Despite strong demand from clients in China prior to the National Day holidays, most Taiwan-based IC design houses posted lower revenues in September than those they recorded in August - a sign indicating that downstream clients are still clearing their inventories, and that sales of those IC design companies will remain weak in the fourth quarter, according to industry watchers.

While most IC design houses are likely to gain access to foundry capacity at a relatively cheaper costs in the fourth quarter due to seasonality, second-tier and small-scale IC vendors are also expected to take the opportunity to lower their chip prices in order to grab market share from first-tier players, the sources noted.

Facing pricing competition from rival companies including Spreadtrum Communications, MStar Semiconductor and Generalplus Technology, MediaTek reportedly plans to cut its chip prices again in October in order to maintain its market share, the source indicated.

Weaker-than-expected demand for the year-end holiday season in the US and Europe and pricing competition will also push down ASPs for IC products in the fourth quarter undermining vendors' gross margins, commented the sources.

Sources: Companies, compiled by Digitimes, October 2010