BOM Costs Rise, Global Smartphone Shipments Forecast to Decline 15%! MediaTek's 2nm Flagship Chip Launches in Q3, Flagship Market Share Expected to Rise by 2027

AI data centers are consuming vast amounts of advanced process nodes, memory, and packaging resources, and the resulting cost pressure is spreading across consumer electronics supply chains. MediaTek (2454) stated in its earnings call today (31) that rising smartphone bill-of-materials (BOM) costs have weakened end-market demand. The company maintains its forecast of a ~15% decline in global smartphone shipments in 2024. To counter market headwinds, MediaTek will launch its first 2nm flagship SoC in Q3, targeting next-generation Agentic AI smartphones, and expects to increase its global flagship smartphone market share by 2027.

Smartphone Q2 Revenue Down 20% Year-on-Year; Full-Year Shipments Forecast to Decline 15%

MediaTek's smartphone business revenue in Q2 declined 14% quarter-on-quarter and 20% year-on-year, accounting for 41% of total company revenue—lower than the 53% contributed by its smart device platform business.

MediaTek Vice Chairman and CEO Liang-Tung Cheng stated that the decline in smartphone revenue was primarily due to rising BOM costs. After smartphone brands adjusted pricing and product portfolios, market demand weakened noticeably. Therefore, MediaTek maintains its view that global smartphone shipments will decline by approximately 15% this year.

As early as its Q1 earnings call, MediaTek noted that industry resources are concentrating on data centers, driving up costs for smartphone chips, memory, and other components. Brands have responded by raising retail prices or shifting product portfolios toward higher-end models, but price hikes also suppress overall shipment volumes.

Smartphone Market Polarizes: Flagship and Entry-Level Models Become Key Battlegrounds

As the overall market shrinks, smartphone product structures are polarizing. Cheng stated that customers are currently focusing resources on two types of products: one is flagship models that deliver differentiated user experiences and support higher price points; the other is entry-level models that meet price-sensitive demand.

For MediaTek, the key to the flagship market is narrowing the product gap with competitors through advanced process nodes, CPU, GPU, and AI computing capabilities. In the entry-level market, the company must help smartphone brands reduce total system costs through SoC integration and memory usage efficiency.

Looking ahead to Q3, MediaTek expects that the ramp-up of its next-generation flagship SoC will largely offset weak demand in other smartphone segments. Smartphone business revenue is projected to be flat to down slightly (low single-digit percentage) compared to Q2.

2nm Agentic AI Chip Launches in Q3; Flagship Market Share to Rise by 2027

To capture the high-end smartphone market, MediaTek will launch its first 2nm flagship SoC in Q3, enhancing computing power for next-generation Agentic AI models and improving user experience through a more cost-effective architecture.

Cheng stated that while the new product will boost Agentic AI computing performance, it must also balance cost structure to prevent excessive increases in chip and end-device prices caused by added AI features. As MediaTek continues to expand its global brand customer base, the company expects its market share in the global flagship smartphone segment to further increase by 2027.

Unlike traditional generative AI, which mainly handles single-turn Q&A, Agentic AI requires a series of tasks such as planning, reasoning, execution, and self-correction. This places higher demands on smartphone CPUs, GPUs, NPUs, memory capacity, and power consumption control—and may reshape the architecture of future flagship smartphone SoCs.

Cheng: AI Smartphones Must Not Just Compete on Compute—They Must Help Customers Profit

Regarding competitors using wafer stacking or other advanced packaging techniques to increase memory capacity on smartphone chips, Cheng stated that MediaTek is continuously evaluating different architectures. However, he emphasized that AI smartphones must not simply pursue higher compute power; chip cost and smartphone brand profitability must also be considered.

“We must balance computing performance with chip cost,” Cheng said. MediaTek aims to build chips with sufficient computing power to support most Agentic AI use cases while maintaining a reasonable cost structure—ensuring that smartphone brands using MediaTek chips can still achieve strong business performance.

He believes that while AI smartphones have not taken off globally over the past two to three years, a clear shift is already underway in the Chinese market. The rapid adoption of large AI models is gradually changing consumer expectations for smartphone AI features and will influence future chip designs.

Agentic AI Devices Extend Beyond Smartphones—Final Hardware Form Remains Uncertain

Regarding markets outside China, Cheng noted that MediaTek has observed various potential customers developing multiple AI edge devices to seize new opportunities in the Agentic AI era. However, it remains unclear which hardware form will ultimately prevail—or whether multiple device types will coexist.

He emphasized that MediaTek’s strength lies in its high-performance, low-power SoCs and advanced process integration capabilities. Regardless of whether the market ultimately converges on smartphones, PCs, wearables, or new device categories, MediaTek can support customer needs through its foundational computing and system architecture expertise.

Beyond smartphones, the RTX Spark co-developed by MediaTek and NVIDIA is scheduled to launch during the year-end holiday season. Positioned as a new Windows PC supporting Agentic AI applications and high-end graphics, this product marks a significant step for MediaTek in expanding its high-performance CPU system integration business.

MediaTek’s smart device platform revenue grew 19% quarter-on-quarter and 26% year-on-year in Q2, accounting for 53% of total revenue. With new communications and automotive projects entering mass production in Q3, the segment is expected to grow by a mid-to-high single-digit percentage quarter-on-quarter. Amid a sharp global smartphone market decline, the 2nm flagship SoC is tasked with securing MediaTek’s core smartphone business, while PC, automotive, communications, and other AI edge devices form a second growth curve to diversify against smartphone market risks.