Good afternoon, and welcome to the First Quarter twenty twenty Financial Results Conference Call for ASUS Tech. This conference call is divided into two parts. First, Mr. Nick Wu, our CFO, will brief you on the financial results of Q1 twenty twenty, followed by remarks from our co CEOs, S. Y.
Xie and Samsung Hu on operations and outlook. The second part is the Q and A. You can enter your questions on the left of the web page where there's a question mark. We will address your questions after the presentation. First, we'll hear from the CFO of ASUS.
REPRESENTATIVE:] Hello, everyone. Please turn to Slide five of the presentation. This is our brand P and L for the first quarter of twenty twenty. Net revenue was billion, down 28% quarter over quarter or 23% year over year. This was mainly due to the disruptions in the supply chain in China brought by COVID-nineteen.
That was the major factor. However, by the end of Q1, strong demand started to emerge as people work, learn and play from home. Overall, the revenue was TWD64 billion. That was actually better than the goal that we set in the previous quarter. In terms of profitability, operating profit was about TWD2.88 billion.
Whether it's quarter over quarter or year over year, we saw significant growth, thanks to several factors. First, the component business saw great Y o Y growth in the first quarter. Second, the gaming PC also continued to deliver over double digit year over year growth. Third, as mentioned earlier, at the end of first quarter, strong demand started to emerge as people work from home. These factors pushed up our operating profit to a very nice level.
Excluding non op items, pretax profit came to $890,000,000, EPS TWD 1.2 per share. Gross margin was 16.4%. Operating margin was 4.5%. Now please turn to Slide six for Brand P and L. This is the pro form a P and L excluding the phone business.
If you look at the old phone models, this business is continuing its decline. In the first quarter, the net revenue from old models was about TWD 1,400,000,000.0. Operating profit, $320,000,000. This was mainly due to accounting adjustments. For example, we earmarked rebate and price decline loss, and we adjusted these entries in this quarter.
In general, the old phone business will continue to be reduced in size. In the coming quarters, both revenue or profit and loss from this business will continue to be reduced. As for new phone models, in the first quarter, we were still in the transition phase. Net revenue was million. Operating profit or loss was CNY613 million.
If we exclude the phone business entirely, net revenue was about TWD61.7 billion. Operating profit, billion. Net profit, TWD1.23 EPS, TWD 1.7 per share. Now please turn to Slide seven for non op items. In the first quarter, the biggest impact came from foreign exchange.
We went from exchange gain in the fourth quarter of twenty nineteen to exchange loss in the first quarter of twenty twenty at about 1,900,000,000.0. This was mainly due to the outbreaks in Western countries of COVID-nineteen, and those outbreaks led to volatility in the financial markets as well as the ForEx market. Coupled with oil price wars, oil price was at historic low. Because of that, in many of the emerging markets we were in, in March, we saw great fluctuation of these EM currencies. And that is why we incurred this exchange loss in March.
We continue to monitor and manage ForEx movements. Looking at April and May up to date numbers, we expect to have some exchange gain to offset some of the losses we incurred in the first quarter. We will continue to actively manage this to better manage our ForEx risk. Another non op item included investment loss at CNY73 million. Mainly, it was from ASCII, the investment loss of CNY290 million based on equity method.
Again, because of the supply chain disruption, because of shortage in material and labor, they weren't able products to their customers. Now please turn to Slide eight. This is our brand balance sheet. In general, as revenue declined in Q1, Both accounts receivable and accounts payable went down in the first quarter. Inventories at the end of first quarter were around billion, up slightly from the fourth quarter twenty nineteen.
This was due to the factor that we talked about earlier. In February and March, we saw disruptions in the supply chain. While demand was strong and healthy, we were not able to ship products due to constraints by the supply chain and logistics. And that is why at the end of Q1, you saw higher number for inventories. Based on what we are seeing in Q2, the demand remains healthy.
We expect the inventory level to return to normal in the second quarter. Now please turn to Slide 10 for our product mix. Again, due to COVID-nineteen and disruptions in the supply chain, PC contribution in Q1 went down to 62%. Component platform business contributed 38%. Next slide is our revenue breakdown by region.
