Smartphone sales probably fell this year, so you’d think revenue to top suppliers of their processors would dip along with them. But a chief supplier in Taiwan, MediaTek, reported a NT$6.8 billion ($220 million) third-quarter profit, up 54.2% from the same period last year. Revenue jumped about 11% to NT$67 billion.

What’s the secret sauce for its chips? The answer goes back to the Business 101 theory of diversification: phones, connected devices, automotive electronics and artificial intelligence (AI), to name the headliners. But not just phones alone.

“MediaTek has been putting a lot of efforts into expanding its business into broader fields such as the internet of things and TV,” says Mo Jia, analyst with the market research firm Canalys in Shanghai. “With the

overall smartphone market fatigue to increase further, it’s necessary that component providers switch into new areas to seek more growth."

A Bit of Everything

The 21-year-old Taiwanese firm designs chips for the Chinese brands of Android phones as well as feature phones, the pre-smart handsets that come with cameras and rudimentary internet browsers. It still makes tablet chips, too.

Smartphone sales probably fell this year, so you’d think revenue to top suppliers of their processors would dip along with them. But a chief supplier in Taiwan, MediaTek, reported a NT$6.8 billion ($220 million) third-quarter profit, up 54.2% from the same period last year. Revenue jumped about 11% to NT$67 billion.

What’s the secret sauce for its chips? The answer goes back to the Business 101 theory of diversification: phones, connected devices, automotive electronics and artificial intelligence (AI), to name the headliners. But not just phones alone.

“MediaTek has been putting a lot of efforts into expanding its business into broader fields such as the internet of things and TV,” says Mo Jia, analyst with the market research firm Canalys in Shanghai. “With the overall smartphone market fatigue to increase further, it’s necessary that component providers switch into new areas to seek more growth."

A Bit of Everything

The 21-year-old Taiwanese firm designs chips for the Chinese brands of Android phones as well as feature phones, the pre-smart handsets that come with cameras and rudimentary internet browsers. It still makes tablet chips, too. half of this year if they were selling to the major smartphone manufacturers, says C.Y. Yao, semiconductor analyst with Taipei-based market research firm TrendForce.

But TrendForce, among others, forecast a first-ever decline in phone sales this year, as consumers wait longer than before to replace older handsets with new ones. Counterpoint estimates a 1.3% drop in sales over 2017. That sales decline will extend into next year, Yao says, so chip makers are “now seeking other business opportunities due to the slowdown.”

Growth Goods: Automotive, IoT and Servers

MediaTek along with peers Qualcomm and Unigroup Spreadtrum RDA are delving into automotive electronics and the internet of things (IoT), Yao says. The IoT market saw a “somewhat unexpected acceleration” in the first half of 2018, bringing the total number of connected devices to 7 billion, market research firm IoT Analytics says. The automotive electronics market size is forecast to reach $410.1 billion by 2025 on a compound annual growth rate of 8.6% since 2016.

For MediaTek, IoT is a “growing revenue source” that makes up 15% to 20% of total sales, Qi with Counterpoint says. It makes chipsets for Wi-Fi, Bluetooth and other types of connections, he adds. Some of those technologies could offer “turn-key solutions” for watches, voice assistants and connected devices, he says.

Demand for "smart" speakers in China and North America helped drive revenue in the second and third quarters this year, which is also good for MediaTek's voice assistant platform, Qi adds.

“Given the growing popularity of consumer electronics products, such as smart speakers, the chance for MediaTek’s profits to sustain the growth is there,” says Yeh of the Market Intelligence & Consulting Institute.

By: DocMemory
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