Welcome to the MediaTek 2020 Third Quarter Investors Conference Call. Financial Results and Presentations for today's conference are available on the Investors section of the company website at www dotmediatesh.com. Now I would like to turn the call over to Ms. Adjusting Wang, Deputy Director of Investor Relations. Ms.
Wang, please proceed.
Good afternoon, everyone. Joining us today are Doctor. Rick Tsai, Nidataek's CEO and Mr. David Guidoek's CFO. Mr.
Guil will report our 3rd quarter results and then Doctor. Tsai will provide our prepared remarks After that, we will open for Q And A. As a reminder, today's presentation will provide forward looking statements based on our current expectations. These statements are subject to various risks and factors, which may cause actual results materially different from those statements. The presentation materials supplement non tippers financial measures.
Earnings distribution will remain important with financial statements based on tippers. For details, please refer to the safe harbor statement in our presentation slides. In addition, all contents provided in this tele conference are for your reference only, not intended for investment advice. Neither media tech nor any of independent providers is responsible for any actions taken in reliance on content provided in today's call. Now I would like to turn the call to our CFO, Mr.
David Guo, for the 3rd quarter financial results.
Thank you, Jesse. Good afternoon, everyone. Now let's start with the 2020 third quarter financial results. The currency here is in all in NT dollars. Revenue for the quarter was 97,300,000,000.
Up 43.9% sequentially and up 44.7% year over year. Gross margin of the quarter was 44.2 percent, up 0.7 percentage points sequentially and up 2.1 percentage points year over year. Operating expense for the quarter were $28,400,000,000. Compared with $22,000,000,000 in the previous quarter and $21,300,000,000 in the same period last year. Operating income for the quarter was RMB14.6 billion.
Up 97.3% sequentially and up 108.1% year over year. Non key first operating income for the quarter was $15,500,000,000. Operating margin for the quarter was 15%, increased four percentage points from the previous quarter and increased 4.5 percentage points from the year ago quarter. Nonkey first operating margin for the quarter was 15.9 percent. Net income for the quarter was 13.4000000000.
Up 82.8% sequentially and up 93.7% year over year. Non deferred net income for the quarter was $14,100,000,000. Net profit margin for the quarter was 13.7 percent increased 2.9 percentage points from the previous quarter and increased 3.4 percentage points from the year ago quarter. Nonitizer's net profit margin for the quarter was 14.5% EPS for the quarter was $8.42, quarter and up from $4.38 in the same quarter last year. Nonity for EPS for the quarter was $8.86.
A reconciliation table for our key first and non key first financial measures is attached in our press release for your reference. That concludes my comments. Thank you.
Thank you, David. Now I would like to turn the call to our CEO, service type prepared remarks.
Good afternoon, everyone. Today, I'm delighted to report a record quarter of sales and earnings for MediaTek. Our 3rd quarter revenue grew 44% sequentially to NGN97.3000000000. This is not only ahead of original expectation, but also a record high quarterly revenue. It's also worth mentioning that our 3 product groups all had approximately 40% or higher sequential growth rates.
The structured growth of our balanced product portfolio is a good foundation to underpin media techs sustainable development. Furthermore, we once again demonstrated very good operating leverage by achieving record high operating income and net income. Our 3rd quarter operating income grew strongly at 97%. Sequentially and more than doubled from a year ago. Operating margin percent, the highest since the first quarter of 2015.
The solid financial numbers reflect the strength of our business portfolio and the result of our well executed corporate strategies. Now let me elaborate on our 3 business for our 3rd quarter results. 1st, growth area. Which consists of IOG, TMIC and ASIC accounted for 27% to 32% of 3rd quarter revenue. All major products had robust sequential growth in the quarter.
For IoT, demand for AI speaker, streaming device and Bluetooth TWS or increased in the third quarter due to AML AI speaker launches and market demand recovery. Besides work from home and spec migration trends continue to drive strong WiFi 5 demand and accelerate WiFi adoption. Competitive Wi Fi Six solutions and early participation in the market. Enable us to enhance market share in the higher end segment and further expand into new markets. Mediotech Wi Fi switch chips are already in numerous high end broadband, router and consumer devices.
