MediaTek Inc (聯發科技) shares rose to a record amid expectations that Taiwan's second-largest chip designer may take business away from Sony Corp and other Japanese rivals.
MediaTek's sales and profit could grow as the company undercuts the prices of rivals such as Sony and Matsushita Electric Industrial Co, which have cut jobs to stem losses. The company's introduction of chips used in DVD players and recordable compact disk drives in May will help, investors said.
"MediaTek has a chance to gain market share," said Pedro Tai, who counts MediaTek shares among the US$180 million he helps manage at HSBC Asset Management Taiwan.
"Their prices should be lower than Sony's or Matsushita Electric's." MediaTek shares rose NT$13, or 3.7 percent, to NT$365. The shares have gained more than 65 percent since they listed on the Taiwan stock exchange in July.
MediaTek's gross margin, which shows how much a company earned after paying production expenses, increased to 54 percent in the third quarter from 44 percent in the second quarter because of demand for the DVD chips and other products, Yu Ming-to, MediaTek's director of finance, said in an interview.
"DVD players are in very high demand," said Henry Wang, an analyst with EnTrust Securities Co (
Unlike rivals in Japan, MediaTek doesn't bear the cost of running a chip plant because it farms out production to parent United Microelectronics Corp (UMC, 聯電), the second-largest maker of chips for other companies. Chipmakers have been closing plants to cut losses after excess manufacturing capacity caused chip prices to drop below the cost of production.
Sony cited declining prices, prompted by competition from rivals in Taiwan and South Korea, for its loss in the three months ended Sept. 30.
Matsushita Electric said on Oct. 30 it will cut 8,000 jobs in the year ending March 31 to weather the slump in chip demand.
MediaTek offers two chips to designers of DVD players that do the same job as three-chip sets from Sony and Matsushita Electric.
MediaTek's costs are lower because it can make more chips from a single silicon wafer, Wang said.
MediaTek's entry into the DVD business will bolster profit because gross margins in the business, which is dominated by Japanese companies, are greater than 50 percent, analysts said.
"Independent design houses are more competitive than divisions of big corporations," said Sharon Su, an analyst at UBS Warburg Securities Ltd, who has a target price of NT$420 for MediaTek stock. "MediaTek helps customers such as Samsung Electronics Co introduce new products more quickly than their Japanese rivals can."
HSBC's Tai said he's sold shares in chipmakers and increased holdings in Taiwan chip designers like MediaTek, Realtek Semiconductor Corp (
The chip designers should be able to order as many chips as they need for at least a year, Tai said.
TSMC and UMC last year had more orders than they could meet and had to turn away business from some of their smaller customers in Taiwan.
"MediaTek and Realtek won't face the capacity constraints that they used to have," Tai said. "Their manufacturing cost has decreased even more than their product prices."
Realtek designs chips that are used to manage the flow of data in computer networks, which Tai said will be the next "driving force" for electronics demand as the market for personal computers wanes in importance.
Realtek's largest competitors are Intel Corp, the largest chipmaker, and 3Com Corp. Realtek shares rose NT$5.5, or 4.9 percent, to NT$118.5.
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