Welcome everyone to the MediaTek's 2019 fourth quarter investors conference call. Financial results and presentations for today's conference call are available on investor section of the company's 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 fourth quarter results, 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 risk and factors which may cause actual results materially different from the statements. The presentation material supplement non-T-IFRS financial measures. Earnings distribution will be made in accordance with financial statements based on T-IFRS. For details, please refer to the safe harbor statement in our presentation slide. In addition, all contents 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 CFO, Mr. David Ku, for the fourth quarter financial results.
Thank you, Jessie. Good afternoon. I will start with a quick update for our 2019 fourth quarter financial results. All the currency followings will be represented in TWD. Start on the revenue. Revenue for the quarter was TWD 64.7 billion, down 3.7% sequentially and up 6.3% year-over-year. For 2019, the annual revenue total around TWD 246.2 billion, up 3.4% year-over-year. For gross margin ratio, gross margin of the quarter was 42.5%, up 0.4 percentage points sequentially, and up 3.6% point year-over-year. Gross margin of the year was 41.9%, up 3.4 percentage points from the previous year. For the operating expense, operating expense for the quarter was TWD 21.3 billion compared with TWD 21.3 billion in the previous quarter and TWD 19.9 billion in the same period last year. Full year 2019 operating expense was TWD 80.5 billion, increased 6.5% year-over-year.
For operating margin, operating income for the quarter was TWD 6.2 billion, down 11.4% sequentially and up 61.7% year-over-year. Operating income for the year was TWD 22.6 billion, up 39.5% year-over-year. For operating margin ratio, the ratio for the quarter was 9.6%, compared with 10.5% in the previous quarter and 6.3% in the same period last year. For the full year, operating margin of the year was 9.2%, up 2.4% points from 2018. For net income, net income of the quarter was TWD 6.4 billion compared with TWD 6.9 billion in the previous quarter and TWD 4.1 billion in the same quarter last year. Net income for the full year was TWD 23.2 billion, up 11.7% year-over-year. For net income profit margin, for the fourth quarter last year was 9.9%, compared with 10.3% the previous quarter and 6.7% in the same quarter years ago.
Net profit margin of the year was 9.4%, up 0.7 percentage point year-over-year. For earning per share of fourth quarter last year was TWD 4.03, compared with TWD 4.38 in the previous quarter and TWD 2.63 in the same quarter last year. The total earning per share for 2019 was TWD 14.69, compared with TWD 13.26 in 2018. That conclude my comment. In addition to T-IFRS financial report, we also provide non-T-IFRS financial measure, which including share-based compensation, amortization of acquisition-related assets, and tax effect. Please refer to the earning press release and presentation for details.
Thank you, David. Now I would like to turn the call to CEO, Dr. Rick Tsai, for prepared remarks.
Thank you. Good afternoon, everyone. In today's call, I will summarize MediaTek's 2019 performance, and then we talk about 2020 outlook. 2019 was a solid year for MediaTek. We executed our business strategies very well to achieve a very balanced product portfolio and delivered much improved financial results. Gross margin improved 3.4 percentage points year-over-year. The operating profit dollars increased nearly 40% compared to 2018.
MediaTek's R&D investments to date have strengthened our competitive position in the global market. In 2019, we increased market share in smartphone, AIoT, ASIC, and other consumer electronics. Our technology investment in AI, 5G, Wi-Fi 6, enterprise ASIC, and automotive also gained good traction. The recent coronavirus situation adds uncertainty to the global economy with lower new term visibility, we believe our achievement in 2019 are clear indicators of our overall competitiveness and will translate into mid to long-term growth. Let me further elaborate on our three business groups. Mobile computing, which includes smartphone and tablet, accounted for 37%-42% of revenue in the fourth quarter. We commenced small quantity 5G SoC shipments since December last year, and are expecting a gradual ramp throughout 2020. In 2019, our highly competitive 4G smartphone lineup not only succeeded in growing market share, but also in improving profitability.
We believe 4G is a long-tail market where MediaTek maintains a strong position and continues to gain share. Our 4G footprint, both in mainland China and other regions, has a strong foothold to build on in 2020. For 2020, with 5G rollout around the world, we expect 170 million-200 million units 5G smartphones globally, and 100 million-120 million units in mainland China. MediaTek has worked closely with major global operators for 5G inter-operator operability testing and expect to enable 5G smartphones in mainland China, South Korea, Europe, and the U.S. in 2020. On the product side, MediaTek has put forth competitive 5G single chip solutions for all segments. Dimensity 1000 series for flagship models integrate high-performance Arm Cortex-A77 CPU and supports two-carrier aggregation, delivering the world's fastest throughput with 4.7 Gb per second downlink over Sub-6 GHz network.
