Nalini Muppala

Analysis, observations, perspectives on mobile space

MediaTek (Part 5): Strategy and Outlook

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MediaTek’s success in extending its winning streak hinges on the success of its alliances such as that with Leadcore Technology, which has been a longtime supplier to China Mobile. The partnership has enabled MediaTek to gain a strong position in the TD-SCDMA market. To cement its position in this market, the company is now partnering with startup AST wireless.

China Unicom is firing on all cylinders to give a big boost to TD-SCDMA this year, and MediaTek is facing stiff competition in this area. ST-Ericsson’s T7210 for TD-SCDMA, for example, is being designed into Nokia phones that target Chinese customers. MediaTek provides nearly 60% of this market; it could lose ground in the next few years. And then there is Spreadtrum, which poses direct competition to MediaTek in the sense that it also supplies to MediaTek’s big customers, Motorola and China Unicom.

MediaTek’s critics have called it a copycat. While there may be some truth to this, recent evidence shows a strong inclination towards homegrown technology. The company’s monolithic MT6253, for example, integrates baseband and RF, which is no small technological feat. In fact, MediaTek spent $780 million on R&D out of revenue of $3,500 million in 2009.

Sravan Kundojjala, an analyst at Strategy Analytics, recently suggestedthat Marvell should partner with the likes of MediaTek to work around Marvell’s lack of success in baseband. Kundojjala’s idea led me to think more about the two companies. There are remarkable similarities between the rise of MediaTek and that of Marvell. While MediaTek’s growth was fueled by its taking the optical storage drive market by storm, Marvell dominated the HDD market and expanded from there. Both acquired wireless business units of a major player – ADI for MediaTek and Intel for Marvell. Both have come to dominate niche segments.

Now MediaTek has a good standing in the baseband market, and Marvell’s application processor is a success story. MediaTek licensed ARM7 TDMI in 2002 for its DVD chipset. MediaTek has neither licensed ARM9 or better cores for use in its mobile phone chipsets nor built on the strengths of its Blackfin architecture license. If the market tends to take the approach of a dedicated application processor, handset designers would have to make another stop at Marvell, TI, or one of the other players.

MediaTek has been able to charge premium prices for its turnkey solutions to white-label customers who lack pricing power. As MediaTek tries to enter supply chains of major brands, this strategy will be tested.

MediaTek should and, I believe, will continue to take advantage of its proximity to contract manufacturers that produce for major handset makers. The Taiwanese group currently addresses just 20% of the handset market. There is a lot of room to grow, and in the process it will run into formidable players, frequently.

MediaTek has a good hold on the 2G and 2.5G market and would like to extend its run into 3G. The company’s 3G solutions have started seeing some uptake. It remains to be seen if it will prove a formidable player in the 3G market as well. Operators are not readily jumping on the 3G bandwagon, the networks want to milk what is left in 2.5G/2.75G, and all of this bodes well for MediaTek.

As a supplier to LG’s Windows Mobile phones, MediaTek has been close to Microsoft’s heart for a while now. The two companies have developed their relationship into a formal partnership to further their respective and mutual interests. Microsoft needs all the help it can get to gain some traction in the phone market and seems to have its eyes set on MediaTek’s relationship with around 250 phone makers. Can MediaTek help Microsoft compete against Apple, the Android ecosystem, and RIMM? Right now chances seem small, but only time will tell.

Qualcomm and MediaTek recently entered into a patent cross-licensing agreement. While Qualcomm could gain visibility into MediaTek’s customers and in turn the shan zhai market, it is not clear how MediaTek would benefit from this partnership. My guess is that MediaTek had to get over some impediments to be a full-fledged player in the W-CDMA market. With Qualcomm’s support and know-how, MediaTek can expedite its W-CDMA solutions to market.

While MediaTek’s being labeled a low-cost supplier might sound offensive and like a description that does not given the company its due respect, this focus on low cost could prove to be an indispensable asset in the imminent price wars.

In sum: MediaTek’s growth will continue to ride on the success of low-cost manufacturers. It will thus continue to ride on the sales of white-label phones in China, India, Africa, and Latin America. It will continue to be a major baseband supplier and will enter the supply chains of major handset makers, at least for their low-cost models, through contract manufacturers. MediaTek’s understanding of the low-cost, low-margin market will come in handy as the pricing pressure mounts on handset vendors. There is a lot of room to grow.

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Written by Nalini Kumar Muppala

February 12, 2010 at 7:31 am

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