines over the past 10 quarters.

MediaTek said its revenue would expand between 13 percent and 18 percent sequentially to between NT$26.5 billion and NT$27.7 billion this quarter, beating Lu’s expectation of 11 percent growth.

Lu added MediaTek to his top pick list because of the strong guidance, with the target price unchanged at NT$340, and retained his “overweight’ rating on the chipmaker.

MediaTek expected as much as one-third of its revenues this quarter would come from selling smartphone chips, citing robust demand for its low and medium-end smartphone chips after Chinese telecoms operators began promoting smartphones with a cheaper price tag of 600 yuan (US$94) per unit.

Strong demand prompted MediaTek to raise its smartphone chip shipment forecast again to 95 million units this year from its previous estimate of 75 million units.

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