MediaTek recorded an impressive set of numbers for Q1 2022 with revenues growing 32% YoY and 10.2% QoQ to reach $4.8 billion. The company’s mobile phone segment achieved a revenue of $2.7 billion, growing 29% YoY. According to Counterpoint Research’sSmartphone, AP/SOC Shipment Tracker, the addition of the Dimensity 9000 to the premium segment has added meaningfully to the overall revenues that have also been driven by 5G AP/SOCs in the mid-tier segment. LTE AP/SOCs are still attracting high demand and will be in tight supply throughout 2022. Based on our data, LTE AP/SOCs contributed to one-third of the total AP shipments in Q1 2022.
The smart edge segment contributed 39% to MediaTek’s Q1 2022 revenues. This segment is mainly driven by the Wi-Fi 6/6E migration and higher-end solutions for smart TVs and tablets. Technology migration trends in smart edge platforms have led to a higher blended ASP in this segment.
The power IC segment accounted for 8% of the total revenues, growing 52% YoY and 21% QoQ. A large part of the PMIC segment’s revenue is coming from displays and smartphones. Automotive and industrial applications contribute to 10% of the PMIC revenue and will drive growth for this segment in 2022.
MediaTek guided revenues to be in the range of $5-$5.3 billion in Q2 2022, up 3~10% QoQ and 17~25% YoY. The mobile phone segment will show the strongest growth due to the shifting of demand from LTE to 5G AP/SOCs. As the China market is slowing, the revenue growth will come from other regions like India and Europe. Also, the Dimensity 9000 and 8000 series will continue to add to the revenues in Q2 2022. However, due to the slowdown in China and deteriorating macroeconomic conditions, we have reduced our H2 2022 forecast for the Dimensity 9000.
Revenues from Wi-Fi 6, 5G SIM modem, 5G tablet, 10G-PON and 4K smart TV are also expected to grow strongly in H2 2022. Also, MediaTek’s mmWave SOC is on schedule to ship in the second half of 2022. It will pave the way for MediaTek’s further expansion in the global market.
According to Counterpoint Research’s Smartphone AP/SOC Shipment Tracker, MediaTek will continue to lead the smartphone AP SOC market with a volume share of 41% in Q2 2022, followed by Qualcomm with 27%. The company’s strategy of 5G, Wi-Fi 6, focused product migration, geographic expansion with global customers, and penetration into high-end and flagship segments will allow MediaTek to retain and even improve its strong market position.
China slowdown, COVID-19 lockdowns and macroeconomic conditions will affect the global smartphone market. MediaTek guides flat growth for the smartphone market in 2022 and 5G penetration (660-680 million units) reaching 50%. Further, 5G penetration is expected to reach 70% in the next two years.
Smartphone OEMs like OPPO, vivo and Xiaomi currently have inventories with distributors and also for components like AP/SOCs, PMICs and DDICs. This has led to a drop in AP/SOC orders for MediaTek for H2 2022. But MediaTek is keeping a high inventory reserve this quarter to sustain its OEM and ODM partners during the worsening COVID-19 situation. MediaTek normally runs with around 90 days of inventory. But it has now raised this to around 100 days to manage potential supply constraints.
MediaTek sought to reassure investors that it would not follow a low pricing strategy to counter slowing demand. Instead, it will invest in future growth. Its pricing strategy will also leverage its high capacity and will manage profitability by maintaining similar pricing as the previous quarter. We expect overall 5G AP/SOC ASPs to be flat compared to last year. If the competition reduces the prices, it will be challenging for MediaTek to maintain growth in H2 2022. Due to the strong demand for LTE AP/SOCs, the ASPs will not decline this year. Overall, 5G AP/SOCs will have a premium pricing over LTE. The company is now focusing on developing 5G AP/SOCs for low-end phones priced less than $150. We believe this will happen two years down the line. However, based on our estimates, LTE is going to dominate the less than $100 smartphones, driven by regions like LATAM, Africa and APAC.
Presently, MediaTek is not a big player in the PC business, having only a few Chromebook-type devices in the market. The company played down its expectations for substantial growth in the PC sector while confirming that it was interested in the potential of the Arm-based PC market.
Smartphones still contribute 53% of the revenues for MediaTek. For longer-term growth, MediaTek has to reduce dependence on smartphones and expand into areas like the smart edge, automotive, connected PCs and AR/VR.
5G, the new frontier in telecommunications technology, is being adopted faster than its predecessor, 4G. Despite the COVID-19 pandemic, we are observing a resilient and consistent rise in 5G smartphone penetration in every region. 5G devices captured more than two-thirds (69%) of global smartphone revenue in Q1 2021, with their shipments reaching 39% of the global total for the quarter, according to Counterpoint’s Quarterly Market Monitor service.
