MediaTek had a very good 2021. Now what?
I have been thinking even more than usual about chipmakers lately. Between ongoing global supply chain constraints, our growing reliance on microchips to power everything from our phones to our thermostats and our vehicles, and the likelihood that inflationary pressures will impact discretionary spending for the rest of this calendar year and possibly into the next, there’s a lot to talk about here. Chipmakers play a vital role in creating value and opportunity in today’s largely tech-driven global economy, particularly in this phase of our transition to vehicle electrification and an intelligently connected, AI-enhanced ecosystem. If innovation is the fuel of progress, chips are the vehicles by which that progress is realized in the world. Chipmakers have become as critical to global economic health as oil and gas companies used to be.
I haven’t written much about MediaTek in the past year, so I thought I would remedy that this week by sharing a few thoughts about how the company is doing and what I see as some of its more interesting opportunities and challenges for the coming year.
MediaTek had a very good 2021. Let’s break it down:
The company’s Q1 2022 earnings confirmed 32.1% year-over-year growth, jumping from $10.9 billion in 2020 to $17.6 billion in 2021.
- 53% stems from mobile, which MediaTek grew 28% in 2021;
- 39% came from smart edge platforms, which MediaTek grew 35% year-over-year
- 8% came from Power IC, which saw an impressive 52% year-over-year growth.
MediaTek also held on to enviable chunks of market share across a number of profitable segments. Among them:
- Smart TVs, with >65% share, (higher in 4K)
- Chromebooks (#2 in total Chromebook share, and #1 in Arm Chromebooks)
- Connectivity (>40% revenue share in retail, broadband and CE)
- Mobile,( where MediaTek enjoys a significant chunk of Android market share, primarily in Latin America and China).
These numbers are great news for the company, and suggest that its growth strategy is on the right track. When set against 2021’s anemic growth for overall handset shipments, MediaTek’s Android market share growth in all four of its key markets (North America, Latin America, Europe, and China), and in the double digits in three out of four of those major markets, is especially impressive:
- North America: from 24% to 37%
- Latin America: from 40% to 46%
- Europe: from 27% to 40%
- China: from 28% to 47%
MediaTek’s focus on capturing as much market share as it can even as handset shipments were beginning to contract suggests that the company’s mobile growth strategy may have already taken into account a looming slowdown in handset shipments, particularly in China: If overall shipments flatten, the next logical strategy is to capture more market share, and MediaTek executed well on this in 2021. The company’s strong relationship with TSMC, strengthened by a consistent focus on volume, certainly doesn’t hurt its ability to fill gaps in the market where it can find them, supply chain friction or not.
Why 2021 may have been an outlier: While I interpret MediaTek’s success with that strategy as an encouraging indicator of its resiliency in the face of dwindling handset shipments, there are caveats to my enthusiasm:
The first is that I suspect that MediaTek was able to take over a chunk of market share that once belonged to Huawei. Now that it’s done, it may be more difficult for MediaTek to continue to grow its Android market share at the same pace this year, let alone in 2023.
The second is that while MediaTek’s release of premium mobile SOCs like the Dimensity 9000 and 9000 Pro (and its first mmWave-capable mobile SOC in the lower-performing Dimensity 1050) give the company solid ammunition against rival chipmaker Qualcomm outside of the US, not having viable industry partners in the US means that MediaTek is still boxed out of the flagship and premium tier segments there. With its market share growth limited to the sub-$600 tiers in the US, MediaTek doesn’t have the strongest foundation upon which to build the kind of top-down market share growth it needs to deliver on.
Its strong market share growth in 4G handsets notwithstanding (~40–50% of global shipments), MediaTek simply has to find a way to penetrate the >$600 Android handset tier in the North American market in order to keep driving its market share expansion.
All of these points together suggest to me that MediaTek can’t rely on Mobile to be its primary vector of growth in 2022 and 2023 as it did in 2021. And so I find myself wondering where else, if not Mobile, can MediaTek realistically look to meet its growth targets in the next 12 to 18 months.
Identifying 2022-2023 growth vectors for MediaTek (outside of Mobile): As we have seen with other silicon companies, especially among the traditionally mobile-centric, continued growth lies in diversification. One great example is Qualcomm’s “One Technology Roadmap” pivot, which essentially leverages premium mobile innovation and adapts it to the needs of adjacent high-growth segments ranging from automotive and XR to wearables and the industrial IOT. My search for MediaTek’s best potential growth vectors for 2022-2023 begins here, with how well MediaTek is already diversifying. More to the point: which segments of its own technology roadmap can it leverage right now to meet its near-term growth objectives? Those would be mature categories through which MediaTek can replicate the market-share play it executed in Mobile last year, or new solutions ready to scale in the next 12-18 months that MediaTek is well-positioned to leverage as a first or second mover in the market.
One obvious growth vector for MediaTek is PMICs, which are already on a steady growth trajectory, but the category accounted for less than 10% of the company’s business last year, so that won’t be enough to make up for Mobile.
Automotive is obviously a massive opportunity for chipmakers, and MediaTek’s telematics business recently scored a few design wins with Chinese OEMs, but I don’t see enough there to make a real difference in the next year. Not enough volume yet.
