Thursday, September 18, 2014

Widespread adoption of MediaTek's upcoming 4G solutions, capacity at TSMC remains tight

4G smartphone prices to drop in China, MediaTek to see widespread adoption


In an article from 16 September, DigiTimes quoted a China Mobile Device official saying that the lowest prices of 4G smartphones will drop towards CNY500 ($80) near the end of the year, compared to current prices of about $160 and below. MediaTek is reported to be providing chip solutions for these devices.

Similarly, a DigiTimes article on September 15 reported that MediaTek has won general adoption of its 4G chip solutions from China-based smartphone vendors, pushing Qualcomm to offer the inexpensive Snapdragon 210 in competition. MediaTek's announced integrated 4G chips solutions include the MT6732 and MT6752. Although the MT6732 is targeting the entry-level market, its performance and cost characteristics (associated with the quad-core Cortex-A53 CPU and Mali-T760MP2 GPU) put it somewhat above the lowest-cost part of the 4G smartphone market. It is likely that MediaTek will introduce new very low cost integrated 4G SoCs in the first part of 2015, competing with Qualcomm's new low-end Snapdragon 210 platform which is expected to be shipping around that time.

Early reports also indicate that MediaTek's new high-performance SoC, the MT6795 with an octa-core Cortex-A53 configuration, dual-channel memory interface and high-end GPU, will be disruptive in terms of cost and efficiency for high-performance smartphones, with potential sales volume as high as 30 million already being mentioned for Q1 2015.

Meanwhile, according to DigiTimes demand for 3G smartphones from emerging markets continues to be strong due to the slow pace of 4G network introductions, leading some smartphone companies to again compete with 3G models after earlier focusing more on 4G-enabled models.

MediaTek sales growth respectable, but helped by MStar acquisition


The finalization of the acquisition of MStar Semiconductor has made comparisons of MediaTek's financial results less transparent. Going back to last year, MediaTek reported revenues NT$39.0 billion for Q3 2013 with strong growth of smartphone chip demand from China and emerging markets. For Q4 2013, MediaTek reported revenues of NT$39.8 billion.

For Q1 2014, MediaTek reported revenues of NT$46.0 billion, but it mentioned that the increase was largely due to the merger with MStar, which became effective on February 1, 2014. For Q2 2014, MediaTek reported revenues of NT$54.1 billion, with the increase coming from the MStar acquisition as well as revenue growth in the smartphone and tablet product lines.

The monthly revenues of NT$19.4 billion for July 2014 and NT$19.7 billion for August, and expectations for a revenue level around NT$20 billion in September, put MediaTek's estimated Q3 2014 revenues at about NT$60 billion. This reflects a sequential revenue growth rate of 11% for the seasonally stronger third quarter, compared to sequential revenue growth of 17% in Q3 2013, when MStar's product lines were not yet included.

MStar's quarterly revenues were about NT$8.5 billion in Q3 2013. Estimating the current rate of MStar-derived product lines is difficult; some MStar products (including touch screen controllers and advanced smart-TV SoCs) may have seen significant sales growth recently, while older products may have declined. Assuming a similar revenue contribution in Q3 2014 (which is only a rough estimation), an apples-to-apples comparison of MediaTek's traditional product lines would suggest year-over-year revenue growth from NT$39 billion in Q3 2013 to roughly NT$52 billion Q3 2014, a growth rate of 33%, which is respectable, but lower than the apparent 54% growth rate when the MStar acquisition is not accounted for.

MediaTek's estimated 11% sequential growth rate in Q3 is likely to have been negatively affected by the tightness of production capacity at TSMC, which matches earlier news articles from DigiTimes about MediaTek's wafer production. Without these restrictions, the growth rate may have been significantly higher.

Capacity at TSMC to remain tight


In an article on 16 September, DigiTimes reported that follow-on orders for Apple iPhone 6 devices are extending order visibility at foundry houses such as TSMC to the first quarter of 2015, particularly for 8" wafer production, which is used for chips such as LCD driver ICs, power ICs and other peripheral chips.

The article also mentions that leading-edge 12" capacity utilization (reflecting 28 and 20 nm processes used for advanced SoCs for smartphones and other applications), which was earlier expected to drift downward in Q4 2014, is now expected to continue to see high utilization, with a rebound of order from chip suppliers including Qualcomm and Broadcom.

Given the tight capacity situation that has existed in this segment for a while, this comes as no surprise since several companies are likely to have low inventories because they could not get sufficient chips from TSMC in the recent period. The priority that was given to Apple has resulted in a large amount of capacity being reserved for production of the Apple A8 SoC at 20 nm, with other players being squeezed. While Qualcomm has deep pockets and can invest billions of dollars in purchase commitments, some smaller players are likely to have had difficulty obtaining sufficient production capacity. MediaTek is an important player in this segment that is likely to have been affected by the capacity situation.

Sources: DigiTimes, MediaTek

Updated October 5, 2014 (Include early report about MT6795 adoption for high-performance smartphones).

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