Barclays Capital holds rating for MediaTek at ‘overweight’


TAIPEI–Barclays Capital has reiterated an “overweight” recommendation on shares of MediaTek Inc. (聯發科), one of Taiwan’s leading integrated circuit designers, on hopes of an increase in shipments of chips for smartphone use.

In a recent research note, the brokerage said it has also maintained a target price of NT$370 (US$12.59) on MediaTek shares and has kept the stock on its top sector pick list amid such optimism.

Barclays said shipments of MediaTek’s MT6575 and MT6575T chips that are used in smartphones will enjoy a gross margin of more than 50 percent throughout 2012 on the back of reduced production costs due to a technology upgrade from the 65 nanometer production process to the 40 nm process. In particular, shipments of MT6575 chips are expected to account for 15 percent of MediaTek’s anticipated smartphone chip shipments of between 8 million and 10 million units in the first quarter of this year, the brokerage said.

Previously, the brokerage had estimated the portion would reach a level of less than 10 percent.

In addition, Barclays said MT6575 and MT6575T chips will make up nearly 70 percent of the company’s total shipment target of 50 million units for 2012 so that its profit margin will improve, starting from the second quarter of this year.

Barclays, however, said MediaTek’s sales for the first quarter will be affected by weakening 2G feature phone demand, adding the company’s revenue for the three-month period is expected to fall 15 percent from the fourth quarter to NT$19.2 billion.

The decline was steeper than the brokerage’s early estimate of a quarter-on-quarter fall of 10-15 percent.

In February, MediaTek’s sales are expected to range between NT$6 billion and NT$6.2 billion, lower than a market consensus of a NT$6.5 billion-NT$6.7 billion range, Barclays said.

Due to the reduced sales in 2G cellphone chips, MediaTek’s gross margin will range between 43 percent and 44 percent, compared with an early estimate of 43 percent, it said.

To reflect the slowing sales for the first quarter, the brokerage has cut its forecast of MediaTek’s earnings per share by about one percent to NT$13.49.

MediaTek shares closed down 0.63 percent at NT$315.00 on the Taiwan Stock Exchange yesterday.