Europe, 40 Percent Asia Pacific, 30 8 Percent Americas, Americas, 20 2 Percent. Revenues from The Americas and Europe reflected strong demand as people work, learn and play from home. Slide 12 is our business outlook deferred demand from Q1. And as mentioned, we are also seeing strong demand as people work from home. We expect our PC business to grow 30% Q o Q in the second quarter.
Our component business will conform to the seasonal pattern. It will decline by around 10% Q o Q. In general, operations in Q1 and Q2 look pretty healthy. We expect to deliver better results than expected. In Q2, it is very probable that both revenue and operating profit will achieve positive growth year over year.
Overall, operations in the first half look pretty healthy and stable. We continue to set aggressive goals for the second half of the year. At the same time, we remain cautious and agile in our operations so as to better cope with the uncertainty and fluctuation in demand brought by COVID-nineteen. With that, I would like to hand over to our Co CEO, S. Y.
Xu. Hello, everyone, friends from media and institutional investors. Thank you for participating in our online conference call. My name is S. Y.
I will give you an update. Since 2019, at ASUSTeK, our strategy has been focusing on three areas: first, how to manage market dynamics second, expand our addressable market three, focus on areas of growth. Take 2020, for example. The biggest black swan event is, of course, COVID-nineteen. In response to that, we have come up with a lot of contingent measures, including our frontline operations and our admin.
At ASUSTeK, we prioritize the safety and health of our employees. That is why a while ago, while the outbreaks were raging on in Western countries, we internally have adopted the AB shift measure and also allow employees to work from home depending on the situations in individual countries. Because of that, we ensured the continuous operations of our company. In addition to having these short term measures, we also would like to apply the lessons learned from this COVID-nineteen, and that is our BCM structure. We want to strive for long term stability.
Right now, while PC remains to account for the majority of our business. We have also invested heavily in areas such as AI and IoT. While AI and IoT remain small in terms of its contribution to our business, but believe these are areas of growth. And we will give you an update on this when we see more concrete results. In addition, we are also focusing on gaming PC and gaming phones as well as the Creator PC.
Also, are capitalizing on the demand as people work from home and learn from home. These are all areas of growth that we will capitalize on. Now I would like to say a bit more about how we respond to COVID-nineteen. First of all, it's about improving our efficiency. For example, adjusting our operating expenses, better managing our marketing expenses.
We want to make sure we use our capital well. Secondly, we want to optimize our project portfolio. For example, as people work and study from home, we need to capitalize on that opportunity. We also focus on Chromebook. This is about optimizing our product portfolio.
Thirdly, we are strengthening our agility. We have come up with promotional campaigns and packages as people work from home. Thirdly, in this environment of high uncertainty, it is important that we remain agile. Our management team has done a lot of tabletop exercises for different scenarios. For example, if the worst case scenario occurs, we need to continue our operations.
As part of Corporate Taiwan, ASUS has been contributing has been doing our part in terms of CSR. For example, we try to contribute in the fight against the pandemic through our sales force. One example, a while ago, we collaborated with Tao Yuan General Hospital using ASUS Zenfone Max Pro smartphone and our ASUS VivoWatch. These devices enable one to many health monitoring, allowing health professionals to monitor the status of suspected cases continuously. It also reduces the contact between frontline medical staff and suspected cases.
In addition, the twenty four hour collection of information can be further transformed into a visual model that allows health care professionals to observe the health trends of suspected cases more accurately. VivoWatch can be worn just like a regular watch. We also offered a customized solution, allowing one to many health monitoring. Without hassle, we can continuously gather data such as pulse, heart rates, sleep, etcetera. And this can be fed into the cloud healthcare system of the hospital, so the hospital can leverage big data.
