MediaTek Enters Samsung’s Supply Chain

Samsung the largest mobile manufacturer in the world launched its J2 Prime mobile phone recently. Like any other J series mobile phone available in the market it comes in the mid-range price segment with decent specifications. It is nothing unusual for Samsung to launch new and refreshed devices in the market. But what is significant about the J2 Prime is that it comes with a MediaTek processor. This is the first time that the second largest chipmaker (MediaTek) has won a design slot with the largest mobile phone manufacturer (Samsung). Making it to the Samsung’s suppliers list is not easy. The South Korean company has stringent quality checks in place for its suppliers. And after the Note 7 debacle the quality checks were further enhanced.

Samsung mobile has been dependent on mainly Qualcomm to supply chips for its high-end smartphones and on Spreadtrum for its mid-to-low end smartphones. Although the company has developed its own line of SoC (System on Chip) solutions, it was experiencing a void in the higher-mid segment of smartphones. The Spreadtrum chips were not quite capable enough for this range of smartphones and Qualcomm solutions were increasing the cost of the devices; either driving up the price or negatively impacting margins. This is where MediaTek’s solutions fit with Samsung’s needs. MediaTek SoCs are well known in the emerging markets and also among the Chinese and local smartphone manufacturers. The chipmaker has invested heavily in R&D for its LTE portfolio and this has paid off with the Samsung deal.

*Source: Counterpoint Research AP Tracker

Opportunity for MediaTek

MediaTek’s focus shift from 2G and 3G chipsets to high-end LTE solutions, saw it losing ground to Spreadtrum among the local and smaller smartphone manufacturer making low end 2G and 3G smartphones. The Samsung deal is the most significant design win for MediaTek in recent times. Samsung contributes to almost 20% of the total smartphone shipment around the globe. By not having Samsung on its client list, MediaTek was missing out on a huge opportunity.

MediaTek SoCs will feature in the refreshed Samsung J series smartphones that have seen success in many markets from emerging and Asian markets, though to Europe and beyond. Apart from the mid-segment J series, MediaTek is well positioned to move up the ladder in Samsung’s range of Galaxy branded smartphones potentially replacing the costlier Qualcomm Snapdragon solutions with its more affordable SoCs and Spreadtrum with its more efficient solutions.

Samsung on the other hand will be able to fill the void in the higher-mid segment where Spreadtrum chips were unable to deliver the performance needed and Qualcomm SoCs were increasing the cost of the device. Also by diversifying its supply chain, the company will be able to reduce its dependence on Qualcomm and Spreadtrum, keeping the pressure on the suppliers.

Long Term impact

Spreadtrum will feel the initial blow as MediaTek will be replacing it in the J series smartphones. But the major loser in the longer run will be Qualcomm that is already struggling to maintain its share in the South Korean smartphone makers’ portfolio, as Samsung continues to replace Snapdragon solutions in its flagship devices with its own line of Exynos SoCs. And now MediaTek will be pushing for its Helio line of SoCs for premier Samsung smartphones in the company’s portfolio. Samsung and MediaTek both are complementing each other’s need of the hour, making this a win-win deal for both companies.

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