MediaTek (2454), a leading global communications IC design company, announced its Q2 revenue and operating results at a press conference on July 29, 2022, with Q2 revenue of 155.73 billion, up 23.91 TP3T year-over-year, and gross profit of 76.76 billion, up 32.31 TP3T year-over-year. Q2 revenue of $155.73 billion increased 23.9% year-over-year, an increase of 9.1% compared to the previous quarter; gross profit of $76.76 billion increased 32.3% year-over-year, an increase of 6.9% compared to Q1; for two consecutive quarters of a record high and exceeded the majority of analysts' forecasts. Gross margin of 49.3% decreased by 1% QoQ for the first time since Q1 2017, ending a five-year streak of rising gross margins.

Full-year revenue growth revised downward due to inflation-induced decline in end-user spending power

As high inflation has affected consumer confidence in recent months, the consumer non-essentials sector has been directly impacted, and the demand for chips has followed the market downturn. As a result, MediaTek revised its annual revenue growth estimate from the original 20% to 17~19%. 2021 MediaTek's annual revenue will be NT$493.415 billion, and since the first half of this year's revenue will be NT$298.441 billion, it is estimated that the second quarter of 2022 should be the high point of the revenue, if the forecasts of the third and the fourth quarters are on an average basis. The second quarter of 2022 should be the high point of revenue.

Overall smartphone market performance was poor and customers entered the inventory adjustment period.

The announced net inventory for Q2 was $91.41 billion. After annualized net inventory and cost of goods sold for the quarter, the inventory turnover days were 104 days, an increase of 23 days year-on-year from Q2 2022, and lower than 105 days in Q1. It has been observed that customers and channels have begun to proactively carry out inventory adjustments but it is expected that it will take 2~3 more quarters to complete the process.

Demand for 5G Smartphones Remains Strong in the Future

Global smartphone shipments in 2022 are estimated to be 1.2~1.27 billion units, of which 5G smartphones will account for 50%. Although the market faces challenges in the short term, demand for 5G devices is still strong (YoY 20% or more), and the penetration rate will reach 80% or more in the next few years. Li-Hsing Tsai, CEO of MediaTek, said, "In the face of short-term market challenges, the company has actively and continuously invested in research and development of key technologies, and over the past few years has demonstrated the results of a number of businesses, including the release of 5G, WiFi6 and other products, and the newest WiFi 7 is expected to be commercialized in 2023 and will bring in revenue, with full-year growth of close to 20% and a gross profit margin of 48~50%. Gross margin will be maintained at 48~50%.