Shares of MediaTek Inc (聯發科) tumbled 5.37 percent yesterday after JPMorgan Chase & Co downgraded its outlook for the Taiwanese integrated circuit (IC) designer amid concerns that its development of smartphone chips for Time-Division Long-Term Evolution (TD-LTE) is taking too long, dealers said.
Yesterday’s selling also reflected fears that MediaTek will suffer a sequential decline in consolidated sales for the first quarter, which is traditionally a slow season for the global semiconductor industry, dealers said.
MediaTek’s shares plunged to NT$388 yesterday, marking the fourth straight day of decline. The weighted index on the Taiwan Stock Exchange was down 0.25 percent.
“Before today’s selling, Media-Tek shares had encountered relatively heavy downward pressure in recent sessions as investors locked in earlier gains,” KGI Securities (凱基證券) analyst Eason Lee said.
As of Monday’s close, MediaTek shares had fallen 7.55 percent since the beginning of the year as investors rushed to pocket earlier gains built on hopes that the IC designer would top its fourth-quarter sales guidance.
“The JPMorgan outlook downgrade prompted more investors to dump the stock, pushing the share price below the NT$400 mark and making it technically weaker,” Lee said.
In a research note released on Monday, JPMorgan downgraded its recommendation on MediaTek shares to “neutral” from “overweight,” while cutting its target price for the stock to NT$360 from NT$420.
According to the US-based brokerage, MediaTek’s sales in China could be hurt by its relatively slow pace in developing chips to use with the TD-LTE technology that will be the backbone of China’s future 4G mobile network.
Now expecting MediaTek to launch new chips for TD-LTE use in August at the earliest, JPMorgan warned that MediaTek’s rivals, such as Qualcomm Inc, could capitalize on the opening before then to boost market share in China and hurt the Taiwanese chip designer’s sales.
“Although JPMorgan addressed the TD-LTE issue in its latest research note, the impact on MediaTek’s sales remains to be seen. My brokerage is not downbeat enough to say MediaTek shares will fall to NT$360,” Lee said.
“I expect bargain-hunters will emerge as the stock falls to around NT$380 if downward adjustments in MediaTek’s share price continue,” Lee said.
After taking slow-season effects in the first quarter into account, Lee forecast that MediaTek would see its consolidated sales in the current quarter fall between 6 percent and 10 percent from the fourth quarter.
“But as the IC industry leaves behind the slow season effects in the second quarter, MediaTek’s sales will start to pick up and its sales growth will accelerate in the third quarter,” Lee said.
Lee said MediaTek could report NT$26 in earnings per share for this year, compared with the NT$20 estimated for last year.