Dimensity 800 series targets the new premium segment, bringing premium AI and multimedia features to the mid-tier market. Dimensity 1000 and 800 series designing projects with multiple customers are tracking smoothly. Smartphones powered by these two series are expected to be available in the market in the first quarter and second quarter this year. In addition, we will extend our 5G SoC range to serve a higher volume mass market, starting from the third quarter this year. Furthermore, we created a standalone modem business line to address 5G business beyond smartphone. Our announced partnership with Intel to serve the 5G PC market marks our first steps in this direction. The goal is to increasingly expand our addressable market. In parallel with Sub-6 GHz, MediaTek's mmWave solution will be ready this year for devices to be shipped in 2021.
Now on to the growth area, which principally consists of AIoT, PMIC, and ASIC. In the fourth quarter, growth area accounted for 30%-35% of revenue, attributing healthy year-on-year growth across the board. Growth area has delivered double-digit growth rate for the past few years in a row. In 2019, we enabled numerous smart display products globally and have a strong presence in Wi-Fi as well as Bluetooth true wireless earbuds. PMIC mainly benefited from cross-platform adoptions. Most significantly, we successfully made inroads in enterprise ASIC with our first wired networking solution, commencing volume shipment, and expect more to come in 2020. Looking forward, we see several positive industry trends, such as technology migration and diversity of connected devices. These trends enable MediaTek to further expand total addressable market in the global space and present tremendous multi-year growth opportunities for us.
With a rich and strong IP portfolio, we are confident that we are in a good market position to continue to grow our AIoT, PMIC, ASIC, and automotive business globally in the mid to long term. Smart home and others. Primarily TV and other traditional consumer electronics accounted for 26%-31% of revenue in the fourth quarter. Products in this group are in relatively mature markets and declined seasonally in the fourth quarter. In digital TV, our comprehensive solutions support all price tiers in global markets and enable features such as AI, audio control, as well as wireless connectivity to make TVs the smart hubs empowering AI smart homes. We started shipping our AI 8K flagship SoC S900 in late 2019 and expect our market-leading positions to persist. Before we discuss our first quarter guidance, let me share some thoughts for the year.
Moving into 2020, despite near-term macro uncertainties, we still expect a solid revenue growth for the year, driven by the balanced business portfolio and revenues from new areas, including 5G, ASIC, and auto. Specifically, revenues from the new areas in 2020 are expected to be over 15% of our total revenues, higher than the 10% we estimated a year ago. Meanwhile, we continue to pursue profitable growth. We aim to improve both gross margin and profit margin as we expand our top line in the midterm. Our gross margin percentage in 2019 exceeded 40% target and should remain stable at current levels in the near term, given product mix dynamics. For operating expenses, we will invest prudently in new areas at a similar pace as last year. Through internal resource reallocation and disciplined investment, we expect to achieve healthy operating leverage.
For the first quarter of 2020, as the coronavirus situation continues to develop, estimates provided today are based on our best available knowledge at this stage. Despite near-term demand uncertainties, with our balanced and diversified business portfolio, we still see a solid year-over-year revenue and growth margin growth in the first quarter. Based on current effects, our view is that the potential business impact on the full year basis should be manageable. We expect revenue to be in the range of TWD 55 billion-TWD 50.2 billion, down 7%-15% sequentially and up 4%-14% year-over-year, at a forecasted exchange rate of TWD 30 to one US dollar. We are forecasting growth margin at 42%, ±1.5 percentage points, and quarterly operating expense ratio to be at 34.5%, ±2 percentage points.
In summary, we believe MediaTek has the right set of technologies and platforms to fulfill the demands of our global customers. We focus on value creation and execution. Despite near-term macro uncertainties, we believe the multi-year opportunities across different sectors remain intact, and we'll continue to drive long-term shareholder value. That concludes my remarks. Thank you.
Thank you, Rick. Operator, we are now ready for Q&A. Can we please have the first question?
Yes, of course. Ladies and gentlemen, we are now in Q&A session. If you would like to ask questions, please press zero one on your telephone keypad. Please ask your questions 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. The first to ask questions, Randy Abrams, Credit Suisse. Go ahead, please.
