MediaTek Inc (聯發科) will likely see revenue continue to fall in the first quarter from the previous quarter, a development that would underline some of the challenges facing the handset chip designer as it deals with price competition, new product development and New Taiwan dollar appreciation, analysts said.
The world’s fourth-largest chip designer and Asia’s largest, -MediaTek is scheduled to offer its last quarter’s financial results and this quarter’s sales guidance today.
On Jan. 7 the company said consolidated revenue for the fourth quarter fell to NT$22.68 billion (US$774.6 million) from NT$28.18 billion in the third quarter. For the whole of last year, the Hsinchu-based company saw revenue drop 1.56 percent to NT$113.46 billion, it said.
In the January-March quarter, MediaTek is expected to say revenue will drop by between 10 percent and 16 percent from the previous quarter because of lower chip shipments and falling prices, following a 19.5 percent decline in the fourth quarter, according to forecasts made by foreign brokerages, including JPMogan, Daiwa Securities and Credit Suisse.
Gross margin may fall to between 45 percent and 48 percent this quarter from an estimated 49.3 percent last quarter because of persistent pressures from price competition and NT dollar appreciation, analysts predicted.
First-quarter net income may fall by between 22 percent and 25 percent from an estimated NT$4.19 billion to NT$4.43 billion in the last quarter, compared with a 22.8 percent decline in the third quarter, they said.
“We expect a weak first quarter ... due to a combination of NT dollar appreciation, new products not yet ramping volume until the second quarter and some software related crackdowns,” JPMorgan said in a client note on Jan. 21. “The first quarter will mark the trough quarter.”
MediaTek is facing severe price pressure from local rival MStar Semiconductor Inc (晨星) and China’s Spreadtrum Communications Inc (展訊) in the 2G handset chip markets, in addition to strong competition with Qualcomm Inc in the 3G and smartphone solutions markets.
The NT dollar appreciated 3.07 percent against the US dollar in the fourth quarter and it has risen 3.58 percent so far this year to close at NT$29.28 on Friday, the central bank’s data showed.
Shares of MediaTek have fallen 5.15 percent so far this year, compared with a rise of 1.93 percent of the TAIEX, according to Taiwan Stock Exchange data.
Daiwa Securities, which forecast a 16 percent quarterly decline in revenue this quarter, said -MediaTek would likely see a 10 percent quarter-on-quarter fall in chip shipments and a 6 percent drop in the blended average selling prices, according to a report on Jan. 17.
Credit Suisse, Nomura and Deutsche Bank were also less optimistic about MediaTek’s near-term outlooks, citing a limited contribution from 3G chips and fierce competition in 2G solutions that would continue to weigh on the company’s market share and earnings this year.
Credit Suisse maintained its target price of NT$350 on -MediaTek in its latest report on Friday, while Deutsche Bank on Wednesday cut its target price to NT$225 from NT$316 and Nomura lowered its target price to NT$260 from NT$275. Shares of MediaTek closed at NT$396 on Friday.
In contrast, JPMorgan believed the first quarter would be the -bottom of MediaTek’s business cycle, viewing the company as the “top turnaround story” among large-cap technology shares.
JPMorgan’s optimism was based on its channel checks that showed MediaTek’s 2.75G solutions for the Android-based smartphones had been increasingly used by Chinese customers, while the company is likely to display its 3.5G smartphone chips at the Mobile World Congress next month, much earlier than market expectation of a timeframe in the second half of the year, it said.
“We expect margins to rebound back to 50 percent in the second quarter, as the pricing situation has so far been stabilized in the first quarter,” JPMorgan said.
The brokerage raised its target price for MediaTek to NT$540 from NT$398.
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