MediaTek, the world's largest mobile chip supplier to China, has won orders for the first time from Samsung Electronics, as it strives to beat off competitors in an environment of mounting price pressures.

"It is not possible for me to comment on (Samsung Note 7's explosions) as Samsung is a customer," MediaTek Chairman Tsai Ming-kai told reporters during a tech forum late Monday night. "We are also working hard to win business from Apple Inc."

Tsai was responding to questions about the outlook for the company's smartphone businesses, although he did not specify which components MediaTek was supplying to Samsung, the world's largest smartphone maker. Apple ranks as No.2.

MediaTek's chief competitors are U.S.-based Qualcomm and China's Spreadtrum Communications. Aggressive price-cutting in the fiercely competitive industry has resulted in a significant hit to the Taiwanese chip designer's margins.

MediaTek said its gross margin fell to a record low of 35.2% in the three months ended June and could slide further in the current quarter. This is despite expectations that it would book a 25% year-over-year rise in revenues for all of 2016.

Monday was the first time that a MediaTek executive had confirmed a business relationship with Samsung. Local media reported earlier this year that the South Korean behemoth would adopt MediaTek chips for its entry-level and mid-tier smartphones in 2017.

With the new arrangement, MediaTek appears to have gained some ground on its two major rivals, which have been supplying chips for Samsung smartphones. Samsung also designs and makes mobile chips for itself.

Arisa Liu, an analyst at the Taiwan Institute of Economic Research, said that while new orders from Samsung could boost MediaTek's global market share, they would not improve its margins.

"It is likely that Samsung can make as much as 10% of MediaTek's mobile chip shipments starting next year, but since MediaTek will still only focus on entry-level and mid-range handsets, the new business will not help with its margins," Liu said. "The new business is in line with MediaTek's goal to grow its market share."

But Randy Abrams, an analyst at Credit Suisse, said that MediaTek might not have yet fully cemented a chip partnership with Samsung.

"MediaTek has had chips testing at Samsung for years but has not had a strong partnership relationship with the customer," Abrams said.

"We do see possibility of MediaTek making inroads finally for a piece of the business in 2017 and believe some engagement will continue underway," he said.

For a long time, MediaTek was synonymous with low-priced Chinese smartphones. Its relatively cheap chips were credited for helping the rise of Chinese players in the smartphone market.

But now MediaTek appears to be aggressively looking for growth opportunities outside of China. On Monday, the Taiwanese chip maker also announced it was providing chips for a LG smartphone tailored for U.S. mobile operator Sprint.

MediaTek's revelation of its involvement with Samsung comes at a time of turmoil. Samsung has been struggling to resuscitate its reputation as a leading global smartphone brand following a string of battery explosions in its premium Note 7 handsets. It is now in the midst of a large-scale recall that analysts have said could cost as much as $3 billion.

By: DocMemory
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