Okay. Yes. Thank you. Good afternoon. I wanted to ask the first question, maybe just to follow up on the coronavirus impact. I'm curious, the outlook 170 million- 200 million, if there was any adjustment, just reflecting on some of what you're seeing with the coronavirus. From that side, I think two potential, if you're seeing any change, both from a network or device rollout schedule, from one side. The second would be just whether it's potential demand or customer driving to launch it.
Randy, if you look at our numbers, 170 million- 200 million total units globally. This, of course, is up from our forecast two quarters ago, which was TWD 140 million. We believe this is a reasonably cautious estimate. We, of course, understand this coronavirus' potential impact on China's domestic demand. We've been working with our key customers. Well, I shouldn't say working. We've been communicating with our key customers over the past two weeks. Most of our 5G product launches, as you know, will be launched in the second half of this year. All those projects are basically moving forward. There are certain, of course, potential disruptions from the working methodologies. Our people are working closely with customers to ensure there will be no major delay in the major projects launch.
I feel reasonably confident that, for MediaTek, the 5G business will not have a major impact from the virus situation, mainly because our major volume will start in late second quarter, extending into the second half.
Okay. Thanks for those details. If I could ask a follow-up, just in terms of the roadmap. If you could talk maybe the timing when you think we'd get the first initial volume ramp, or models with the 800 series, when that'll reach the market, and then maybe the timing when some of the follow-on mass market chipsets would kind of ramp into devices into the market.
Okay. As you know, our flagship chip, Dimensity 1000, is being shipped already and also is available in the market. Our 800 series chips will be shipped in the second quarter.
Mid to late.
Mid to late second quarter, we'll have the production shipment. For the mass market SoC, we will be shipping also in about mid to late third quarter.
Okay, great. The other change, you mentioned the new product, I think originally was 10% or over, now it's 15%. Could you maybe talk the components, how much of that is, versus when you made the forecast, like a change on the 5G view, versus some of the other products like automotive and networking, like what changes you're seeing on that side?
Randy, I think we upsized that revenue contribution from new product mainly still because of 5G. As you know, of course, both for auto and also for ASIC, we see a pretty healthy growth as well. Given the magnitude we talk about here, I think the big portion of the new additional revenue is actually mainly from 5G. Especially if, like the CEO was saying, given the overall product portfolio we have and also given the current design-in pipeline situations, we feel comfortable basically to see the new revenue contribution for this year will be over 15% growth, and the earlier guidance comments say more than 10%.
Okay. The last question, I think it's a good sign, like the margins holding stable at these higher levels, like around 42%. The 5G, though, I think originally you were saying would be accretive to margin. I guess, one, if you still see accretive 5G margins, and then the second part, if you start getting more of the inflection with the mainstream in the second half, if maybe at that time the margin could start to even move up a bit again?
Well, I think for the earlier guidance we provided, I think the 5G growth margins, I think our goal should be accretive to the overall corporate margin. Also, we're kind of expecting the 5G growth margin should be slightly better than 4G growth margin. Overall, I guess the goal is the same, but bear in mind actually, on the blended basis, all 4G plus 5G overall growth margin, because right now, especially for this year, most of the shipments still going to be 4G. The growth margin on the smartphone side, basically, which including 4G and 5G, with a big portion of that still on 4G, still slightly below corporate average. Given the fact contribution, overall revenue contribution will be higher. If you put everything together, that's why we say this year, most likely will be the stabilized growth margin.
I think the gross margins still have the opportunity to go up a bit, but I think the keyword is really stabilized gross margin. In the meantime, the key for this year is really to grow the top line. In the meantime, we see a pretty healthy operating leverage, which means operating margin dollars should be able to see another healthy year of growth this year.
Okay, great. Thanks a lot, David and Rick.
Next one, staff questions, Bill Lu from UBS. Go ahead, please.
Yeah. Hi, good afternoon, thanks for taking my question. On your Q1 guidance for revenues, down 7%-15%, can you just talk about whether that's factoring in any impact from the coronavirus? In the last one to two weeks, I'm just wondering what you're hearing from customers, since you're really strong in China.
Yes, Bill. As far as we can make out with our customers and suppliers, the current guidance does include our estimate of the virus impact.
Is there any way you can quantify that? What would the guidance have been without the virus impact?