We are making inroads to the notebook market with initial revenues by endoftheyear. Power Management ICs demand remains very strong across the board, including notebooks, PC, TV and smartphone. This leads to certain supply tightness in the near term. For ASIC product for the new generation gaming consoles continue to ramp in the quarter. On the enterprise side, product development of AI Accelerator and use which I see is tracking well.
Despite the recent server demand slowdown, we remain positive on its mid to long term market opportunities. Best, smart home and others. Primarily TV and other traditional consumer electronic accounted for 22% to 27% of revenue in the third quarter. The demand recovery in the third quarter was better than expected especially digital TV. Demand in North American, European and emerging markets all increased strongly We are confident in our industry leading comprehensive TV product portfolio with more advanced feature upgrades.
Such as AI integration, we will be able to sustain our leadership in global TV market. Now on to mobile computing, which includes smartphone, tablet and Chromebook. Accounted for 43% to 48% of the 3rd quarter revenue. Mobile computing revenue grew substantially in the quarter as we saw stronger than expected demand in tablet and Chromebook as well as smartphone orders in both 40s and 5s. Chromebook market is growing fast.
This year, thanks to remote learning demand. Media has provided competitive products to support all major global brands ranked number 1 in ARM based ChromebookSOC. We expect our market share to further increase in the future with the broadened product offerings. For smartphone, media outperformed the industry this year with share gains in both 5G and 4G smartphones. On 5G, major smartphone makers or embrace 5G aggressively.
With a faster migration to 5G, we now believe global 5G smartphone shipments in 2020 will be around 200,000,000 at the high end of our prior estimate, and it could be more than doubled in 2021. The fast growing market presents exciting opportunities for MediaTech. By now, we have 5g Engagement with all major Android smartphone brands in different product segments. We are confident to secure reasonable market share across segments in 5G regardless of the potential market share shift among smartphone brands due to recent uncertainties caused by the global trade dispute. Moreover, our 5G footprint has been expanded to more global markets.
Need to affect high end diversity 1000 series was adopted by ALG and launched in the U. S. Market in the third quarter for the first time. Together with LG, we teamed with T Mobile to complete the first ever 5G standalone new radio carrier aggregation data core. All those diversity 800 models will hit European markets in the fourth quarter.
Next year, we expect more models shipping to global market. On the product side, smartphones, the top in next dimension is 5g high end So will start mass production early next year. MediaTech's commitment of complete 5G product portfolio relance intact and we will continue our effort in providing more competitive high end solutions in the future. For mass market, we expect dimensionally 7 20 models to ramp strongly in the 4th quarter. In addition, we will start shipping another SOG by endof2020.
Enabling 5G Smartphone in more segments. Video Airways product development remains on schedule for further market expansion. In addition, 5g CM modem business is gaining good traction. First project for Intel Platform notebook PC is expected to mass produce in the first half of twenty twenty one with more projects to come. For 4G, demand continues to rebound in the second half of the year.
And remains a sizable market. With market share gains, we expect our 4G shipment to grow this year. In summary, third quarter of 2020 marks the milestone for media attack. In terms of financial performance as well as business development. With a strengthened global market position, we believe we are a strategic relevant partner to global customers.
All progress and market shares in 5G Wi Fi Six and Chromebook products are some clear evidences of our global position. These positions are built upon our dedication to key technology investments. With ongoing investments, we believe we are on the right track to capture opportunities on multiple fronts. Such as 5g's Wi Fi Six Enterprise Physics And Phoenix. Our diversified IP and business portfolio are our unique competitive advantages, enabling us to create value and future growth opportunities.
With the depth of our business portfolio MediaTek powering your everyday life. Now turn to 4th quarter outlook. Following a strong 3rd quarter, overall demand stays solid in the 4th quarter. We expect another quarter with significant year over year revenue growth. On a quarter over quarter basis, we expect revenue for fueting and growth areas to be better than normal seasonality, even with an unfavorable exchange rate.
