Morgan Stanley reported that Qualcomm's price reduction has triggered a comprehensive price competition with MediaTek, not just low-end 5G SoC. Morgan Stanley maintained a neutral rating for MediaTek and lowered the target price from 698 yuan to 649 yuan.

Morgan Stanley ( Morgan Stanley , Morgan Stanley ) reported that Qualcomm (Qualcomm) lowered its price, triggering a comprehensive price competition with MediaTek , which is not limited to low-end 5G SoC (single-chip system). Morgan Stanley maintained a neutral rating for MediaTek, and the target price dropped from 698 yuan to 649 yuan.

Morgan Stanley said that when the team downgraded the stock rating on December 15, it did not expect Qualcomm or MediaTek to lower the chip price of the current production line, because this move would directly harm the company's profits. A recent industry survey by Morgan Stanley showed that in view of the sluggish demand for smartphones in China, Qualcomm decided to reduce the prices of the Snapdragon 400 and 600 series by about 10% to consume chip inventory. Due to the sluggish demand for smartphones, the commercialization of 5G has arrived earlier than Morgan Stanley expected. MediaTek no longer has profits in 5G and 4G SoC. premium .

Morgan Stanley is worried about MediaTek’s market share in the first half of 2023 because Qualcomm uses Samsung (Samsung)’s cheaper 4nm wafer foundry to launch SDM 4450. Mass production of MediaTek's similar product Next-C is not expected to be shipped until the second half of 2023. Morgan Stanley believes that starting from Q1, MediaTek may need to follow Qualcomm and reduce the price of Dimensity 700 and 800 products by 10% to protect its mid-to-low-end market share.

As TSMC needs to pass on higher global operating costs to customers, Morgan Stanley estimates that the foundry costs of wafers handed over to TSMC by MediaTek will further increase by 3-5% in 2023. Coupled with the erosion of the average selling price of PMIC (power management IC) and WiFi chips, MediaTek's gross profit margin may fall back to pre-epidemic levels. Morgan Stanley estimates that MediaTek's gross profit margin may fall below 45% in Q2 of 2023. It remains to be seen whether Next-C low-cost chips in the second half of the year can help stabilize the gross profit margin trend.

Samsung's 5G mobile phone slashing orders may trigger a price war for mobile phone chips

Non-Apple mobile phone purchases are sluggish, and the leading Samsung is reported to be slashing its 5G entry-level main model Galaxy A23 orders have dropped sharply from the original order of 12.6 million units to 4 million units, a drop of up to 70%. It is currently the model with the largest orders cut by Samsung. Although this model does not have a major supply chain in Taiwan, China has cut orders because all of them use Qualcomm chips. The industry is worried that Qualcomm's inventory will increase sharply, triggering a price war for mobile phone chips, which will be detrimental to MediaTek.

Originally, the market believed that after entering the 5G generation, excluding the use of self-developed chips in some models of , Apple, and Samsung, there are only two main suppliers of mobile phone chips in the world, MediaTek and Qualcomm. Moreover, both MediaTek and Qualcomm mainly use TSMC processes, and there is not much difference in cost structure. The chances of the two giants initiating a price war are low.

However, buying sentiment for non-Apple mobile phones has been weak recently, and American foreign investors have warned that Qualcomm has successively launched a price war on entry-level 5G chips. Based on past experience, price wars bring about fluctuations in market share and gross profit margin.

Industry insiders pointed out that Samsung Galaxy A23 is divided into two versions: 4G and 5G. Normal annual sales are estimated to be about 30 million units, accounting for about 10% of Samsung’s total annual shipments. It is considered a best-selling model. Among them, the 5G version is priced at around US$200 and is Samsung’s main 5G entry-level model.

Korean media TheElec revealed that due to global inflation suppressing the purchase of non-Apple mobile phones, and a certain function causing problems in the operation of the mobile phone, Samsung has slashed orders for the Galaxy A23, the main entry-level 5G model, from the original order of 12.6 million units to 4 million units, a reduction of up to 70%.

It is reported that the Galaxy A23 5G version does not have a major supply chain in Taiwan. Its chip uses Qualcomm's "Snapdragon 695" and the lens is supplied by the Chinese company Sunny. With Samsung slashing 70% of its orders, the industry predicts that Qualcomm's inventory may surge. In order to reduce inventory, Qualcomm will inevitably have to bargain prices, triggering a price war for mobile phone chips, which will not be good for MediaTek.

Regarding the operating outlook, MediaTek previously emphasized that under the diversified layout of companies, with the fermentation of new applications such as automotive electronics and data centers, the semiconductor industry will enter a "diversified growth era". By then, market application concentration will decrease and volatility will also weaken.

MediaTek has lowered its annual revenue growth target this year due to poor purchase sentiment for non-Apple mobile phones.The latest report from market research agency Counterpoint also pointed out that although MediaTek retained its top spot in global smartphone processor shipments in the third quarter of this year, its market share fell to 35%, a quarter-on-quarter decrease of 3 percentage points, reflecting the impact of weak demand for mid- and low-end mobile phones and continued inventory adjustments. It is expected that shipments will continue to decline this quarter due to sluggish demand and the cancellation of orders by mainland mobile phone brand customers.

Qualcomm’s market share increased to 31% in the third quarter because it specializes in the high-end market and has received orders for Samsung’s new flagship Galaxy S23 series next year. However, due to sluggish demand for smartphones and the fact that most non-Apple mobile phone brand manufacturers are still destocking, Samsung’s shipment momentum is also weak, and it is expected to wait until the second half of next year to enter a recovery cycle.

MediaTek’s new 5G chip was unveiled in December

In December, chip manufacturer MediaTek added a new member to its 5G chip Dimensity series, announcing the launch of the "Dimensity 8200" chip, hoping to capture the mid-to-high-end mobile phone application market. Smartphones equipped with this chip are expected to be launched before the end of this year.

Chen Junhong, Vice President of MediaTek Wireless Communications Division, said that the Dimensity 8200 continues the high-performance and energy-efficient platform advantages of the Dimensity series. At the same time, the performance has been further upgraded, which will help terminal devices obtain more stable and smooth high-refresh rate game performance and meet users' expectations for high performance and long battery life.

Dimensity 8200 is built using a 4nm process and is equipped with an eight-core CPU, Arm Mali-G610 six-core GPU, Imagiq 785 image processor (ISP), and HyperEngine 6.0 game engine.

The overall semiconductor and consumer electronics market conditions have not improved significantly yet, but MediaTek is the world's fourth largest IC design company and continues to develop new products. In addition to launching 5G mobile phone chips Dimensity 9200 and Dimensity 8200, it also released a new T800 5G data platform chip. In addition, MediaTek recently launched the Xunkun Kompanio series of chips for Chromebook laptops, including Kompanio 520 and Kompanio 528, as well as the new 4K flagship smart TV chip Pentonic 1000.