The Deputy Superintendent from Tao Yuan General Hospital has also said that this collaboration with ASUS, where they leverage this solution to monitor suspected cases, Using cloud data, health professionals are able to get real time data. Going forward, we will continue to work with Tao Yuan General Hospital and Ministry of Health and Welfare to make this solution more available. This is one good example of how we share our technology to help fight the pandemic. Health management is just one example. Another impact of the coronavirus is that children are staying away from school.
These days, people are working from home and also learning from home. At Foundation, we focus on education, environment and inclusiveness. In response to COVID-nineteen, ASUS has collaborated with KISTSchool Foundation, where we've donated 100 Zenfone Max phones to schoolchildrens in Yunlin, Hualien and Taidong. This allows students to learn with these smartphones. This ensures that learning continues.
ASUS Foundation has long been committed to bridging the digital divide. We've been using recycled computers and digital learning centers to help children in remote areas of Taiwan learn. We want to help children in remote areas to learn, irregardless of their location, gender, socioeconomic status, etcetera. And this time, this effort comes from the same vein of contribution. It is our goal that the new generation of students can learn on their own.
And in this process, ASUS Tech is also doing our part to give back to the society. That concludes my part about our recent responses. Now I will turn it over to Sanseng, who will brief you on products and operations. Hello, everyone. My name is Sanseng Hu.
I will give you an update on Q1 operations. As SY mentioned earlier, we've been leveraging ASUS technology to offer help to those in need. In terms of our business operations, we are capitalizing on the opportunities as people work, learn and play from home. We offer our comprehensive solutions as well as packages to really take market share. Please turn to Slide 18.
During the majority of Q1, there were disruptions in the supply logistics around the world. However, as we remained agile and adaptable, our commercial business, our component business have delivered great results. These businesses offered close to double digit and double digit growth Y o Y. Next slide, please. Looking at our revenue rather shipment breakdown.
There are two important segments: Gaming and the other is Thin and Light. Gaming accounted for 18% of our shipments in Q1 and Thin and Light accounted for 67% of shipments. These numbers were greater than the market average of 1250%. This year, we'll continue to enhance our product competitiveness. We will also optimize our product mix, focusing on high end products to make sure we offer consumers the best user experience.
Those were my brief remarks. Thank you. Thank you. We will now start the Q and A session. The first question comes from JPMorgan.
The gross profit of the new smartphone business was negative in Q1 twenty twenty. How does the company plan to improve the gross profit or gross margin of the new smartphone REPRESENTATIVE:] I'll take this one. If you look at the life cycle of phones, we are launching the new generation of phones at the end of Q2 or early Q3. So the phones that were on sale in Q1, they were toward the end of their life cycles. Of course, COVID-nineteen put a dent on sales as well.
That's why the profit was negative. That could be expected. When we discussed the strategic transformation of our phone business, we talked about enabling the high end and gaming phone segments. This actually takes time. That's why we have the three year plan.
Within three years, we would like to enable the market segments to allow for economies of scale so as to have positive profitability. I understand a lot of institutional investors are very concerned about the financial impact of the phone business on ASUS. We've been thinking about how to better leverage the technologies that we have within our phone business unit. We are conducting some studies. When the time is right, we will give you more information.
Currently, we are still focusing on high end and gaming phones. We would like to really grow the addressable market. That remains our focus. Second question from JPMorgan. What is ASUS' view on the demand for notebooks in Q3 twenty twenty?
If most of the demand was fulfilled in Q2, will we see a decline over year in Q3 twenty twenty? I will take a stab at this. In general, demand in Q3 depends on how the pandemic plays out. If we look at March all the way to Q2, the pandemic has brought some positive impact as people work, learn and play from home. In terms of this, from March until Q2, we expect this demand to remain strong.
Secondly, by Q3, will that demand remain strong? It depends on several factors. Based on our observations, the inventory level at distribution channels remained low. This was due to disruptions in Q1 and also strong demand in Q2. So the inventory levels at distribution channels cannot mean the strong demand.
Inventory levels remain low. In Q3, we expect the pandemic to continue to bring both positive and negative impact. More recently, countries such as The U. S, Germany, Korea and Japan in Asia Pacific or Wuhan in China, these places have been easing restrictions to restart their economies. However, because of this, we're also seeing a second wave of outbreak.
