MediaTek shares soar after Q2 gross margin rebounds

Taipei--Shares of MediaTek Inc. (???), the largest integrated circuit designer in Taiwan, rocketed higher on Tuesday after it was revealed Monday that the company's gross margin rebounded in the second quarter, dealers said.

As one of the most important large cap stocks in Taiwan, MediaTek drove broader gains on the market, preventing the weighted index from falling into negative territory at the end of the session, they said.

MediaTek shares closed up 10 percent, the maximum daily increase allowed, to close at NT$292.50 (US$9.69), with 27.52 million shares changing hands. The weighted index on the Taiwan Stock Exchange closed up 0.10 percent at 10,437.29.

The stock opened sharply higher and accelerated midway through the session to reach the maximum 10 percent increase in the afternoon, dealers said.

"It seemed that many investors were impressed by its gross margin rebound, which prompted the market to think that the worst is over for MediaTek," Mega International Investment Services Corp. analyst Alex Huang said.

At an investor conference on Monday, MediaTek said its gross margin -- the difference between revenue and cost of goods sold -- was 35 percent in the April-June period, up 33.5 percent from the previous quarter, ending an 11-quarter losing streak.

Speaking at the investor conference, MediaTek CEO Rick Tsai (???) said the rebound in gross margin was helped by the ratio of the company's smartphone chip revenue to total revenue falling below 50 percent at a time when fierce smartphone competition has pushed chip prices down.

Tsai said MediaTek is determined to further boost its gross margin by adjusting its product mix in the second half of the year and hopes it will can move closer to 40 percent.

MediaTek said its gross margin could range between 34 percent and 37 percent in the third quarter, with consolidated sales expected to range between NT$59.2 billion and NT$63.9 billion, which would be 2-10 percent higher than in the second quarter.

"The 2-10 percent sequential increase in sales reflects a weaker than expected peak season for the third quarter. The guidance failed to impress me," Huang said.

According to MediaTek, it is expected to ship 110-120 million smartphone and tablet chips for the third quarter, little changed from the second quarter, but the IC designer is working to promote its flagship Helio P smartphone chip series later this year and in the first half of next year.

"Today's buying in MediaTek shares also reflected aggressive purchases by foreign institutional investors in the stock in recent sessions," Huang said.

According to Huang, foreign institutional investors bought a net 38.77 million MediaTek shares in June and July, indicating strong foreign interest in the stock amid growing optimism over the company's fundamentals.

After MediaTek's share price soared Tuesday, Huang said he was afraid the stock could face stiff technical resistance ahead of NT$307.00 in the near term.

Source: Focus Taiwan News Channel