As the initial market response to its new 5G system-on-chip (SoC) solutions appears to be positive, 5G represents an opportunity for MediaTek Inc to increase the average selling prices (ASPs) of its products and boost its earnings, analysts said.

Moreover, MediaTek is likely to see its 5G SoC solutions gain better traction among Chinese smartphone original equipment manufacturers (OEMs) beginning next year, they said.

“MediaTek’s 5G SoC development is on schedule and should pave the way for its smooth transition into the 5G era in 2020 and let it capture demand tied to the coming 5G-driven handset replacement cycle,” SinoPac Securities Investment Service Corp said in a research note released on Monday.

“The de-Americanization of Chinese vendors’ supply chains would also help boost its handset SoC shipments and stabilize its market share,” SinoPac said.

MediaTek is planning to mass-produce its first 5G SOC product in March next year, making it one of the world’s leading suppliers of 5G chips.

MediaTek’s shipments of 5G chips are likely to reach 30 million units next year and grow to 75 million units in 2021, Credit Suisse Group AG said in a report on Tuesday.

China’s Oppo Mobile Telecommunications Corp, Vivo Communication Technology Co and Xiaomi Corp are likely to become MediaTek’s major clients for 5G chips next year, while Huawei Technologies Co and Samsung Electronics Co might increase their orders in 2021, Credit Suisse said.

While 5G opportunities look good from next year onward, aggressive 5G pricing from Qualcomm Inc or a slower 5G adoption rate in China due to trade disputes with the US might pose potential risks for MediaTek, analysts said.

The company on Wednesday reported that its revenue increased 1.95 percent month-on-month and 1.69 percent year-on-year to NT$23.49 billion (US$761.43 million) last month, the most in 13 months.

Last month’s revenue growth helped lift the company’s third-quarter revenue to NT$67.22 billion, which was in line with the revenue forecast of NT$65.3 billion to NT$70.2 billion that MediaTek made in July.

In the first three quarters of the year, total revenue reached NT$181.51 billion, an increase of 2.45 percent compared with NT$177.17 billion in the same period last year.

So far this year, MediaTek’s sales were evenly distributed amid the company’s three major business segments — mobile computing; growth solutions, including Internet of Things and power management IC; and mature solutions such as television SoC — and all three segments’ ASPs and gross margins expanded from a year earlier, SinoPac said.

SinoPac gave MediaTek a long-term “buy” rating with a target stock price of NT$490, which was set based on a price-to-earnings ratio of 25, compared with its previous target price of NT$366 based on a price-to-earnings ratio of 22.

Credit Suisse maintained its “outperform” rating on the stock, but raised its target price on MediaTek from NT$365 to NT$440, and forecast earnings per share of NT$19.71 for next year.

MediaTek shares closed at NT$372 on Wednesday in Taipei trading. The stock has risen 62.09 percent since the beginning of this year, outperforming the broader market’s 11.95 percent increase over the period.

By: DocMemory
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