For Q3 and Q4, we believe the pandemic will continue to play out until we get vaccines. As for how strong the demand will be, the demand has been with us since March all the way through Q2. How strong would it be going forward? We need to continue to monitor that. There are no clear signals yet.
The only clear signal is, as I mentioned, inventory levels at distribution channels remain low. So in late Q3 to Q4, we expect the demand to be there. But still, we need to monitor how the pandemic plays out. REPRESENTATIVE:] Next question comes from Nikkei News. Are we seeing shortage on PC components?
Are prices going up? Also, has the CPU shortage been resolved? I will answer this question. We can talk about this from several aspects. First, in Mainland China, starting from March, the supply chain issues have been resolved.
No shortage there. On the other hand, in Southeast Asia, for example, in Malaysia, in The Philippines, they have all implemented lockdowns. And the lock down measures are having an impact on IC components, including the packaging and testing of IC, in particular, communication related IC and power management ICs. The packaging and testing of these ICs are conducted in Malaysia or The Philippines. So these are being impacted.
However, we have solved about 50 or half of the problems. Some impact remains there. But overall, to summarize, the supply chain in China is okay. We're only seeing some issues in the supply chain in Southeast Asia. As for price movements, the pandemic is driving down demand for smartphones.
That adds pressure to component prices. On the other hand, strong demand for server and PC as people work from home, this trend is pushing prices. So component prices are going up because of this. And these two forces are canceling each other. The net impact on based on our estimation is that in Q2 to early Q3, we might see the component prices to go up by a single digit.
What's your view on the outlook of gaming smartphone market? How do you differentiate gaming phone from other smartphones? Starting with our PC business, we went into the gaming business. We have the ROG, Republic of Gamers sub brand.
As we make smartphones, we also reference the lessons learned from our PC business. Let's take gaming PC, for example. How is a gaming PC different from a regular PC? In three aspects. First, performance, whether it's a CPU or GPU performance.
Performance matters a lot to game players. If it's a gaming PC, CPU and GPU performance has to be good. Otherwise, the user experience will not be good. The same thing applies to a gaming phone. For CPU and GPU performance, we can optimize through tuning, through overclocking or through our partnership with upstream suppliers to better optimize the user experience.
This is how we differentiate. Secondly, appearance. Looks also matter for game players. On the market, you see gaming related products, whether it's a PC, a laptop or a gaming phone. They all have statement looks.
They all feature bold colors. These appeal to gaming players. This is also how we differentiate. Also in terms of accessories, we also work with content providers. Content is, of course, very important for players.
Some players actually buy specific devices to play particular game. That is why it's very important to work with content providers. Thirdly, ease of control. With PC products, you see keyboards or mouses aimed at players. Now on a smartphone, controlled through the touchscreen.
All we can do is to take ergonomics into consideration to ensure ease of use. In this regard, we have put in a lot of features for better control during gaming. For example, in terms of how we place the charging ports and how we enable special buttons for specific features. These are all features we put in specifically to enhance user experience. So these are the three aspects where a gaming phone is different from a regular smartphone.
In addition to the three aspects, we will continue to explore features that are important to players. Another example is the refresh rate of the screen. With gaming PC or notebook, the same trend can be observed. In general, with our PC business, we have learned a lot of lessons on what game players want or desire, and we can apply those lessons to our gaming phone business. We will continue to strive for excellent user experience for our users.
What's your take on the launch of Intel's tenth generation processor and the new graphic cards from NVIDIA? We noticed that ASUS has collaborated with AMD to launch thin and light gaming notebook, which has been well received by the market. Could you give us more color around that? UNIDENTIFIED I'll take this one.
Whether it's Intel, NVIDIA or AMD, every year, as technology evolves, as they try to meet consumer demands, they all come up with new solutions. As you talked about, the Gen 10 Intel products, that's for desktop primarily. Intel is a long term partner of ours. We will launch the corresponding products immediately. With a new generation of CPU, we see better performance and better power consumption.