For smart home, we will exclude Eletek revenue starting November upon the completion of the divestment transaction. Gross margin is expected to be stable at the current to be in the range of NT89.5000000000 to NT97.3000000000 dollars. Flat to down 8% sequentially, up 38% to 50% year over year. And are forecasted is generated for $28.8 to $1. Excluding FX and Giletech impact, our 4th quarter revenue guidance range would have been up 5% to down 3% sequentially that implies the revenue momentum is stronger than traditional seasonality, even after a record high quarterly revenue in the third quarter.
In addition, we're forecasting gross margin at 43.5 percent, plus or minus 1.5 percentage points. And quarterly operating expense ratio to be at 29%, plus or minus 2 percentage points. That concludes my prepared remarks. Thank you.
Thank you, Rick. We are now ready for May we please have the first question operator?
Yes, thank you, Jessie. Ladies and gentlemen, we are now in Q And A session. You. As a reminder, it is greatly appreciated to turn off the speaker phone mode of your device to prevent possible echo effect. We thank you for your cooperation.
The first to ask questions, Randy Abrams of Credit Suisse.
Okay, thanks. I want to congratulate you on a good result and also outlook. Maybe just the first question on the constraints. I think you mentioned a little bit of area like power management. But could you talk on your overall business?
I noticed your inventory level down quite a bit. If any area now limited by tightness. And if there's any impact from either on the wafer level or the recent, one of the suppliers had a sub rate issue. So if you could talk about back constraint, and then flip side, also if you're benefiting, say, from your competitor, where I think there's some constraints they may be facing?
Randy, I think it is widely reported in the press about the supply situation in the industry. We certainly face a similar situation as we also mentioned in our CMIC business. Business process wafer supply is tight. However, we have been able to to secure our needs for the leading edge processes. Despite really, as you can tell, a third of demand on our, for instance, 5G facs in the third quarter 4th quarter.
On the other hand, we also know that noted, some, some tightness in the back end too, again, due to our strong relationship and the long term partnership with our ASAP suppliers, we forget we have been able to resolve most of the supply difficulties. That the recent accident doesn't really have, with any material impact on our business. We remain, of course, very cautious about the supply situation. We spend a lot of effort in working with our partners in foundry and ASAP. We but we believe and we are confident they can manage the situation, you know, by tight, but we can manage the situation well.
And we can supply our customers also well. Thank you.
Yes. Okay. And if I
could ask I'm curious how you're managing the it's been complex dynamics with delayed notice not to supply the China customer. So I'm curious where did that cause other customers to come in? How you feel their incremental business has been And, if you'd point any nervousness, whether they might be, all going after the same market share or if you think it looks relatively reasonable stage?
Randy, I think I think the first quarter, number that we will look at is the sales to numbers of the 5G phone. And if you, I think we talked about that before auto. The sales the 5G phone sales through numbers in China, especially remained not only on track, but also, I would say, strong. I think the sales through 5G phones in China is on track to reach north of $120,000,000, close to $130,000,000. I believe $120,000,000 was our estimate before.
With that kind of a sell through, we're confident that the 5G penetration is it's good. It's strong. And we have a strong portfolio of 5G SLCs. So So there are, variations from customer to customer, from branch to branch, from trade dispute or not, no trade disputes, but the key thing for us is to have this strong portfolio so we can supply is growing fast growing 5gs market. As we have demonstrated in the third quarter and as we are forecasting for our 4th quarter.
Thank you.
Yes, great. And maybe just one other demand question. The Chromebook, which you're now citing a lot more, is there a rough way you're thinking about in terms of of volume opportunity? And also, how you kind of size up the content you're getting in this relative to a smartphone or tablet?
Good question. Up to now, I think, Well, certainly has become a kind of a star in this year of pandemic. And but we also understand most of the a lot of the demand, at least the new demand, comes from the more entry level for students studying at home, etcetera, etcetera. However, as we are studying our remarks, we we are number 1 in the Ambeg SoC for the Chromebook. And we are working very closely with the global brands are not only using our current SOC, but also we work with them to upgrade the SoC, we have some higher end, much higher end associate that we have ready for the more advanced Chromebook.
And we expect that to happen sometime next year.
Next to ask questions Sebastian Ho, CLSA.
