Qualcomm's high TD-LTE chip royalties scare off Chinese mobile phone makers

Qualcomm yesterday (10th) launched the integrated chip Snapdragon 401 for the Chinese TD-LTE market. However, foreign legal entities such as JPMorgan Securities believe that since Chinese mobile phone manufacturers still need to pay high royalties to use Qualcomm TD-LTE chips, Snapdragon 401 can only be enjoyed by international mobile phone manufacturers, and the Chinese business opportunities will still be left to the latecomer MediaTek.

　　Kuo Yen-lin, head of research at JPMorgan Securities Taiwan, pointed out that currently only Qualcomm has an integrated chip that supports five modes of China's TD-LTE. The launch of Snapdragon 401 is actually within expectations, but the point is that currently no Chinese mobile phone manufacturer has signed a contract with Qualcomm for TD-LTE because they have to pay Qualcomm a huge amount of royalties.

　　Guo Yanlin believes that as long as the royalty issue is not resolved, even if Qualcomm launches chips with better performance, in the end only major international mobile phone manufacturers will adopt them. Chinese mobile phone manufacturers should not be very interested. In China, a market where business opportunities can only exist if local mobile phone manufacturers increase sales, Qualcomm alone may not be able to make it.

　　Guo Yanlin pointed out that it's not that MediaTek has not developed TD-LTE integrated chips before, but the technology is not mature enough. It will take until June or July next year at the earliest to launch products to compete with Qualcomm. Before that, MediaTek's stock price can only be supported by the newly launched 8-core theme. However, considering that Chinese mobile phone manufacturers should first wait and see the effect of Qualcomm Snapdragon 401, MediaTek's stock price should not be greatly affected by this window period.

　　Overall, Guo Yanlin believes that there are three key factors that affect the penetration rate of TD-LTE in China: first, when MediaTek can launch a competitive TD-LTE chip; second, China Mobile's progress in promoting TD-LTE infrastructure; and third, how mobile phone manufacturers set the price of TD-LTE mobile phones.

　　However, Yuanta Investment Consulting semiconductor analyst Zhang Jiaqi pointed out that stock prices reflect future themes. Since MediaTek's short-term stock price has risen to more than 400 yuan due to its 8-core products, it will enter a consolidation phase next.

　　Zheng Zhaogang, semiconductor analyst at Hong Kong-based CLSA, pointed out that MediaTek will first compete with the MT6590, which only has a modem solution, in the first half of next year. After the first integrated chip is launched in the third quarter, it will be able to start grabbing the market share of TD-LTE mobile phones from major Chinese and international mobile phone manufacturers.

　　According to Zheng Zhaogang's estimate, MediaTek's TD-LTE chip shipments are expected to reach 50 million sets in 2016. If a sensitivity analysis is conducted, for every 1 million sets of TD-LTE chips shipped, earnings per share will grow by 1% in both 2014 and 2015.