MediaTek is accelerating its strategic shift towards the data center sector. The Taiwanese chip giant has raised its 2026 revenue target for AI-specific integrated circuits (ASICs) from $1 billion to $2 billion, while its mobile phone business continues to face pressure, leading to a slight year-on-year decline in overall first-quarter revenue.

According to media reports citing MediaTek CEO Rick Tsai, the company's AI ASIC business is expanding rapidly, with related revenue projected to reach $2 billion by 2026, doubling the previous forecast. Meanwhile, MediaTek's consolidated first-quarter revenue was NT$149.151 billion, down 0.7% quarter-on-quarter and 2.7% year-on-year. Net profit was NT$24.376 billion, a decrease of 17.4% compared to the same period last year, primarily dragged down by the mobile phone business.

The strong growth prospects of the AI ASIC business provide crucial support for MediaTek's expansion. Rick Tsai stated that the total addressable market for AI ASICs is expected to reach $70-80 billion by 2027, with MediaTek aiming to capture 10% to 15% of that market in the coming years.

The AI ASIC business is expanding rapidly, with the Google TPU project progressing smoothly. Reports indicate that MediaTek's first AI accelerator ASIC project, developed for a major U.S. hyperscale cloud provider, is on track and is expected to contribute approximately $2 billion in revenue by the fourth quarter of 2026, potentially scaling to several billion dollars by 2027.

In terms of customer collaboration, MediaTek's second AI accelerator project is advancing in close coordination with the client, targeting mass production by the end of 2027. Additionally, several other data center ASIC opportunities are in final negotiation stages.

Analysts suggest that MediaTek is likely to secure a larger share of shipments for Google's TPU v8t large-scale training chip and is expanding into the v9 generation. Google may continue its dual-supplier strategy involving MediaTek and Broadcom for the TPU v10, which would further solidify MediaTek's position in the high-end AI chip foundry market.

Furthermore, MediaTek is seen as a potential bidder for OpenAI's edge AI project. Reports indicate that regardless of the final shipment volume, the collaboration holds significant strategic importance and could open up broader ASIC partnership opportunities for MediaTek.

The mobile phone business remains the primary drag on MediaTek's current performance. In the first quarter, revenue from the mobile business fell 17% quarter-on-quarter and 15% year-on-year, accounting for 49% of total revenue.

Rick Tsai noted that increasing resource allocation to the data center business has raised the cost of mobile chips, prompting the company to increase prices and shift towards higher-end product lines, which has somewhat dampened overall demand. MediaTek currently anticipates that global smartphone shipments will decline by approximately 15% year-on-year in 2024.

Looking ahead to the second quarter, reports suggest that customers are expected to maintain cautious inventory management strategies, potentially leading to a further sequential decline in mobile business revenue.

However, MediaTek's first flagship smartphone system-on-chip (SoC) utilizing a 2-nanometer process is expected to launch by the end of the third quarter. This chip features enhanced AI and computing capabilities and is viewed by the company as a potential catalyst for business recovery in the second half of the year.

MediaTek's first-quarter financial data showed operating profit of NT$22.891 billion, up 4.8% quarter-on-quarter but down 23.8% year-on-year. Net profit was NT$24.376 billion, increasing 5.6% from the previous quarter but falling 17.4% compared to the same period last year. Earnings per share were NT$15.17, higher than the previous quarter's NT$14.39 but lower than the NT$18.43 reported a year ago.

From a sequential perspective, profitability metrics showed marginal improvement, but year-on-year pressures remain evident, reflecting the ongoing impact of weak mobile phone market demand on the company's overall profitability. Whether the AI ASIC business can generate sufficient revenue contribution in the second half of the year will be a key variable for market observers.