TAIPEI, July 31 (Reuters) - MediaTek, Taiwan's largest chip designer, said on Friday its board had approved a discretionary financing budget of $5 billion to support long-term growth, including its expansion into AI chips for data centers.    

The plan highlights the company's push to reduce its reliance on smartphones and become a significant supplier of custom AI chips, known as ASICs, to major cloud providers.

Although the market is dominated by a small group of players, rapidly rising spending on AI infrastructure is giving MediaTek, best known for smartphone processors, an opportunity to expand into a faster-growing and higher-margin business.

"This flexible framework provides us with the optionality, when needed, to agilely support our long-term growth and capitalize on massive data center opportunities," Chief Executive Rick Tsai said on an earnings call.

The company raised its estimate of the addressable market for custom AI chips in 2027 to $80 billion, from a previous range of $70 billion to $80 billion. It also increased its target share of that market to 15% to 20% from 10% to 15%.    

Tsai said MediaTek had successfully developed its first custom AI chip, with production set to begin in the fourth quarter. A second chip remains on track for volume production in 2028.

MediaTek expects its data-center AI chip business to generate more than $2 billion in revenue in 2026.

SMARTPHONE WEAKNESS

MediaTek said its mobile-chip revenue fell 20% in the second quarter from a year earlier as higher component costs weighed on smartphone demand.

Global smartphone shipments dropped 11% in the quarter to their lowest level for the period since 2013, according to preliminary estimates from Counterpoint Research, as a memory-chip shortage pushed up handset prices.

"As rising costs across the supply chain have become an industry-wide reality, we are taking pricing actions to ensure these increases are appropriately reflected in our product pricing," Tsai said.

"Our view for global smartphone shipment remains unchanged and we continue to expect the market to decline by about 15% in units this year," he added.

MediaTek, a customer of TSMC, is the second-most valuable company on the Taiwan stock exchange, with a market capitalisation of $176 billion.    

The company reported quarterly revenue of T$152.18 billion ($4.71 billion), up 1.2% from a year earlier. Net income fell 12.3% to T$24.6 billion.

MediaTek shares closed up 9.9% on Friday ahead of the results and have risen 148.6% this year, compared with a 48.9% gain in Taiwan's benchmark index.