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Is Taiwanese chipmaker MediaTek’s dependency on China sustainable?

MediaTek is the top supplier of smartphone processors thanks to Chinese clients, but it must tread carefully amid the U.S.-China tech cold war

MediaTek chip. (MediaTek image)

MediaTek chip. (MediaTek image)

TAIPEI (Taiwan News) — MediaTek came to the rescue of beleaguered Huawei as Washington slapped sanctions on Chinese firms at the height of the trade war.

When Qualcomm and Taiwan Semiconductor Manufacturing Company (TSMC) found themselves suddenly unable to supply Huawei, MediaTek stepped in and sold the telecommunications giant off-the-shelf mobile phone CPUs that were not subject to the U.S. ban.

The move came as no surprise given that MediaTek owes its success as a supplier of smartphone processors to China. The Hsinchu-based firm’s key clients are all Chinese smartphone vendors, and the company has grown in tandem with China’s mobile phone market, the world’s largest since 2012.

Yet growing geopolitical tensions between the U.S. and China illustrate the fine line that MediaTek walks. Although the company lacks major American clients and does not have to consider the sanctions from that perspective, it does not want to be perceived as non-compliant by U.S. authorities.

“After the U.S. government’s ban on Huawei, Huawei started to use MediaTek chips,” research firm Omida said in March. “As a result of leading brands utilizing MediaTek technology, other brands also followed, diversifying their respective supply chains. The American technology ban highlighted the need to consider the potential political impact on established supplier relationships.”

This success in China has paid dividends for MediaTek. Digitimes showed that the chipmaker enjoys a commanding lead in terms of processor shipments to Chinese handset brands, holding a market share of 54.1%, while Qualcomm has 35%. Because Chinese brands are among the biggest smartphone vendors in the world, MediaTek thus holds an impressive 37% of the global market for mobile phone processors, according to CounterPoint Research.

In addition to Huawei, Oppo, and Vivo, Xiaomi also opted to ship its units with MediaTek chips, just to ensure that their phones would not be subject to U.S. sanctions or blocked within China for having Qualcomm processors due to Beijing’s retaliatory actions against the American chipmaker.

But eventually, MediaTek decided to cut ties with Huawei. “MediaTek also came under the scanner over its relationship with Huawei and was restricted from supplying chips to Huawei (like Qualcomm),” Strategy Analytics semiconductor analyst Sravan Kundojjala told Taiwan News.

Samuel Wang, Gartner’s research vice president for semiconductor foundries, does not think MediaTek will come under fire from either side given Taiwan’s perceived neutrality and its silicon shield. “MediaTek is a Taiwan-based company; almost all Taiwan fabless companies are not harmed in the U.S.-China trade war,” he told Taiwan News.

While the government can restrict Taiwanese from going to China to work for Chinese semiconductor companies, it should not stymie the flow of finished products, as doing so would only benefit MediaTek’s competitors, Wang said. “Since there are alternative chip suppliers from different countries, limiting MediaTek [by preventing it from supplying chips to Chinese firms] only helps the growth of Qualcomm, Apple or UniSOC or Samsung.”

In the long run, it is questionable whether MediaTek can continue to thrive with its focus on volume.

In fact, it was not always so.

When the company first burst onto the chipmaking scene in 2013-2014, it had its sights set squarely on Qualcomm. Some of its early processors were quite competitive against Qualcomm’s leading Snapdragon line and came close in benchmarks.

But somewhere along the way, the MediaTek brass decided that more was better and turned the company’s attention first to China's smartphone market and later to India’s.

Looking ahead, MediaTek could shift gears and pursue the higher margins Qualcomm enjoys in North America and Europe. As it turns out, MediaTek will be one of the early users of TSMC’s 4 nm process node, notes Gartner’s Wang. This node is used to create chips of iPhone caliber instead of those used in cheap Android phones sold in emerging markets.

“Surely, MediaTek will move on to the high end” of the market, Wang forecast.

Updated : 2021-10-25 00:28 GMT+08:00