The cottage mobile phone market has shrunk. MediaTech’s quarterly net profit has dropped 70% year-on-year

At the end of last year, a research report released by iSuppli pointed out that China's Shanzhai handsets will show negative growth from 2012. It now appears that this time point has advanced to 2011.

On Friday, the quarterly earnings report released by Taiwan’s Lianfa Technology (2454. TW, hereinafter referred to as “MTK”), the leading manufacturer of mobile phone chips and the main supplier of mainland mobile phone chips, showed that in the first quarter of this year, MTK’s revenue was NT$19.86 billion, up from the same period last year. It decreased by 39.3% and realized a net profit of NT$3.065 billion, a sharp drop of 72.3% year-on-year. The overall gross profit margin of MTK during the quarter was only 46.2%, which was a drop of 3 percentage points from the fourth quarter of last year but a decrease of 10.5 percentage points year-on-year.

MTK said in its financial report that due to the off-season effect of the consumer electronics market and the drop in product prices, the level of revenue and product gross margin declined.

“This year, domestic and foreign cottage mobile phone market is obviously weak, and it has shown a negative growth trend.” Shenzhen, a mobile phone factory executives yesterday told the “First Financial Daily” that the original cottage phone distribution center - Shenzhen Huaqiang North's shop rental has been from last year's 180 yuan / square meter, fell to 120 yuan / square meter, "the original Huaqiang North mobile phone shop is no market price, it is difficult to rent out now. Huaqiang North this year closed at least 20% of the paving."

The senior executive stated that MTK’s net profit fell by 70% year-on-year in the first quarter, in addition to the shrinking market and the fierce price war.

It is reported that since the second half of last year, MediaTek's main product, MT6253, has begun to drastically reduce its price. "Almost every second month, it drops the price, and each time the margin is about 0.5 US dollars." A mobile phone solution company in Shenzhen told reporters, MT6253's The price has dropped from $5 at the beginning of listing to the current $3, and the price of mainstream chips for main rival Spreadtrum has dropped to about $2.

The substantial price cuts of major products have naturally made MTK's profits squeezed. The embarrassment of the MTK market has actually been reflected in the 2010 financial report of MTK, but it was only slightly more apparent in the first quarter of this year because of the shrinking market. In 2010, MTK revenue was NT 113.532 billion yuan, which fell 1.7% year-on-year, and net profit was NT 30.961 billion, down 15.6% year-on-year.

However, the current MTK's greatest difficulty is still how to resist the further attack of Spreadtrum at a lower price. iSuppli's data shows that as of the middle of last year, Spreadtrum’s chip market share in the low-end GSM market has exceeded 10%, while Mstar also has nearly 1 million shipments per month, and MediaTek’s market share slipped below 90%.

Several Shenzhen mobile phone design companies and integrators estimated that the current low-end GSM chip market share, MediaTek has slipped to about 67%, Spreadtrum accounted for about 23%, Mstar and other brands accounted for about 10%.