Welcome everyone to the MediaTek 2020 first quarter investors conference call. Financial results and presentations for today's conference call are available on investor section of the company website at www.mediatek.com. Now I would like to turn the call over to Miss Jessie Wang, Deputy Director of Investor Relations. Miss Wang, please go ahead.
Good afternoon, everyone. Joining us today are Dr. Rick Tsai, MediaTek CEO, and Mr. David Ku, MediaTek CFO. Mr. Ku will report our first quarter results, and then Dr. Tsai will provide our prepared remarks. After that, we will open for Q&A. As a reminder, today's presentation will provide forward-looking statements based on our current expectations. The statements are subject to various risks and factors which may cause actual results materially different from this statement. The presentation materials supplement in our TIFRS financial measures. Earnings distribution will be made in accordance with financial statements based on papers. For details, please refer to the safe harbor statement in our presentation slides. In addition, all content provided in this teleconference are for your information only, not intended for investment advice. Neither MediaTek nor any of the 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 Ku, for first quarter financial results.
Thank you, Jessie. Good afternoon, everyone. Now let's start with the 2020 first quarter financial results. The currency here is the all-in TWD. Revenue for the quarter was TWD 50.9 billion, down 5.9% sequentially and up 15.4% year-over-year. Gross margin of the quarter was 43.1%, up 0.6 percentage points sequentially, and up 2.4 percentage points year-over-year. Operating expenses for the quarter were TWD 20.4 billion, compared with TWD 21.3 billion in the previous quarter and TWD 18.3 billion in the same period last year. Operating income for the quarter was TWD 5.8 billion, down 6.8% sequentially and up 83.1% year-over-year. Operating margin for the quarter was 9.5%, slightly decreased by 0.1 percentage points from the previous quarter and increased 3.5 percentage points from a year ago. Net income for the quarter was TWD 5.8 billion, down 9.1% sequentially and up 59.9% year-over-year.
Net profit margin for the quarter was 9.5%, decreased 0.4 percentage points from the previous quarter and increased 3 percentage points from the year-ago quarter. EPS for the quarter was TWD 3.64, compared with TWD 4.03 in the previous quarter and TWD 2.17 in the same quarter last year. In addition to above financial updates, we also provide non-TIFRS financial measures, which includes share-based compensation, amortization of margin and acquisition-related, and also tax effect. Please refer to earning press release and presentation for details. That concludes my comments. Thank you.
Thank you, David. Now I would like to turn the call to CEO, Dr. Rick Tsai, for prepared remarks.
Thank you. Good afternoon, everyone. Before we start our business review, I would like to talk about some COVID-19 precautionary measures we are taking at MediaTek to ensure employee safety and minimize operational risk. We implemented preventive actions such as temperature checks and health screening in certain offices as early as mid-January this year. With employees around the world, we are operating in full compliance with local regulatory requirements and take strict control of office entry. At this stage, we keep our product development on track thanks to all our employees' efforts. We will continue to make our best efforts to adjust to a rapidly changing situation. We wish you and your family health and safety during this challenging time. Let's start today's business review. MediaTek deliver solid first quarter results, bolstered by our balanced revenue mix and diversified regional exposure.
Revenue came in above guidance range with 15% year-over-year growth. Gross margin continued to improve to 43.1%. Let me further elaborate on our three business groups. Mobile computing, which includes smartphone and tablets, accounted for 37%-42% of revenue in the first quarter. Mobile computing had a very strong year-over-year revenue growth, mainly driven by our 4G share gains, as well as initial 5G revenue. 5G contribution will continue to rise and drive growth in the second quarter. Aside from smartphones, tablet demand is picking up recently due to remote learning needs. Our view for 2020 global and mainland China 5G smartphone shipments remains unchanged. We expect 170 million-200 million global 5G smartphones, out of which 100 million-120 million will be mainland China. Mainland China's 5G rollout plan is on schedule, and MediaTek's competitive 5G SoC product portfolio is ready across multiple segments.
Dimensity 1000 series are making successful inroads into the high-end smartphones. The first model powered by Dimensity 1000 series started ramping in the first quarter, providing multi-mode 5G and Wi-Fi 6 connections, as well as premium multimedia performance. There will be more models adopting our Dimensity 1000 series in the second quarter and beyond. We expect 5G to penetrate at a fast pace in the higher volume, mid-range, and mass market segments, bringing faster connections, premium AI, and multimedia features to more consumers. Dimensity 800 series smartphones from the mid-range begin shipping in the second quarter. Mass market models adopting our next 5G SoC will be released in the third quarter as planned. Moreover, all major Chinese brands will start shipping MediaTek-powered 5G phones by the end of second quarter. International brands will also launch MediaTek 5G inside phones in the second half of this year.
