Sat, Apr 30, 2016 - Page 13 News List

MediaTek trims margins amid pricing pressure

NEXT GENERATION:The handset chip designer expects to roll out 16nm Helio chips in the second half and 10nm chips in the first quarter of next year

By Lisa Wang  /  Staff reporter

Handset chip designer MediaTek Inc (聯發科) yesterday lowered its gross margin projection for this year to between 35 percent and 38 percent, compared with its previous estimate of 35 percent to 40 percent, given intensified competition.

The move came as its gross margin dipped to 38.1 percent in the first quarter from 38.5 percent in the final quarter of last year, due to escalating price competition and tepid demand.

“We feel that pressure on gross margins is climbing this year primarily due to stiffening price competition in the smartphone segment,” chairman and president Hsieh Ching-jiang (謝清江) told investors.

Smartphone chips accounted for about 60 percent of MediaTek's total revenue. The company is facing price competition from China’s Spreadtrum Communications Co (展訊通信) and bigger rival Qualcomm Inc of the US.

The downward trend in pricing has become more noticeable lately as telecom operators adopt new strategies, subsidizing lower-priced and lower-margin smartphones, Hsieh said.

Gross margin for this quarter might fall to an all-time low of 35 percent in a worst-case scenario, Hsieh forecast.

MediaTek said the company might be able to stop the price fall in the second half of next year by improving its cost structure and boosting high-end chips’ shipment ratio, Hsieh said.

The company said it expects revenue this quarter to grow by between 24 percent and 32 percent to between NT$69.3 billion and NT$73.8 billion, from NT$55.91 billion in the first quarter, on recovering consumer demand and customer restocking.

“Lately, demand for all sorts of consumer electronics has turned more robust, as inventories have fallen to low levels,” Hsieh said. “This recovery will drive growth higher than the seasonal pattern.”

However, for the full year, Hsieh said he does not expect a significant improvement in end demand.

Business in the second half would not grow as significantly as it used to, he said.

MediaTek is sticking to its growth target of a 10 percent rise in annual revenue this year from last year’s NT$213.26 billion, he said.

China’s Lenovo Group Ltd (聯想), Letv.com (樂視網), Meizu Technology Corp (魅族) and Japan’s Sony Corp have adopted MediaTek’s Helio-series chips for high and medium-end smartphones, Hsieh said.

Those phones are available in China, Europe, Latin America and India, he said.

The Hsinchu-based firm plans to roll out new-generation Helio chips using 16-nanometer process technology in the second half.

Chips manufactured using 10-nanometer process technology will enter mass production in the first quarter next year, Hsieh said.

MediaTek reported first-quarter net profit of NT$4.47 billion — or earnings per share of NT$2.79 — down 38.3 percent from the same period last year, but up 7 percent from the previous quarter, company data showed.

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