Handset chip designer MediaTek Inc (聯發科) has accelerated its restructuring efforts to brace for escalating competition as its newly appointed co-chief executive officer Rick Tsai (蔡力行) assumed the position on Thursday, one month earlier than scheduled.
The appointment, announced in March, had caught investors off guard, as MediaTek executives are usually promoted from the firm’s ranks.
The question soon emerged: Why did the company appoint a former Chunghwa Telecom Co (中華電信) chief executive to run its daily business with founding chairman and chief executive officer Tsai Ming-kai (蔡明介)?
Photo courtesy of MediaTek
It is not the first time in the company’s 20-year history that it has tapped an outsider as chief executive.
The timing of the personnel arrangement is intriguing, as the company is facing margin pressure and losing market share in China.
However, could the new executive provide a different perspective and help the company’s development?
With his performance-driven managerial style, Rick Tsai has built a good reputation in cost control and efficiency improvement during his three-year term at Chunghwa Telecom.
He also helped the telecom launch the nation’s first 4G services ahead of schedule, while boosting its earnings to a four-year high of NT$5.52 per share in 2015.
In an English-language statement released on Thursday, MediaTek said Rick Tsai’s coming on board “is advantageous in the positioning and implementation of various corporate strategies.”
He will “directly assume leadership over worldwide sales, technology and engineering research and development, manufacturing operations and information technology,” the statement said.
MediaTek indeed needs new strategies and a chief architect to navigate its restructuring as it continues to reel from margin erosion and market loss.
Last quarter, MediaTek saw its gross margin fall to a record low of 33.5 percent due to intensifying pricing competition from rivals like the US’ Qualcomm Inc and China’s Spreadtrum Communications Co (展訊通信).
The earnings landscape remains challenging, as the company said last month that outlook for this quarter would still be tepid and suggested its gross margin could stay at between 32.5 and 35.5 percent, despite its efforts to offer high-margin Helio-series chips for premium smartphones as well as cost-efficient chips for mid to low-end handsets.
Rick Tsai does not have much time to relax in his new post, as his challenges include more than just the company’s operating efficiency, cost rationalization, resource optimization and asset disposal. He also faces a severely competitive environment.
Qualcomm on May 26 announced that it formed a new joint venture with Chinese partners, including Leadcore Technology Co (聯芯科技), which aims to design, package, test and sell chipsets for mass-tier smartphones in China.
Some pundits said Rick Tsai, who served as chief executive officer of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) from 2005 to 2009, could help MediaTek facilitate with better communication with its chip supplier in a bid to put its advanced chips on the market faster, especially when capacity becomes tight during peak season.
Others said he could help MediaTek speed up technological upgrades by integrating various company resources.
However, Maybank Kim Eng Securities Pte Ltd said that catching up in advanced technology remains the key for MediaTek in accomplishing structural turnaround.
“MediaTek lags behind rivals in developing gigabit and 5G technologies by at least four to six quarters,” Maybank analyst Stefan Chang said in a note on Thursday.
Still, there are some industry watchers with high hopes for Rick Tsai.
Randy Abrams, an analyst who tracks the semiconductor industry for Credit Suisse Group AG, described the appointment of Rick Tsai as a “potentially positive step” for MediaTek.
“MediaTek is looking to add leadership that can identify a turnaround strategy in the challenged mobile business,” Abrams said in a note to clients on March 23.
Regarded as a highly respected leader in the high-tech industry, Rick Tsai “may find a way to create value for MediaTek’s technology as well as find a way to increase efficiencies with cost cuts,” Abrams said.
Meanwhile, CIMB Securities Ltd analyst Peter Chan (詹逸群) is expecting Rick Tsai to help MediaTek secure its new strategic positions in the industry through such efforts as “strategic alliance and partnership, mergers and acquisitions, and product development,” according to a note to clients on April 29.
Even as pundits were arguing how Rick Tsai would act to reshape MediaTek here and there, one thing is for sure that “maintaining the status quo” is unlikely to help the company defeat its competitors.
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