We are at an early stage in the 5G era. With a strong pipeline of design projects from multiple customers, we expect 5G momentum to continue, with shipments increasing quarter by quarter throughout the year. For 4G, thanks to a higher market share, 4G quarterly shipments in the first and second quarter are pretty stable. Visibility on the second half and demand is still limited at this stage, but we're confident that we will be able to outperform the market. Now onto the growth area, which principally consists of AIoT, PMIC, and ASIC, accounting for 30%-35% of revenue in the first quarter. Impact from COVID-19 varied from product to product. Overall, products relating to work from home, remote learning, and 5G performed better. For AIoT applications, demand for Wi-Fi router and media streaming box is strong.
People are seeking for faster connections in Consumer Electronics. It becomes a strong driver of our products. In addition to high-end smartphones and routers, our Wi-Fi 6 chip is also adopted by the world's first Wi-Fi 6 8K TV from Samsung. We expect more Wi-Fi 6 devices to come across various platforms. Power management products continue to grow nicely in the first half of this year. Demand from laptop, tablet, 5G base station, and smartphone remains healthy. For ASIC, first quarter was soft due to expected product transition. Shipment of ASIC chips for the next-generation gaming consoles will start from the second quarter. On the enterprise side, our cloud AI project will start mass production in the second half of 2020. Next, smartphone and others. Primarily TV and other traditional Consumer Electronics accounted for 26%-31% of revenue in the first quarter.
Customers hoarding TV components in the 1st quarter but became more cautious entering the 2nd quarter. Recent cancellations and postponement of global sporting events led to softer demand in the near term. We expect demand to gradually improve from the 2nd half of 2020. For 2020 in general, despite near-term uncertainties due to COVID-19, we continue to believe this is a year of reasonable growth for MediaTek. As explained earlier, we think actual business impact on the full year should be manageable, mainly due to our balanced and diversified business portfolio and strong 5G product cycle. Looking forward, this unprecedented COVID-19 event may have profound changes in the way people live and interact. We anticipate those changes to increase demand for products relating to fast speed connection and data transmission, artificial intelligence features, multifunctional displays, as well as remote communication.
With a broad and diversified technology portfolio, we firmly believe MediaTek is in a good position to capture those ongoing opportunities. 5G upgrade is one of the examples in the coming year. In addition to 5G, we believe there are great opportunities ahead of us to enable more innovative devices with our diversified business portfolio to enrich people's lives. Now, moving to guidance for the second quarter of 2020. We expect new 5G product launches to drive revenue growth and fully affect near-term weaknesses in certain consumer electronics. We expect gross margin to remain stable. We expect the second quarter revenue to be in the range of TWD 621 billion- TWD 669 billion, up 2%-10% sequentially, and up 1%-9% year-over-year at a forecasted exchange rate of TWD 30 to $1 .
We are forecasting gross margin at 42.5% ±1.5 percentage points, and quarterly operating expense ratio to be at 32.5% ±2 percentage points. In addition, our board of directors proposed the cash dividend of TWD 10.5 per share today, subject to approval at the shareholders' meeting. That concludes my prepared remarks. Thank you.
Thank you, Rick. We are now ready for Q&A session. May we have the first question, Operator?
Yes, of course. We are now in question and answer session. If you would like to ask a question, please press zero one on your telephone keypad. Please ask your question after your name is announced. To cancel your question, please press zero two. As a reminder, it is greatly appreciated that you turn off the speakerphone mode of your device to prevent possible echo effect. We thank you for your cooperation. Thank you. Now please press zero one if you would like to ask question. Thank you. The first one to ask question, Bill Lu from UBS. Go ahead, please.
Yeah. Hi. Thank you very much. My first question is really, I'm hoping to compare what you're seeing now versus a quarter ago. A quarter ago, I remember you guided pretty conservatively, given that COVID-19 was just starting up and at the end. Things were a little bit better than what you expected looks like. If you look at the guidance for Q2, I wonder if you can compare sort of the level of conservatism in the two is how are things now if you look at China stabilizing but some of the other regions may be having more issues versus a quarter ago? Thanks very much.
Bill, David.
