This morning, Tianfeng International analyst, Ming-Chi Kuo issued a report saying that the fastest-growing period of MediaTek and Qualcomm’s 5G SoC business has passed. The structural risk is now very high due to lower-than-expected demand. Also, he predicts that there will be a significant gap between supply and demand in the future. This will also pose a risk to major 5G chip makers. The main reason for these low demand is the absence of “killer 5G applications”.
The penetration rate of 5G in some countries especially China is very high. In China, the distribution and expansion rate of 5G exceeds 80%. However, the inventory is diminishing and it has been on hold for 9.5 weeks. This is far higher than the normal inventory hold period of between 4 – 6 weeks. According to Kuo, this reflects the lack of demand for 5G due to the lack of killer applications. This means that the industry is yet to implement the resources of 5G in a breathtaking way. It is not just enough to use 5G for faster read and write speeds on mobile devices. The world will like to see some “killer” or practical application of this network.
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So far, 5G network has been applied in the mining and health industries. This network is also applicable in smart cars, IoT, AR, VR, industrial automation, and many more areas. However, their application is not widespread and probably not spectacular. Thus, these applications are not significantly boosting the demand for 5G.
MediaTek and Qualcomm ASP keep increasing
Due to more complex designs and supply shortages, the stock prices of MediaTek and Qualcomm are significantly increasing. This is reflecting in the ASP (Average Selling Price) of their 5G SoCs. However, they are also facing structural risks such as long-term sluggish demand, competition, and improvement in the gap between supply and demand.
According to Kuo Ming-Chi, if 5G mobile phones have no killer applications, then MediaTek and Qualcomm will eventually compete in the low-end market with poor profits. There will be more competition which will extend to Q4 2021 as well as Q1 2022.
According to Ming-Chi Kuo, MediaTek’s 5G SoC advantage lies in close cooperation with TSMC. However, Qualcomm will switch its low-end (6nm) and high-end (4nm) 5G SoCs to TSMC in 2021 and 2022, respectively. The report predicts that TSMC will ship Qualcomm’s 7325 and 6375 in the second and third quarters of 2021, respectively. This will help the American chipmaker to regain its market share from MediaTek.