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MediaTek riding high on the back of cheap smartphones

MediaTek's Xinzhu city headquarters is at the heart of the "Silicon Valley of Taiwan."

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 a number of consumer electronics companies to offer cheaper smartphones.

     On Monday, MediaTek board member Hsieh Ching-jiang flew from Taipei to Las Vegas to meet with senior Google executives one day before the opening of the International CES consumer electronics show. They discussed Google's operating system for cars, which the information technology giant is developing in partnership with four major automakers, including Honda Motor.  The key to success, Hsieh said, is to combine safety and convenience.

     Before his returning home Friday, Hsieh will power through meetings with top officials from 30 global IT firms, including Sony, Samsung Electronics of South Korea and China's Lenovo. Hsieh said he is at the event to find the next big thing after smartphones.

     MediaTek is a "fabless" semiconductor maker specializing in chip design. The company focuses on LSI chips for smartphones that handle various functions, including image and data processing as well as communications. Its shipments jumped 80% on year in volume terms to more than 200 million units in 2013.

   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 devises. That helped push MediaTek's sales 37% higher on the 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 firm. 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 firm'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 business 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. This approach has enabled it to develop skills 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 it was 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 the market for in-car multimedia systems using smartphones. At present, Japanese manufacturers such as Renesas Electronics and Panasonic are leaders in this field. But MediaTek has already started developing chips for image and sound processing with a view toward becoming a key supplier to automakers and their high-tech cars of the future. 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, and MediaTek expects to play a major role in that collaboration.


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