Bill, because your voice is actually breaking up a little bit, would you mind just repeat the question again, especially the first sections of your question?
Sorry about that. I am wondering if you can compare the guidance now, versus a quarter ago, because it sounds like a quarter ago, you were fairly conservative in terms of providing guidance. At the end, maybe the COVID-19 impact wasn't as drastic as what you expected. I'm wondering what you're seeing now versus then.
Okay, Bill. Yeah. I think you're right. I think a quarter ago, when COVID-19 really just started, we really struggled to estimate the potential impact on our businesses, knowing very little. Now that the first quarter passed and the situation in China certainly seems more stable. The supply chain situation thereby not great, but much more predictable also. All this time, we have kept really very close contact with our key customers, their upper management. We feel pretty reasonably comfortable with where we are. I think our first quarter results kind of demonstrated what we believe during that conference call, and we really have kind of scrubbed our business assumptions. We look at all the possible downsides from mobile, from TV, to our largest verticals and other AIoT business. We believe we are sufficiently cautious in our business assumptions to give our today's guidance. Thank you.
Great. Thank you. That's helpful. My second question is, for David, on gross margin. It looks like for Q2, you're guiding for 5G shipments to be up. Gross margin, I guess, roughly flat-ish. Can you talk a little bit more about that now that we are a quarter into the 5G shipment? Can you talk about maybe in a little more detail, 5G pricing and margin and the flat guidance? Can you maybe talk a little bit more about the margin maybe in the mobile computing group versus the others? Thank you.
Okay. Bill, first of all, we probably will not be able to break down, provide the detail of 5G shipments. We will probably going to skip that. Overall, I guess, the first quarter was the first quarter we started to ship 5G. The overall revenue contribution is relatively small. Second quarter, we see a much stronger 5G shipment, both from the shipment also from the revenue perspective. Gross margin perspective, I think the key word starting from Q1, also including the CEO, Rick, was talking about when we give out guidance, it's actually stabilized. Maybe within the range of right now, if you're judging from the fourth quarter and the first quarter, and also including our guidance, roughly speaking, it's within 42%-43%, within this range. I think we see this as stabilized within this range, at least for the near term.
For the longer term, it will depends on the overall lockdown situation. We probably will not be able to provide a comment right now. Overall, if you recall the earlier statements from CEO is actually 5G, when we start to ramp more 5G, overall we still believe 5G will be overall attractive to our focus growth margin. I think that's a key one.
Sorry. I guess I'm just wondering if 5G is starting to ship into Q2, and it's favorable for margins, why the margin guidance isn't going to be a little bit better, Q2 versus Q1?
Well, it depends on you looking on the higher end or the mid-range. I think when we give out, we just give out the range. Yeah. Also there are also other part of the business as well.
Okay, great.
Yeah.
Okay. Sorry, if I can ask one more question on the ASICs business. One is, you talked about AI project in the second half of the year. Can you give a little more details in terms of what kind of customers and how big this could be? Secondly, what is the expectation for the gaming consoles into the second half of the year? Because typically, when you ramp new consoles, I think typically a little bit bigger into year two, right? Such is that more than 2021 story. Thank you.
Okay. Bill, on the AI part of the ASIC, cannot give you the customer's name. It's a very large company. It's, I would say, a good volume for ASIC type of a chip. It's a very high-value chip. Project is going very well. I think both our customers is pleased, and we are also very happy to have the opportunity to move into a more data center cloud regime of business. On the game console, do you hear the question well?
No. Actually, Bill, I didn't really hear your question well about the game console.
I'm sorry. I'm just wondering, if you think about volume for the game console, the bigger volume really come in 2021, or do you think we might see something around this year? Thank you.
Two of them.
Well, maybe I'll take this. Okay, for volume-wise, for the game console this year, we really see there's upgrades this year, but the volume probably will come out later. To answer your question, probably we're to gear into later this year or beginning of next year from a volume perspective.
Great. Thank you very much, and sorry about the bad line.
Sure.
Next we are having Randy Abrams from Credit Suisse. Go ahead and ask your question.
Okay. Yes. Thank you. Good afternoon. First question I want to ask on 5G and then 4G. You mentioned an encouraging comment about design, and I believe you said all the China smartphone OEMs toward the end of first half. Could you discuss a bit more in terms of market share, at what point you think you start approaching the 4G market share? The second part, there's more discussion, there could be more restrictions on Huawei inability to fabricate their own chips. I'm curious, at least from your ability to ramp up, how quickly you could support them into new designs to ramp their business, if they need to rely on you more.
