MediaTek has launched two new chipsets: the P23 and P30. These aren’t high-end chipsets and boast decent, if not world-beating, specifications. In all likelihood, these launches will go under the radar of all but those closely tracking MediaTek or mobile chipsets generally.
However, these are hugely important products for MediaTek. The Taiwanese fabless semiconductor company has had a challenging 18 months. In the second quarter of 2017, revenue declined 14% year over year as its operating profit slumped by 64% annually.
While MediaTek has itself grown to become a formidable and disruptive force, its core smartphone chipset business has faced mounting pressure. Once the force that was disrupting the smartphone SoC landscape by reducing ASPs and squeezing profit margins, MediaTek is now the victim in a hyper-competitive market that has moved aggressively to target the company's heavily Chinese customer base.
Feeling the squeeze
In short, MediaTek has been squeezed. Spreadtrum, a company with similar aspirations to MediaTek some years ago, is increasingly targeting the midrange to low tier with highly price-competitive LTE solutions. In parallel, Qualcomm has targeted MediaTek’s midtier heartland with renewed vigor as Chinese customer requirements become increasingly sophisticated and international expansion is targeted. For Qualcomm, a Snapdragon 400 series sale at an aggressive price point is an entry point for its higher-margin 600 and 800 series platforms.
MediaTek’s problems were exacerbated by the launch of the Helio X30. Although hailed as a flagship solution for the high-end that could boost ASPs and margins, MediaTek faced the stark reality of inferior specs relative to the merchant high-end incumbent in Qualcomm. Subsequently, the X30 failed to gain any substantial design win traction.
At the same time, Qualcomm’s investment in the midtier illuminated MediaTek’s relative weakness in connectivity. While MediaTek was focusing on CPU core-count, Qualcomm was accelerating the cascade of key features such as carrier aggregation and Cat-7 LTE (downlink). Its most recent 600 series platform (Snapdragon 660) adds a Hexagon DSP, Spectra ISP and Kryo CPU in addition to a Cat 12/13 modem with 256 QAM and three-channel carrier aggregation.
By contrast, MediaTek’s portfolio was largely restricted to Cat-4 and Cat-6 chipsets just as Chinese customer requirements were becoming more sophisticated and increasingly seeking “world mode” solutions.
Focusing on the midtier
This is the backdrop for MediaTek’s P23 and P30 chipsets. The company has wisely opted to focus on addressing its midtier heartland rather than trying to compete with Qualcomm in the high tier, at least in the near term. New chipsets introduce Cat-7 LTE (downlink) and two-way carrier aggregation and a comprehensive set of air interface configurations to enable “world mode” positioning. This should also help increase its standing with U.S. carriers.
MediaTek is also planning an introduction of a new Cat-7 modem architecture in the second half of 2017 that will be extended to new chipsets in 2018. This should improve the cost base and help boost margins as it seeks to heighten its competitive standing relative to a highly ambitious Spreadtrum with the benefit of Chinese government support.
This is a crucial time for MediaTek. It must efficiently execute with the arrival of new products and reassert itself in a smartphone midtier that it played a significant role in enabling. The Taiwanese company is diversifying and has important design wins in strategic segments such as “voice assistant devices” where it is targeting shipments of 20 million to 30 million units of products such as the Amazon Echo and Google Home in 2017.
However, to accelerate that diversification, reduce its reliance on smartphones and prepare for substantial 5G investment and complexity, it needs to re-energize its core business. If it can do so, competition stands to intensify in an already cutthroat midtier smartphone market.