From U.S. Beachhead, MediaTek Faces Qualcomm & Other Mobile Giants

5/8/13Follow @gthuang

A big Taiwanese tech company you probably haven’t heard of is starting to make noise in the U.S. Based out of several hubs around the country, it is positioning itself to gain a foothold in the local market for chips used in smartphones, tablets, and wireless networks.

In recent years, Hsinchu, Taiwan-based MediaTek has opened offices in Woburn, MA; Austin, TX; San Jose, CA; and Irvine, CA. Its U.S. presence is still pretty small—just under 250 employees nationwide—but it’s growing fast. And the firm’s global resources and strategy make it one to watch if you want to know the future of mobile hardware.

MediaTek (TSE: 2454.TW) was spun out of United Microelectronics Corporation back in 1997. It originally specialized in home and consumer tech—designing computer chips for things like DVD players, TV systems, and optical storage drives. The company went public on the Taiwan Stock Exchange in 2001 and got into the mobile-handset business in the mid-2000s. Now wireless chips make up 60 to 70 percent of its overall business.

The multibillion-dollar firm is Asia’s largest chip designer, and much of its growth is from China’s booming smartphone market. Earlier this week, MediaTek said its 2013 first-quarter profit ($125 million) was up 51 percent over the same period last year. The 7,000-person company is expected to grow to about 10,000 strong with its $3.8 billion acquisition of MStar Semiconductor (also based in Hsinchu, Taiwan), which is supposed to close this summer.

Most of MediaTek’s mobile business to date has been in feature phones and low-end smartphones. But that could change quickly as more consumers (both in the U.S. and worldwide) buy higher-end phones, and as the price of devices continues to come down. Indeed, recent developments could put MediaTek on a collision course with Qualcomm and other chip giants like Intel, Broadcom, and Nvidia, in the increasingly competitive mobile market.

That’s not happening right away, at least not in North America. But if you know much about Clay Christensen’s “disruptive innovation” model—start at the low end, move up-market, and eventually take share from the big guys—this has all the hallmarks. What’s interesting is it’s a big company pulling the strings, not a startup.

But MediaTek’s U.S. offices are startup-like in scale. Its Boston-area branch has 80-plus people; many of them came over from MediaTek’s $350 million acquisition of Analog Devices’ cellular chip business in 2007. The Texas office is just north of 40 people, working on radio-frequency transceivers and CPU core optimization (more on that below). Silicon Valley has the biggest presence, with over 100 employees. And the Orange County branch is small, with about 10 people.

I recently met with Boston-area executives Finbarr Moynihan and Hong Fan (pictured above), who head up MediaTek’s international sales and marketing and global product marketing, respectively. They were pretty open about their company’s ambitions in the U.S.—and how much it needs to do to get there.

Moynihan and Fan were previously with Analog Devices, doing product marketing. Fan is a native of China, and Moynihan lived in Taiwan for two years as part of the MediaTek-Analog integration process.

As Moynihan explains, MediaTek is “historically very strong in China and emerging markets… But where we need to be, what we need to grow into, is an international global player, shipping into North America with higher-tier customers.”

That means becoming a leading supplier of high-performance chips for tablets, connected devices, smartphones, feature phones, and Wi-Fi systems. It means being used in cheap Android phones as well as higher-end products, where it will compete with the likes of Qualcomm and other big chipmakers. (Keep in mind MediaTek wasn’t even in smartphones until the second half of 2011.)

One of the firm’s key technologies is a quad-core mobile chip based on ARM’s Cortex-A7 processor, which is known for its energy efficiency. “We were the first to bring quad-core to the entry [level] segment,” Moynihan says. That chip, he says, balances the requirements of speed and power efficiency in a way that achieves longer battery life.

And the latest high-end version of the chip, called the MT6589, is designed for smartphones and tablets to play video on high-definition displays. What the chip doesn’t have yet—and this is a big deal—is LTE capabilities. “That excludes us from the majority of the U.S. market today,” Moynihan says, since 4G LTE is becoming prevalent.

That might be why big mobile players here aren’t paying much attention to MediaTek yet. But they will. “We will have our first LTE solution by the end of this year,” Moynihan says. “It will take time to roll that out and get operator approval. It’s the single most pressing need to address developed markets.”

And that’s where the company’s Austin, TX, office comes into play. MediaTek’s engineers in the Lone Star State are working on the spectrum and radio requirements for LTE networking capabilities. As Moynihan points out, Austin is “a fantastic area for physical design.” He cites Apple’s 2010 purchase of chipmaker Intrinsity; Samsung’s buildup in the region; ARM’s local presence; and a “strong history and legacy around processor design, architecture of CPUs, and physical implementation of those processors for low-power applications.” (Though Texas Instruments and Freescale are no longer in the mobile-chip business, he says.)

So how will things play out in the U.S. mobile-chip market? Not surprisingly, the MediaTek execs like their chances. They say device subsidies from wireless carriers have probably peaked in the U.S. and Europe (though they are increasing in China), which means mobile operators “will be looking for high-quality, lower-cost devices.”

But the real key is LTE. If and when MediaTek rolls out its LTE chips, the market could potentially open up quickly, with carriers like Verizon and Sprint moving to LTE from the CDMA2000 (3G) standard. (MediaTek doesn’t support CDMA2000, so it has not been able to sell to makers of Verizon and Sprint phones.)

“There’s not a lot of diversity in LTE chipsets yet,” Moynihan says. “2014 is going to be a much more interesting year for us.”

And for MediaTek’s competitors. After what Moynihan calls a consolidation “bloodbath” in the past few years, the field has narrowed. “Qualcomm is the gorilla in all this,” he says. “We think we’re uniquely positioned because we’re headquartered in Asia, where the market will be driven from. All the other guys in contention, you’re still looking at the West Coast.”

MediaTek touts its broad base of customers in lots of countries and its profitability in the mobile market. What is more, its execs like its progress so far. “In the entry part of the market, our roadmap has accelerated past Qualcomm’s,” says Moynihan. “That has the potential to start challenging our competitors.”

It certainly won’t be easy. But the constant state of flux in mobile networks and devices—plus the rise of Asia in mobile infrastructure and equipment—means if an outsider like MediaTek is able to follow through on its U.S. strategy, it could become a big player here.

“One thing I know about the mobile industry, if you think it’s at the status quo, it’s going to change,” Moynihan says. “It’s not long ago that Nokia and Motorola were at the top. Things don’t stay stable for long in this business.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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