Taiwanese fabless chip vendor MediaTek defied gravity during last year’s recession, growing by more than 20 percent in a year when the wider semiconductor industry declined by roughly 10 percent. But 2010 has been a different story: The wireless chip vendor that some have called the Qualcomm of Asia is believed to have returned to more modest, 6 to 8 percent growth, compared with estimates of a stellar 30 percent for the chip sector at large. The Hsinchu-based company, ranked 17th in the world in chip revenue in 2009, is on course to finish at 21 this year, according to market researcher IC Insights.
MediaTek’s sales have grown from just under $1.5 billion in 2005 to a projected $3.5 billion-plus this year, fueled in large part by its dominant position in the Chinese cellular chip market. But some companies, notably China’s Spreadtrum Communications Co. Ltd., have been cutting into MediaTek’s market share with aggressive pricing.
A new report on MediaTek by EE Times Confidential’s partners at UBM TechInsights provides a comprehensive overview of MediaTek, which was spun out of foundry United Microelectronics Corp. in 1997. The report examines MediaTek’s organization, technology, product portfolio, design wins and partnerships, and offers a detailed look at the company’s intellectual property positions and patent portfolio.
It concludes that MediaTek is bent on graduating from sockets in low-end handsets and other products in the Chinese market to design wins with bigger companies in other regions.
“MediaTek is trying to get out of the low-end markets and position itself as a player with tier 1 companies,” says Gordon Holstead, a senior analyst for business intelligence at UBM TechInsights and a co-author of the MediaTek study.
TechInsights concludes that MediaTek is pinning its growth plan on markets outside of China, including India and North America. In hopes of boosting margins and securing design wins in higher-end handsets, the company in July licensed technology for Long Term Evolution (LTE) from NTT DoCoMo. It is now shipping a multimedia GSM/GPRS solution that UBM TechInsights says integrates the baseband, RF and power management on one chip.
For its part, MediaTek considers 2010 to have been a “flat year” following the robust growth of 2009. Its wireless product line has been in transition, with 3G and smartphone solutions that were rolled out early this year expected to begin generating revenue in 2011, the company says.
MediaTek’s size and rapid growth have put it on the semiconductor industry’s map. But few in the West have a detailed perspective of the company, which does not actively market itself in the United States. According to UBM TechInsights, MediaTek generated 72 percent of its 2009 revenue from wireless and handset connectivity chips, while 16 percent came from digital TV and DVD chips and 12 percent from PC optical storage devices.
‘Turnkey’ reference designs fueled rise
MediaTek entered the wireless market in 2004 with inexpensive silicon for handset manufacturers in China and other emerging markets. The report found that the key to MediaTek’s success in China was providing full “turnkey” reference designs — including supporting chips from other chip vendors — that let Chinese handset makers concentrate on the industrial design of their products without making circuit and software modifications, thereby slashing their development time.
Many of those handset vendors, however, operate in China’s gray market, where MediaTek’s share is as high as 90 percent share, TechInsights found. Because of a Chinese government crackdown begun last summer, gray-market growth is projected to have declined to 18.6 percent in 2010 from 43.6 percent in 2009. The crackdown will likely hurt MediaTek, which supplied an estimated 80 percent of the baseband chips for gray-market handsets in China, according to iSuppli.
MediaTek’s growth took off after it entered China’s wireless market. Will Strauss, principal analyst at Forward Concepts, says that by the time he began tracking MediaTek, it already had 10 percent of the global cellular baseband market. Since 2009, it has trailed only Qualcomm in the baseband market, according to Strategy Analytics.
But MediaTek reportedly has lost significant share in China this year. A prime suspect in that slide is Shanghai-based Spreadtrum, which Strauss says offers 2G and 2.5G baseband chips that match MediaTek’s in performance but cost a good deal less. Competition from Spreadtrum and MStar Semiconductor forced MediaTek to cut prices on some chips in recent months.
Squeezed by the competitive pressure and the gray-market crackdown, MediaTek’s third-quarter sales were down 18 percent compared with the third quarter of 2009, and November sales were down 27 percent year on year.