XR and the metaverse are potential vectors of growth as well, but again, it’s far too soon for MediaTek to see significant results from either before 2024, so let’s set them aside for now.
Looking at MediaTek’s portfolio, this leaves us with PCs, connectivity, and the IOT (mostly smart home solutions and wearables) on the consumer side, and PMICs, connectivity, and industrial IOT solutions on the enterprise side. Aside from any upcoming M&A moves, I think that’s where MediaTek’s 2022-2023 growth vectors live outside of Mobile. I’ve already addressed PMICs, so let’s quickly break down Connectivity, PCs, and the IOT.
Connectivity: One of the areas that I think holds a lot of promise for MediaTek over the course of the next few years is the 5G FWA (fixed wireless access) category and its estimated $4B+ global TAM. While rival Qualcomm is also working hard to speed up the release of wireless fiber solutions for OEMs, a bit of competition here will help accelerate shipments and adoption, and it seems to me that MediaTek is uniquely positioned to engineer a high-volume play here, including in the US. Having said that, the category is still in its relative infancy, at least when it comes to delivering 5G FWA solutions to both the enterprise and the public, so it may be 2023, perhaps even 2024, before MediaTek begins to show significant financial results here. This timeline mirrors expected Wi-Fi 7 adoption, which makes sense.
PCs: PCs could also turn out to be a decent growth vector for MediaTek next year. For instance, the company reports a pipeline of over 40 Intel PC OEM SKUs and all AMD PCs from major OEMs for its connectivity solutions (Wi-Fi and 5G), which is encouraging. But while MediaTek was the #1 Arm vendor for Chromebooks and remained #2 globally in Chromebook market share last year, the company is currently facing challenges in that segment: Q1 2022 saw a 64% drop in Chromebook shipments year-over-year. (Note that North America accounts for 72% of worldwide Chromebook shipments.) With the near-term outlook for the category uncertain at best, MediaTek may have to rely on its growing connectivity solutions partnership with Intel and AMD in the next year or two to make up for the underperforming Chromebook category, instead of looking to those investments as net new vehicles for growth. In other words, unless Chromebooks bounce back in H2 2022, MediaTek could find itself stalled in the PC space in the next 12 months.
The IOT: MediaTek’s strength in the IOT, and the opportunity it sees in what it calls the AIOT (AI-powered, intelligent IOT), looks pretty solid. The company’s broad footprint in smart fitness solutions, smart home appliances, and retail payment/POS solutions looks to me like a firm beachhead from which to continue to expand into adjacent IOT categories. This includes the IIOT, where it can continue to serve key segments ranging from gateways, HMIs, and AIDCs to Robotics, and push into the 5G-powered IIOT.
A key accelerator for MediaTek’s IOT ambitions is its Genio platform, complete with a unified AIOT open platform SDKs, partner ecosystem, and developer resources. Its new Genio 1200 solution specifically, designed to power smart home appliances, IIOT solutions, and embedded AI capabilities, is extremely flexible, delivers high-end, low-power performance, and promises adequate expansion potential. Deep expertise and strong relationships with partners like Advantech, Adlink, and Kontron also don’t hurt.
My only concern here is timing: Realistically, MediaTek’s latest push into the IIOT is likely to start bearing fruit sometime in 2023, leaving a bit of a gap between now and then in terms of delivering new growth outside of Mobile in 2022. Having said that, the consumer, enterprise, and industrial IOT segments all look to be on strong growth trajectories for the next few years, and MediaTek is well positioned to help drive that growth.
Summary: Overall, I think MediaTek’s technology roadmap remains well adapted to continue to serve its needs and those of the markets and partners it serves.
In Mobile, I am encouraged by some of the Dimensity 9000’s performance benchmarks and by the introduction of a mmWave SOC, albeit in a lower price tier. (I would have liked to see MediaTek go after Qualcomm’s Snapdragon 8 Gen 1.) Solid market share gains in the Android space last year despite some structural hurdles in North America are indicative of MediaTek’s resiliency.
The company has also shown impressive smart edge and PMIC growth, with strong potential for growth in FWAs and CPEs, healthy momentum in the IOT and IIOT, and some interesting moves in the PC space that could yet pay off. I can’t help but feel that MediaTek may have missed the boat a bit in the automotive space, but its telematics business shows promise, and I look forward to seeing how it grows in the coming year, especially in China.
Looking at 2024 and beyond, MediaTek’s trajectory looks solid. My biggest concern in the very near term is that if in fact Mobile becomes an unreliable vector of growth in the next 12-18 months, MediaTek may find hitting its growth targets between now and 2024 especially challenging. Given the company’s impressive 2021 results, expectations of a repeat may have to be tempered this year and perhaps in 2023. The good news is that since many of the market segments that MediaTek is well positioned to leverage over the next decade could start paying off at scale as early as H2 2023 or 2024, whatever disruptions to the company’s growth trajectory might take place in the next 12-18 months should be short-lived.
Something else to keep in mind is that inflationary pressures in the next year and half could force undue strain on low- and mid-tier chipmakers, who already operate inside of very narrow margins. This squeeze on margins, along with a potential slowdown in mobile and Chromebook shipments, could mean additional headwinds for MediaTek. For all of those reasons, maintaining the company’s steady growth trajectory in the next year or so will be no easy feat.