And this stimulates consumer demand. We, again, like I said, will have a corresponding solution. In the second half of the year, Intel will have its eleventh generation CPU for laptop. With each generation from Intel, we see uplifts in performance and power management. We are very optimistic about this.
While COVID-nineteen may have some negative impact in the second half of the year, the new generation of products from Intel will provide some positive impact. As for AMD, in the past couple of years, AMD has been improving their architecture. They have have also been working with TSMC in terms of the seven nanometer process node. And these measures have improved their performance. And indeed, the AMD platform is very well received by the market.
Again, we also work closely with AMD. About two months ago, we launched a gaming notebook in collaboration with AMD. It's called G14. And that product has been very well received by the market. Again, whether it's Intel, NVIDIA or AMD, they are all long term partners of ASUS.
We will work with them and offer corresponding products to consumers to meet the market demand. UNIDENTIFIED Next question comes from Morgan Stanley. Will you ask your ODM partners to prepare more component inventory better so as to cope with possible shortage or logistical constraints in the third quarter. As mentioned earlier, in China, the supply chain or it's whether it's memory or solid state, we don't expect any shortage problem in Q2 or Q3. Shortage problems might come from Southeast Asia concerning certain ICs.
As these countries go into lockdowns, some components might be affected. For our material inventory in Q3, we have actually conducted some tabletop exercises to simulate the worst case scenario. We have also talked with our suppliers to prepare in advance. We believe this should be within our control. Next question comes from Huanan Securities Investment Management.
Will the launch of new products be affected as R and D personnel cannot travel to China for the time being? How does ASUS Tech cope with that? UNIDENTIFIED take these questions. In my presentation, I actually talked about that we've conducted some simulations with our management team regarding COVID-nineteen. Travel restrictions were one of the scenarios we talked about.
There are several ways to cope with that. First, video conferencing. Colleagues at our Taipei headquarters can talk with our suppliers in China through video conferencing. They can also deliver or ship samples to us through air freight or shipping. As long as both sides have physical samples with them, actually, video conferencing can be a great help.
When it comes to mass production, of course, travel restrictions are going to have some impact. Fortunately, right now, the outbreak in China is well under control. In many of the provinces, things are returning to normal. There are no restrictions on travel unless you are traveling to areas where they have severe outbreaks. In China, they actually put provinces into different categories depending on severity of the outbreak.
As long as you are not traveling to an area with a severe outbreak, travel is allowed. In Suzhou, we have some local R and D personnel. If we need to conduct on-site visits, we can send our Suzhou colleagues, coupled with some R and D people from coupled Having said that, we have limited number of employees in Suzhou.
We need to prioritize projects. We will put most resources on the important products. For example, as Samsung mentioned earlier, in the second half of this year, Intel is launching new products. We also have set targets in terms of time to market and time to volume. We will prioritize and give more resources to those important projects.
Through these measures, we've been able to minimize the impact from travel restrictions. Regarding your second question, ROG Phone three and ZenFone seven, when will they be launched? In terms of time line, we will align ourselves with Qualcomm. Right now, the plan is to launch these in late Q2 or early Q3. We will give you an update when we have the finalized time line.
Next question comes from Garner. Could you comment on your strategy and outlook for Creator PC segment? After post COVID-nineteen, how will the Creator PC segment help with overall laptops margin and shipment? C. I will take this one.
Creator PC is a very important product line for us. It's also quite strategic. You can think of it as an extension of our commercial business. As we've talked about in numerous occasions, starting in 2014, we started the Creator series. We have a sub brand called ProArt.
Even with COVID-nineteen, the demand for Creator PC is strong as people work from home. As COVID-nineteen continues to play out, we believe since Creator PC is more like a B2B business, Creator PC is also more like a productivity tool for people. So I think the impact from the pandemic is going to be minimal. This year, we will continue to invest in this business. Here's a heads up.