Bill, unfortunately, I think the whole situation is still developing, so it's really hard for us to give out a quantitative guidance. Overall, I think that's what we can do with the Q1 guidance issue, which is that we consider everything. One more thing I'm trying to add on is actually, because right now, again, I think one of the key idea we're trying to propose here is really our overall business portfolio. This time around, especially for the first quarter, probably China, from the relative scale, probably is actually the area with the most hit in terms of end market demand. Because overall, we still have other regional business demand. Even when we zoom into the smartphone business, we have a sizable revenue has been exporting to China.
The end demand is actually not in China, even on the China, but it's actually been exporting in China. I think for that one business, I think the impact due to the virus impact is actually somewhat mitigated a bit. Overall, I think for the Q1, we do factor in with a reasonable input basically based on technology we have about the virus impact, but we see a pretty still solid year-over-year growth in Q1 guidance.
Great. Thank you. My second question is on 5G. You talked about global market being 170 to 200. What's your target for market share?
Bill is asking what's our target market share for global.
Well, I think over the lifetime of 5G, we expect to do about as well as the 4G. About 40% of the SAM.
For the life cycle. That doesn't represent the first quarter or first year.
Sorry, I couldn't quite hear that. 40% of what?
Oh, the serviceable addressable market, SAM.
Okay. I guess you would define that as the total market ex a couple of the customers that you don't serve currently.
Correct. Like Apple or Huawei with their own captive chips. I might be wrong.
Okay. Great.
Bill, just one thing I'm trying to highlight actually is, I think what CEO is talking about is really just for the 5G lifetime. It doesn't represent the first quarter or first year market share.
Yes, understood. Okay. My other question is on the ASIC business. It looks like that's growing quite nicely. Can you talk a little bit about, first of all, if you can quantify the growth for us for this year? Secondly, if you look at the various segments that you serve, i.e., networking, gaming, maybe AI, what are the key drivers for this year?
Growth. High single digit, double digit.
On the growth, it's more high single digit to double digit low teens. The key growth drivers, I think, for this year will be in the network and some of the data center applications. For the game, the game ASICS probably will have a good second half performance because of the change of the major game console for the key customer.
Great. Thank you very much.
Thank you.
Now the line is open to Gokul Hariharan, JP Morgan. Go ahead, please.
Hi. Thanks for taking my questions. First of all, could you talk a little bit about the kind of ASP step up that you're seeing in 5G, and what do you expect the margin profile in 5G to be when it comes to operating margin? Your bigger competitor talks about 50% increase in dollar content in 5G compared to 4G, and is targeting around 500-700 basis points increase in operating margins as well. Now that we have achieved most of the targets that we laid out on corporate level, gross margin more than 40%, close to double-digit operating margins as well. Could we also talk a little bit about, as 5G propagates into the portfolio over the next few years, what does that do from an ASP perspective? What does that do from a margin perspective for MediaTek?
Sorry, I was a little breaking up, so let me check your question. First question will be for the ASP profile for 4G versus 5G. What's your second question? Can you repeat again?
Yeah. Second question is, as 5G becomes a bigger portion of revenues, what does that mean from overall operating margin perspective? I think, just to give some reference points, I think MediaTek was making 20% operating margins back in 3G. Obviously, 4G, we had a meaningful margin compression. Your competitor is talking about going back to 20% operating margins in chipset business, in the next few years with 5G. How does MediaTek think about operating margins, in the next couple of years, now that we have reached 10% operating margin to the last year or so?
Okay. For the ASP, the ASP, like I just explained, the ASP for 5G versus 4G should be multiple time higher. Unfortunately, we generally provide a detailed guidance. Overall, it gives a pretty nice credit in terms of 4G versus 5G versus 4G ASP. That's the first question. The second question is about the OpEx and operating margin target, if I take that. For this year, if you look at the 2019 and 2018, in the last two years, we've both been growing, both from the ratio perspective and also from a dollar perspective very nicely. Especially for the last year. For this year, overall, we're aiming for the same thing. We should be able to continue to grow both from the ratio and from the dollar. More importantly from the dollar.
Ratio wise, like we explained earlier, this year is more like a transition year even though the gross margin this year is the key for just the top line growth, gross margin stabilize. In the meantime, actually, we control our operating expense. We will see some operating leverage. We should be able to see both the operating margin dollars, and also ratio growth. When you're talking about 20 or 25%, unfortunately, I think this is not what the industry looks right now, especially when you look at our competitor, our peer company. I think even for the leader right now in the smartphone space right now, they don't have 20% gross margin, especially if you're judging from the GAAP perspective. Even with the non-GAAP perspective, I think it's below 20%.
