Until last week, Tsai Ming-kai, the Taiwanese billionaire once known as’ China’s’ bandit phone king ‘, was on a roll.
The founder and chairman of chip design house MediaTek had already seen his personal wealth jump by 80 percent last year. The launch of the company ‘Dimensity’ chipset for 5G smartphones and the Washington blacklisting of Chinese technology group Huawei from buying US chipmakers had sent the shares of MediaTek off the ground.
This year, things looked even brighter. The U.S. in May prevented chipmakers from selling to Huawei all custom semiconductors produced with U.S. equipment. For Huawei, the most obvious solution was MediaTek’s off-the-shelf smartphone chipsets, a development that had greatly boosted the performance of the Taiwanese company.
But that dream was shattered this week when the U.S. Department of Commerce closed the loopholes in its sanctions against Huawei in May by banning sales without a license of chips made with U.S. software as equipment to the Chinese company. Given the prevalence of US technology in the semiconductor sector, this would include chipsets sold by MediaTek.
“If the rules of May had played out, MediaTek would have been the beneficiary, at least in the short term,” said Phelix Lee, an analyst at Morningstar in Hong Kong.
$ 2.3bn
Mediatek’s revenue in the second quarter of 2020
He estimated that MediaTek could have sold 60m to 70m chipsets to Huawei under the cutting rules next year, boosting its share of the “system on a chip” market – in which one chip performs all the different functions for a device – for Android by about 50 percent.
Instead, MediaTek’s shares have fallen 17 percent since the US closed the sleeves, deducting NT $ 10 billion (US $ 340 million) from the value of the 5 percent combined stake Mr Tsai and his wife hold in the company are.
Washington’s latest move has rattled Taiwan’s entire tech industry. Despite a global rally in tech stocks in recent weeks, the country’s Taiex semiconductor index is down more than 14 percent from a half in July, with half of the component stocks in the red by 2020.
There remained some uncertainty about the full impact of the rule changes, as the U.S. government could still issue licenses for certain suppliers to sell temporarily to Huawei if vital U.S. interests were at stake, analysts said.
They also said that even if the sanctions drove Huawei out of the smartphone business, part of the vacuum would likely be filled by Chinese rivals such as Oppo, Vivo or Xiaomi.
However, these smartphone brands were expected to use the Dimensity 700, a reduced version of MediaTek’s 5G chipset, instead of the more expensive variety that Huawei was expected to use.
© Brent Lewin / Bloomberg
Industry experts also warned that if the ban on Huawei’s telecommunications infrastructure equipment business were also destroyed, it would slow down the deployment of 5G networks worldwide.
“That would make all our expectations about smartphone sales from the second half of this year obsolete,” said an executive at another semiconductor company. “Everything would go slower.”
Taiwan Semiconductor Manufacturing Corp., the world’s largest contract chipmaker, added its business outlook only late last month, in part due to rosy expectations for 5G-powered smartphone demand.
MediaTek has more at present than many other Huawei suppliers, not least because it has much more aggressive betting on China than many peers. Spun off from Taiwanese chipmaker United Microelectronics Corporation in 1997, the company built its enterprise design chips for CDs and later DVDs, before transitioning to chips for TV sets and finally mobile devices.
It has since grown into the world’s largest and Taiwan’s fourth largest chip design company, with NT $ 67 billion in revenue and NT $ 7.3 billion net revenue in the second quarter of this year.
The biggest breakthrough came after it launched a turnkey mobile phone solution in 2004, creating scores of unnamed workshops that produce knock-off handsets – “bandit phones” – in the southern Chinese city of Shenzhen to produce more succulent products.
The platform, which included a chipset and reference programs for phone features that the small factories could not have developed themselves, Mr Tsai earned the nickname of the ‘bandit phone king’. It also helped create a race of Chinese companies that would later morph into formidable rivals for multinational markets such as Apple and Samsung in China and other emerging markets.
Adapting its turnkey chipset business model to the smartphone era was difficult, but MediaTek once again managed to build a strong up-and-coming position on the back of China’s emerging markets.
In 4G, MediaTek was weaker than it had been in the previous generation of technologies for mobile services. But it promised a comeback in 5G. The Dimensity price tag is expected to be significantly lower than that of Qualcomm’s latest Snapdragon chip, with long battery life and high energy efficiency.
With this week’s Huawei shock, those expectations have been dramatically pared. Said Morningstar’s Mr Lee: “It’s a rollercoaster for her.”
Additional reporting by Hudson Lockett in Hong Kong
