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Battle between Intel and Mediatek hurts SOC new comer
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Wednesday, August 20, 2014
The future of China's tablet market is uncertain¡ªrevenues grow at tepid pace, and phablets featuring cellular network connectivity drive fierce competition. The white-box tablet market has become a battleground between Intel and MediaTek, forcing the retail price for locally branded seven-inch tablets below $50.
Caught in the crossfire is Actions Semiconductor in Zhuhai, China. It has been counting on action in the white-box tablet market. Its strategy is to leverage that market to catapult the company from the MP3/MP4 player market where it made its name.
During its second-quarter financial call, Actions reported revenue of $12 million, versus $18.5 million a year earlier. In particular, diminishing gross margin spoke volumes about the bloody tablet battle unfolding in China. Actions reported a gross margin of 18.4 per cent for the second quarter, compared with 23.1 per cent for the first quarter and 32.2 per cent for the second quarter of 2013.
Intel and MediaTek
"Our second-quarter performance reflects unfavourable dynamics in the worldwide tablet market," Actions CEO Zhenyu Zhou said on the call. "Overall growth in the tablet market has slowed much more quickly than anticipated." In discussing tougher competition, he mentioned Intel and MediaTek rapidly carving market shares in the white-box tablet market while putting pressure on prices. He also said the white-box tablet market itself has been flat.
In discussing app processors designed into tablets, Zhou said that a dual-core SoC was at the high end last year but has moved into the mainstream. The price for such a dual-core SoC "is down by 50 per cent compared to a year ago."
Actions' survival now hinges on future products "enabled by 28nm process technology and 64bit CPU for tablets," according to the CEO. In late June, Actions announced that it had licensed ARM's Cortex-A50 processor family to target the 64bit tablet market. Because the industry-wide transition from 32bit to 64bit architecture is still at an early stage and Actions is leading China in that transition, Zhou is hopeful that his company is better positioned to generate revenue and enjoy growth in 2015. It plans to release its first 64bit product at the end of this year or early next year.
Zhou anticipates Actions' upcoming Bluetooth RF and audio processor integrated single-chip SoC for Bluetooth boom boxes to becoming a revenue driver in the year ahead. He also revealed (as had been reported previously) that the company plans to tailor its new 64bit product for use in Chrome books.
Dutch auction tender
Separately, in hopes of optimising the company's capital structure, Actions has been expanding its stock repurchase programme. It announced Friday that it will commence a Dutch auction tender offer this month to purchase up to 60 million of its issued and outstanding ordinary shares for cash.
A Dutch auction lets a company buy back shares for cash. These voluntary programmes allow shareholders to select from among a range of prices set by the issuer. The auction is controlled by the issuer, which selects the lowest priced offers to fulfil the amount of the total stated buyback. As of June 30, 2014, approximately 23.2 million American depositary shares (ADSs) had been repurchased under Actions' current share buyback programme.
In a letter to shareholders, David Lee, the chairman of the board, mentioned several corporate structure options. One is "dual listing on an Asian stock exchange, where the investors are more familiar with our market power in the PMP and tablet sectors and could give us a better valuation."
Another option involves listing subsidiaries, such as Actions Technology, in Asia to increase the valuation of ADSs listed in the United States.
Lee said his company has formed a special committee to evaluate listing options for Actions and its subsidiaries.
Restructuring
Along with an expanded share buyback programme, Actions revealed a plan to streamline its structure in terms of reporting lines and to redesignate several sales and research entities under its principal operating entity, Actions Technology.
The move appears to reflect a serious internal squabble, pitting the team working in traditional personal multimedia player products (mostly embedded) against developers of tablets and a new generation of products (based on Android).
Lee wrote in his letter to shareholders:
As competition for talent increases, our engineers have also requested that their equity incentive plans reflect the performance of their individual departments and projects that they have worked on. Our new corporate structure will allow our management to keep better track of team and individual performance and issue incentives accordingly.
Lee also said the company is exploring "opportunities in packaged licence deals, joint ventures and various forms of strategic alliances with other industry players." Specifically, he mentioned options akin to the recent collaboration between Intel and Actions' competitor, Rockchip.
Though Actions is "not entertaining a horizontal merger with a direct competitor," he said, the management team is seeking "potential strategic alliance partners."
By: DocMemory
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