Mediatek would own a 69% stake in the firm after the stock swap. The company indicated it would use the alliance to expand its product line and more importantly to accelerate penetration of this new market, as well as for potential technology synergies with its handset chip business. The San Jose, CA based NuCORE Technology Inc. was started in 1997 by founders with background from Hitachi medical imaging and Intel Japan, focusing on digital image processing chips for video and digital cameras.
Firm believes this represents an increased medium-term business risk to Zoran, where Digital Still Camera [DSC] segment accounted for 33% of 2006 sales (42% in 4Q06). According to NuCORE, its Japan R&D team enables close cooperation with camera OEMs and sensor manufacturers, while its Taiwan sales serve the contract manufacturers in the outsourced market. While firm believes that Zoran continues to have a strong position at Taiwanese contract manufacturers for DSC, Mediatek's entry represents a significant threat given the latter's track record of success entering markets such as DVD chip and chipsets for GSM/GPRS handset applications.
While it is too early to quantify the potential impact on Zoran's DSC business given the lack of details of Mediatek's plan at this stage, firm notes that the Taiwanese IC company's historical entry into the DVD market increased pricing and thus margin pressure significantly.
Notablecalls: Not actionable but 'good to know' category.