MediaTek Looks to New Eight-Core Chip to Crack U.S. Market

Taiwanese chipmaker MediaTek has made quite a name for itself in emerging markets selling powerful but low-cost processors for entry-level Android phones.

With its latest chip design, announced late Monday, the company hopes to finally crack the U.S. and Europe and get into some of those higher-end devices.

The MT6595 chip also packs things that some rivals don’t yet have, such as eight processing cores, four of which are using ARM’s latest a17 design. The goal is for the new chip to power LTE-capable smartphones that sell for less than $200 unsubsidized.

“We’ve brought the missing piece,” said Mohit Bhushan, who heads U.S. corporate marketing for MediaTek. “Last year we did not have LTE in our chipsets.”

With many carriers reducing their subsidies on new devices, MediaTek sees an opportunity by powering LTE-capable smartphones that can sell for $199 or even $99.

However, the key here is timing. The new chip, which probably won’t arrive on phones until late this year or early next year, packs many of the features that market leader Qualcomm has on its chips today. However, Qualcomm is marching ahead with advanced LTE features and others in the space are also cranking up their efforts, including Intel, Nvidia and Broadcom, among others.

Qualcomm rival MediaTek to open San Diego branch

MediaTek, a key Qualcomm rival in cellular chip markets overseas, plans to open an office in San Diego as it seeks to raise its profile beyond Asia.
The Taiwan semiconductor firm — which already employs 300 workers at U.S. locations in San Jose, Boston and Austin, Texas — expects to open an office in Sorrento Valley by June 1.
“Our plans are to grow by 150 people in the U.S. this year,” said Kristin Taylor, MediaTek’s vice president of U.S. corporate marketing who spent 13 years at Qualcomm. “We haven’t quite decided how we are going to spread that around and who will be sitting in San Diego, but it will be good-sized team.”
The San Diego office will have engineering, marketing and business development workers.
“The main goal is to come out of this stigma of being seen as a business focused solely on Asia and really becoming a global business,” Taylor said. “The United States represents an important market for the company, and San Diego was a good location for us in order to serve our technology and carrier partners.”
According to industry research firm Strategy Analytics, Qualcomm, Apple, MediaTek and Samsung held the top four spots in the smartphone application processor market in third quarter of last year, the latest figures available.
Qualcomm had 53 percent share of revenue, followed by Apple with 18 percent and MediaTek with 10 percent. The global smartphone applications processor market grew 31 percent to reach $4.9 billion in third quarter, Strategy Analytics said.
MediaTek is targeting mid-priced phones — a market that the company believes will grow as handset subsidies fall in the United States and as more people in developing countries switch from talk-and-text phones to smartphones.
MediaTek isn’t the only Qualcomm competitor to open offices in San Diego to tap the region’s wireless expertise. In 2012, Intel established a branch in Sabre Springs that’s part of its Mobile and Communications Group. Intel hasn’t revealed how many workers it employs locally.
Last year, MediaTek’s revenue grew 36 percent from the previous year to $5.7 billion. It employs about 10,000 workers worldwide. Besides smartphones, it also makes chips for tablets, digital televisions, set-top boxes, Wi-Fi routers and Bluetooth devices.

MediaTek to challenge Qualcomm at home

 Qualcomm Inc, the world leader in smartphone microchips, may want to shore up its defensive tactics.

Taiwan’s MediaTek Inc, the leading chip supplier for Chinese smartphones, is barreling into the US market with a new major global branding campaign and setting up shop in San Diego, California, home to Qualcomm.

This year, MediaTek plans to hire about 150 engineers, business development and marketing staff in the United States, adding to a 300-strong US workforce, said Kristin Taylor, MediaTek’s vice president of US corporate marketing. Outside the United States, the company plans to add 1,000 employees in 2014, increasing its ranks by around 10%.

“We really feel that it’s a strategic area,” she said of San Diego’s Sorrento Valley, where MediaTek plans to open its new office in the next few months. It is home to many technology companies clustered around Qualcomm, one of the city’s largest employers.