I think for the near term, we're just trying to focus on increase the operating margin dollar. Last year's is nice by more than 30%, 40%. This year, hopefully, will be a nice double digit as well.
Okay. David, do you have any guidance on OpEx growth this year? What kind of OpEx growth should we expect for 2020? Last couple of years, I think OpEx has been under a reasonable level of control.
I think for last year, the total OpEx increased around 6.5%. This year, I would say it will be the similar pace, if not slightly lower. I think that's how it will go.
Okay. My second question, could you give a little bit more breakdown by the different segments for Q1? I think midpoint, you're looking at about 10%-11% revenue decline in Q1. How does that shape up for smartphone versus growth segments versus the mature segments?
We probably can provide some directional guidance, but not the detailed quantitative guidance. I think for Q1, we see both from the mobile sector and also from the growth sector, we all see a pretty healthy growth. For the smartphone sector, I think, for Q1 is actually a seasonal decline.
Okay, the other two are growing on a sequential basis?
Yeah, mainly it will be the smartphone. I think in terms of magnitude, I think smartphone was still the one with the strongest growth, quarter-over-quarter growth.
Sorry, this is for Q1 or for Q4?
For Q1. That's for Q1.
Okay. Thank you.
Next to ask questions, Charlie Chan, Morgan Stanley. Go ahead, please.
Thanks for taking my question and having me.
Sorry.
Yes?
Yeah. Go ahead. Sorry.
Yeah. My first question is really my question last quarter about your brand image for the 5G SoC. After your key customer did a product launch, in fact, if you do a like to like comparison, the price for the end product is around RMB 600 difference, whereas your chip performance is similar to Qualcomm's chip. How are we going to reverse that brand image discount? Longer term, do you see any difference of a MediaTek's product strategy versus Qualcomm in the 5G?
Well, our key customer, if you watch their launching event, they also announced they will use our flagship chip for their higher-end products.
In first quarter.
In first quarter, late first quarter.
Late first quarter.
I think our customers obviously understand and recognize the value of our chips. We do have different grades within our chip series. They're using a different grade of the chips for different grade of their products, which is usually quite normal for most of the customers.
Okay. Does that mean you don't see any so-called price discount due to the brand image?
I think, well, the price. I wouldn't use price discount. Price is always appeared in this part of the business.
The important thing is, as you will see also, some other customers will come out with their product using our Dimensity 1000 chips. For a higher level tier of their products. We are quite comfortable with that.
Okay. Yeah. What matters is really for the long term, right? Do you see any kind of differentiation of your product versus, I guess now it's only one competitor, right? Qualcomm, in your product roadmap or your chip strategy. For example, I think Qualcomm, the reason why they can really increase their 5G content is because they also bundle the RF module. Right? Just want to get some thoughts from you about this technology, sorry, strategy differentiation. Thanks.
We continue to focus on the SoC chip solutions. We work closely with the partners in the RF front end, such as Skyworks, Qorvo, Murata, and to provide our customers the solutions that they feel comfortable with. If you look at our market position, I think this is just the right thing to do.
Our competency resides in our SoC and modem capability. We want to provide the best tiers, best roadmap for our customers. If you compare our chips portfolio in 5G against our competitors, you'll find that we have a really very competitive portfolio. We're quite comfortable with what we're doing.
Okay. All right. Thanks. My next question is about your 5G gross margin. This is kind of a key investor concern that, given some delay due to the coronavirus issue and you enjoy pure premium for your new 5G SoC products, and maybe it gives your competitor some time to catch up and to do some price competition. Do you think that is the case?
Not really. I think our competitors also have their chips out.
I think they have their SKUs, we have our products. I really feel comfortable that we're working with our customers with the pipeline of the products to come out in the first quarter, second quarter. In second quarter, there will be really also a mid-tier product out using our 800 series chips, which, right at the very beginning of the 5G generation.
As I said, I really feel comfortable with our roadmap.
This roadmap plus, of course, what are in the pipeline for next year, will provide MediaTek a strong positioning in the 5G generation right at the beginning of this era. I think we have to look at this in this perspective.
Right.
The virus will have its impact, but this will be gone, I think, after a relatively short period of time.
Right.
The important thing is that we have the right technology and right products.
