MediaTek is the world’s 4th largest global fabless semiconductor company and powers more than 1.5 billion devices a year. It is a market leader in chipset technology for Smart TVs, Voice Assistant Devices (VAD), Android tablets, feature phones, Optical and Blu-ray DVD players. It’s the number two globally in mobile phones. The company’s products can be found in 20 % of homes globally and nearly 1 of every 3 mobile phones is powered by MediaTek.
MediaTek’s core businesses include Mobile, Home and Automotive. It ensures that chipsets share core technologies across these platforms – so every market segment benefits from a single piece of their intellectual property. MediaTek is known for advances in multimedia, Artificial Intelligence (AI) and expertise delivering the most power possible – when and where needed. Plus its chipsets are optimized to run cool and super power-efficient to extend battery life. They balance high performance, power-efficiency, and connectivity.
According to us, the 5G chip semi content premium is a secular trend, and we believe the pie should be big enough for the entire chip design industry to grow. The stock should deserve a valuation premium to Greater China IC design peers, as MediaTek is the biggest IC design company in Asia and has lots of intellectual property that can enable next-generation tech products. We believe MediaTek's management quality is also among the best in Asia semiconductor companies, judging from the recent margin improvement and its comeback story in the 5G chipset battle.
In the short term, the global Covid-19 outbreak could lead to lower smartphone shipments in emerging markets like India and Africa, where Mediatek has a high market share. This should be offset though by the price increases in the 5G system on a chip (SoC). Besides, Mediatek has roughly 35% exposure to segments like IoT, WiFi, game consoles, AI and many more which are clearly growth areas benefiting from the stay-at-home situations in a lot of countries around the world. Next to that, if the US-China tech trade war would escalate again with the US placing more sanctions on Huawei, then Mediatek could in fact be a beneficiary of rising Huawei sourcing. In addition, we expect the China self-sufficiency (read: de-Americanization of sourcing) target to accelerate going forward, which also bodes well for Mediatek’s product lines.
Perhaps the most exciting area MediaTek is working on, is autonomous driving. This is one of the key exponential technologies Econopolis is investing in its investment funds. Indeed, automated driving is the next frontier for MediaTek. Autus, its suite of automotive solutions and automated driving products use cutting-edge technologies like mmWave, machine learning, and advanced visual processing solutions (V-ADAS). Technologies like sensors, near- and long-range connectivity solutions, and multiple, powerful applications processors are quickly becoming as prominent in automobiles as engine and aerodynamics technologies. MediaTek’s 20-year history of developing powerful, efficient and adaptable Systems-in-Package (SiP) for mobile and other technology markets makes them well positioned to power the future of driving.
Overall, we see that the growth outlook for the mobile computing segment is improving with easing competition, offsetting soft demand for Chinese and EM smartphones. MediaTek's 5G technology is gaining traction from key customers. Non-smartphone business grows steadily, and synergies from M&A start to pay off. The company has substantial market share in major smartphone brands. Overall demand from non-smartphone businesses, such as TVs and set-top boxes is poised to remain strong.
As always, there are also risks. First of all, we think of a possible price competition with Qualcomm accelerating in the 4G smartphone-chip market, secondly a slower than expected 5G market adoption, particularly after the recent Huawei ban; thirdly a profit contribution from each ASIC project turning out to be smaller than expected; and fourthly systematic risk due to an economic recession in 2020 or 2021.
Finally, from a sustainability or ESG perspective, Mediatek currently has a 24.9 Sustainalytics ESG Risk Rating, which is categorized as medium risk. Within the “semiconductor design & manufacturing” universe that gives the company the 27th ranking out of 149 companies in total. Even better, the company has - at the time of writing - nil outstanding Controversies.
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