Welcome to the MediaTek 2019 third quarter investors conference call. Your speakers today are MediaTek's Manager of Investor Relations, Jessie Wang. Wang will report third quarter results, and after that, we will open for Q&A. Now, I would like to turn the call over to Miss Jessie Wang. Miss Wang, please go ahead.
Good afternoon, everyone. Welcome to MediaTek's third quarter 2019 conference call. As a reminder, all content provided on this teleconference is for informational purposes only, not intended for investment advice. Neither the issuer nor any of the independent providers is liable for any actions taken in reliance on content currently hearing. MediaTek provides non-T-IFRS financial measures and supplemental information. Earnings distribution is made in accordance with financial statements based on T-IFRS. Unauthorized recording or redistribution of the video, audio, text, and presentation contents of this teleconference is strictly prohibited. By participating in this teleconference, you agree to accept the foregoing terms and conditions. Now, let's start with the 2019 third quarter financial results. The currency here is in NT dollar. Revenue for the quarter was TWD 67.2 billion, up 9.2% sequentially and up 0.3% year-over-year.
Gross margin of the quarter was 42.1%, up 2.2 percentage points sequentially and up 3.6 percentage points year-over-year. Operating expenses for the quarter were TWD 21.3 billion, compared with TWD 19.6 billion in the previous quarter and TWD 19.5 billion in the same period last year. Operating income for the quarter was TWD 7 billion, up 14.4% sequentially and up 11.4% year-over-year. Operating margin for the quarter was 10.5%, compared with 10% in the previous quarter and 9.4% in the same period last year. Net income for the quarter was TWD 6.9 billion, compared with TWD 6.5 billion in the previous quarter and TWD 6.7 billion in the year ago quarter. Net profit margin for the quarter was 10.3%, compared with 10.6% in the previous quarter and 10% in the year ago quarter.
EPS for the quarter was TWD 4.38, compared with TWD 4.11 in the previous quarter and TWD 4.3 in the same quarter last year. We also provide our T-IFRS financial measures, which include share-based compensation, amortization of acquisition-related assets, and the tax effect. Please refer to earlier press release and presentation for details. For the fourth quarter of 2019, we expect revenues to be in the range of TWD 61.8 billion to TWD 67.2 billion, flat to down 8% sequentially, and the forecast exchange rate of 30.6 NT dollars to one US dollar. We are forecasting the gross margin at 42%, plus or minus 1.5 percentage points, and a quarterly operating expense ratio to be at 32.5%, plus or minus 2 percentage points. With that, we are now ready for Q&A session. May we please have the first question, operator?
Yes. Thank you. Ladies and gentlemen, we are now in question and answer session. If you wish to ask a question, please press 01 on your keypad. Please ask your question after your name is announced. To cancel your question, please press 02. 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. Please press 01 on your keypad if you would like to ask questions. Thank you. The first to ask question is Randy Abrams, Credit Suisse. Go ahead, please.
Okay. Yes. Thank you. Good result and outlook, especially for next year. I'm curious on the fourth quarter, for the guidance flat to down eight, if you could go through the factors for it looks like a little bit above season or above some of the prior years. Maybe coming off of that with first quarter, the start of the 5G ramp, if it's your expectation we may continue this, at least based on an early look at some of the customer forecasts out there.
Randy, I think for the 5G, again, like what we still talked about during the Chinese call, overall in the last quarters, we feel the market momentum is actually improving or getting better. I think that's somehow concerned. In terms of the detail momentum in terms of volumes and also our customers' design win situation, we probably would not be able to disclose all of detail right now. Probably, the best way to think about that actually is that we pretty much have a pretty solid design in and design win progress with all the key customer. Currently, we will not be able to disclose those detail, but once their product actually in the market, I think everyone will know.
I think, in general, by before end of this year, people should know actually who are our customer, because we feel comfortable basically some of the customer will have a product launch before end of this year.
Okay. Maybe to take a step back. Sorry. I was just more implying for the fourth quarter. If you could go through the factors, maybe your guidance for sales flat to down 8%, maybe what drove it a little bit better than some of the prior years, and then initial read, how that looks into first quarter.
I think for the fourth quarter specifically, in general, that's still in line with the past, some of the fourth quarter seasonality. In terms of the magnitude, like you say, it's actually slightly better, I think mainly due to the smartphones revenue momentum in the fourth quarter. I think in the fourth quarter, for the non-smartphone sector, it actually has a seasonal down, which is in line with the past seasonality. I think on the other hand, I think our smartphone, especially for the 4G smartphone in the fourth quarter, I think in general, got a relatively strong quarters. I think that somehow offset the original or the embedded seasonality. I think that actually, when you combine both of that gives out a relatively stable and less volatile or less seasonal fourth quarter.
Okay. A quick follow-up on that question. Is that more a export 4G that you're seeing the staying power hold up and that's where the strength is? It's a fairly healthy export market?
I think export market is definitely one of the factors or one of the major factors at play. On top of that, I think the China 4G still have a relatively stable demand, even for fourth quarter. It is actually both.
Okay, great. I wanted to ask on the margins where it sounds like more confidence on the accretive after seeing more market feedback. I'm curious if you could talk maybe the drivers on the confidence. Is it a different look on the competitive pricing discipline or landscape or something you're seeing on either the differentiation in your product or cost structure, how you're positioned?
Well, like what we say during the Chinese call, I think it's nothing secretive, to be honest. In general, when we are approaching the mass production time, I think we got better handle about the pricing, about the volume, about the timing, about the overall segmentation positioning. I think it's just natural of the business. When we much closer or near to the mass production, I think we got a better handle on gross margin. I think this is why we indicate we feel comfortable that the 5G should be accretive, on the overall margin. Again, like what we explained during this call, it doesn't imply we change our view. It just in the last quarter, we don't think that's the right time to disclose that because there's still some more uncertainty or some moving piece out there.
