Qualcomm vs MediaTek – Which Company Is Operating More Efficiently?

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In an attempt to gain market share, both Qualcomm (NYSE:QCOM) and MediaTek have followed a low cost pricing strategy. Because of this, the operating margins for both the companies have declined in the past two years. In this analysis, we compare the operating margins for the two companies.

It must be noted that MediaTek is aggregated into just one segment as its major sales come from the sale of multimedia and mobile phone chips only. However, Qualcomm has two operating segments – QCT (Qualcomm Chipset Technologies) and QTL (Qualcomm Technology Licensing). Qualcomm’s QCT division constitutes chipset sales and its QTL division constitutes licencing and royalty fees collected from its customers. Therefore, it would make sense to compare the operating margins of MediaTek with Qualcomm’s chipset business’ operating margins. In the table below we compare the margins for the two companies:

QCOM_Op_Margins_MediaTek_

From the table above, we can see that Qualcomm’s chipset business generates a lower operating margin on a standalone basis, as compared to MediaTek’s. However, Qualcomm’s combined operating margins (operating margin for QTL and QCT) is much higher than MediaTek’s operating margin in the last two years. This can be attributed to the fact that Qualcomm’s licensing business is highly profitable and has a very high operating margin. Going forward, Qualcomm might be able to operate its chipset business at even lower margins, owing to the fact that its licensing business is highly profitable.

 Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Qualcomm

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