MediaTek Inc (聯發科) yesterday said that its first-quarter profit almost halved year-on-year, citing softer-than-expected mobile phone demand and supply chain inventory corrections that curbed customers’ orders for its chips.
MediaTek, one of the world’s biggest mobile phone chip suppliers, said net profit for the first three months of the year plummeted 49.3 percent to NT$16.87 billion (US$548.8 million), the lowest level in about nine quarters. Net profit was down from NT$33.26 billion in the first quarter of last year. On a quarterly basis, net profit contracted 8.7 percent from NT$18.49 billion.
Gross margin last quarter dropped to 48 percent from 48.3 percent in the previous quarter and 50.3 percent in the first quarter of last year, largely because of weaker pricing for certain models, the company said.
Photo: Vanessa Cho, Taipei Times
MediaTek said some of its major customers have reduced excessive inventory to a normal level, but they hold a prudent view about mobile phone demand in the near term.
As a result, MediaTek expects revenue from its mobile phone chips business to be flat this quarter on a sequential basis after plunging 20 percent quarter-on-quarter last quarter.
The company expects a pickup in the second half of this year, although it said that the overall business visibility remained vague.
Mobile phone chips accounted for 46 percent of the company’s total revenue of NT$95.65 billion last quarter.
Revenue this quarter is expected to dip 4 percent sequentially to NT$91.8 billion in the chip designer’s worst-case scenario, while its best-case scenario involves quarterly growth of 4 percent to NT$99.5 billion.
The company told investors three months ago that the first quarter was “likely a low point” of this year.
“We believe customer and channel inventory is coming down. We just had discussions with major OEM [original equipment manufacturing] customers. Their inventories have come down to levels they deem normal. Some others are still a bit higher. Overall, inventory has been coming down from the end of the fourth quarter,” MediaTek CEO Rick Tsai (蔡力行) told investors in an online investors’ conference yesterday.
“The market sentiment remains weak. Customers are drawing shipments cautiously even when their inventory has normalized,” he said.
The company said its second-quarter guidance reflected customers’ cautious outlook about market demand and its strategies in a competitive environment.
With economic uncertainty increasing worldwide, consumers became more willing to buy refurbished smartphones, or second-hand handsets, rather than a new one, the chip designer said.
A longer smartphone replacement cycle is also affecting handset demand, it said.
Global mobile phone shipments would drop to 1.1 billion units this year from 1.4 billion units last year, MediaTek said, adding that the overall share of 5G smartphones would reach 55 percent.
MediaTek said that in the expected weak demand environment, it would remain consistent with its strategy that it seeks to balance its market share, revenue and profitability, rather than focusing only on price competition.
The “race to the bottom” type of pricing does not lead to higher end-market demand, nor can it change the overall market share distribution, Tsai said.
Demand for chips used in TVs and broadband devices, especially from North American telecoms, is showing robust momentum this quarter, the company said.
Chips used in smart-edge devices made up 47 percent of MediaTek’s total revenue last quarter.
Demand for power management chips, which contributed 7 percent to its revenue last quarter, would be stable this quarter, the company said.
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