Thank you.
Yeah. Just out of curiosity, your company said 5G SoC margin is higher than 4G. Do you think there's something structural? I think maybe six or seven years ago, your 4G margin is actually lower than mature product, like 3G in the feature phone. What makes a difference this time that 5G margin could be structurally higher than 4G, and how sustainable you think that's going to be after 5G becomes a mass market?
Well, I'm going to answer your question. Well, I'm not going to give you the numbers, but again, just as I said earlier, I think the key for us with MediaTek for the 5G product is we have the right product, with advanced, really competitive technology built in right at the beginning of this 5G generation.
Right.
We're at the first wave of the business.
For 4G, I think we were kind of a follower. We were playing catch up for quite some time, and that obviously was not ideal for the gross margin.
Mm-hmm. Okay. That's very helpful. Sorry for the long question, but that is extremely helpful. Thank you.
Before I put a queue next question, I will just make a quick correction. I think for the previous question asked by JP Morgan, talking about the smartphone seasonality, I think we say it's up, it should be Q4, not Q1. It's Q4 last year. I think for the mobile phone, we see all the up turns, not Q1. Okay, just a quick correction. Please take next question.
Next one to ask question, Sebastian Hou, CLSA. Go ahead, please.
Thank you. My first question is, the CEO mentioned the new business will account for 50% of the revenue, 2020. How about the other existing business, the other business that are not categorized as new business? Do you expect it to be stable or grow or decline?
Well, as stated in my opening remark, number one, 2020, we will see a solid growth in our revenue overall. Of course, with 5G and some of the ASIC mobile, we will have good growth. We continue to have our growth sectors, like AIoT, PMIC, also to continue growing. For the smartphone business, I think we'll have a more mature, you see, it's a more mature market, plus some of the quite old products. We probably will not see much growth over there.
Okay. All right. On gross margin, this is my second question. On gross margin, I think the CFO mentioned that this year, the goal is to stabilize the gross margin. If your new business, like auto, AI, 5G, will account for 15% of revenue this year versus, I assume it's low single digit last year. Assuming these new business carry higher margin, presumably, then what's the reason behind the stable margin? Is it because the rest of the 85% of revenue, the margin is declining?
No, I don't think this is how we should interpret it. Think about business segment, the mobile growth and the smartphone. Obviously, this year, we didn't see a strong growth on the mobile side. Mobile by itself, I think the gross margin will improve due to the 5G rollout.
Overall, I think even on the blended side, mobile this year, most of the gross margin contribution is still going to be on the 4G side. Which means the mobile sector, the gross margin is still slightly lower than the corporate average, and to comprise value in the sort of the smartphone sector. For this year, we're going to see some revenue mix shift, which means higher mobile, lower smartphone, and on a blended basis, basically, we will see a stabilized gross margin. Okay, it doesn't mean the gross margin on other sectors decline. It will be just the business mix is different this year.
Okay. When we compare the first half and second half, it looks like the Dimensity 800 will ramp in late second quarter, assuming more in second half, and your third SoC will ramp in second half.
Which means the 5G as the total smartphone total revenue will be higher in second half versus first half. That supposedly should be a tailwind for margin. Can we assume that the second half gross margin will be higher than first half?
Currently, we didn't really comment about the second half gross margin. We only provide the first quarter and also the full years, but basically a heads up. All right.
Third question is on your 5G products. If you assume, how I say, the initial point of when you launch the product, without any price erosion happening yet. On the first Dimensity, the Dimensity 1000 and your third generation second half this year, how do you compare the margin? Would it be similar across all three different tiers of the product?
We don't really provide the Dimensity 1000 specific gross margin. I know.
I'm not asking about the gross margin numbers. I'm asking about, like, if you compare, would it be similar across within the 5G different product lines? I think that's what I'm trying to understand. Can you just repeat your question again?
Yeah. I know. Repeat the question.
Yeah. Okay. MediaTek will have three 5G products this year. Right. 5G SoC. I know they target different tiers of the phone, but I think the lower tiers of the phone certainly the cost is lower. I'm just wondering, would the different tiers of the 5G SoC will carry similar gross margin?
Assuming no price erosion yet. Yeah. We don't really provide, say, how many series, 800 series and other series, the serious gross margin, we only provide the overall 5G planning gross margin. Okay.
That still means that the overall, based on the product mix, the mix you see for this year, overall 5G will still be accretive or higher than 4G.
