Meet MediaTek, the brains powering your next budget smartphone

The Taiwanese company, which supplies mobile chips in Asia, is gearing up for an expansion into the US. That could mean more affordable smartphone options.

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MediaTek President Ching-Jiang Hsieh at the company's 2015 CES booth, where he discussed his firm's US ambitions. Ben Fox Rubin/CNET

MediaTek hopes it can upend the way you think about buying your next smartphone.

The Taiwan-based chipmaker, which dominates China's low- and mid-tier mobile phone markets, wants to make affordable phones more attractive to consumers -- and become a global mobile player in the process. Last year, it opened offices in India and Finland, but perhaps its most important -- and most challenging -- new target is the US. Looking to gain exposure to that market, it opened a space last year in San Diego, Calif., home of the world's biggest mobile-chips maker, Qualcomm.

At the Consumer Electronics Show in Las Vegas earlier this month, MediaTek executives said they have big plans in the US, adding that if they can succeed in North America, they'll be able to succeed just about anywhere.

"If you intend to be the most global [player] in the mobile business you should be selling a chip in North America," MediaTek President Ching-Jiang Hsieh said in an interview at the company's CES booth.

MediaTek is a distant second to Qualcomm in mobile chips, and many others, including Intel, have been trying to pull market share from Qualcomm with little success. If MediaTek can gain traction in the US -- on Qualcomm's home turf -- that could make the company a more viable competitor and contribute to more choices when it comes to affordable mobile devices. But there's a long way to go.

Today, high-end phones from Apple and Samsung hold the majority of the US smartphone market, with Apple's iPhones mainly using both Apple and Qualcomm chips and Samsung's flagship devices using Qualcomm. MediaTek executives see a catalyst for change in US wireless carriers moving away from subsidies and toward monthly installment payments. That trend exposes the true cost of a smartphone, such as the full $650 price tag for a basic iPhone 6, and may drive some consumers to search for cheaper options.

There are already a number of smartphone manufacturers attacking this area, where customer demand is just starting to grow. Microsoft earlier this month unveiled the Lumia 532 and Lumia 435, which both sell for under $100 without a contract. Motorola's Moto G is less than $200, while upstarts such as ZTE and Alcatel are eager to cater to penny pinchers.

MediaTek, however, has little exposure or name recognition in the US. So far, it's gained certification from only T-Mobile and snagged design wins for just a handful of lesser-known US phones, including the Alcatel OneTouch Fierce, Evolve and Evolve 2.

"The US is an opportunity for them, but it's certainly going to be a challenge to displace Qualcomm there," Gartner research director Jon Erensen said, adding that MediaTek could find an opening as smartphone makers look for alternatives to Qualcomm.

Still, its progress has reportedly drawn the interest of Intel, which is rumored to be considering the purchase of MediaTek -- a publicly traded company valued at about $28 billion -- to bolster its own struggling mobile efforts.

MediaTek executives said no deal discussions are going on with Intel and it's doing well as a standalone firm. Intel declined to comment.

MediaTek surges into the mobile market

MediaTek was created in 1997 as a spinoff from United Microelectronics and got its start offering chips for digital TVs, CD drives and DVD players. Google has become a regular customer for its TV and audio chips. The company moved into mobile devices about 10 years ago, now the biggest part of its sales. It's since built a dominant position in China, helping power low-priced phones with high-end specifications from upstart local vendors including Xiaomi, Oppo and Alcatel (now a brand of China's TCL), as well as established brands like ZTE.

The rise of these entry-level smartphones has been very good for business. For the latest quarter, the company posted a 47 percent rise in revenue to about $1.8 billion and 58 percent higher profit. In comparison, Qualcomm's latest quarterly revenue was about $6.7 billion, up 3 percent, with profit up 26 percent.

As a number of Chinese handset makers try expanding from their local market, MediaTek has an opportunity to grow along with them. Still, the company continues to generate just about all its revenue from Asia, according to Morningstar, so it has to start looking elsewhere -- and fast -- if it hopes to diversify.

MediaTek is working to get certifications with Verizon and AT&T, the two largest US wireless carriers, so smartphones using its chips will pass the famously rigorous carrier testing process. It hopes to come out with new devices on their networks starting late this year or early next year, said Mohit Bhushan, head of US business development for MediaTek.

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The entrance to MediaTek's booth for this year's CES at The Venetian. Ben Fox Rubin/CNET

"That's well within our reach," he said, adding that a long-term trend away from phone subsidies is "playing to our advantage."

While competing on price will be important to growing in the US, company executives emphasized that they are spending more money on research and development to make their chips more competitive with Qualcomm's products. Hsieh said MediaTek plans to capture consumers' attention by using its long-term experience in TVs to help it provide higher-end video features in affordable phones.

But he admitted his company's modem chips are still several years behind Qualcomm, so it's ramping its development work to catch up. The company has increased R&D spending to 19 percent of sales in 2013, from 8 percent in 2006, according to Morningstar analyst Kai Bi.

"They're addressing some of those gaps in their product portfolio to make themselves more attractive in the US market," Gartner's Erensen said.

Qualcomm goes after MediaTek's territory

At the same time that MediaTek is working to grow into higher-end devices by creating more sophisticated chips, Qualcomm is making more low-end designs in hopes of challenging MediaTek's core business in emerging markets. For now, though, Qualcomm has faced challenges in China, with a long-standing antimonopoly investigation there interrupting its plans. "It's not our concern," Hsieh said about Qualcomm's push in low-end chips, saying his company can provide better specs at a better price.

Qualcomm products executive Raj Talluri disagreed. "I think we're extremely competitive," he said of Qualcomm's lower-end offerings. "We've seen a lot of good designs, so I think the customers like our products."

In the US market especially, Talluri said, customers have high expectations for their smartphones, with buyers wanting a long-lasting and fast-charging battery life, with top-of-the-line video, audio and display quality. He said Qualcomm is especially good at offering those features across its portfolio, from high to low end, instead of what may end up being a cheaper but "good enough" product.

"I think the user experience is what sells phones and we spend a lot of time on that," he said.

The next few years will be critical for MediaTek as it works to establish itself in the US and elsewhere. MediaTek's Bhushan said the rise of affordable phones with high-end specs "will be felt" in the US.

"But it's not going to happen overnight," he said.

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