MediaTek to Focus on Automotive, Edge AI for Growth

  • The company saw a slight growth in Q2 revenues due to the improving demand for 5G SoCs.
  • Inventory came down to a relatively normal level.
  • MediaTek and NVIDIA have tied up to develop a full-scale product roadmap for the automotive industry.
  • Significant revenues are expected to be seen for MediaTek’s auto and custom ASIC segments from 2026.

MediaTek’s revenues were slightly up sequentially but down 43% annually in Q2 2023. Inventory has gradually come down to a relatively normal level, but the demand for smartphones will remain slow due to the global macroeconomic situation and the refurbished smartphone market. Against this backdrop, MediaTek is diversifying its portfolio by focusing on the auto, smart edge and custom ASIC segments. The company is estimated to take over two years to get material revenues from these segments.

AI and ASIC Opportunity

CEO: “As for ASIC, we recently see growing enterprise ASIC business opportunities in AI and datacenter markets. With our strong IP and SoC integration capabilities, we aim to continue to grow this business in the future.”

Parv Sharma’s analyst take: “With the growth in generative AI, the demand for edge AI processing has accelerated. Being one of the top players in edge devices, MediaTek is well-positioned to benefit from this shift. The company will focus on winning enterprise ASIC projects but catching up with major players like Broadcom and Marvell will take time, as customers typically work with existing suppliers for repeat projects.”

Growing focus on auto and partnership with NVIDIA

CEO: “We’re very excited about the recently announced partnership between MediaTek and NVIDIA to develop a full-scale product roadmap for the automotive industry. We believe our industry-leading low-power processors and 5G, WiFi connectivity solutions, combined with NVIDIA’s strong capability in software and AI cloud, will help us become highly competitive in the future connected software-defined vehicles market and shorten our time to market to accelerate our growth.”

Shivani Parashar’s analyst take: “MediaTek launched Dimensity Auto to focus on cockpit and connectivity solutions. With its partnership with NVIDIA, the company aims to develop a full-scale product roadmap for the automotive industry. Auto design cycles are long so it will take some time (2026-2027) for the company to increase revenues from this segment. Overall, we can say the auto segment will become a long-term revenue growth driver for MediaTek.”

Customer and channel inventories come down

CEO: “We observed that customer and channel inventories across major applications have gradually reduced to a relatively normal level. Recent demand from our customers has shown certain level of stabilization. However, our customers are still managing their inventory cautiously as global consumer electronics end market demand remains soft. For the near-term, we expect our business to gradually improve in the second half of the year”

Shivani Parashar’s analyst take: “According to our supply chain checks, inventory levels are coming down and will get back to normal in the second half of 2023. OEMs will start restocking but will be cautious due to weak consumer demand and global macroeconomic conditions.”Mediatek revenuesResult summary

  • Slight improvement in revenues: MediaTek recorded $3.2 billion in revenues in Q2 2023, a slight increase of 2% QoQ but a decrease of 43% YoY due to the weak global demand for end products and the second-hand smartphone market. Customer and channel inventories across major applications have come down to a relatively normal level.
  • Maintained mobile segment revenue due to 5G SoCs: The mobile phone segment contributed 46% to the company’s revenue in Q2 2023, which declined by 51% YoY and increased by 2% QoQ. The demand for 5G SoCs improved during the quarter. The new flagship Dimensity SoC will be launched in the coming month.
  • New opportunities for smart edge: The smart edge segment contributed 47% to the company’s revenue in Q2, growing 2% sequentially. The demand for connectivity remained stable in the quarter. Business opportunities are growing for the ASIC segment.
  • Price discipline: MediaTek will focus on maintaining gross margin, following price discipline at a time of uncertainty in the global semiconductor industry.
  • Favorable guidance: MediaTek guided Q3 revenues in the range of $3.3 to $3.5 billion, growing 4%-11% sequentially. Gross margins are expected to be around 47% while the operating expense ratio is expected to be around 32% in Q2 2023. The smartphone, connectivity and PMIC segments will see revenue growth. The smart TV segment will witness declining revenues in the third quarter due to excess inventory.
  • Auto segment is picking up: Automotive will contribute $200 to $300 million to MediaTek’s revenue in 2023. More significant revenue can be seen from 2026. The current auto design pipeline revenue for MediaTek is over $1 billion.

