MediaTek’s Q2 2020 earnings call has released a lot of good news, particularly on the market update for MTK’s 5G SoC in China. A big part of this cheer can be attributed to the problems being faced by Huawei.

Takeaways from the earnings call include:

1. Global 5G smartphone shipments will reach 170 million to 200 million units in 2020 while China will reach 100 million to 120 million units. The total volume will be more than double in 2021.
2. MTK believes its share in the 5G SoC market in volume terms will be above 40% in China and more than 20% globally by the end of 2020.
3. Major Chinese smartphone brands are shipping 5G smartphones equipped with MediaTek. There are also other competitive MTK models preparing to launch in 2020.

MediaTek’s estimates for 20205Gsmartphone shipments are close to Qualcomm’s. Qualcomm estimated in itsJune earnings callthat global 5G smartphone shipments in 2020 would be between 175 million and 225 million, compared to MediaTek estimate of between 170 million and 200 million.

Qualcomm and MediaTek are targeting slightly different price ranges for smartphones. According to Counterpoint data, in the second quarter, most smartphones with MediaTek SoCs were priced at $150-$399 (Dimensity 800) and $250-$499 (Dimensity 1000) while smartphones with Qualcomm SoCs were priced at $400-$799 (Snapdragon 865).

Like Qualcomm, MediaTek is very confident of its 5G sales in China, believing that all major Chinese mobile phone brands have adopted its 5G SoC products. Thanks to the strong demand and promotion of5G smartphones and services in China, MediaTek expects its China 5G market share to reach 40% by the end of 2020. However, Counterpoint’smonthly smartphone sales trackershows MTK chips accounted for only 7.6% of China’s 5G SoCs in May. On the other hand, Huawei (HiSilicon) has a 63% market share of 5G SoCs in China due to Huawei’s strong growth in the second quarter.

Under a ban announced by the US Bureau of Industry and Security (BIS) on May 15, Huawei will not be able to get any product made for it at its most important foundries (TSMC’s) 120 days after the effective date, which is September 15. This makes Huawei unable to use its Kirin SoC. Furthermore, Huawei’s options are limited, and the ban forces it to use SoCs from competitors. Therefore, if the share of MediaTek’s SoC reaches 40% of China’s 5G market by the end of 2020, it is bound to see MediaTek’s 5G chips being widely adopted by Huawei. Besides, since Huawei’s cutting-edge SoC was being produced at TSMC’s 5nm, the switch to MTK SoC will also affect TSMC’s capacity allocation.

因此,(1)的两个假设下市场shares of all smartphone OEMs in China remaining unchanged and (2)Sell-throughof 5G smartphones in China in 2020 reaching 100 million and MediaTek’s 5G SoC share reaching 40% in Q4 2020, Counterpoint’s estimates of MediaTek’s 5G chip shipments and its share of TSMC’s 7nm capacity in the third quarter are as follows:

1. Demand for MTK’s 5G chips is expected to increase by 218.6% compared to the period before the announcement of US BIS ban.
2. Assuming a 90% yield rate (7nm) and a GDPW (gross die per wafer) average of 645, this will account for 12.6% of TSMC’s Q3 7nm production capacity.

Exhibit: Share of 5G chipsets in China, 2020

Conclusions and Recommendations

1. Huawei (HiSilicon) will slowly lose its strengths in chip design because now it cannot work with TSMC to develop new processes.
2. Due to the use of third-party chips, the overall cost of Huawei’s premium smartphones will increase, reducing their attractiveness.
3. In the next few years, the securing of TSMC’s cutting-edge capacity will remain most critical for smartphone SoC. However, in future, Huawei will not be able to secure capacity directly with TSMC and will have to do so indirectly through its SoC suppliers.
4. 像苹果一样,华为已经利用其内部芯片德西gn company in the past to get the most out of its smartphones. However, in future, Huawei will have to put more effort into differentiating itself (like HMS) to outperform other smartphone OEMs that use MTK SoCs as well.
5. Reliance on a single supplier will make Huawei’s smartphone plans (such as production and roadmaps) more accessible to competitors. Huawei should source its APs from multiple suppliers to reduce the reliance and increase pricing power.

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