MediaTek Inc (聯發科), the nation’s No. 1 handset chip designer, yesterday posted its weakest quarterly profit in two years because of intensifying competition and a one-time royalty payment to develop 4G technology.
This quarter will also be a bleak period because MediaTek plans further price cuts to fend off competition from rivals, such as China-based handset solution vendor Spreadtrum Communications (展訊).
Revenues could decrease by 15 percent to 20 percent this quarter to NT$22.5 billion (US$733 million) or NT$24 billion, compared with NT$28.18 billion last quarter, with handset chips accounting for up to 75 percent, company president Hsieh Ching-jiang (謝清江) told investors in a teleconference.
The guidance is lower than Credit Suisse’s estimate of a 7 percent quarter-on-quarter decline that analyst Randy Abrams estimated in a report yesterday.
In the June to September period, MediaTek’s net profit fell 41 percent to NT$6.97 billion, from NT$11.8 billion a year ago, making it the lowest level since the fourth quarter of 2008 when it earned NT$2.88 billion. That represented a 22.8 percent decline from NT$9.03 billion in the second quarter.
The Hsinchu-based chipmaker blamed the profit decline on pricing competition and excess inventories of chips used in digital televisions and optical storage.
Warning of further price cuts, Hsieh said: “We will take an aggressive pricing strategy this quarter ... which will lead to a drop in the average selling price.”
“Scale is important for technology firms. We want to safeguard our market share,” Hsieh said.
Gross margin is expected to slide to about 50 percent this quarter from 52.2 percent last quarter, Hsieh said. That was slightly better than Credit Suisse’s estimate of 49.1 percent.
Hsieh said MediaTek was sticking to its full-year shipment target of 500 million chips.
MediaTek plans to roll out new cost-effective handset chips and a 3.5G chip in the first quarter of next year, as well as 3.5G Android chips in the middle of next year to counter pricing competition, Hsieh said.
Last quarter, MediaTek also saw its operating expense climb 8.2 percent to NT$7.8 billion, from last quarter’s NT$7.21 billion, raising concern about its rising expenses.
The chipmaker said that included a one-time royalty payment to Japan’s biggest mobile phone company, NTT DoCoMo Ltd, to develop chips supporting long-term evolution, or LTE, technology.
Credit Suisse retained its “underperform” rating for MediaTek yesterday with a price target of NT$370.
The stock could continue to disappoint in the near term, given its slow fourth-quarter outlook, limited contributions from new smartphone solutions and continued pricing competition, Credit Suisse said.
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