Okay, Randy. As we said, our 5G SoC are now being designed into all major Chinese phone makers. I think we believe we have a pretty good demand from all those customers. I don't think we are ready to give you a market share kind of answer yet, especially our 4G phone, actually, is really having a very strong market share gain this year. What I can say is the share in the 5G, our 5G SoCs, especially considering the [TAM], I think we're looking at a significant market share for the year of 2020. We cannot comment on specific customers. However, from a supply point of view, we have been working with all our customers with sufficient lead time.
Even during this difficult time, we cannot go to our customer site, and they cannot come to our Taiwan, and we still manage to, I believe, keep all the projects moving according to plan. From the supply point of view, we are working well with our foundry partner and the OSAT. I think we will be able to provide our customers pretty much what they need. Thank you.
Yeah, thank you. If I can follow up on the inventory, your own inventory increased a bit. Could you talk where the buildup on your own levels? If you could take a look at the customer activity, it's been relatively strong despite some shutdown downstream. If you could give a view on how you feel customer channel inventory levels are.
Randy, first of all, let me just comment about our own inventory. For Q1, if you measure in terms of days of inventory, overall for Q1, our days of inventory was 81 days. For Q2, based on our current revenue forecast, we're expecting our inventory days to be around 80-90 days. That's how we view our inventory. In terms of channel inventory so far, especially after Q1 coming out, Q1, as you know, a lot of activity in . We really see right now it's actually restocking of the channel inventory right now. So far looks stable and actually recovering from the channel inventory perspective.
I'm just wondering, Randy, are you still with us? Okay, Randy, are you still with us? Okay, we are now moving on to the next question. Next question is coming from Gokul Hariharan, JP Morgan. Go ahead, please.
Hi. Congrats on the good results, and thanks for taking my question. My first question is on 5G. I think you had mentioned that 5G is starting off at multiples of the price points that we have for 4G products at equivalent price segments. Could we talk a little bit about how that price premium versus 4G will hold, as we move down to more mainstream, and even lower-end products through the course of this year and early next year? Do we think that the price premium compared to 4G is still going to be substantial, like multiples compared to what we have for the high-end segment? The second thing, there is a lot of noise about price competition, and obviously, a lot of comments about price cuts from your competition.
Could we talk a little bit about how we see the competition evolve in 5G, compared to what we have seen in the early days of 4G, when obviously MediaTek had a slight disadvantage in terms of product specifications, et cetera. Could we also talk about 5G margins versus 4G margins? Are we still sticking to the view that 5G should be better or higher on gross margin compared to 4G? I have a follow-up as well.
Yeah. Let me try to answer that one by one. First of all, I think for 5G, as the CEO explained, we have the Dimensity 1000 series, which is a high-end phone. Also we have the Dimensity 800 series, which is the mid-range phone. I think we're also talking about for the second half this year, when it also have the mass market phone. To make a long story short, I think for all segments, if you compare something like for the Apple to Apple, the like-on-like comparison, compare the 4G average selling price, we still see a pretty decent premium, five to six the average selling price 5G over 4G, even until end of this year.
For next year, again, we don't have the visibility yet, but at least for this year, all three segments, again, high-end, mid-range, and mass market, on the like-on-like comparison, we all see pretty decent price premiums between 5G and 4G. I think that's the first question. The second question will be regarding the gross margin. I think Bill kind of asking a similar question, but let me try to answer that from a slightly different perspective. I think from the gross margins, the overall keyword from our perspective is, A, stabilized. B, once we start with 5G, overall, we still see a stable and also slight increase at the overall corporate gross margin. More importantly, this year, especially like the Rick talking about earlier, this year will be a reasonable growth.
This year, what we focus right now in addition to gross margin, also with our operating leverage, actually is going to be much more significant this year if we can just somehow pull everything together. As you can see, for 2019, last year compared to a year ago, both the operating margin dollar and also ratio improved substantially. I think if everything well, we are also looking for another year of much stronger growth on operating margin line, on top of a stabilized and slightly increased gross margin line. Maybe that's another way when we think about the possibility, we can think about, again, not just focus on the gross margin, but also focus on the operating margin. I think that's the feedback.
