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MediaTek (Part 1): Beginnings And Growth

Posted on Monday, Feb 8th 2010

By guest author Nalini Kumar Muppala

[Nalini’s newest series takes us to Taiwan with an in-depth look at MediaTek’s past and future.]

For the six to seven years following its inception in 1997, MediaTek, Inc. focused on providing media processor chips for DVD players and optical storage drives such as DVDs and CD-ROMs. It was not until 2004 that Taiwan’s largest fabless integrated circuit (IC) firm ventured into handset chipsets. Now, MediaTek is a major player in all markets it has entered, including DTV chipsets. Over a series of posts, I will analyze the handset division’s moves and prospects.

Hsin-chu, Taiwan-based MediaTek’s rise to prominence can be summed up in just one metric: in 2004, MediaTek’s chips found their way into 3 million to 5 million phones; in 2009, MediaTek powered 300 million phones. It is a tribute to the successful execution of the handset division that it brings in some 70% of the company’s revenue. The group’s wireless revenues grew at a compound annual average growth rate (CAGR) of 262% between 2004 and 2008. In the same period, MediaTek grew from 2% of China mobile phone IC market to over 50%.

In 2009 — widely acknowledged as a challenging year — MediaTek’s revenue grew by 22% to $3.5 billion and it rose to fourth position in the list of top fabless IC suppliers. Aside from AMD, which made the list this year in second position after divesting its manufacturing facilities, only Qualcomm and Broadcom had more revenue.

MediaTek’s strong multimedia credentials can be traced back to the days when its main businesses were ICs for optical drives and ICs for DVD players and recorders. The handset chip market noticed the emergence of a new kid on the block in early 2006, when MediaTek’s handset business revenues accounted for 38% of total revenue, edging past traditional areas of strength.

MediaTek’s fortunes grew in sync with growth in demand for mobile phones in emerging markets. Although the technological competency was not in doubt, the lack any contracts with tier-1 handset makers was seen as an impediment to continued growth. This question was hanging over MediaTek for quite some time, but it was recently laid to rest after the announcement that MediaTek would be providing handset chips for all Motorola phones retailing for less than $150. However, Motorola is not the same force that it was a few years ago — this deal would amount to just 40 million units a year compared to the 300 million units that MediaTek shipped in 2009. Samsung is said to have been deliberating using MediaTek chips in their designs as well.

MediaTek is one of the winners of the market reshuffle in which saw several major vendors exited the baseband business. In 2007, MediaTek acquired Analog Devices’s cell phone chip business. This brought LG on board as a customer. More important, it gave MediaTek an opportunity to participate in and grow with the TD-SCDMA market in China. (TD-SCDMA is an air interface used in UMTS mobile communications networks in China.) While other companies such as Marvell have struggled to leverage and grow their baseband acquisitions, MediaTek has done a commendable job of integrating and leveraging its acquired assets. Today, MediaTek is just one of four companies in the world that control 5% or more of the handset baseband market.

In addition to baseband, MediaTek provides radio frequency (RF) connectivity solutions such as Bluetooth, WLAN, FM, and GPS solutions for handset manufacturers. MediaTek’s strategy to concentrate on low-cost manufacturers has paid off immensely. In tomorrow’s post, we will explore this aspect of the company’s approach in more detail.

This segment is part 1 in the series : MediaTek
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