Mon, Jun 25, 2012 - Page 8 News List

EDITORIAL: Mergers the future for high-tech firms

The proposal by the nation’s biggest handset chip designer MediaTek to merge with long-standing rival MStar Semiconductor not only came as a big surprise, but also serves as proof that nothing is impossible. So, the question is: “Why now?” Their answer is straightforward: escalating competition and a fast-changing industrial landscape.

The NT$115 billion (US$3.84 billion) merger, which is scheduled to be completed by the first quarter of next year is a rarely seen case in Taiwan, where consolidation between major industry players almost never occurs, even though such combinations evidently create significant synergy.

MediaTek chairman Tsai Ming-kai (蔡明介) and MStar chairman Wayne Liang (梁公偉) both said the merger is necessary because the integration will help the new entity gain an edge in the evolutionary industry where the line between different devices is blurring and, most importantly, will help stave off competition from existing and new competitors.

“The two companies have seized certain markets and have good products and technologies [respectively], but we still lag behind our global competitors,” Tsai told a media briefing on Friday.

The merger proposal gets a thumbs up from most analysts. It will help MediaTek reduce price competition and eliminate duplicated research and development projects, the top two merits, as Barclays Capital analyst Andrew Lu (陸行之) said in a research note on Friday.

Like most Taiwanese companies in the LCD and other industries, MediaTek and MStar are facing a surge of competitive pressure from their bigger global rivals and smaller competitors, primarily from China. To be specific, MediaTek is sandwiched between US chip company Qualcomm and China’s Spreadrum Communications.

The difference is that MediaTek and MStar are smarter than other local companies because they know that unless they integrate resources, it will be easy for them to fall. MediaTek has seized about 35 percent of the Chinese handset chip market, while MStar is the world’s biggest digital TV chip supplier with a 50 percent market share. Before the merger proposal, the companies had been biting into each other’s major businesses.

In the latest development, the world’s biggest cellphone-maker Samsung Electronics chose Shanghai-based Spreadrum, rather than MediaTek, to supply TD-SCDMA smartphone chips for the South Korean firm’s new flagship model, Galaxy SIII, as reported by the industry publication the Electronic Engineering Times on Tuesday last week and now the model is shipping in China.

This major setback probably served as a crucial catalyst for MediaTek’s acquisition of MStar in what may be the last resort to combat stiff competition in the Chinese market.

China is the home turf and the major market for MediaTek in terms of the handset chip business, as MediaTek made its name by supplying numerous small Chinese handset brands with its high-quality, low-cost chips.

It could be a revelation for Tsai that his company — which made its name by serving China’s small mobile phone brands — is not able to rise to become the “mainstream” handset chip supplier he had hoped for.

A merger could solve part of the problem, given that product portfolio will widen and resources for technological development increase, Tsai said.

Elsewhere in the LCD industry, both Chimei and AU Optronics are on the brink of losing their say, with their bigger rivals extending their lead by investing more in developing advanced technologies during the industry’s bad times, while local firms have scaled back due to a lack of cash.

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