I think you also asked about the price competition. I'd like to comment somewhat. Actually, right from the start, we never expected the pricing to be easy for 5G. I think for one, we are now in the first wave in 5G SoC products. Compared to 4G era, we were something like two to three years behind. The fact that we are in the first wave increase competition and change the landscape. The competition comes with it, the change of the landscape. If you look at the portfolio, our CEO, David, just mentioned the three different products this year in three different price segments. If you look at our specs, the technical specs, and the level of execution, the time to market, we are quite confident of the competitiveness of our portfolio. Pricing, we always face competition with our very strong competitor.
We just firmly believe for the 5G product that we have, we have really a strong competitive portfolio. We will deliver the results.
Thank you. Got it. One quick follow-up question. Given that we are seeing more emerging market demand weakness with India and Southeast Asia, some parts of Europe being shut down in Q2, how should we think about 4G chipset demand? Are you seeing already some correction on 4G chipset demand in Q2, or we should expect some of that happening in second half of the year? As you mentioned earlier, like the market share gain will mostly offset some of this demand weakness on the 4G chipsets?
Actually, you pretty much answered the question. Yes. At the end of last year and even, well, pretty much into the first quarter, the 4G inventory from our point of view, was quite low, and we were really rushing to fill the demand from all our big customers. Of course, what's happening in India and other emerging markets are having impacts on the demand of the 4G product. However, our demand, I would say is still.
Quite good. Still quite good. As I said also earlier, we scrapped the overall demand of the 4G also down, quite severely, actually, from the total, from the TAM point of view. With that, and with our designing, we believe our 4G shipment will be somewhat flat compared to last year's. Considering the severity of the end demand, I think in many different markets, I think the company has done really a good job in the 4G segment. Thank you.
Okay. Thank you.
Next, we are having Sebastian Hou, CLSA. Go ahead, please.
Great. Thank you for taking my questions. The first one is I want to follow up on Dr. Tsai's comments on your 5G product competitiveness. I understand from the performance. I would like to follow up on in terms of the timing and the further roadmap. The timing means that as you compare the timing of your next two generations of the product launch, where do you see that compared to your major competitors? Are you on par or slightly ahead? My second follow-up question to this one is that what's your 5G product roadmap? Can you elaborate a little bit more beyond 2020? Thank you.
Let me first address your question on our product portfolio this year. I think for the Dimensity 1000 series, everybody knows quite well. For the 800 series right now, actually, the first product, the phone, the first phone with the Dimensity 800 is already available in the market. There are quite a few in the pipeline in second quarter and the early third quarter. The third product is also, as I said, right on schedule. From time to market point of view, our execution is really excellent. Our people have done a great job together with our customers. I think that's also a major reason that I think we can have, as I said, significant share of the 5G SoCs this year. For next year's roadmap, I guess we will keep you posted maybe another quarter also. Thank you.
Sorry, Sebastian. I think you are probably on speakerphone right now. It's really giving a lot of impact of the voices, so it's become really noisy.
Does this sound better?
Not helping at all.
Okay. I'll try to evaluate. All right. Thank you.
Okay, thank you. All right. Next caller is Roland Shu from Citigroup. Go ahead, please.
Hi, good afternoon. First question is for your 5G smartphone shipment expectation. Are you still maintaining your number at 175 million-200 million? If we look at the overall smartphone number, I think this from the market consensus from third party forecast actually been declined a lot compared to three months ago. With your same number, I think because this denominator have been significantly smaller, that means the penetration for 5G, according to your number, is much higher than three months ago. Is that what you mean now, or you just don't change your number? This is my first question. Thank you.
Roland, David here. Probably let me just get back to you. First of all, talking about sort of the market expectation. If you recall, roughly two quarters ago, that was the first time we kind of gave you our view about the 5G global market, also including the China market. We break it out. Back when I think most people think we are somewhat conservative compared to the sort of the street consensus or street view. In the last quarter or so, if you just collect all those data, because we did the similar exercise, we figure out most people somehow, sort of the quote unquote revised number or reduced numbers, is similar to our overall estimation. First of all. Your assumption about adjustable markets getting down is true, but just from our perspective, starting from earlier last quarters, that's the similar view.
We didn't really change, we didn't revise this down as the point of one. Based on that, I guess from the market share perspective, at least internally, we didn't really see that a huge change. By saying that, I think just like the CEO, Rick, talked about earlier, we do see a pretty promising and also positive feedback from the customer side, which translate into a decent market share. Doesn't mean that we see a huge jump or assumption change from our perspective.
Understood. How about your own market share for 5G? Compared to three months ago, how do you think your market share for 5G this year will be? Is it getting better, or it's still the same? Thank you.