Yes. Okay. Got it. My fourth question is that, you mentioned about the millimeter wave products will be ready this year for volume shipment next year. Do you already have the customer traction where you see the customers, their phone will going to adopt this, committed to adopt this next year?
We're having a discussion with actually multiple customers as to the timing of their requirements, and what segment they like to have. In addition, the millimeter wave technology can also, of course, be used for the single modem type of business applications. We're in discussion with multiple customers, but as I said, the chip will be available sometime in that year.
Okay. Got it.
The last one is in terms of your mass market SoC to be ready in third quarter this year. I know MediaTek has been very confident in your first and second generation of the 5G SoC, is very competitive. What's your current assessment on this mass market SoC, if you compare it to itself, and also compare it to your competitors' offerings?
Well, as far as our discussion with our major customers is concerned, we believe we have a very competitive mass market SoC. Since this is already February, for a third quarter long, or I should say, production shipment in third quarter, basically several projects are already in design. Again, we feel comfortable with our competitiveness in our SoC.
Okay. Thank you. That's all from me.
The next to ask question, Roland Shu, Citigroup. Please ask your question.
Hi, good afternoon. Thanks for taking my question. First question is, looking at your 5G global shipment number, 175 million- 200 million. This actually is compared to the number in the street, I think that looks a little bit low. Probably it's at the low side. Yeah. Any reason on that? Is this because you are particularly conservative on the number, or is that you factor in the impact for the virus issue?
We do include what we believe is the impact of the virus situation. Roland, again, if you follow our last two conference calls, we have been
We said 140 million six months ago, we said last time, higher number than 140 million.
Yeah, I know, the reason 140 million is that it should be low. Yeah.
We're increasing our estimates. We are not overly aggressive, I guess.
Okay. Compared to the market number, I think your competitors are looking for 175 million- 225 million. TSMC is looking for maybe somewhere around 210 million- 225 million, and some expect even more. Your number actually definitely is the lowest in the market. Going forward, do you expect more upside or more downside for your numbers?
We're giving you guys good number as we believe, really.
Okay.
The 5G is really in its first year. I guess we're taking a bit more cautious stance on the number.
Understood.
Yeah. We're comfortable with that.
Okay, thank you. You are targeting 5G market share, you said you are trying to achieve a 40% share across the whole 5G lifecycle. Yeah, question is, are you going to start this 5G market share with a high market share or starting from low and gradually above 40%, and then average for the whole lifecycle is 40%?
I think most likely rollout should be gradually going up because I think that's basically just normally how a new product coming out, how it work out. Especially this time around, we're starting from the high-end segment. In the past, we actually don't have any market share, so you can't really expect, if it's the first time getting the high-end, the flagship product, and all of a sudden, we just get a super high market share. I think that's not our original plan. We do try to get in and expand into different segmentation. In the meantime, increase our market share gradually.
Yeah. Do you have any view for what level of the market share we are going to start with, 10%, 20%, or?
First of all, we don't provide that kind of guidance. I think you will be up to you guys to make the judgment. Yeah.
Okay. Thank you. My following question is, how about the overall 4G market in first quarter and 2020 outlook?
It looks actually good. We have a strong demand with our 4G chips. As David kind of mentioned earlier, a lot of those chips are going into the phones, which then are being sold outside of China. From Chinese customers and also from non-Chinese customers. We feel good about the 4G market demand.
In terms of the total SoC shipment to 4G this year compared to 2019, is the total shipment for 4G going to increase this year?
I think we're talking is all shipment should increase.
Uh-huh. You said, recent export market is increased, right?
The total shipment, which including mainly on the export market. Because in China, 5G proportion will be replaced by 4G, 5G.
The big portion will be 4G. We're not talking about the increase in shipment, I'm talking about total shipment.
Total shipment, the 3G, 4G, and 5G will be increased, right?
No, I'm talking about the 4G shipment from MediaTek.
Okay. Yeah, cool. 4G shipment for MediaTek will be increased. Okay, thank you.
Ladies and gentlemen, we thank you for all your questions. Due to running short of time, we are going to take the last one to ask a question. The last one is Brett Simpson from Arete Research. Please go ahead and ask your question.