Thank you. My first question is that if we look at your 3rd quarter's margin, it's very good numbers, but I'm just curious If I look at your revenue, it beats by more than 10%. Gross margin also beat that midpoint guidance, but OpEx ratio seems to be just in line with the midpoint guidance of OpEx ratio. So are there still good numbers? Curious about that it didn't seem that there is a lot of incremental operational leverage that flow through the operation line when you're gross margin and revenue both beat on the upside?
And how do we think about this going forward? Thank you.
Sebastian, probably the best way to look at about operating expense in totals, which also including the profit sharing by looking at the operating expense ratio. For example, for Q3, the total number right now completed revenue is around 29.2%. And compared to the previous quarter or in the past few quarters, Rockview was about 32, maybe even sometime for 3rd quarter is closer to 33%. So not actually improving by basically 3 to 4 percentage points. So I think that's one way to believe about operating leverage.
And on top of that, I guess also during the CEO remark, we keep talking about we will continue to invest in technology. Also for the future new product, especially for the 5G, we're going to talk about keep talking about both for high end and also for entry level, can we expand the whole bandwidth about the product portfolio. I think that will all come down into the operating expense, which is the R and D expense. But by including all of that, we still seeing the operating leverage coming in. Again, the key numbers really the overall OpEx ratio coming down to 99% compared to previous few quarters of only 33 to 72.
Great. Thank you. Just one follow-up is that now we are at about 15% mid teens of the operating margin. David, are you confident in Or do you have the expectation that we can we may be able to achieve higher in the next 2 years?
Maybe let me, even we have to develop an income, but I think one on why it's commenting about the gross margin versus the end talking operating income, which are all related. I think if you guys still recall earlier this year in the CEO, Deepa, the guidance I was talking about, the gross margin will be stabilizing around 42, 43 percentage range. There'll be, I believe that was actually we gave out a comment in first quarter of this year. Non gross margin is close to 44% plus. So, with all those new products coming out and also with our diversified product portfolio, and we feel comfortable right now, our gross margin will stabilize within a slightly higher range.
Again, first half of this year, we're kind of talking about 42% to 43%. Now we feel comfortable that the gross margin should be able to stabilize within 43% to 44% within this range. And whether or not we can continue to improve that, I think that's our but, I will say probably we will just withhold that, wait until the right moment. And also, we also need to consider about the overall market dynamic. But overall, I guess, I think the improving is both on the gross margin and operating margin is our goal.
I think there have been very good and good objectives, for MediaTek. And so far, I guess we feel comfortable and happy to see, basically, the gross margin, the level of operating margin has all been well aware ahead of our original plan.
Okay. Thank you. My second part of the question is on ASIC. Do you have the rough numbers about the how much of the revenue in terms of percentage terms is coming from ASIC this year and what's the possible target you have, like saving 2, 3 years from now?
Subscription, we didn't really break out, sorry, the revenue contribution by individual product line. We only break out by this business group. So we probably will not be able to comment on that, okay. But overall, I guess we're still looking for another year for growth. But in terms of the magnitude, we probably will not be with Cisco's right now.
Okay, no problem. Within ASIC I think the we have been doing very, very well and very strong IP in the service and high speed interface IP. So then we have, that enable us for our enterprise switch business and also cloud, AI Accelerator business. I wondered how the extensibility of this IP and how much more of the opportunity beyond this network and switch and AI accelerator?
Well, certainly, there's opportunity for instance in the 5G infrastructure. Space, of which requires also high speed interfaces as well as other IPs. Some of our and the, I think it is also important and to know that the media attack, has demonstrated our capability in utilizing the leading edge process as well as the leading edge package technology. Which, which most of those are really a large system kind of ASIC require. But there are we believe that there are other opportunities which requires our IPs, but we're not at liberty to disclose potential, not those potential opportunities.
So thank you. Thank you. Thank you, Doctor. Tsai. I think if so, Is it fair to say that there's actually quite a lot of the other opportunities and for this service IP can be applied up to?
But we may be exploring that or maybe already doing that already. It's just that it's not at the mature time to disclose here. Is that fair to say?
Yes. I would say so. Yes.
Okay. That's great. Thank you.
Next, we're having Gokul Harishalan from JP Morgan.
