Tue, May 20, 2014 - Page 14 News List

Expected cut in 3G subsidies may affect MediaTek: report

Staff writer, with CNA

An expected cut in 3G handset subsidies by China’s top three mobile carriers could hurt Taiwanese chip designer MediaTek Inc (聯發科), according to a Goldman Sachs report.

A report published on the popular Chinese Web portal Sohu.com on Thursday said that China Mobile Ltd (中國移動), the world’s biggest wireless company by customers, plans to reduce subsidies on 2G and 3G handsets and increase subsidies for 4G LTE models.

RAISING INTEREST

Two major operators, China Telecom Ltd (中國電信) and China Unicom Ltd (中國聯通), have similar plans as they try to shore up interest in 4G LTE networks, amounting to 10 billion yuan (US$1.6 billion) less in subsidies from carriers, the report said.

Goldman Sachs estimates that the three carriers have maintained a total handset subsidy budget of 65 billion yuan for the year.

“This news [Sohu report], if true, supports our view of accelerating LTE transition from June and would be incrementally negative to high-end 3G demand,” Goldman Sachs technology analyst Donald Lu (呂東風) wrote in a research note on Friday.

SHIPMENTS

Lu estimated that China Mobile’s 3G handset sales and MediaTek’s system-on-a-chip shipments will reach 95 million units and 59 million units respectively in the first half of this year.

“Even with 3G inventory at normal levels now, MediaTek may still suffer from a potential inventory drawdown assuming there is declining demand in the third quarter of this year,” Lu said.

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