Abstract

MediaTek Gains Powerful Aid through Collaboration with Microsoft

Having been a market leader of GSM (Global System for Mobile communications)/GPRS/EDGE chipsets, MediaTek is a relative newcomer in the Smartphone market. Allying with a powerful partner for breaking into a new market has been a crucial issue for MediaTek.

Judging from MediaTek's usual business model of providing total solutions, it is projected that bundling its solution with the operating system will probably be the best strategy for MediaTek to enter the Smartphone market. As Symbian and Linux both pose relatively high technological demand on mobile phone makers, Windows Mobile, which features an operating interface familiar to mobile phone users as well as lower technological threshold for product and application development, is deemed an ideal choice for MediaTek. In addition, there is already plenty of third-party application software supporting Windows Mobile. Combined with the relatively low price tags, it is expected that Smartphone products using the MediaTel-Microsoft platform will be able to attract consumers considering purchasing their first Smartphone.

Moreover, MediaTek has been relatively disadvantaged in its application processor product line. The company's employment of hardware acceleration to make up for the shortcomings of its application processors raises doubt as to the performance of MediaTek products. Nevertheless, via the collaboration with Microsoft, it is expected that MediaTek will be able to enhance the integration of hardware and software and to adjust the performance options of its products. Also, the endorsement by Microsoft will serve to strengthen mobile phone manufacturers' and consumers' confidence in MediaTek. In addition, among major operating system providers, MediaTek and Microsoft share a similar business model, which is expected to contribute to the collaboration between the two companies.

Although MedaTek MT6516 is based on the EDGE standard, MediaTek is due to develop towards 3G according to its product roadmap. It is expected that MediaTek will develop 3G Smartphone solutions based on MT6516 in the near future.

By doing so, MediaTek will enter direct confrontation with Qualcomm, ST-Ericsson, and Broadcom. It is expected that MediaTek will face more harsh challenges adhead in the market.

Microsoft Targets the Emerging Markets in the Long Run

Facing the growing popularity of Android platform and iPhone OS, Palm, Symbian, and RIM all launched new platforms combined with new business models to fight back. Microsoft, however, announced in the meantime that the release of its new Windows Mobile 7 will be pushed back.

Although Microsoft released Windows Mobile 6.5 in early 2009, its product development and shipment growth have both lagged behind its competitors in recent times. Via collaboration with MediaTek, it is expected that Microsoft will be able to make significant gains in the Chinese market. In the short term, the two companies' collaboration will center on value-line Smartphones, which are projected to create considerable licensing revenues for Microsoft. Moreover, by leveraging MediaTek's comprehensive distribution channel and technological service system in China, it is expected that Microsoft will be able to secure an advantaged strategic position in China's Smartphone market.

As the Smartphone shipments are expected to take off soon in the emerging markets, Microsoft expects to expand its presence in the emerging markets through the industry chain influenced by MediaTek. However, the competitive disadvantage caused by Microsoft's pricing strategy still remains. Although Microsoft is expected to cut back somewhat on its licensing fees for mobile phone manufacturers in the bundle deal with MediaTek, as MediaTek boasts considerable shipment volume in the emerging markets, Microsoft's prices are still a notch above its competitors.

If MediaTek decides to support other operating systems in the future, considering the operating models of mobile phone manufacturers or third-party software suppliers in China and other emerging markets, the company is likely to partner with Linux with lower licensing fee or with the popular Android platform. In order to enhance its competitiveness when developing the market of value-line products, it is expected that Microsoft will have to consider adjusting its pricing strategy in the future.

Target Customers and Operating Strategies Key to Mobile Phone Manufacturers' Maneuvers in the Value-line Smartphone Market

With the growing popularity of Smartphones worldwide, it is expected that emerging markets will become the next battleground for mobile phone manufacturers and telecom operators. Moreover, with the participation of upstream chipset suppliers such as Qualcomm and MediaTek, it is projected that value-line Smartphones will be a prevalent trend worldwide.

As Taiwanese manufacturers have excelled in the mass production of value-line products, it is expected that Taiwanese manufacturers will not be absent in the value-line Smartphone trend. However, as the business scale and R&D investments of most Taiwanese manufacturers are limited, the time and resources required for new platform development are expected to be a heavy burden. Even though there are powerful tools such as MediaTek's total solutions which can help shorten the R&D process, it is still impractical for manufacturers to develop products on two or more platforms at the same time.

Therefore, individual manufacturers will have to carefully choose a product platform depending on their target customers and operating strategies. Such is the harsh challenge facing Taiwanese mobile phone manufacturers amidst the emerging trend of value-line Smartphones.

Appendix

Glossary of Terms

List of Companies