Like the CEO Rick talked about earlier, probably we're not ready to comment about specific 5G market share. Roland, let me try to answer your question from different perspective. I think from the momentum perspective, I think we do feel comfortable. That will make up by the Q1 and a solid Q1 numbers, and also a pretty solid Q2 number, especially if you're judging from year-over-year. On top of that, I think we feel fairly comfortable for the whole 5G product portfolio, ranging from the high-end, mid-range, all the way to mass market. It's from the competitiveness and more importantly on the overall performance and specs.
By the way, Roland, I think from the TAM point of view, you probably, at least for 2020, for MediaTek, the size of the 5G market in China matters the most. That's because this is where we have the most of our shipment this year. That's a number that really matters to us.
Okay. Yeah. Thank you. Rick also said, for your 4G, you think, even though the total market declined, however, you think your 4G shipment will be somewhat flat compared to 2019. Then you have this new 5G shipment. Does that mean that your total 4G and 5G chipset shipment this year will be bigger than the total smartphone SoC shipment last year?
That's correct.
Okay. Thank you. Now, my second question is, Rick, you repeatedly said your key word today is stabilize the gross margin. Last quarter, you also said your 2020 goal is to reach top-line growth with a gross margin stabilized and also with a controlled operating expense. Have you changed your goal now or this goal actually is still the same?
No. We have not changed. As you can hear from the comments earlier and David's answers, we believe that we will have, what we call that, reasonable growth into 2020. Our gross margin will be between 42%-43% and a very good operating leverage, income leverage. This is what we're striving for. Of course, we hope to do better, but this is what the company is really striving for. Thank you.
Okay. Thank you. I'm interested in reasonable growth. I think in 2018, your revenue was flat, and 2019, your revenue grew up by 3% year-on-year. When you said about reasonable growth, is 0%-3% a reasonable number, or you think that will be bigger than that?
Roland, actually, due to the Taiwan FSC requirement, we will not be able to provide concrete numbers. Probably the good reference, actually, you can judge from Q1 actual numbers and also Q2, the guidance numbers. I think that should be the good reference. Again, for the second half, they still have seasonality, but in overall, just like you say, in the last few years, the revenue have been pretty flattish, been quite mute. Revenue speaking, we feel comfortable this year, we see some reasonable growth over there.
Okay. Thank you. For your three product segment point of view, looks like your smartphone and mobile revenue is going to grow this year. How about the growing segment and also the smart home and the other segment?
I think for second quarters, I think both smartphone and also growth sector are growing. I think for the smart home sector, actually, that we see a quarter-over-quarters decline in second quarter.
Okay. How about the whole year?
We didn't really disclose the full year numbers right now.
Okay. Understood. Okay. Thank you.
Next set of questions, Charlie Chan from Morgan Stanley. Go ahead, please.
Thanks. Good afternoon, and hope you all stay safe and healthy. I have two parts of a question. First of all is more color on the emerging market smartphone demand, and the second part will be on the China semi localization trend impact to your company. First of all, may I ask, does the company see or witness any demand improvements for China domestic market? Also, for emerging markets, have you seen a stabilization or you see that the demand still secure it? Thanks.
The China market, certainly, we all know the first quarter was really a down quarter. Even with that, I think the numbers came out of about 50 million smartphone sales were in first quarter compared to 70 million last year same time. It's big down, but it's something I think people can manage. The quarter is past. It's past. Second quarter numbers, we check with our customers on the, I think the China second quarter, what we believe the China smartphone market will kind of grow back to a similar level, maybe a little lower compared to second quarter 2019. If you look at the 5G phone sales in China in the first quarter, I think that's the number from the official source. It's about 13.5 million, I believe. It's also, we believe, a good sell-through number.
In China, I guess we are reasonably comfortable that the market is coming back to a more normal pattern after the first quarter. Emerging market, of course, is a different story because the lockdown also all occurred in late March, April time, and we do not know when that will be back. It also differs, if you look at India and the Southeast Asia, I think the market impact can be quite different between India and Southeast Asia. We believe the India impact is probably greater compared to Southeast Asia.
Again, if we combine all those things together, 4G end market demand is going to be down quite a bit. As we said earlier, with our position, we expect to manage about a flattish shipment for us this year.