In late September, we will launch new series of Creator PCs. Is there CPU shortage in Q2? UNIDENTIFIED Well, with Intel, after the efforts in the past few quarters, whether it's late Q1, Q2 or second half of the year, there has been no shortage problems with important CPU models. In greater detail, speaking of Chromebook, there has been strong demand for Chromebooks.
Chromebooks use small core CPU. Within this series, one or two SKUs are running into shortage problems. Other than that, mainstream CPUs are not having shortage problems right now. REPRESENTATIVE:] Next question is from Morgan Stanley. If the work from home demand favors low to mid end level, will that drag down the ASP
That's a very good question. Let's review the time line a little bit. Based on what we've been seeing since March till late Q2, the work from home demand has been quite strong. Looking at the entire industry, supply has been tight, which means whether it's high end products, mainstream products or entry level products, as long as the supply is there, the demand is there. Before the end of Q2, we don't think people are favoring entry level models.
The demand for high end and mainstream products products are quite strong. If the pandemic continues to play out, we may see a trend of an M shaped demand curve. If the outbreak continues, the economy will suffer and people with low or mid income, their spending power will be dented. Their spending power will be reduced, so they may prefer entry level models. That's a possible development if the pandemic continues to impact the economy and consumption.
That's a possible scenario, more demand for entry level models. On the other hand, for premium models, there are always people with deep pockets. Even with the impact of the COVID-nineteen pandemic, they have the wherewithal to buy products that they need, even if they are high end products. So we believe this is something we need to monitor, this M shaped demand curve. Next question comes from UBS.
Could you tell us the reasons behind improved margin in Q1 twenty twenty? Actually, in our presentation, the reasons for this were implicit. In Q1, with our open platform business, the contribution to revenue went up. Margins for system products and component products are quite significant. As we get more contribution from component business, that, of course, would help our margin.
Second reason was mentioned by Samsung. In Q1, we suffered some disruptions in the supply chain. In Q1, as long as you had products available, you will be able to grab a lot of business because people now need to work and study from home. That was unexpected demand. Our sales reps have been giving us this feedback that they have been contacted by infrequent customers, customers who did not use to work with us.
Now they would like to purchase from us. As long as we have products available, we will be able to sell them. In many markets, inventory in weeks is now down or below the safety level. This is having several impacts on operation. Usually, we would reserve some credit funds to be used when sales are slow to offer to distribution channel partners for promotions.
Now since things are flying off the shelves, we don't need to have that fund. And this, of course, has helped our operating margin. All this comes down to is that in Q1, our operating margin was much improved. UNIDENTIFIED Next question comes from BOA Merrill Lynch. It's a similar question.
Earlier, our Co CEO talked about the reasons behind improved operating margin in Q1. Will this continue to Q2 and Q3? What's your outlook for the coming quarters? REPRESENTATIVE:] I'll try to take a stab at that. Frankly speaking, there are a lot of factors affecting the operating margin.
As Samsung mentioned earlier, for 2020, historical data doesn't really help us understand 2020. So we've been trying various ways to collect more data. In the PC business, Intel is, for sure, the leader in the upstream. Intel has a lot of resources for market analysis. A while ago, we had some discussions with Intel regarding the PC market.
Based on their analysis, their observation is quite aligned with ours. According to Intel, in the first half of this year, the PC business will grow by 8%. In the second half, they expect it to decline by 15%. Therefore, we are being very cautious for the second half of the year. Maybe the demand won't be as strong as in the first half of the year.
For the reduced inventory level, since we need to replenish the inventory level, perhaps in Q3, shipment will remain strong. And once that inventory level comes back to normal, it then comes down to how strong the consumer demand is. Right now, it seems COVID-nineteen is having a significant impact on global economy. Based on Intel data, they believe global economy won't return to positive growth, not before Q2 twenty twenty one. It will be a U shaped recovery.
This, of course, will have significant impact on our BU operations. I think it's too early to tell to talk about our margin in the second half of the year. What I can say is that we will take market dynamics very seriously. Intel's chief economist also has said to us, they actually have to report to the Board on a weekly basis. What we can do right now, given this dynamic environment, is to gather more data from our upstream and downstream partners to ensure smooth business operation to minimize loss from unexpected events.