My first question is about margins. Could you talk a little bit about gross margins as we look at, since David, you mentioned that we are comfortable with a higher level of margin? What are the portfolio of products, which are likely to help us to move up in terms of gross margins? Is it mainly ASIC and high end 5G? And the second question related to gross margin itself is on there has been some concern about potential margin pressure, potential pricing pressure.
As we think about the 5G portfolio, as Doctor. Tsai mentioned moving to more affordable price levels for 5G smartphones. Should we expect that there could be some margin dilution coming through or are we still comfortable that we will be able to hold our margins in this early to mid-40s kind of levels even with 5G portfolio moving down to moving down to more affordable pricing?
Yes. I think overall, we just consider everything basically part of the thing you like to talk about, the expansion into different sanitation. I think it was manually referring to into the entry level of 5G. And also, I think also in the beginning remark, we're kind of talking about We're growing the revenue, not just on the mobile device, but also on other sectors as well. So it's difficult to sell everything, also from about a reasonable, compacted landscape, that actually still give you the confidence that the gross margin should be able to stabilize within the 43% to 44% range.
So that's, I guess, it's a quick answer for me.
Maybe I can add a few words. Margin improvement, gross margin improvement, in all mine, it's not a 1 shot deal. It involves the whole company effort. Among different business units. Critical that the all the business units are committed to improve the gross margin within their business.
Their individual businesses, either through a better requirement also a yield improvement, cost structure improvement or Hubo. What we have done through the last quite a few quarters were actually those improvements of cumulative in nature. I think people tend to tend to think that there's certain products that would bring us a higher margin yes, there are some, but we have so many products, and there's in quite a few different businesses. It really takes the whole company to focus on that. And I think that's really at the core of the improvement we have been able to make up to now and we are certainly working very hard to continue
Okay. That's very helpful. My other question is, as you mentioned now in 5G, you have basically pretty much all the Android customer base. Now the other operating system iOS is something MediaTek has really had not much exposure. Given the catch up in terms of 5G technology that MediaTech has achieved, you already started developing and far along in terms of flim modem deployment or PC applications, etcetera.
Is it realistic to expect some break to, with this particular operating system, this particular customer? Or is it, should investors think of it as more of an unlikely Thank you.
I think overall, given the fact this time around, I think we are among the leaders in the 5G product portfolio, both from the SoC and also from the same owner as explains earlier the same old shipment with Intel is coming out next year. I guess from our perspective, we are aggressively preparing any possibility. But I guess, but for the Type B right now, probably Android can get into the 1st wave of product.
Okay. Thank you. Next, we'll ask questions. Roland Xu from Citigroup.
Hi, thanks for taking my question. First, I didn't earlier, we talked about the supply change at the foundry offset and also we have this fire incident for this structure. So it sounds like, I think the supply of the capacity for this option will be very tight. And I think, yes, you are had a very good relationship with this foundry and also, you probably still will be able to secure good capacity. But how about the the price, the cost.
I think the cost for this foundry and OSAT and even for substrate definitely will be increased substantially how are you going to manage for this cost increase from your suppliers?
Roland, we have, come across some cost impact. But really, I would say, not significant. Yeah. It's just like, well, I cannot speak for our suppliers for sure. I cannot.
I can only say that in our case, Again, with the long term and the substantial scale that we have, relationship with our suppliers, the impact is not significant and certainly quite manageable. So it's not that I don't worry about it, but it's something we must manage and we have been able to manage. Thank you.
Okay. That's fair enough. And how about the price competition or price pressure from competition across the operate form of the products? In 4Q and going forward?
You're going to hear standard answer the competition. So always there, I think, again, this is situated. I mean, we We have read also the story on the press about certain products from certain competitor that may cause some price pressure. Again, we really believe our product from performance and the cost structure point of view can compete effectively. Was this pressure?
We just, we compete. And so far, you can I think the numbers speak for themselves? We have been able, I think, to manage our margins reasonably well.
Thank you. Okay. And then for your mass market, 5G SOC, how is the ASP and the gross margin for your mass market SOC compared to your 4G high end product?
I think we will not be able to, spell out a detailed ASP, but, in general, I think the 4G versus 5G on ASP We're still talking about a big depression for 5G versus 4G ASP. I'm wondering if you would not be able to provide details ASP. In terms of the gross margin, as we explained earlier, even with, it actually starting from 3rd quarter, we saw through shipping a very small balance of entry level already. And in the fourth quarter, I think we were going to ship more. But even with that, just like, the earlier gross margin guidance will keep up.
