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Wednesday, May 15, 2002
Optical storage chipmakers face price-slashing battle

In a robust response to the ambitious vision of Via Technologies Inc. to become the number one optical storage company in 2003, MediaTek Inc. Chairman Tsai Ming-chieh dropped his habitual low-profile tone and conservative attitude, and said that MediaTek would not rule out the possibility of defending its market share in light of its low-cost advantage.

"Mediatek is not only good at manufacturing products featuring high profit margins," said Tsai.

Via, Acer Laboratories Inc. (ALI) and Cheertek Inc., a hived-off division of Winbond Electronics Corp., manufacture optical storage chips as their core-products. Via has taken on MediaTek to acquire its leading position next year, heralding a fierce price-slashing competition in the CD-ROM and DVD-ROM chips.

In response to Via's boast, MediaTek said it would not get stuck with sales of high profit-margin products. He said passive resistance had never been the company's way to deal with competition. "Mediatek will not flinch from fighting to defend its market share, and will not shrink from accepting lower profit margins," he added.

Asked whether this meant there would be a price-slashing competition, Tsai said MediaTek had been confronted with competition from the United States and Japanese competitors since the first day of its establishment, but the participation of Via and other Taiwanese rivals indeed made the price-setting policy very important. He explained the problem arose because the Taiwanese companies had similar business practices and attached overlapped customer bases, and besides most of their clients have been used to seeking a second source. He said whether an undercutting battle would take place, and how strong it would be, would depend entirely on the interaction between competitors and the market's situation. He noted that United Microelectronics Corp. (UMC) even halved overnight the price of its system chipset from US$50 to US$25 several years ago. He also said that prices always changed rapidly.

Optical storage devices makers said presently CD-ROM control chips cost US$2 to US$3, down by 40 percent to 50 percent from last fourth quarter. The price of DVD-ROM servo control chips has held fairly stable at US$9, only slightly down on last fourth quarter's US$10. A DVD player solution that features MPEG2 will be offered at a price of US$20 to US$40. A CD-RW control chip costs around US$12.

Despite uncertainty over the future prices of optical storage chips, Tsai said there was nothing unusual in MediaTek's declining profit margin this year, partly because the increasing utilization of wafer foundry plants would drive up wafer manufacturing costs, and partly because price competition was inevitable in the battle for market control.

He said the slide of the company's profit margin would be decided by how strong the pricing battle would be, and the company would maintain its time-honored practice of using caution in its financial forecasts.

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