Two of the world's biggest makers of chips for smartphones need you to start talking to your air conditioner.
Qualcomm Inc. and MediaTek Inc. continue to face both slowing sales and declining gross margins. Those metrics often work in tandem, but as a couple of charts put together by Bloomberg Intelligence show, the correlation is quite pronounced.
Analysts Anand Srinivasan and Wei Mok wrote this week that MediaTek's diversification into the so-called internet of things and the automotive industry may help buoy sales after revenue declined in the first quarter. Qualcomm's revenue challenges have centered on troubles in China and with Apple Inc., yet the Bloomberg Intelligence chart reproduced here shows that the struggles are industry-wide and not just company-specific.
Srinivasan and Mok point out that MediaTek in particular is being caught between the adoption of 4G chips, whose higher production costs weigh on profit margins, and continued sales of older 3G products. But margin expansion -- or slowing contraction -- can only help so much when overall sales are dwindling.
That's where the internet of things comes in. A general term ranging from talking digital assistants such as Google Home and Amazon Echo, to temperature monitors and connected air conditioners, the IoT should be the next big thing for chipmakers. The problem is that this era has yet to fully arrive, leaving them supplying a smartphone market that's peaked.
Shares of both companies indicate that investors believe the worst is behind them, though MediaTek's recent sideways movement shows they're not fully convinced about the Taiwanese company.
That's left them asking: OK Google, is it safe to buy again?
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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