We still feel the gross margin should be stabilized within range, I. E. 43% to 44% So that actually is indirectly talking about, we feel comfortable about the gross margins, even what we're getting to the entry level for.
Yes. Okay. Yes. Understood. Lastly, for the 4G product, I think earlier this year, you expected, I Fortune shipment this year will be, bigger than last year.
And then I think 3 months ago, you are going down to be probably flat as last year. And Today, now you are again, you are seeing your 4G public associate shipment will be bigger than last year. So Why is the change? And also, how do you expect this overall 4G shipment next year? Thank you.
Roland, I think first of all, I didn't really recall we kind of talked about the 4G year over year with decline. So, we didn't really change our view. I think 4G this year, we're still going to see, I guess we talked about earlier that from a global 4G shipment perspective, for funds global demand perspective, definitely declined. But from a media perspective, again, I guess, maybe due to the market share at the end, also we benefited geographic penetration, I think we'll still see a growth, a year of growth for 4G this year. I think next year, maybe it's too early to tell, but I think, by first quarter of next year, so we're going to probably give you guys a preview about how
Okay, thank you.
Now the line is open to Bruce Lu from Goldman Sachs.
For taking my question. So the great result that is way ahead of the guidance. I understand that management usually provide a conservative guidance. But this time, it's that way ahead of the guidance. Can you tell us which part of the business is the main reason for the upside surprises?
Bruce, 1st of all, it's really just across the board. If you recall in the CEO opening remark, We're talking about our 3rd quarter's overall revenue growth, 44% and pretty much all free major business line grow close to 40%. So it's not, I mean, the really strong growth even higher in our earlier guidance It's not really caused by any single business line. It's really just across the board. So first of all, is all three major business lines really got a pretty good growth and are all close to 40%.
So it's not like 1, do you, 1 business line growth, 70%, the other only growth was 40%. So all close to 40%. So that's, I think that's the situation. And if you really want to delve into the detail, I guess there's something maybe something to do with the supply tightness because when we give our guidance, everything's actually the supply is still really tight. But just along the line, actually, it's in our manufacturing team did a pretty good job.
They're just trying to provide more supply. And once we got more supply, once we've done more wafer out, can just ship it up. I think it's really just, that's the situation. And I think another number you can take a look, which is, is another applicant. It's about our sales of inventory.
I think for the second quarter, our date of inventory, it was 83 days. Once we march into the third quarter, the date of inventory become 57 days, which is at the low 50 days. In the fourth quarter, I think our view is actually overall the date of inventory or loyalty today as well. So again, right now, actually, I think the supply tightness is still the situation we're facing right now.
Let me make it clear. So 3 months ago, when we provided guidance, it was like 25 percent quarter on quarter, quarter growth for the midpoint. So all three businesses going like 25% at that moment, which is the forecast at that moment, but now everything goes up to 40%.
Correct. Again, let me just repeat what we're talking about, let's say, our free product group all had approximately 40% or higher sequential growth.
Understand. Another question I want to ask is that even though with a very strong revenue growth, our revenue ranking globally is actually coming down. It's not because the Immediate is not doing well. But because of a lot of global M and A major deals. So in contrast, MediaTay is divesting edict.
So what do you think about the new competitive landscape after all these M and A is done? So all the industry consolidation, would that impact our future growth in terms of the competitive landscape?
I don't believe so. I think Media attack, as we said in our remarks, our strength is from our very strong and very broad IP and technology portfolio resulting in again, a broad and a strong product platform. We have rather diverse business portfolio. We have worked really hard during the last 2, 3 years. And this year, if you count out, if you take into the guidance, we we give for the fourth quarter, we're not looking at the entry level really high-twenty, very high-twenty percent year over year growth.
This is all organic this whole organic growth. Now we're very proud of that. And we have looked into the market potentials of which we are serving we have a confidence that we will have a strong future with our current portfolio. Having said all that, of course, if there are opportunities that we believe and that can fit our future, we would not hesitate. But up to now, it if you look at our numbers, I don't know how we calculate the ranking.