Yeah, thanks very much. Just had a question on the automotive business. Can you talk about your design win progress you're making? I don't know if you can share with us what sort of backlog or order book you've got sort of stretching out into the years ahead, or what portion of RFQs you're winning. Maybe, where specifically do you see the most opportunities in autos? We hear a lot about Android Auto in the dashboard, obviously 5G, you're well-positioned. Maybe you can just sort of frame how you think about autos for MediaTek and which OEMs are you really targeting, which regions, just to get a sense for how you're going to build up this business over the next two or three years.
Okay. You're right. Automotive is a very long-term business to build. We are focused on a product that we believe we have a strong competency, such as IVI product, telematics product. We have now, we do have the production shipment to one of the large tier 1 customers for our IVI chips. We're also making pretty good inroads in the Chinese market, Chinese domestic car manufacturers. This is a long road for this business, as far as I can see, the two products I just mentioned have the right technology in contents and also a good access now to the major, either tier 1 manufacturers or sometimes the OEM customers. We, again, we're seeing strong growth. Bear in mind, it starts from a very low base.
Yeah.
Thank you.
Maybe just on that point, Rick, you mentioned a lot of these areas are coming off a low base. They're in investment mode today. You obviously have relatively high OpEx to sales compared to the industry average. You also have a great balance sheet. You have a lot of cash. You haven't done M&A for a while. MediaTek hasn't done deals for a while. I'm just wondering, I'm just wanting to understand how you think about M&A playing a role to help you supplement strategies around some of these new areas in ASICs or autos, et cetera. Maybe just help us understand how you're thinking about M&A for MediaTek. Thanks.
Good question. We actually really continuously look at potential opportunities from an inorganic growth point of view. I cannot, of course, give you any details. What I can say is that if there's a good opportunity which has a synergy with our market position, our technologies, and also at a fairly reasonable valuation, we will certainly pursue it vigorously. We're working on this constantly.
Okay. That's helpful. Thanks. Maybe just on 4G, I think there was a question earlier, but when we see these transitions from old generation to new generation, it's often the old generation that surprises us in a negative way, and I'm trying to understand how you see 4G playing out for MediaTek in 2020. Do you think it's a flat revenue year for you guys? Do you think it's going to inevitably start to decline, say, in the second half of the year? How about that gross margin as you go into the sunsetting of 4G over the next couple of years? Would you expect returns in 4G to actually start to rise? Thank you.
As we said earlier, we believe actually 4G is a long-term market. If you use sunset, it's going to be a pretty slow sunset. If you look at the 5G, certainly is coming up. The majority of the volume will start in China, I think. Then, of course, in the U.S. and the other geographies. There are still many people, the current users, who will need 4G phones this year, next year, in different part of the world. Our customers are really providing those services to those people. I think David said earlier, our 4G shipment this year will go up compared to last year. That, I guess, demonstrates our belief in the 4G market.
Great. Maybe just finally, Wi-Fi 6, I think this is a big transition for MediaTek. You've obviously got a large Wi-Fi business today. Can you talk maybe more broadly about what Wi-Fi 6 looks like this year for MediaTek? I assume it's going to be largely smartphone driven, or do we start to see Wi-Fi 6 in televisions? Do we see Wi-Fi 6 going into home gateways? Maybe just help us understand how you think about that, and also what the ASP step-up is. Some of your competitors are talking about a 50% increase in ASP. Is that right ballpark to think about for Wi-Fi 6 relative to current generation, 802.11ac or ax or whatever it is? Thank you.
Okay. Wi-Fi 6, of course, is again, kind of a new generation for the Wi-Fi, and we have our first products in a router late last year already. Of course, we have our Wi-Fi 6 building in the 5G SoC chips. I'm talking about the Wi-Fi 6 products that we can sell independently. We also have design in the high-end 8K TVs for our Wi-Fi 6 chips. We are quite happy with our technology and, again, our product capabilities. I think our customers are also happy with our offering. It will take some time, of course, to get up the scale for any of the new generation. What we're seeing is the acceptance attitude from our customers have, shall we say, accelerated over the past several months.
We have also a roadmap, a portfolio of Wi-Fi 6 chips for different application routers for the consumer electronics and also for the high-end applications. With you, good?
Great. Thanks very much.
Okay, ladies and gentlemen, that concludes our Q&A session. I would like to hand it over to Miss Jessie Wang for closing comments. Miss Wang, please go ahead.
Thank you. Ladies and gentlemen, this concludes MediaTek's 2019 fourth quarter conference call. I would like to thank you for your participation, and you may now disconnect. Thank you.
We thank you for your participation in today's conference. You may now disconnect.