That's a great color. Before I move on to the China semi localization, may I ask about the impact of the 5G demand? Meaning, I think that the impact on demand should be more than just the shipment, but also the product portfolio. Meaning, do you see the consumer or smartphone brands, they want to reduce those mid to high-end 5G projects and more focus on those mass market 5G phones into second half? If that happens, would that impact your assumption for blended ASP and the margin? Do you think that is a fair argument, meaning that the de-spec or kind of shifting to a more affordable 5G phone?
Charlie, first of all, from the overall market perspective, we're talking about 5G market only here. I think our assumptions stayed the same in the last two quarters. That one didn't really change. In terms of the end market products computation mix, if I use this terminology, I think it's similar as well. Probably the only thing change, if there's any, we see the customer trying to move into the mid-range, in the mass market at a fast pace, faster pace. In terms of the, because when we get into the 5G product cycle, we kind of have a view about what the segmentation mix. I think that is somewhat similar because, just based on experience on 4G, basically price is still going to be a major indicator. A major catalyst decide how much volume you can have on each segment.
From that perspective, that wouldn't change that much, didn't really change that much. We do see the customer trying to move into at a faster pace, because obviously, in the first quarter and also in the fourth quarter last year, all the 5G smartphone you can get right now, it was pretty high-end or high-priced phone. The overall shipment is just okay, not great. All major customer right now, they're trying to get into the mid-range market in second quarter and also being super aggressive about the mass market. I think the volumes is similar, but the pace is actually faster right now.
Thanks, David. It is clear. If I may, very quick on the kind of deep China semi localization. I guess-First of all, markets are checking if TSMC were to be banned to ship to Huawei, and maybe other smartphone third-party vendors like MediaTek can benefit to fill the gap of Huawei smartphone chip demand. Can management give us some color about your MediaTek position here? Also given this U.S.-China trade tension, do you think your 4G share gain is largely because of the American trend of the China smartphone brands? If you can answer these two parts of the question, that would be great. Thank you.
Okay. Charlie, number one, we do not talk about specific customers. Number two, as we also said, how do we say that? All major Chinese brands will start shipping MediaTek-powered 5G phones by the end of the second quarter. If you want to ship phones by the end of the second quarter, we must work together three to five months before that time. Way ahead of whatever will happen, the rumors that might happen or may happen. I think our designing, I guess, what I want to say is, the designing of our chips with all major Chinese brands, we earned them. It's not by whatever localization. I just want to make a point. For 4G, all the major designs with ins, actually were won last year, even earlier.
As I said. By the way, 4G, we have also not just Chinese brands, we have also global brands, international brands, design wins. That's where we are. Thank you.
In your opinion, do you think MediaTek is considered as a local vendor? In the long term, if China wants to continue to localize, do you see any potential competition or replacement of the current China local suppliers? That is more for long term.
I really don't think this is a question for us to answer. We run the business, we're doing all we can to provide strong, competitive products to all our customers, and we earn our business at this point. Thank you.
Okay. Thanks for your answers. Thank you.
Before taking our next caller for questions, I will really appreciate it that you turn off the speakerphone of your device to prevent possible echoing effects from appearing. Thank you. Next, we're having Bruce Lu from Goldman Sachs. Go ahead, please.
Hi. Thank you for taking my question. My question is that, for the 5G ASP premium, we understand that there's a meaningful ASP premium at this moment. Can we ever expect that ASP from 5G will be similar to 4G at any time in the future? Let's put a shorter timeframe for like, given 18-24 months of a design cycle timeframe, do we expect to see the ASP premium shrink to a minimal level in the foreseeable, coming 18-24 months?
Bruce, I guess the answer is probably not, due to the fact we need to squeeze in so many circuits over there, and don't forget the 5G speed that is 10x 4G, it's just hard to go against the physics. Probably the near term is not going to be feasible. Right now, due to the new phone, they all require some of the higher-end processing, and which all we know, it actually costs us more. Based on what we know right now, it is unlikely you're going to see 5G cost will be equal to 4G cost. It's just physically, probably not possible in the near term.
I see. Do we expect the mobile platform to be more than 50% in any quarter this year?
Not in this quarter.
This year.
Next year, we probably won't be able to comment right now.
This year.
This year, for the full year, I don't think it will be more than 50%, yeah.
For the single quarter?
Again, we can only provide information up to the second quarter right now.
Understand. I want to follow up with the 4G profitability. I understand that management mentioned that before 4G smartphone gross margin is still below corporate average. Given the strong growth or the meaningful market share this year, do we expect 4G profitability to be similar or higher than corporate average?
I would say similar.
