MediaTek plans to take leadership from Qualcomm, despite unfair play

    MediaTek is Taiwan's largest designer of microelectronic chips for wireless communications and digital multimedia devices. In 2015, the Chinese smartphone market slowed down, and MediaTek's profits fell 40% over the first three quarters. In recent years, MediaTek's business has grown rapidly through the sale of low-cost components for China's cellular market.

    “Our revenue in the smartphone market is only about $ 4 billion, Qualcommit’s about $ 17 billion, so we have huge potential for growth, ”said David Ku, MediaTek CFO. This year, MediaTek almost doubled the sales of its processors in the Chinese market, where it controls about half of the segment of locally-made smartphones, and next year the increase in sales volumes may be limited to 70%, said COO Jeffrey Ju. Despite the recession, David Ku is convinced that the technological developments of his company will allow her to boost sales.

    However, experts are not so optimistic: they reduced their forecasts for MediaTek several times this year. Randy Abrams, an analyst at Credit Suisse , explains that the deterioration in the financial performance of the Taiwanese company is due to its desire to increase its market share to the detriment of profitability.

    True, and from the spring of next year, Ju is not certain in terms of increasing demand for MediaTek products. Now you need to survive the winter, and in the spring demand will appear at least because of the need of people to replace out-of-date and outdated smartphones, he believes.

    As smartphone sales in China slow down, competition intensifies. In the lower price range, which is dominated by chips that do not support LTE, MediaTek competes with Spreadtrum , which is controlled by the Chinese government. Here, according to Ku, "the competition is in the field of prices, not productivity."

    Huawei , China’s largest smartphone maker, manufactures most of the necessary chips on its own. Its competitor, Xiaomi, is planning to do the same..

    In the upper price range for MediaTek and Qualcomm, margins are reduced due to price competition with each other, Vedomosti writes . MediaTek is actively developing LTE-enabled chips for expensive phones, and now they account for about 40% of all its sales in pieces. But MediaTek still lags behind Qualcomm in the field of technical standards and this gives the American company a price advantage, analysts from Nomura believe . According to Mark Lee, an analyst at Bernstein, MediaTek lags behind Qualcomm in product specifications by about a year, but this gap is gradually narrowing.

    MediaTek does not consider its technological lag behind competitors to be noticeable, therefore the company has some confidence in its own abilities. Ku even claims that his company will eventually take over Qualcomm’s technology leadership.

    On November 18, Qualcomm received a report and allegations of violation of South Korean antitrust laws from the Korea Fair Trade Commission ( KFTC ). In particular, the report says that the practice of licensing Qualcomm patents violates the laws of the country, since the company's patents concern only the hardware component and it is against the law to force partners to license other intellectual property.

    Qualcomm pleads not guilty. The company believes that the allegations in the KFTC report are not supported by facts, and the practice of licensing is no different from the principles of doing business in other companies, is the norm and has not changed for two decades.

    Last year, an antitrust investigation of Qualcomm in China began, which ended with a huge fine of nearly $ 1 billion for the giant.

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