Intel: Successful Entry into the Mobile Chip Market

According to foreign media reports, Intel’s possible acquisition of a big move into the mobile processor market was previously discussed. An analyst from CLSA had clearly advised Intel to acquire MediaTek. I did not quite agree with this statement at the time and believed that Intel could rely on itself to conquer the mobile processor market.

At that time, MediaTek’s stock price was approximately 420 TWD (approximately RMB 83) and the market value was approximately US$20 billion (approximately RMB 131.1 billion). If calculated at a 30% premium, Intel’s acquisition of MediaTek’s price will reach US$26 billion (approximately Total RMB 714.0 billion).

Taking into account Intel's cash flow from operating operations, Intel's acquisition of MediaTek certainly has no funding issues. Intel recently paid $16.7 billion (approximately RMB 109.5 billion) to acquire Altera, a custom chip company.

At present, MediaTek’s stock price is approximately TWD 211 (approximately RMB 42), and the market value is only US$10 billion (approximately RMB 65.5 billion). If calculated at a premium of 30%, Intel’s purchase price will be only about US$13 billion. (About RMB 85.2 billion). Despite the acquisition of Altera, Intel’s acquisition of MediaTek is still more than sufficient.

I think it is the right time for Intel to secure the position of the mobile processor market once and for all through the acquisition of MediaTek. The following are the reasons:

Intel will get a profitable, high-volume smart phone chip business MediaTek is not the leader in mobile application processors, Qualcomm is. But it is the runner-up in this market, with annual chip sales of hundreds of millions. Qualcomm's product line is very wide, with various types of chips ranging from low-end to high-end. However, MediaTek's high-end solutions still cannot compete with Qualcomm.

Despite the increasingly fierce competition and rising R&D expenditures, MediaTek’s operating profit has dropped sharply, but its profitability is still quite strong.

Regardless of which aspect, MediaTek is far more successful than Intel’s mobile business. Intel’s mobile business loses billions of dollars each year. After the acquisition of MediaTek, Intel will "enter" mobile devices, and thus obtain a substantial profit.

MediaTek will become the new Intel mobile business acquisition of MediaTek, Intel can use it to replace their mobile business. Intel seems to have significantly reduced its investment in mobile services, saying that investment in mobile services in 2016 will be reduced by US$1 billion (approximately RMB6.6 billion) on a 2014 basis.

Intel may continue to let MediaTek operate independently instead of integrating it with its business.

In addition, MediaTek should be able to independently decide whether to use the Intel chip manufacturing plant to produce chips. If MediaTek management believes that using Intel's manufacturing plants can gain advantages, they can do so; if they think that using third-party foundries can gain advantages, they should have such freedom.