Should Qualcomm Inc. Worry About MediaTek's U.S. Push?

For years, Qualcomm (NASDAQ: QCOM  ) has enjoyed owning a hefty share of the U.S. chipset market. But as chip competition heats up in China, rival MediaTek is looking for growth in the US, and wants to take Qualcomm head on.

Recently MediaTek announced  a new marketing strategy for the US, as well as new hires within the country. MediaTek wants to add an additional 150 marketing and engineering employees to its current US staff of 300. According to Reuters, the company is also opening an office in San Diego, in the same city where Qualcomm's main office is located.

MediaTek sees opportunity in the US market, and it made that very clear with the release of new chip earlier this week.

The new octa-core LTE processor system-on-a-chip (SoC), called the MT6595, is powered by ARM Holdings' latest Cortex-A17 CPUs. It can use eight cores all at once for maximum processing power or turn some of them off to conserve energy. MediaTek says the MT6595 supports Ultra HD recording and playback, a 20-megapixel camera, and 2560 x 1600 resolution HD screens.

While the specs are impressive, it's the strategy behind them that is aimed directly at Qualcomm. With its new chip and marketing push, MediaTek wants to tap the mid to low-end market, with a fairly high-end chip.

Qualcomm's position is too strong
But Qualcomm dominates the baseband chip market and it's light-years ahead of the competition. In a December report, Strategy Analytics said Qualcomm took 66% of the baseband revenue share, with MediaTek taking the No. 2 spot with 12% and Intel following with 7%.

Qualcomm's advantage over the competition comes from its experience with building integrated chips. The company is currently on its fourth generation of LTE integrated chips, while MediaTek just released its first LTE integrated chip last month.

One problem MediaTek will have with new ambitions is in forging new relationships within the US mobile space. Qualcomm is already the dominant mobile chipmaker for U.S. devices, so usurping its relationship status with device makers will be extremely difficult. In addition to that, MediaTek is still in the sampling stages right now with the MT6595, and it won't be in devices until the second half of this year.

Foolish thoughts
While there's no immediate concern for Qualcomm investors over MediaTek's push in the U.S., it shouldn't be taken lightly either. The mobile chipset space is extremely competitive and MediaTek's new MT6595 is expected to compete directly with Qualcomm's Snapdragon 800 and 805. MediaTek is used to selling chips at cheaper prices than Qualcomm, and will likely do the same with the MT6595. The company is taking the long-term view of getting into the U.S. market slowly, and then building its business. 

With so much talk about the U.S. reaching a smartphone saturation point, it feels like MediaTek is already late to the game. It's possible that if the company can get a small foothold in the market, it could slowly eat into Qualcomm's coveted position. But overall, I think Qualcomm investors shouldn't be too concerned with MediaTek's latest moves just yet. A few design wins for MediaTek certainly won't topple Qualcomm's reign, though keeping an eye on MediaTek going forward wouldn't be a bad idea.

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