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Talk of the Day -- Rise of Chinese firm inspires MediaTek-MStar merger

2012/06/23 21:17:51

In a surprise move, two Taiwanese IC design giants -- MediaTek Inc. and MStar Semiconductor Inc. -- announced Friday that they have decided to combine into a single entity in two phases by the first quarter of 2013.

The announcement came like dropping a bombshell in the local IC industry community because the two companies are longtime rivals.

While market analysts mostly hailed the merger deal as a boon to both companies' future, many MStar employees are reportedly worrying about their career prospects in wake of their company's integration into MediaTek.

Some industry insiders said South Korean consumer electronics giant Samsung Corp.'s recent decision to buy TD-SCDMA/WCDMA 3G smartphone chip from China's state-backed Spreadtrum Communications is the primary cause behind MediaTek's decision to negotiate a merger deal with MStar.

Securing 3G smartphone chip orders from Samsung has been one of MediaTek's chief business goals. MediaTek originally expected to win Samsung's order for the dual mode smartphone chip with its high quality, advanced functions and competitive price, industry insiders said.

Samsung's move has led MediaTek to understand that the competitive landscape in the global high-tech industry has changed and no longer hinges solely on product functions or prices.

"MediaTek has come to understand it needs to expand its operational scale, depth of research and development as well as functional integration ability," said an industry maven familiar with the merger talks.

He added that MediaTek believes MStar could be a good partner in its pursuit of stronger R&D capability and sharpened competitive edge to win orders from world-class smartphone vendors.

The following are excerpts from local media coverage of the MediaTek-MStar merger plan:

Commercial Times:

MediaTek -- Taiwan's top handset chip designer -- would be able to broaden its product portfolio after acquiring MStar, a leading TV chip designer which accounts for about 50 percent of the world's digital TV chip market and has rapidly expanded into the mobile-phone chip and set-top box (STB) chip markets in recent years, market analysts said.

Once MediaTek completes its MStar acquisition plan, the analysts said, the company can not only focus on developing high-end 3G smartphone chips but can also join MStar in integrating their 2G feature phone chips to consolidate and expand their presence in emerging markets in the face of ever stronger competition from Chinese IC design companies such as Spreadtrum Communications.

On the other hand, the analysts said, MStar will have more wireless transmission resources to cement its leading position in the global TV chip market after being integrated into MediaTek.

Without the threat of competition of MediaTek, MStar can also concentrate its energy on the development of smart TV using its advanced STB encryption technology, the analysts said.

MediaTek Chairman Tsai Ming-kai told a media briefing Friday that it was crucial to integrate mobile phone chip technologies with TV chip technologies as information-communication-technology products become ever smarter.

"The merger of MediaTek and MStar will combine the advantages and resources of the two companies to enhance global competitiveness and maximize our product portfolio," Tsai added. (June 23, 2012).

Economic Daily News:

The MediaTek-MStar merger is set to create the world's fourth largest chip designer with total annual sales of US$4.2 billion in 2011, outranking Nvidia, according to statistics compiled by IC Insights.

The NT$115 billion merger project -- the second largest in Taiwan's high-tech sector in recent years after the Chimei-Innolux merger in 2010 -- will also allow the new company to control over 70 percent of the global TV chip market.

Some market analysts said the merger project would enable MediaTek to focus on competing with U.S.-based Qualcomm Inc., the world's No. 1 IC designer with a 15 percent global market share in 2011.

Asked whether the MediaTek-MStar merger would threaten survival of smaller local IC design companies, some industry executives said the impact could be limited.

In fact, a Realtek Semiconductor Corp. executive said the merger could help prevent cut-throat competition and maintain a better market order.

As Realtek focuses on production of chips for networking applications, he said, the merger plan will not severly affect his company's sales.

Meanwhile, some analysts cautioned that Mediatek and MStar should take precautionary measures to prevent a massive exodus of their IC design staff to rival companies in China.

"Mediatek and MStar should take steps to prevent repetition of the tragedy seen in the merger of Chimei and Innolux," said an IC industry expert.

According to media reports, many outstanding LCD panel engineers at Chimen and Innolux were lured away to work for rival Chinese firms in the process of their merger. (June 23, 2012).

(By Sofia Wu)