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MediaTek shares boosted by higher Q4 gross margin

2018/02/01 11:57:01

Taipei, Feb. 1 (CNA) Shares of MediaTek Inc., the largest integrated circuit designer in Taiwan, got a boost on the local main board Thursday as buying was sparked by an improvement in its gross margin in the fourth quarter of last year, according to dealers.

However, its gains in share prices are likely to be capped by continued concern over rising competition in the global smartphone chip market, which could squeeze its bottom line in 2018, the dealers said.

As of 11:01 a.m., shares of MediaTek had risen 3.18 percent to NT$308.50 (US$10.56) on the Taiwan Stock Exchange, where the weighted index was up 0.75 percent at 11,187.19 points.

Soon after the local equity market opened, buying in MediaTek shares emerged, as investors took cues from an investor conference held a day earlier in which the IC designer reported that its gross margin -- the difference between revenue and cost of goods sold -- stood at 37.4 percent in the fourth quarter, up 1 percentage point from a quarter earlier.

"The improvement in its profit margin largely reflected MediaTek's efforts to adjust its product mix by including more high-end ICs, such as applications for the Internet of Things, to offset the impact from stiff competition in the smartphone chip market," MasterLink Securities analyst Tom Tang said.

Tang said that MediaTek secured orders to provide chips to Apple Inc. for the popular voice-controlled smart speaker HomePod production, while the Taiwanese firm also received orders to supply chips to Cisco Systems Inc., which supplies Internet communication solutions.

"The stock has been lagging behind the broader market after recent foreign institutional selling, so bargain hunters seized the positive leads to buy into it," Tang said. According to Tang, foreign institutional investors sold a net 12 million MediaTek shares between Jan. 15 and Jan. 31.

Despite a rise in its gross margin, MediaTek was bothered by slow season effects for the October-December period, reporting a 5.1 percent sequential fall in NT$60.40 billion of consolidated sales.

However, due to a move to dispose of shares of subsidiary Shenzhen Goodix Technology Co. to boost its non-core investments returns, MediaTek's net profit for the fourth quarter rose 100.8 percent from the third quarter to NT$10.16 billion, with earnings per share at NT$6.5.

For 2017, MediaTek posted NT$24.07 billion in net profit, up 0.2 percent from a year earlier, on sales of NT$238.22 billion, down 13.5 percent from a year earlier. Its 2017 EPS stood at NT$15.56, compared with NT$15.16 in 2016.

MediaTek CEO Rick Tsai (蔡力行) said in the investor conference that in the wake of continued improvement in its product portfolio, the IC designer's gross margin for the first quarter is expected to rise and could range between 35.5 percent and 38.5 percent.

However, Tsai said that the slow season effect is expected to continue to affect MediaTek sales for the first quarter, anticipating that its consolidated sales will fall 12-20 percent from a quarter earlier to range between NT$48.3 billion and NT$53.2 billion.

"After today's gains in its share price, the stock could see stiff technical resistance at around NT$312, as concerns over smartphone chip shipments remain in place," Tang said.

(By Chang Chien-chung and Frances Huang)