• MediaTek witnessed robust sequential growth in Q3 due to customers restocking inventory. 
• Inventory declined to a healthy level of 90 days during the quarter.  
• 3nm SoC shipments set to start in H2 2024 
• Auto pipeline remains the same over $1 billion

MediaTek’s revenue increased 9% QoQ in Q3 2023, highlighting a good quarter, despite a YoY decline. This sequential growth was largely driven by inventory restocking by smartphone OEMs and new 4G and 5G model launches. The demand for wireless and wired connectivity grew sequentially with shipments reaching a quarterly record. Also, the inventory situation has gradually improved, coming down to a steady level of 90 days compared to 115 days in the previous quarter. The company is aiming to launch the 3nm chipset in H2 2023. 

Long-term growth potential in computing, edge AI and Auto segment 

CEO Rick Tsai: “For the future, the increasing computing capabilities, the proliferation of edge AI, and the higher adoption of semiconductor content for automotive will provide strong growth opportunities for MediaTek. For AI, we believe the increasing demand for cloud AI will create a complementary demand for edge AI, and, the more edge AI, the better cloud AI.”

Shivani Parashar’s analyst take: “MediaTek foresees strong growth potential in computing, edge AI, and automotive semiconductors. The company will focus on capabilities to integrate edge AI into SoCs for a wide range of applications, mostly for smartphones and the auto segment. MediaTek has already collaborated with NVIDIA in the automotive sector. The company is well positioned and plans to continue investing in successful segments. The expansion into new markets like AI and ARM computing, by leveraging its technological powers and partnerships with leading foundries, will help the company generate significant revenues in these segments.” 

Customer and channel inventory returned to a normal level 

CEO: “In the last few months, we’ve observed improvements in overall channel inventories, particularly with respect to smartphones. With prudent inventory management, we have reduced our inventory for five consecutive quarters. At the end of Q3 2023, our days of inventory has reached to a healthy level of 90 days. We expect the overall inventory environment to continue to improve in the coming quarters.” 

Parv Sharma’s analyst take: “According to our supply chain checks, Channel level inventory is reducing and by H1 2024, the inventory will be at a normal level. The smartphone OEMs have started restocking the inventory, but still, they remain cautious due to weak consumer demand.” 

5G penetration to increase in 2024 

CFO David Ku: “We still got a few more months to get into 2024, but in general, I think the mix in terms of 4G versus 5G, our view is actually 5G will continue -- for our own shipment perspective -- 5G probably will increase and 4G will decline in terms of shipment compared to this year, 2024 versus 2023. Because 5G again next year, our view is the overall market will still witness double-digit percentage growth, 4G probably will be flattish to slightly down from the market demand perspective.” 

Shivani Parashar’s analyst take: “We forecast that 5G penetration will increase in double-digit percentage in 2024. In anticipation of a shift from LTE to entry-level 5G smartphones, OEMs are expanding their 5G portfolio across price bands. Intense competition among OEMs, availability of cheaper 5G chipsets and declining prices of 5G devices will contribute to the growth of 5G chipsets. The 4G chipset will decline by low-single-digit percentage in 2024 compared with that in 2023.” 

Result summary 

• Growth in revenues: MediaTek’s Q3 2023 revenue rose 9% QoQ to reach $3.4 billion, but declined by 26% YoY. The sequential increase was mainly due to the growth in the mobile segment as smartphone OEMs started restocking inventory. The annual decline was largely due to end-demand weakness.
• Maintained mobile segment revenue due to 5G SoCs: The mobile phone segment declined by 34% YoY and increased by 16% QoQ to account for 49% of the company’s total revenue in Q3 2023. During the quarter, the demand for 5G SoCs improved and there were new 4G and 5G model launches. The new flagship Dimensity 9300 SoC will be launched in early November with enhanced CPU, GPU, and AI processing capabilities, supporting large language models in smartphones.
• New opportunities for smart edge: The smart edge segment accounted for 44% of the company’s revenue in Q3 2023, growing 2% sequentially. Wi-Fi 6 shipments increased in the quarter. Business opportunities are growing for the Wi-Fi 7 segment, with increasing adoption by high-end retail routers, premium notebooks and broadband devices.
• Power IC: The Power IC segment accounted for 7% of the company’s total revenue and grew by 9% sequentially in Q3 2023. PMIC for smartphones and PCs performed better in Q3 2023 due to restocking demand.
  
• Favorable guidance: MediaTek guided Q4 2023 revenue to be between $3.8 billion and $4.0 billion, growing 9%-15% sequentially. The gross margin is expected to be around 47% while the operating expense ratio is expected to be around 30% in Q2 2023. In Q4 2023, the mobile phone segment will grow faster than in Q3, largely due to the flagship launch. PMIC segments will remain flat and Smart Edge will witness a sequential decline in the Q4 due to seasonality and a cautious consumer electronics market. 
• Auto pipeline remains the same: The automotive segment will see more significant revenue from 2026. The current auto design pipeline revenue for MediaTek is over $1 billion. The positive momentum and customer feedback will boost the company’s auto segment revenue in the next few quarters.  
• Inventory turnover: Inventory declined to a normal level of 90 days from 115 days in the previous quarter and 111 days in the year-ago quarter. MediaTek expects the overall inventory environment to continue to improve in the coming quarters.