Low Priced Chipsets from MediaTek Could Hurt Qualcomm’s Stock
Qualcomm (NASDAQ:QCOM) is facing stiff competition from Tawian-based chip maker MediaTek. The two companies compete in the mobile chipset market along with players like Texas Instruments (NYSE:TXN), Broadcom (NASDAQ:BRCM), Marvell (NASDAQ:MRVL), Freescale and Infineon.
We believe that MediaTek’s strategy of selling low cost chips and partnering with mobile phone makers like Motorola will help it to gain additional chipset market share, which could cause greater market share declines for Qualcomm.
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We believe that Qualcomm’s share in the CDMA mobile phone chipset market will continue to decline from 68% in 2009 to 61% by the end of Trefis forecast period. Furthermore, there could be a downside of 5% to the $42 Trefis price estimate for Qualcomm’s stock if MediaTek were to gain additional market share at the expense of Qualcomm, causing Qualcomm’s share to decline to 54% by the end of Trefis forecast period.
MediaTek’s Strategy of Low Prices and Partnerships
There are two main factors driving the success of MediaTek:
1. Low Priced Chipsets
Emerging markets are sensitive to mobile phone pricing. MediaTek helps to keep consumer mobile phone prices low by supplying mobile phone makers, especially in China, with low cost chipsets. According to estimates by BNP Paribas, MediaTek supplies about half of the chips used in mobile phones made by Chinese companies.
MediaTek has been gaining market share rapidly and overtook Texas Instrument to become the #2 global chipset supplier after Qualcomm.
In another article, we discussed how faster 3G adoption in emerging markets like China and India could benefit Qualcomm. However, with MediaTek selling low cost chipsets, the advantages of larger market for Qualcomm could be offset by market share loses in emerging markets.
2. Partnerships with Motorola and Microsoft
MediaTek has partnered with Motorola and Microsoft to provide mobile phone chipsets focused on emerging markets. Motorola produced seven models of mobile phones for emerging markets based on MediaTek chipsets, while Microsoft also partnered with MediaTek to help mobile phone makers produce Windows mobile-based smartphones for emerging markets. We believe partnerships like these will help MediaTek to gain market share at the expense of Qualcomm.
You can modify our forecast for Qualcomm CDMA chipset market share above to see how Qualcomm’s stock could be impacted if Qualcomm’s CDMA market share were to decline at a faster rate than what we forecast.