I see. Okay, my second question is, can we talk a bit more about the TAM for the ASIC? I believe we discussed that two, three quarters ago, but we didn't talk much about the AI. Can we have an understanding about what is the total addressable market for the ASIC in AI?
It's a very difficult question to answer because for the more consumer, we are strong in the consumer ASIC. I think that's fairly easier to estimate. For the enterprise, for the data center or AI kind of ASIC, because this is really still early in the age of AI data center and the early phase for the big data center players to plan and to design and to execute their ASIC strategy. If I give you any number, I think it's really not going to be very accurate. I just want you to know the plan for us is, I think at least in our business plan, we set at least TWD 1 billion as the TAM, at least for us to strive for our part of the business.
I'm sorry. I need to make it clear. The TWD 1 billion addressable market as a business plan is for the AI alone or the total ASIC you are targeting?
Total. Total ASIC.
Total ASIC. Including Networking, AI, and game console.
Yes.
Understand. Thank you. Can we have some color about next year? Given the long product cycle, for this business, I think, can we have some visibility for next year in terms of addressable market?
Bruce, probably not, actually, because like you say, because the design in, design win, also the ramping up schedule is actually not in our hand. There are so many variables out there. I think probably the best way is to just report it when it becomes more material.
Understand. Thank you very much.
Right now, we're having Brett Simpson from Arete Research. Go ahead, please.
Yeah, thanks very much. Question for Rick, please. It looks like you're growing your smartphone revenues in Q1 about 20% year-on-year, roughly, when the overall market's declining, I would say safely double digits year-on-year. Quite a big imbalance. I understand you can partly reconcile this with market share gains for MediaTek, but many of your large Chinese smartphone customers haven't yet cut orders. They're indicating they will at some point because, obviously we've had a significant impact from COVID, et cetera. I'm just wondering, what's the dynamic that you see near term with these customers? Does your guidance reflect some order cuts? If not, what gives you confidence that this won't happen? Thank you.
As I said earlier, the demand is still very good for second quarter. We obviously are concerned about the rapid demand decline in the emerging markets. You guys asked several times. Let me say again, we have scrapped the numbers in our third quarter, which second quarter and third quarter 4G demand in the emerging markets, including India, I think these two quarters probably are the most severe quarters for 4G phone demand. We have placed those demand in our forecast. With our designing, that's why, and we are giving you estimate of a similar unit shipment in 2020 compared to 2019. That's how we did it, and I think in a way that answer your questions.
I'm just wondering whether in Q2, does your guidance for Q2 reflect an expectation that OEMs will cut orders?
I cannot give you the details. What I would say is the demand is still very good. I'm not saying everyone is very strong, but overall demand for our 4G chips in second quarter is very good.
Okay. That's helpful. Thanks, Rick. Maybe to David, I think last quarter's earnings call, you said about 15% of sales this year would be new products. Factoring in the ramp of new products, it's obviously going to be very second half weighted. How should we think about second half seasonality this year, factoring in the ramp of new products? Would you expect it to be much more pronounced than prior years or not? Any perspective would be very helpful.
Unfortunately, we probably will not be able to provide the second half number right now. Again, take one step back. Probably the best way to think about that is actually what our CEO talked about earlier. From a full year perspective, we're looking for a reasonable growth. Maybe you can factor that in. In terms of the detail, Q3 and Q3 seasonality, unfortunately, we will not be able to provide this right now.
Okay, maybe just one last question for Rick. It's really about M&A. We've obviously seen valuations in semis get cheaper since the start of the year, and MediaTek has an attractive balance sheet, a large cash position. I'm just wondering, what sort of appetite do you have from an acquisition perspective, and where do you think it makes the most sense to strengthen looking across your portfolio from an M&A perspective? Thanks.
Yes, I understand your question. People are wondering about that. What we are doing, as we have done throughout the time, we have a dedicated group to look at the potential opportunities continuously. I cannot really say anything more than that. We look at the potential technology or good financial opportunities. That's all I can comment. Thank you.
Okay, thanks very much.
Ladies and gentlemen, due to the time matters, we are closing the Q&A session right now, and thank you for all your questions. I'll hand it over to Miss Jessie Wang for closing comment. Miss Wang, please proceed.
Ladies and gentlemen, this concludes MediaTek's 2020 first quarter conference call. We would like to thank you for your participation, and you may now disconnect.
Okay, thank you for your participation in today's conference, ladies and gentlemen. You may now disconnect. Thank you again.