The planned merger between MediaTek and MStar Semiconductor is expected to vertically integrate their supply chain. However, some market watchers speculate MediaTek will take over the leadership of the merged company, and the existing supply chain partners of MStar might lose orders.

MediaTek chairman MK Tsai and his management team are likely to lead the new merged company, the watchers believe, adding that the planned merger between MediaTek and MStar will ultimately benefit MediaTek's major backend service providers including Siliconware Precision Industries (SPIL), Sigurd Microelectronics and King Yuan Electronics (KYEC).

Merging with MediaTek is unlikely to have similar positive effects for MStar's existing suppliers except for Sigurd, which is also a partner of MediaTek, the watchers indicated. Singapore-based STATS ChipPAC and its testing subsidiary STATS ChipPAC Taiwan Semiconductor are among MStar's current backend partners.

MStar is currently STATS ChipPAC Taiwan's fourth-largest client, accounting for 9-10% of company revenues, the watchers said. KYEC is MediaTek's largest testing partner at present, fulfilling more than 50% of the fabless vendor's total demand, the watchers pointed out.

STATS ChipPAC Taiwan has responded saying it cannot comment on the issue as strategies towards their integration have not been determined.

Meanwhile, Advanced Semiconductor Engineering (ASE) provides packaging and testing services for both MediaTek and MStar solutions, and should find little impact from the two clients' merger, the watchers noted.

According to MediaTek, the company's merger with MStar is expected to complete in early 2013.