Strauss looks at MediaTek’s slowing growth and loss of market share in China and sees the chickens coming home to roost. Earlier, MediaTek’s own low-cost chips had forced several chip companies to quit the cellular baseband market; now the company itself is being undercut by lower-cost rivals.
While MediaTek’s focus on wireless products and chip sales volumes may warrant its comparison to Qualcomm, the Taiwanese company differs from the San Diego-based fabless giant in some respects, Strauss notes. MediaTek’s R&D budget is a fraction of Qualcomm’s. While Qualcomm derives most of its revenue from licensing agreements, MediaTek has no such cash cow to milk.
The TechInsights study found that MediaTek owns roughly 3,000 patents and patent applications worldwide, with the majority in the U.S., China and Taiwan. Many of those patents and applications were transferred to MediaTek from other companies, including about 225 that were originally owned by IBM.
MediaTek does not “publicly demonstrate any particular core technology in the cellular baseband market,” Holstead says; rather, “their R&D investment has been primarily focused on integration and reducing cost.”
Looking for new markets
Whether or not MediaTek regains lost market share in China, the company is clearly trying to strengthen its position in other areas. The study praises MediaTek’s aggressiveness in forming partnerships and for its acquisitions. One significant deal was 2008’s $350 million acquisition of Analog Devices Inc.’s baseband chip product lines, which not only strengthened MediaTek’s product line but also gave the company access to tier 1 handset makers.
The report notes that MediaTek has also made inroads in North America; its chips have been designed into Garmin GPS units and Vizio digital TVs. Those design wins have helped change the industry’s perception of MediaTek. Well-known handset vendors such as Samsung, LG, Motorola and Nokia have used the company’s technology in some of their low-end handsets, drawn by price, time-to-market and quality, according to the report, which concludes that growing numbers of tier 1 companies will likely consider MediaTek a viable supply option going forward.
Still, making the leap from low-end cellular chips to sophisticated smartphones operating on more-advanced networks remains a tall order. “Right now, they are struggling to make a dent in the 3G market,” Strauss says.
The July deal with DoCoMo gave MediaTek access to LTE technology that it will integrate with its 2G and 3G lineup to provide chips for Japan and other markets. A spokeswoman for MediaTek claims the deal demonstrates the richness of its wireless communications product portfolio. In addition, MediaTek says it is set to roll out an HSPA solution early next year, and its MT6268 W-CDMA chip was recently certified by U.K. handset vendors Vodafone and Orange. MediaTek this year added the MT6516, a smartphone IC with a 600- to 700-MHz multimedia engine that runs the Android platform, according to the TechInsights report.
One area in which MediaTek has yet to show strength, Holstead says, is the design of combo chips that integrate a baseband processor with an RF transceiver and peripheral support. But that may be changing.
Holstead adds that MediaTek’s MT6253 single-chip multimedia GSM/GPRS solution — the first device he has seen with baseband, RF and power management on one chip — could make a splash in the wireless market. The MT6253 was announced in February 2009, but reports surfaced that MediaTek was plagued by production delays. So far, UBM TechInsights has only found the device in one teardown.
MediaTek, however, says the MT6253 has been adopted in China and by global Tier 1 manufacturers. It claims the product has been incorporated into devices shipped to more than 20 countries, including major local brands in several Asian countries. MT6253 shipments currently represent more than 30 percent of its monthly shipment volume MediaTek says.
That the company has so many balls in the air at one time illustrates its ambition. Ultimately, however, the comparisons with Qualcomm stretch only so far. As Strauss notes, Qualcomm is usually the first to market with new technologies, while MediaTek’s strength has been as a fast follower with inexpensive silicon and a turnkey, customizable solution. Despite cutthroat competition and declining sales, that combination — along with the company’s high-touch, direct sales model — should enable MediaTek to retain a strong position in China and sustain growth in other emerging markets.
But with very little in the way of compelling core technology, MediaTek’s pursuit of sockets in higher-priced feature phones and smartphones from Tier 1 vendors will be an uphill climb.