Exhibit 1: Global Smartphone Revenue and Shipment Share of 5G, Q1 2021
The launch of Apple’s 5G capable iPhone 12 series in Q4 2020 gave a boost to the 5G smartphone market. The momentum continued in Q1 2021 when 5G smartphone shipments grew 7% QoQ despite total shipments declining 10% QoQ.
Although Apple declined QoQ in Q1 2021, it did not slow down as much as expected due to pent-up demand and operator promotions. Further, Apple’s decline was offset by the growth of 5G portfolio of other OEMs across price tiers. Samsung launched its flagship S21 series while Xiaomi’s flagship Mi 11 series was also available during the quarter. Lenovo, vivo, OPPO and realme, all saw impressive growth in both 5G smartphone revenues and shipments, powered by their low- to mid-range 5G offerings.
That said, Apple still recorded the highest 5G smartphone revenue and shipment share in Q1 2021.
Exhibit 2: Global Smartphone Revenue and Shipment Share of 5G by OEMs, Q1 2021
In terms of regions, China is still the largest 5G market both by revenue and volume, powered by low- to mid-tier offerings. Brands like realme are becoming the key to unlocking 5G accessibility for the masses.
The adoption of 5G, until now, has been driven by the flagship segment. The next part in the 5G adoption story will be convincing the rest of the smartphone user base, which is either price-conscious or utility-driven or both, to shift to 5G. This will depend on OEMs bringing in budget 5G smartphones, governments implementing conducive policies, and a growing basket of 5G use cases to convince users, especially in emerging markets.
Note:Preliminary revenue, based on wholesale pricing.
The global smartphone market wholesale average selling price (ASP) increased 10% YoY in Q2 2020 even as the shipments declined the highest ever at 23% YoY. Overall, the smartphone industry revenue declined 15% YoY during the quarter.
Exhibit 1: Smartphone Wholesale ASP ($) by Regions*
* These ASPs are for Shipments
The ASPs for all the regions increased except Latin America. There are several reasons for this increase. While the COVID-19 pandemic had its effect on the overall smartphone market, the premium segment was much resilient, declining at a modest 8% YoY during the quarter as compared to the highest ever global smartphone market decline. The economic impact of the pandemic on the potential user base of the premium segment was less when compared with other customer segments. This is also indicated by the demand for Apple, the largest player in the premium segment. While shipments for most of the OEMs declined in Q2 2020, shipments for Apple increased 3% YoY and iPhone revenues increased 2% YoY.
There was also an increased dependency on mobile phones during the lockdown, with work from home, study at home, productivity applications, gaming, entertainment and other content consumption happening through mobile phones in varying degrees. This also propelled some consumers to upgrade their devices for a better overall user experience.
The uptick in 5G shipments also contributed to the growth of ASP. During the quarter, 5G contributed to 10% of the total global handset shipments but contributed to 20% of the total handset revenue since most of the 5G devices in Q2 2020 were in the premium segment. China was the largest contributor to 5G sales. 72% of the global 5G handset revenue came from China. Most of this was driven by the push from Huawei. Overall, the smartphone ASP in China increased 12% YoY and the region contributed to over 34% of the global smartphone revenue, highest since 2016. This was also because while all the other major economies were still suffering from the severe impact of COVID-19, China was already on the path to recovery.
On the flip side, the demand for lower price tier models was severely impacted. Entry-level devices are usually bought offline, and most of the global markets were in some stages of lockdown during Q2 2020. Consumer sentiment was also low, with users in the low-middle class avoiding discretionary purchases.
Overall, the reduction in demand for lower price tier devices due to economic impact and offline retail closure, the resilience of the premium segment, and the uptick in 5G sales, especially in China, contributed to the rise of smartphone ASP during the quarter.
Exhibit 2: Global smartphone Shipments Revenue Share by OEMs
Within the OEMs, Apple led the global smartphone revenues, capturing one-third of the pie, followed by Huawei and Samsung. Notably, Apple also captured around 59% of the global smartphone industry profit in Q2 2020.
Huawei (including Honor), driven by the China market, reported its highest ever global revenue share at 20% in Q2 2020. This was the first time that Huawei surpassed Samsung both in terms of shipments as well as revenue. This was because of Huawei’s continued push in China, the first country to recover from COVID-19. But as markets outside China recover, it will be difficult for Huawei to maintain this lead in coming quarters.
The analysis is from Counterpoint’s Market Monitor Service, tracking shipments for 140+ brands in 60+ countries.
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