MediaTek, China's largest source of semiconductors for mobile devices, on Friday said it is thinking about expanding into automotive technology through acquisitions, a day after its biggest rival, Qualcomm of the U.S., announced a planned takeover of Netherlands-based NXP Semiconductors, the world's No. 1 automotive chipmaker.

"We will consider using merger and acquisition opportunities to become more competitive in the automotive chip segment," said Hsieh Ching-Jiang, vice chairman and president of MediaTek

"It's likely that we will join the ongoing wave of consolidation to grow our product portfolios," Hsieh said, without specifying an acquisition target.

MediaTek's margins have suffered serious erosion this year, due to a ferocious price war in the Chinese smartphone market with Qualcomm, the world's largest mobile chip supplier, and China's Spreadtrum Communications.

Mobile chips account for around 60% of MediaTek's revenue.

To compensate for falling margins, MediaTek has been considering internet of things and automotive technologies as sources of future growth.

MediaTek Chairman Tsai Ming-Kai said in June that his company plans to spend 200 billion New Taiwan Dollars ($6.32 billion) on research and development over the next five years to tap into new areas such as autonomous cars and artificial intelligence to reduce the company's reliance on the mobile business.

The company announced earlier this year that it will develop telematics and the connected vehicle market in China with NavInfo, a state-owned digital mapping company, with an investment of up to $100 million. NavInfo's clients include BMW, Toyota Motor and Tesla.

"The lucrative margin of more than 40% in making chips for automobiles is very attractive for MediaTek," said C.Y. Yao, an analyst at Topology Research Institute. "But there is growing competition in the automotive sector as more and more players try to step in," Yao said.

Qualcomm poses an increasingly serious challenge to its smaller Taiwanese rival with its $47 billion takeover offer for NXP, the largest semiconductor deal ever. In 2015, NXP had the largest share of the automotive semiconductor market worldwide, at 14.4%, followed by Infineon Technologies of Germany, Renesas Electronics of Japan, and Texas Instruments of the U.S., according to research specialist IHS.

NXP also makes near-field communication chips used by Apple Pay.

On Thursday, Qualcomm CEO Steve Mollenkopf said in a conference call that his company is eyeing the "tremendous opportunities" in the automobile and internet of things sectors, referring to connected devices in homes, factories and infrastructure.

"By buying NXP, Qualcomm will make significant progress in penetrating into the automobile chip market," said Rick Hsu, an analyst at Daiwa Capital Markets. "If the acquisition goes smoothly, it will create an extremely high threshold for competitors such as MediaTek to get into the automotive market in the long run," Hsu said.

Jerry Peng, an analyst at the Industrial Technology Research Institute Hsinchu, suggested MediaTek may try to counter emerging threats posed by the Qualcomm-NXP deal by forging partnerships with Japanese automotive chipmakers, such as Renesas and Rohm Semiconductor.

"I don't expect MediaTek to penetrate into first-tier carmakers anytime soon, but it can always start with local carmakers in China, where it has been operating its business for quite a long time," said Peng.

On Friday, MediaTek's said its net profit fell 1.6%, year on year, to NT$7.83 billion on sales of NT$78.4 billion in the three months ending in September. The sales figure was an increase of 37.6% from a year ago. The company's gross margin slipped to 35.2% in the last quarter, the lowest level in over a decade, amid stiff competition. The figure was flat this quarter.

For the October-December period, MediaTek forecasts sales of NT$66.6 billion to NT$72.9 billion, up 7.9% to 18.1%, from a year earlier.

MediaTek's Hsieh, however, said the pressure on margins is still very high, and he does not expect any substantial improvement until the second half of 2017.

While the Qualcomm-NXP alliance will create new headaches for MediaTek, Taiwan Semiconductor Manufacturing Co., the world's No. 1 contract chipmaker appears largely unaffected. Qualcomm, NXP, and MediaTek are all TSMC customers.

Morris Chang, TSMC's founder and chairman, said last week he did not expect his company to suffer any negative impact from a potential Qualcomm-NXP merger. He said that, in fact, it would be healthy for the entire semiconductor industry if the merger is a success.

By: DocMemory
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