Related posts

Counterpoint Macro Index Caps off 2022 with Another Quarterly Drop; But Forecast is Raised for 2023

  • The Counterpoint Macro Index reading of 77.56 for December 2022 marks another quarterly drop and only the second month-on-month rise in the index during 2022.
  • Geopolitical tensions, inflation and slumping business sentiment pose the biggest strains on the tech sector.
  • However, our new forecast for 2023 has been raised significantly, thanks to the surprise reopening in China and ensuing economic growth, as well as a calmer geopolitical environment and inflation trajectory.

 London, Boston, Toronto, New Delhi, Hong Kong, Beijing, Taipei, Seoul – January 30, 2022

The Counterpoint Macro Index, which tracks the environment and sentiment for the global technology industry, closed at 77.56 in December 2022. This is a small drop of 1.67 points from September.

December’s reading was only the second month-on-month rise in the index during 2022, after dropping to a post-pandemic low of 75.08 in November.

Unsurprisingly, the biggest headwinds for the index in Q4 were yet again the Ukraine war and inflation. Both issues weighed on the index throughout the year, as the war continues with no end in sight, while structural issues in the global economy, including rising interest rates, energy crisis and slumping consumer confidence, are unlikely to be resolved quickly.

Counterpoint Macro Index, Q4 2022 vs Q3 2022

The technology sector, which held up resiliently during the post-pandemic ‘boom’, was the latest domino chip to fall during the quarter. In Q4, we saw a slew of disappointing revenue forecasts (Samsung, Amazon, Alphabet, Meta, Tesla), capex cuts (TSMC, Intel, SK Hynix, Micron) and, more recently, layoff plans (Amazon, Meta, Microsoft, Salesforce). We see no let-up in the current earnings season. The supply chain sub-segment, in which Counterpoint covers a broad range of tech manufacturing metrics such as foundry capacity, pricing and inventory levels for key components and semiconductor equipment purchases, also deteriorated in the quarter. This is mainly due to the rapid turn in the semiconductor super-cycle where the demand-supply balance has tilted swiftly to a supply glut. Key chipset, memory and component manufacturers face rapidly retreating demand, inventory and pricing pressures, but at the same time cannot afford to cut spending and capacity for fear of another supply chain snarl-up.

On the other hand, a big rebound in politics and policy-related metrics was seen in Q4. Most prominently, the withdrawal of COVID-Zero restrictions by China, as well as the end of the crackdown on tech and real estate sectors in China helped end a precipitous slide in consumer and business sentiments in the country. Furthermore, a softening of China’s diplomatic tone may usher in a period of better relations with the developed world, and reduce the likelihood of military confrontation in the near future. The economic reopening and potential pent-up trade in China will be the biggest reason for optimism in 2023. In the US, anticipated political turmoil from contentious mid-term elections failed to materialize, as the Republicans underperformed while Democrats held onto the majority in the Senate. Support for Biden’s presidency also staged a small rebound after many months of consecutive declines as inflation peaked, with the Federal Reserve on the cusp of drawing back many months of rate hikes. Further afield, there were also important wins on the ESG front, as COP27 reached a historic agreement on providing financial assistance to developing countries for losses and damage caused by the climate crisis, while landmark policies were signed in the US and Europe to fund renewable energy and cut carbon emissions.

Risk-Impact Map, Q4 2022

Risk-Impact Map, Q4 2022

We expect the same risks that cast a shadow over the global tech scene in 2022 to continue to exert a negative influence in 2023. However, looking toward 2023, we have revised our 12-month forecast significantly from 81.07 to 93.44 points (100 is the baseline). We believe the worst of the macro headwinds may have already passed, while an uplift can be expected from economic normalization in China and the end of the rate hike cycle in most of the developed world, which can both reduce the risk and impact of a recession. The war in Ukraine, however, will continue to be the biggest cause for caution in 2023 as there appears to be no end in sight, and there may be renewed troubles regarding food and energy supplies.

Counterpoint Research’s market-leading Macro Index is a monthly report that aims to capture the environment and sentiment for the global technology industry. We look at issues and measures in macroeconomics, domestic and international politics, supply chains, industry performance and outlook, and regulatory events and outlook. The index captures more than 130 data points every month. Below are some of the key data points that we track:

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Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

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