“A lot of our technology partners sit in that area and we want to be able to serve them,” said Taylor, a former Qualcomm veteran who joined MediaTek last year.

MediaTek is relatively unknown outside Asia, where it has grown in the past decade to become the dominant supplier of low-cost cellphone chips, instrumental in helping companies such as China’s Xiaomi and South Korea’s LG Electronics Inc produce handsets that sell for less than $100 each.

MediaTek plans this month to launch a rebranding campaign highlighting its expansion beyond China and into the United States and other developed markets led by Qualcomm.

“We need to redefine that we really are at this point serving the entire globe and not just small pockets of the world,” Taylor said. She declined to give more details ahead of its launch.

Lacking relationships with US phone carriers, MediaTek is unlikely to challenge Qualcomm’s command of the high-end phone market soon, analysts said. In the mid- and low-tier categories, the Taiwanese company’s ability to produce chips very cheaply is giving it an edge over other US players like Broadcom Corp, Nvidia Corp and even Intel Corp, which are all trying to compete with Qualcomm.

MediaTek, whose stock market value of $18 billion surpasses Broadcom and Nvidia, far outsells Qualcomm in handsets aimed at Chinese consumers but it supplies processors for less than 3% of smartphones sold in the United States, according to Strategy Analytics analyst Sravan Kundojjala.

MediaTek believes its future chips will help manufactures make cheap phones that can compete in quality against more expensive devices made with Qualcomm’s components.

“The opportunity lies in picking up one of the fringe (manufacturers), giving them an excellent platform, great performance and a good price,” said Evercore analyst Patrick Wang. “Get a couple of those who get traction at a carrier in the US and suddenly you see MediaTek’s export share increase a lot.”

Seeking new growth
Founded in 1997, MediaTek got its start designing chips for digital televisions and optical devices like DVD players, before turning its attention to cellphones. Last year, it sold over 200 million smartphone chips in Asia and became the world’s 14th largest semiconductor company, according to research firm IHS.

MediaTek’s expansion into the US market comes as it faces more competition in China, where Qualcomm as well as up-and-coming rivals like Shanghai-based chipmaker Spreadtrum are replicating its low-cost model.

Analysts on average expect MediaTek’s revenue growth to slow to 30% in 2014, from 36% in 2013. While that far outpaces Qualcomm’s forecast 8% revenue growth, JPMorgan has warned that MediaTek could be hurt by the slower rollout of next-generation wireless products in China.

With a strategy that centers on offering manufacturers turnkey blueprints for quickly making inexpensive phones, MediaTek’s sights are set on mid-range smartphones from the likes of Lenovo or Huawei, rather than premium devices from Apple Inc or Samsung Electronics Co Ltd .

Some analysts expect mid-range phones to gain popularity in the US market, where a price war between carriers is expected to intensify this year.

MediaTek’s move into mid-priced devices in China and around the world, along with efficient cost controls, may push its 2013 operating margin of 18% up another 4 percentage points over the next two years, said Evercore Wang.

Like competitors, MediaTek is rushing to roll out wireless chips featuring Long-Term Evolution, an advanced technology for faster data transfer. LTE has become standard in US phones and it is slowly being introduced in other parts of the world.

So far, that technology is dominated by Qualcomm as rivals have run into delays launching their own LTE chips due to the technology’s complexity. That has left handset manufacturers craving an alternative.

“Qualcomm owns 90-plus percent of the LTE modem market. That’s not a comfortable place for many of these OEMs (original equipment manufacturers),” said IDC analyst Les Santiago. “That alone will create an opportunity for a second-place LTE player. The issue is – who will that be?”

For its part, Qualcomm said rivals have underestimated the challenge of making LTE chips that work well on different carriers’ networks. The company has made four generations of LTE products, a much longer track record than MediaTek and others.

“We’ll see what happens when the products show up,” Qualcomm senior marketing director Peter Carson said of rivals’ plans for LTE. “We know the industry continues to underestimate the increasing complexity of the LTE roadmap. We believe we have a performance advantage.”