I can go. Alright. Thank you. It's not bad. It's the, where we are, where we are, we're quite a bit of above US10 $1,000,000,000 for this year already.
Understand. I just want to about that in terms of by the current service available market, where will be the major growth driver moving forward beyond like 20 20?
I'll give you an example. The compute, if you look at the we have really a strong business this year. From compute, on basic compute, Chromebooks, tablet, and we also have very strong growth in the connectivity, which we, we believe it's not a one kind of a short term phenomenon because I think the world is going to going toward the new normal that fits our strengths, particularly well. So we, I I don't think I can, give you all the details of our future look for our service available market. But our internal study shows us we have a good reason 3 years and beyond our growth in front of us.
In the meantime, that we continue investing. In our technology capability and the products portfolio. Thank you.
Thank you.
Right now, we're having Brett Simpson from Era III Research. Please proceed.
David's first question on OpEx Spending. There's probably the biggest sequential increase in OpEx. I've seen in Media Tech, you're now spending $1,000,000,000 a quarter. Can you just lay out exactly why you needed to spend such an increase Can you give us an update on headcount and how it grew sequentially and what specifically the increase in OpEx is going to be targeted on and whether there's any one times within that spending hike? Thank you.
First of all, when you're talking about over $1,000,000,000, I think there's actually also an cooling sounds we call it employee profit sharing. You guys have 4 in number, as you can tell, in Q3, we had a record year, both for revenue and earnings. So, actually, that somehow, boosts the operating expense as well. If you take it out, because we also disclosed the number, I think the number is on the credit expense is well below the 1,000,000,000 dollars, $1,400,000,000. But even though like you've said, we still continue to invest aggressively in the right directions, basically aiming for the mid to long term growth, which is including increased ecom and also including, we have a lot of new taping now in third quarter, but that all contributed to increase on the operating expense.
But as I explained earlier, overall, from the ratio perspective, it's still coming down. And also, much into the 4th quarters, we expect, in terms of absolute dollars the operating expense will be pretty flattish maybe even coming down a little bit.
And what it can do sequentially given your OpEx grew whatever 30% or so sequentially, how much did headcount grow in the quarter?
We didn't really disclose the quarter over quarter as the headcount movement.
Okay, thank you. And then maybe just on Huawei, can you just clarify in your Q4 guidance are you booking, are you planning to book any sales? I know there's been some commentary recently in the media about the U. S. Government issuing 4G licenses to suppliers.
Are you part of that? And is Huawei going to have any are you going to have any sales to Huawei in Q4?
Thanks. In our Q4 guidance, there's no revenue to Huawei though. So it's not putting any revenue to Huawei though.
Okay. Thank you. That's great. And maybe for Doctor. Tsai, just on 5G, I guess when we look into 2021, I mean, the conditions for MediaTech look exceptional.
You've got consolidation in the markets. You're going to clearly benefit from, the demand that you said yourself will more than double for 5G next year. You're introducing 6 nanometer, 5 nanometer platforms. Supply is tight. These are excellent conditions for margin accretion or for pricing.
Given it's largely a 2 player market for 5G. Exinos seems to be more captive focused. And even there, they don't supply everything to Samsung. So aren't these convictions where you'd expect pricing to start to, become less pressurized and how do you see this playing out next year?
I guess the street answer is no. I I always assume our competitor will compete seriously. And the I expect, I still expect the pricing competition to be fierce. Or as I said earlier, we also believe our performance, our cost structure are strong enough to withstand that competition and we can but still deliver a gross margin that we, we said we would as David mentioned earlier, we intend to stay at a 43% to 44% range. And as I said earlier too, there are many so many products and the businesses in our portfolio.
We have, I think, plenty of opportunities to improve our gross margin as we continue to do so, but I don't promise you kind of a one shot that can improve by 1.02. That doesn't happen very easily.
And maybe just a follow-up as well on 5G. I guess over the years, we've seen the Chinese government, I guess, significant support to companies developing 5G. And I think now in the U. S, we're seeing significant government support, around 5G building an ecosystem that's U. S.-based and Qualcomm certainly benefiting from this.
