Abstract

Qualcomm Expected to Expand Its Presence in the 3G Market

MediaTek is currently unrivaled in the Chinese mobile phone IC market. MediaTek boasts superior products sales and technical support systems in the Chinese market, unmatched by Qualcomm or other companies. Via the patent agreement with MediaTek, Qualcomm achieves nothing short of sharing MediaTek's own sales network. From a financial perspective, although the direct revenue generated by the new business model may not exceed that generated by selling chipsets on its own, Qualcomm is still expected to save considerable expenditure on expanding its own sales network or establishing its own support system. Moreover, Qualcomm is expected to be able to explore the Chinese market with MediaTek's help. In addition, the direct payment of patent fees from terminal device manufacturers is virtually achieved without any cost and will only add to the company's profit margin. Ultimately, the direct communication with MediaTek's customers is seen as the greatest gain resulting from the new business model.

Looking at MediaTek's and Qualcomm's respective product deployment at present, it can be seen that the two companies' solution products actually target different market segments. Should any MediaTek customers seek to develop relatively high-end models in the future, it is expected that they will turn to Qualcomm as a first priority for cooperation. It is projected that the agreement between the two companies actually serves to enlarge Qualcomm's potential customer base. Furthermore, Qualcomm is expected to be able to ward off challenges from other competitors in China and other emerging markets by teaming up with the leader in these markets: namely, MediaTek.

MediaTek's Chipset Business Projected to Flourish in the Short Term

In the past, MediaTek has secured its dominant status in the Chinese 2G market owing to its comprehensive turnkey solutions and well-developed technical support system. In light of the enormous business opportunities arriving with the release of 3G licenses, MediaTek has made aggressive deployment in this respect. In addition to foraying into the TD-SCDMA market by joining hands with Datang Telecom Group, with which MediaTek jointly created the venture Leadcore Technology, the company has also cultivated WCDMA - the most popular 3G technology worldwide - products for several years.

By signing the patent agreement with Qualcomm, MediaTek has made its official entry into the 3G market. Building on its solid basis in China, should MediaTek continue to provide the same level of integration as its 2G products, it is believed that MediaTek's 3G products will also be quite attractive to mobile phone manufacturers and solution providers in China and other emerging markets alike. Moreover, dispensing with the patent disputes likely to have arisen, MediaTek is expected to break into major international telecom operators' or mobile phone vendors' supply chains, therefore significantly boosting its business operations.

However, parts of MediaTek's operating network will become accessible to Qualcomm following the signing of the agreement. Although the deal is expected not to directly affect its business, MediaTek is expected to adjust its future development strategies and devise a new business model different from the existing 2G one, so as to break free from the downside of the agreement.

MediaTek has already launched a Smartphone solution based on the Windows Mobile platform. Based on the patent agreement signed with Qualcomm, it is expected that MediaTek will go on to launch a 3G version or even products simultaneously supporting the Google Android platform. It is envisaged that in the future, riding on the development trend of 3G mobile communications, MediaTek will seek to cater to the purchasing habits of Chinese consumers, strengthen its highly integrated products, and consolidate its partnership with the existing customers. Drawing from its successful experience in China, it is expected that MediaTek will have a better chance of further establishing its presence in the emerging markets of India, Southeast Asia, and Latin America.

Development of Black-market 3G Products to Be Checked in the Short Run

The rise of black-market products in China is considered to have resulted from the intermingling of multiple issues such as industry polices, telecom management, and economic development in China. Following the establishment of the Qualcomm-MediaTek agreement, it is projected that the 3G market entry barrier will be elevated, therefore keeping the black-market manufacturers from encroaching upon the 3G market in the short run. Nevertheless, it is expected that the black-market manufacturers will still try to break into the 3G market. In order to completely prevent the black-market manufacturers from using MediaTek solutions to develop 3G products, Qualcomm will have to obtain utter knowledge of MediaTek's channel system and detailed shipment records, which is virtually impossible as the two companies are still each other's main competitor in the market and it is unlikely that they will agree to the establishment of a reciprocal shipment tracking system.

The black-market mobile phone industry is representative of China's underground economy, which operates in ways often distinct from the common business practice. In addition, due to the complex nature of China's distribution channel system, even MediaTek may not have complete knowledge of where all its products end up. Therefore, in the short run, the Qualcomm-MediaTek agreement is expected to be able to hold the development of black-market 3G products in check. In the long run, however, the prevention of black-market manufacturers from entering the 3G market is expected to depend on MediaTek's control of its channel system as well as the mutual trust in MediaTek and Qualcomm's collaboration.

Appendix

Glossary of Terms

List of Companies