Next question comes from Credit Suisse. In the PC segment, what's the contribution from education market and Chromebook? In the second quarter, you expect great Q o Q growth. Where will this growth come from? Education market within the commercial market is a very important segment.
In the past year, we've been investing heavily on commercial PC, including the educational market. And the product offerings include Chromebook. Chromebook is actually a very important part of this. With the outbreak of coronavirus, people are learning from home. In Western countries, we see strong demand from K-twelve.
In Japan, they have a Giga School program. That was going to be launched in 2022. Now because of the pandemic, they would complete this program by this year. Chromebook is the segment with the greatest growth potential within education market. In Q2, we have seen very strong demand.
We expect this strong demand to continue to the second half of the year. More specifically, I think the demand from or for Chromebook will be quite clear and will continue into Q3 and Q4. Whether it's Chromebook or our entire commercial PC business, we started investing in this last year. We will continue to invest more this year. Based on our forecast, in the second quarter, we expect Chromebook to have a Y o Y growth of over 100%.
Q3 demand will have a similar level, more than 100%. The momentum is quite clear. UNIDENTIFIED Next question comes from KGI. What's your plan for your commercial PC business? What are your target segments?
In Q1, commercial PC enjoyed 10% year over year growth. Where exactly does the growth come from? Regarding commercial PC, in the past earning calls, we've talked about it. In the past, ASUS relied heavily on consumer PC for growth. Commercial PC is an area where we need to grow.
As we've mentioned in the past, starting from second half twenty twenty, we will complete the product offerings for commercial PC, including Chromebook, window based PC, desktop and all in one commercial products. Our product offerings will be comprehensive by the second half of the year. In terms of distribution channels, as we talked about before, we will first focus on a few key markets. For example, Taiwan, China, where we have been growing the business for quite some time. We will also focus on Asia Pacific.
In Asia Pacific, Pacific, in terms of consumer PC, we have one brand positioning. Brand awareness is quite good. On that foundation, we can further expand our commercial business. In the past year, we've been investing a lot in channels, in sales teams in Asia Pacific. All those resources will be in place as we launch new products.
The commercial business in 2020 will start to take off, especially in the second half of the year. So I talked about Asia Pacific. As for Western markets, we will tackle them in the second phase. Next question comes from Digitimes. How much will the gaming phone market grow in 2020 compared to 2019?
What's ASUS' view on the total addressable market? What about your target of the three year REPRESENTATIVE:] When we enter the gaming phone market back then, the gaming phone category did not exist. So I'm not sure right now whether research companies will separate out the gaming phone category. Therefore, I will not talk about the total addressable market. I will only talk about ASUS.
Last year, the ROG2 phone compared to ROG1 grew quite significantly. For ROG3, we've set very aggressive goal. Compared to ROG II, we would like ROG III to grow by at least 30% or even 50%. I know people care about our target of three years to profitability, reaching profitability in three years. It comes down to whether the market is enabled or not.
If the market is enabled, then profitability will follow naturally. Now how whether the market is enabled, it has to do with the industry player feedback. At ASUS, we remain committed to our goal, reaching profitability within three years. We will strive for interest of time, we will conclude the earnings call here. Do we have any ending remarks from our co CEOs?
UNIDENTIFIED Q1 twenty twenty, I believe, is a rare experience for everyone. COVID-nineteen has affected us in our work, in our life. Here, I would like to wish our friends from media and institutional investors to stay healthy and stay safe. COVID-nineteen is having a big impact on the industry. It presents both threats and opportunities.
Our view is that we've safely navigated the first half of the year. Of course, there is still a lot of uncertainty regarding the second half of the year. What we can do is to prepare aggressively, whether it's product development or supply chain management or channel management. We do things proactively. We try to seize the opportunities presented by COVID-nineteen while coping with cautious and very agile.
We will pay close attention to the signals on how COVID-nineteen is impacting the economy, the society, we will try to chart a path ahead with a steady approach. Thank you.