There's a lot of DARPA funding that's happening right now. Are you concerned at all that Qualcomm may start to see substantial government support that, and that creates an unfair advantage for MediaTech. And just be curious as to whether the Taiwanese government is, is also looking to develop support for its own companies in Taiwan around 5G?
Again, I think if you look at the landscape of the 5G landscape, there are really not many reliable and competent suppliers. Be they Android or iOS. We attack, I think, has established itself as a reliable and competent supplier in the 5G arena. With our financial performance, I'm confident that we will be able to continue investing, for our capability and the products. I, of course, everybody can read about what the different governments are doing.
Instance as far as I understand here in the U. S, the government funding are probably more fundamental and more pre Usually, it should be a more pre, competitive funding rather than for certain companies. We believe U. S. Being a liberal, I don't know, liberal, but here it's a predominant country and we in Taiwan also are the same.
We expect pretty much a fair level playing field, landscape for us. Thank you.
Next to ask questions, Sanilin from UBS. Go ahead please.
Hi, thank you very much for taking my question and congratulations for your results. So my first one is really quick on your 5G market share. I think in last quarter, management talked about 40% plus in terms of volume for China smartphones by endofthisyear. So wonder if we could have an update on this and your expectation into 2021? That's my first question.
Sunny, I think for the market shares, for 3rd point in the 4th quarter, we are looking for similar market share. And for next year, again, it's maybe a little bit too early to tell, but overall based on our product portfolio and also the pretty good feedback from our customers. We do kind of expecting some positive churn, but again, it's maybe a julie to tell, okay, volume guidance will come into that.
Sure. No problem. Thank you. And my second question is regarding your Sing modem business. So wonder if you could share with us a bit more color on your addressable market.
So you mentioned that the first project is for notebook but I would imagine more connectivity demand as IoT further develops. So how should we think about the potential applications for your SIM modem beyond notebook?
Well, I think a good example being CPE we have a project going in that area also. Where we'll announce that when the time is appropriate. That's another good example.
Right. Any other application that you could share with us?
Yes, maybe not right now. I think we will now touch it with the corporate.
Right now, we're having Laura Chen from KGI for questions.
Hi, good afternoon. Thank you for taking my questions. My first question is about the mini meter wave progress. I'm just wondering what's the schedule now, or do we plan to introduce the Best Buy modem first or SOC And that's one. And also, I'm just wondering for the Miduho Wave solution, this MediaTek will also provide the ARPSONET antenna solution along with the SOC or modern?
That's my first question.
Okay. For our middle of the way for our program, it is progressing, well, on track. We are planning our announcement, sometime in the near future. We do expect to see samples next year to 2021. And we also expect the millimeter wave technology being used in both 5G SoCs and the same modem devices.
As to the antenna module, I think we we, I think our plan is to develop the capabilities to build the antenna module, but
Yes, I think where you intend to package as well, yes.
So we'll come out the total solution from the baseband modem. To the ARPU function, right? Yes, yes. So can we expect that will be more for like a 2022 story? Is that we are sampling sometime later next year?
Yes, from manufacturing mass production point of view, 2022 is what we are looking at.
Okay. Thank you. And also just a follow-up on the Chromebook business. We know the demand is quite strong this year. So, and from military perspective, we can leverage our previous product and also, current technology.
So assuming that, so we should be able to have a better gross margin on the Chromebook business, right? So I'm just wondering, do we have any, like, estimation of our current market share now in the Chromebook market and also next year growth outlook?
I mean, 1st of all, we didn't really disclose our gross margin by product line, a single product line, overall, I guess, there is a pretty decent gross margin that you described. In terms of market share, we believe right now, we should be the market share of years on camp on base Chromebook and I think it should be in a market market share range, it should be in a normal 30%.
Okay, great.
We thank you for all your questions. Ladies and gentlemen, because we're running out of time now, I'm going to hand this over to Mr. Jesse Wang for closing comments. Next one, please go ahead.
Ladies and gentlemen, this concludes MediaTek 2023rd Quarter Conference. We would like to thank you for your participation patient. And you may now disconnect.
Yes, ladies and gentlemen. Thank you again for your participation in today's conference. You may now disconnect. Thank you.