MediaTek’s chips transforming China’s smartphone market
By Lin Yang / NY Times News Service, TAIPEI
In China’s smartphone market, Apple has seen better days.
Despite having reported record sales of the iPhone 5, Apple’s presence in China flagged last year. It was pushed out of the top five smartphone makers in that market in the third quarter, with just 8 percent of the market, according to the research company Canalys.
As Coolpad, Huawei (華為), Lenovo (聯想), Samsung and ZTE (中興通訊) surged ahead of Apple, an important force behind their success was MediaTek (聯發科), a Taiwanese chipmaker whose products have greatly reduced what it costs manufacturers to get new phones to market.
MediaTek entered the smartphone business late, introducing its first chipset in 2011 in a Lenovo phone, but within 18 months, it has taken 50 percent of China’s market for smartphone chips, analysts say.
That success has come with the adoption of what MediaTek calls a “turnkey solution.” Rather than simply provide a chip, the company also offers instructions for building a phone, the software architecture to run it and dedicated consultants to advise phone makers during the production process. MediaTek chief financial officer David Ku (顧大為) describes this as a franchise model in which all the clients must do is “turn on the burner.”
Peter Liao, an analyst at Nomura Securities who covers the industry, said MediaTek saved phone makers the often prohibitive cost of research and development.
“It typically takes a lot of money and time to develop a new handset model, but MediaTek comes in and provides a total solution,” Liao said.
The company has proved wildly popular among Chinese phone makers. Besides supplying Huawei, Lenovo and ZTE, MediaTek also supports lesser-known manufacturers, including those that make “bandit phones” that imitate premium models from Apple, Samsung and HTC.
TCL Communication Technology Holdings (TCL通訊), a Chinese phone maker that sells phones primarily in Europe and Latin America, uses MediaTek’s chips. TCL chief operating officer Wang Jiyang said that when the company worked with MediaTek, its only important design tasks were to make the software easier to use and to tailor the look and feel of the phone.
“In general, with MediaTek’s help, we’re able to achieve almost twice as fast time to market, compared to other solutions,” Wang said.
MediaTek was founded in 1997. It made chips for home entertainment electronics like DVD players and televisions before moving into components for CD and DVD-ROM devices. In 2004, it began making chips for small mobile phones.
MediaTek estimated that it ranked at the top of the Chinese market last year with sales of 110 million smartphone chips, up from 10 million chips the previous year.
By comparison, Qualcomm, the global leader in smartphone chips, was expected to finish in second place in China with 82 million chips shipped, according to the research firm DigiTimes.
MediaTek has been powered by consumers like Zhang Ying, 31, who want to try the latest technology, but not pay a premium for it. Zhang of Shanghai bought a knockoff HTC (宏達電) phone last year.
“Every person has a price point,” he said. “At a time when some of my friends were buying Samsung or iPhone, I wanted to show that I can keep up with them. A lot of domestic phones are cheap and of fairly good quality.”
----------------------------------
January 23, 2014 12:00 am JST
Taiwan's MediaTek riding high on the back of cheap smartphones
MediaTek's Xinzhu city headquarters is at the heart of the "Silicon Valley of Taiwan."
TAIPEI -- As smartphones become ubiquitous in Asia, consumers are embracing inexpensive models, some priced as low as $100.
Prices have come down quickly, thanks in no small part to MediaTek, a Taiwanese chipmaker. MediaTek has had great success selling cheaply both the semiconductors that go into handsets and entire smartphone designs. This has enabled the rise of consumer electronics companies offering cheaper smartphones.
MediaTek President Hsieh Ching-jiang on Jan. 6 flew from Taipei to Las Vegas to meet with senior Google executives one day before the opening of the International Consumer Electronics Show. They discussed Google's operating system for cars, which the information technology giant is developing in partnership with Honda Motor, Audi, General Motors and Hyundai. The key to success, Hsieh said, is to combine safety and convenience.
Hsieh Ching-jiang, president of MediaTek
Before his returning home Jan. 10, Hsieh powered through meetings with top officials from 30 global IT firms, including Sony, Samsung Electronics of South Korea and China's Lenovo. Hsieh said he was at the event to find the next big thing after smartphones.
MediaTek is a "fabless" semiconductor maker specializing in chip design but leaving production to others. The company focuses on chips for smartphones that handle various functions, including image and data processing as well as communications. Its shipments in 2013 jumped 80% compared with the previous year in volume terms to more than 200 million units.
It also held a 47% share in the Chinese market last year, up 14 percentage points from 2012 and outstripping its rival Qualcomm of the U.S., the world's largest maker of chips for mobile devices. That helped push MediaTek's sales 37% higher compared with the previous year to a record 136 billion New Taiwan dollars ($4.52 billion).
Cheap and cheerful
The company's rapid ascent stems from the growing popularity of inexpensive smartphones across Asia. Global smartphone shipments were estimated at about 960 million units in 2013, according to a U.S. research company. Of these, one in three costs $200 or less. These cheaper models are widely expected to overtake higher-end handsets, such as Apple's $400-plus iPhone, in 2015.
MediaTek's strengths lie in its skill in making cheap, user-friendly products, according to an executive at major Chinese smartphone manufacturer ZTE. The Taiwanese company's chips cost 30-50% less than Qualcomm's. It also sells "reference" or basic designs for smartphones to other manufacturers, a business model that is attractive to its partners. Its competitors are following suit, but MediaTek is ahead of the pack.
Not only does the company provide instructions on the layout of components and wiring in its reference designs, it also compiles a list of recommended parts and their manufacturers as well as giving detailed information on operating systems and development tools. This approach has enabled it to gain the upper hand along the entire product development chain from design to parts procurement. In effect, MediaTek outsources production to device makers while retaining many profitable parts of the process for itself. It now finds itself at the top of the pyramid rather than on the bottom, where component makers found themselves when conventional handsets were dominant.
Package deal
To see this reversal of fortune in practice, look no further than the salesperson at one Japanese component maker. The company, which makes parts that cancel electrical noise, is working hard to meet MediaTek's exacting standards. The Taiwanese company now performs some of the tasks the device makers used to do for themselves. This ensures the various components work together optimally and allows it to recommend those components to its customers.
Its next big target is onboard systems for "smart cars." At present, Japanese manufacturers such as Renesas Electronics and Panasonic are leaders in this field. But MediaTek has started developing chips for image and sound processing with a view toward becoming a key supplier to automakers. It has created a subsidiary in China's southern Guangdong Province and has begun sales and marketing activity aimed at auto manufacturers from around the world.
Hsieh believes cars and smartphones will become increasingly connected. He expects MediaTek to play a major role in that collaboration.
(Nikkei)