As China migrates into the long-term evolution (LTE) telecom network, the intensifying competition in fourth-generation (4G) technology could create headwinds for LTE chipset laggards, especially MediaTek Inc (聯發科), Citigroup Global Markets Inc said yesterday.
Meanwhile, UBS Securities Ltd Taiwan Branch said as MediaTek’s time-division (TD) LTE chips are still not ready, it is unlikely that new smartphones running on the Taiwanese firm’s 4G chips would hit the market in the first half of this year.
The warnings by the two foreign brokerages have added more pressure on the company’s shares, which have dropped 5.64 percent since the beginning of the year. MediaTek shares dropped 3.01 percent to NT$418.50 at the end of trading yesterday.
Citigroup said the Taiwanese chip designer could face rising price competition in China, as China Mobile Ltd (中國移動) — the largest Chinese telecom by subscribers — is gearing up to gain ground in the country’s 4G mobile market.
“China Mobile’s decision to lower the LTE communication standards from five modes to three modes has opened opportunities for China’s local chipset makers. Also, its intention to promote and subsidize LTE phones at 1,000 yuan [US$165] creates greater competition for LTE chipset makers,” Citigroup analyst Roland Shu (徐振志) said in a client note.
Shu said the ramp-up production of mobile phones priced at about 1,000 yuan could cause MediaTek’s 3G octa-core chipsets to lose momentum on the lack of end-device price advantage and China Mobile’s subsidy of LTE phones.
As a result, MediaTek may need to aggressively lower the price of its new octa-core MT6592 chips or sell its existing octa-core LTE chipsets at a lower price than those of rivals Qualcomm Inc and Marvell Technology Group Ltd, he added.
Citigroup has downgraded MediaTek’s shares to “sell” from “neutral” and cut its share price target to NT$402 from NT$435.
UBS Securities also slashed its stock recommendation to “neutral” from “buy,” while retaining its price target at NT$425.
UBS equities and research head William Dong (董成康) said China Mobile’s aggressive plan to promote a TD-LTE platform has inspired more smartphone makers to prioritize LTE-phone development and has created fiercer competition for MediaTek.
In addition, the seasonal slowdown in the current quarter might also limit the upside for the stock in the near term, Dong said in a separate note.
However, Credit Suisse Securities Taipei branch yesterday maintained its “outperform” rating on MediaTek and increased its target price to NT$500 from NT$480, saying the company remains its preferred stock among Chinese smartphone supply-chain firms.
The brokerage said MediaTek would benefit from solid demand for communications devices in China this year and see its market share increase to 50 percent, from 45 percent in 2012.
The company will also gain the upper hand against its rivals because of a better product mix and higher selling prices with the help of high-end octa-core chips, Credit Suisse said.