MediaTek Inc (聯發科), which supplies chips to Chinese handset brands such as Xiaomi Corp (小米), yesterday slashed its smartphone chip shipments target by more than 10 percent as intensifying price competition and a flagging global economy take their toll on demand.
As a result, MediaTek expects revenue this year to shrink by between 5 percent and 10 percent from last year’s NT$213.06 billion (US$6.72 billion), company vice chairman and president Hsieh Ching-jiang (謝清江) told investors.
The latest revenue forecast reversed the company’s previous estimate of 10 percent annual growth.
“Prices have declined at a faster rate than we expected due to fiercer competition,” Hsieh said. “Besides, recent uncertainties about the global economy, foreign-exchange rates, the European debt problem and the rout of Chinese stocks continue to weaken consumer spending and clients have been cutting their orders.”
MediaTek aims to ship 400 million smartphone chips this year, rather than 450 million units it forecast earlier this year.
Many of the company’s products are exported to China and Hsieh is confident that MediaTek will reach its goal of gaining a 40 percent share of China’s long-term evolution (LTE) chip market.
“The company will stick to its target of shipping 150 million LTE chips this year,” Hsieh said.
Globally, MediaTek is targeting a 20 percent share of the LTE market this year and aims to expand the share to 30 percent or 40 percent in the long run, he said.
However, gross margin may spiral down this year as fiercer competition in the 3G handset chip segment is set to lower prices. The company faces competition from China’s Spreadtrum Communications Inc (展訊通信). Originally, MediaTek forecast a gross margin rebound in the second half of this year.
The extensive downward revision, from revenue to shipments, came after MediaTek posted its weakest net profit in nine quarters of NT$6.38 billion last quarter, lower than JPMorgan Securities Ltd analyst Gokul Hariharan’s forecast of NT$6.88 billion and the NT$7.08 billion predicted by Deutsche Bank AG analyst Michael Chou (周立中).
MediaTek attributed the poor performance last quarter to weak currencies in emerging markets, which dampened 3G smartphone demand.
Mobile phone chips and tablet chips are MediaTek’s biggest source of revenue, accounting for up to 60 percent.
For the current quarter, MediaTek has a cautious outlook, expecting revenue to grow between 10 percent and 18 percent quarter-on-quarter to between NT$51.7 billion and NT$55.5 billion, Hsieh said.
The forecast is disappointing as Hariharan had expected stronger seasonal momentum to bring MediaTek’s revenue up to NT$60.50 billion this quarter. Chou predicted MediaTek would make NT$57.95 billion.
“The third quarter is usually the peak season, but this year there will be only moderate growth in the third quarter as customers become cautious about placing orders amid economic uncertainty in emerging markets and the lackluster economic outlook in China,” Hsieh said.
Smartphone chip shipments are set to grow to up to 120 million units this quarter from last quarter’s about 90 million units, Hsieh said.
Gross margin is expected to fall to between 45.5 percent and 42.5 percent this quarter, from 45.9 percent last quarter, he said.
In the long term, MediaTek is aiming to keep gross margin in a range between 40 and 45 percent, he added.
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