Long dependent on smartphone sales to China, the fabless chipmaker is eyeing opportunities in automotive chips and the Indian market.

MediaTek, the world’s top supplier of smartphone chipsets, has shown impressive resilience in recent years despite its dependency on a plateauing industry and the challenging Chinese market. Indeed, the Hsinchu-based company has largely sidestepped significant impact from U.S.-imposed sanctions on China’s technology sector while maintaining an edge over ambitious Chinese competitors such as telecommunications giant Huawei.

In the second quarter of this year, MediaTek’s profits grew 62% year-on-year, reaching NT$30 billion (US$912.4 billion) on the back of strong development in its Power IC (integrated circuit) and Smart Edge Platforms divisions.

Investors like what they see. Media-Tek’s share price has risen about 70% over the past year to NT$1,200. In a second-quarter earnings call, MediaTek CEO Rick Tsai expressed his confidence that the company’s revenue from its flagship mobile processors would grow more than 50% annually this year and that the momentum would carry into 2025.

Yet there are signs that MediaTek’s long-running reliance on smartphone sales to Chinese brands may need to be adjusted. Firstly, although the Chinese handset market continues to expand, its growth rate is no longer exponential. Data from research firm Canalys indicate that China’s smartphone market grew by 10% year-on-year in the second quarter of this year, reaching 70 million units.

“Taiwanese IC design firms mainly focus on consumer electronics and changes in Chinese market demand – whether due to economic factors, government policies, or corporate subsidies for end-product purchases – that can pose challenges to their sales,” says Cynthia Yang, a senior industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC) in Taipei.

Secondly, although MediaTek has so far managed to adroitly navigate U.S.-China tensions, Washington is likely to broaden the scope of its sanctions on Beijing’s semiconductor industry to slow its chief geopolitical rival’s military modernization. In July, Bloomberg reported that the Biden administration had told allies it would consider using “the most severe trade restrictions available” if companies like Tokyo Electron and ASML continued providing China with access to advanced semiconductor technology.

“On the geopolitical side, export restrictions must be considered, especially for high-end chips made with U.S.-manufactured equipment or EDA [electric design automation] tools, which may face export limitations,” Yang says. “This can affect the collaboration between Taiwanese IC design firms and Chinese customers.”

She further notes that the Chinese government favors domestic chipmakers because of its desire to develop a self-sufficient semiconductor ecosystem. China’s domestic IC companies “have advantages in cost, supply chain integration, and market localization, becoming the main competitive pressure for Taiwanese IC design firms,” she says.

In May, China unveiled its largest-ever semiconductor fund, the China Integrated Circuit Industry Investment Fund. Also known as the “Big Fund,” it can be viewed in part as a response to the United States’ US$52.5 billion CHIPS and Science Act, launched by the Biden administration in 2022. China’s fund aims to reduce the country’s dependency on foreign semiconductor technology and boost its domestic chip manufacturing and design capabilities. The third phase of the “Big Fund” has registered capital of RMB344 billion (US$47.5 billion).

Drive my car

Given its consumer electronics challenges, it’s no wonder that MediaTek is increasingly looking to the automotive sector for expansion. While consumer electronics has reached saturation with limited expansion opportunities, the automotive industry is experiencing significant growth driven by the adoption of intelligent technologies, notes Caroline Chen, an analyst at Taipei-based market intelligence firm TrendForce. “As vehicles become more advanced, the demand for chips increases, creating new opportunities for suppliers to enter this expanding market,” she says.

Many Taiwanese semiconductor companies investing in the automotive sector are concentrating on telematics and in-cabin applications, which align with their established expertise in consumer electronics. At the same time, the growth of smart automotive systems parallels the evolution of the smartphone user experience, making it a logical progression for Taiwanese chipmakers.

In March, MediaTek introduced four auto cockpit chipsets, catering to vehicles ranging from entry-level to premium models. This launch builds on the company’s 2023 release of its flagship automotive compute platform, Dimensity Auto. MediaTek aims to position itself as a one-stop solution provider for major automotive electronic components, according to a March blog post by research firm Counterpoint.

As it did with smartphones, Media-Tek will aim to “democratize the mainstream smart cockpit market” in the automotive sector, Counterpoint said. The research firm also noted that MediaTek’s partnership for smart vehicles with American multinational Nvidia “will help it secure a position in the premium segment.”

MediaTek and Nvidia announced their partnership at the 2023 Computex electronics trade show in Taipei. At Computex, MediaTek’s Tsai said that the collaboration would focus on “designing the next generation of intelligent, always-connected vehicles.” Nvidia CEO Jensen Huang said it would result in “countless computers in the car.”

MediaTek would be wise to tap into the automotive market’s tendency toward stability and high profitability. Chen says the rigorous and costly validation process for automotive-grade components discourages frequent supplier changes by automakers. Further, automakers emphasize reliability and stability over cost, fostering long-term partnerships with suppliers. “Once a chip supplier is integrated into the automotive supply chain, it enjoys a stable and recurring revenue stream,” she adds.

Opportunities in India

Looking ahead, MediaTek can also be expected to focus more attention on the burgeoning Indian market. In an April interview with Taiwan’s DigiTimes, a newspaper focusing on the technology hardware supply chain, MediaTek’s India managing director Anku Jain noted that the Taiwanese chip designer has been in the subcontinent since 2004.

“Our expansion plans include further growth in our R&D capabilities and market penetration over the next few years,” Jain said. In India, MediaTek is “involved in various verticals where we hold a leading global position, such as smartphones, smart TVs, automotive, Chromebooks, IOT (the Internet of Things), and others.”

MediaTek is likely monitoring opportunities to source chips from India, though this will largely depend on the success of New Delhi’s efforts to establish semiconductor fabrication facilities. In February, India approved the construction of three fabs with investments of more than US$15 billion. In a statement, the Indian government said that the country “already has deep capabilities in chip design. With these units, our country will develop capabilities in chip fabrication. Advanced packaging technologies will be indigenously developed in India.”

Partnering with India’s Tata Group on the first fab, located in Prime Minister Narendra Modi’s home state of Gujarat, is Taiwan’s Powerchip Semiconductor Manufacturing Corp. (PSMC). As of 2023, the company was the eighth-largest semiconductor foundry in the world, with four 12-inch and two 8-inch wafer fabs. Production is mainly in Taiwan.

“Once these new manufacturing projects in India mature and align with our requirements, we will be ready to collaborate with them and may even source chips from them,” Jain told DigiTimes.

In general, the Indian government welcomes investments from Taiwan-based companies, says Paul Triolo, technology policy lead at consultancy Albright Stonebridge Group in Washington, D.C. While the Indian market is challenging in terms of ease of doing business, inadequate infrastructure in some states, and workforce-related issues, “MediaTek is a pretty nimble company,” he says.

The Taiwanese fabless chipmaker can devote resources to the Indian market for design engineers without needing to have a large footprint on the ground, “so expect to see India become a more important player in the firm’s long-term strategy,” Triolo concludes.