Right now, it actually, given the fact we're going to start to ship 5G in fourth quarter and also in first quarter as well, I guess we feel much more comfortable in terms of timing to disclose our view about the 5G's growth margin target.
Okay. I guess what I'm looking at, because 4G, I guess when it came in, as we got closer, it was very aggressive pricing, to go after market share. As you get closer, seeing a better environment, or it's just more from how you feel like your products are positioned for differentiation or cost?
I think overall, pricing need to be competitive, and I think that's just the natural of the business. Pricing always got to be competitive. Another key element, I think some people probably didn't really think it, obviously, about something we call, starting from earlier this year, something we call the segmentation migration. Okay, if you recall, Randy, earlier this year, talking about we probably start with P60, then we migrate to P90, then on to G90. The portfolio right now is actually much more balanced, and more importantly, we expand into the mid to high-end, and that helps on the margin as well, on top of a competitive pricing.
Okay, great. The last question I'll ask is, I think you started to talk about a third chip. The first chip is high-end and then mid-tier. As you expand that, if you could elaborate a bit more how you'll roll the product line further out and timing, if that's also going to come out in second half, for that third chip on 5G?
We probably will not be able to disclose a lot of detail for the third chip. I think the general idea is just trying to let the market know that, for the 5G product, again, that's not something new. We explained to everyone that we actually have a pretty aggressive portfolio strategy, which mean we want to make sure we cover all segments, not just a single segment or few segments. The only difference this time around is actually because the 5G product is actually a new product cycle. Normally, we'll start on the high-end. That's why we just, in line with that portfolio, we have the high-end first, start shipping fourth quarter, and mainstream start shipping second quarters, and basically, the mainstream products in the following, basically, second half next year.
In terms of detail, we probably need to hold that until the product is actually formally launched second half next year.
Yeah. For the price point, can your chips get, or do you think we could see sub RMB 2,000 or that probably takes a bit longer for the overall bill of materials to get to that level to go below?
If it's below TWD 2,000, I think will take much longer. I think in general, at least for next year, probably we're not going to see the sub TWD 2,000. Low 5G is still going to be TWD 2,000 above.
Okay. Thanks a lot, David.
Yeah.
Okay. Thanks a lot, David.
Next one to ask questions, Gokul Hariharan, J.P. Morgan. Go ahead, please.
Yeah, thank you. Thanks, David, for taking my question. First of all, on gross margins, could you just talk a little bit, I think, Randy did ask about some of the gross margin details, but, just wanted to understand, what are you seeing, from your customers and your competitors. I think previously the view was gross margin is probably going to be similar to 4G. What has changed, or what has given you more confidence on the gross margin side? Is that something that you expect to happen through the 5G product cycle, or is it primarily a function of the 5G products next year being more high-end than the 4G products?
I think I kind of explained about what's our view, because when you use the word more confidence, I think probably the better way is actually the last quarter we didn't really commenting about the gross margin, and because there are still some moving targets. Because we are going to shift 5G in fourth quarter and also in the following quarters. I think a little bit less moving piece out there. I think that's reason number 1, if we're really trying to drill down. Reason number 2 is actually because, again, the third quarter and fourth quarter is two very important quarters to us because we're trying to ramp enough, stabilize the system, and more importantly now, I think both our side and also our customer side, know what's the overall performance for our 5G product.
When we talk about the gross margin versus the ASP, it's all depending about what's our product positioning. Now, actually, our customer got much better understanding and handle about the performance, and actually also related on the pricing and also the gross margin as well, if you're really trying to drill down. Overall, again, I just repeat myself several times. It's not a new information. It's just normally we don't disclose detailed gross margin when it's still too far down the road. Now actually, given the fact when they ship 5G this quarter, I guess we feel it's right, time to disclose that.
Fair enough. Okay. Could you talk a little bit about how this ASP increase, higher 5G mix, starts to translate down to your operating margins as well? Because it feels like that's where the bigger impact is likely next year. Could you talk a little bit about how we should expect operating margin improvements? Any thoughts on how much OpEx growth you would anticipate next year, given next year, I think, is going to be the first year of meaningful revenue growth after a couple of years?
I probably would not be able to provide a qualitative guidance on that one, because again, there's still like a few months, actually one quarter to go, and next year, there's still a lot of moving pieces out there. If you look back on our trajectory, I think in the last two years, what we did is actually we're trying to maintain the revenue and also manage to grow the revenue a little bit. I would say very low single digits. In the meantime, in the last two years, I think the key thing, the key initiative of what we did is that in A, we're trying to improve the profitability. That's why you see the growth margin has been on the rise in the last eight quarters.
B, I think more importantly, I guess, probably the best way to increase operating leverage is really trying to increase the top line in the meantime, at least maintain the growth margin, if not further increase the growth margin. In order to increase the top line or increase the growth margin, the new product portfolio, the completions, the comprehensive product portfolio, and also more importantly, the timing of the product portfolio, when the product's ready, are two most important critical factors out there. In the last two years, we've been spending lots of time and effort, and also through actually lots of R&D efforts on that. 5G is obviously along this direction, but I think earlier this year, we also talked about in addition to 5G, the data switch, basically the enterprise business, the automotive business, are all in the same line.
Again, it's got a long way to answer your question, I guess. For the next year, the overall game plan is A, we're definitely trying to increase the top line, because that's the most effective and efficient way to increase operating leverage. B, hopefully through the different business mix, we can still continue at least maintain the gross margin, if not manage the gross margin a little bit. Once we can achieve one or two of that, I think we should be able to continue to see pretty good operating leverage out there. Again, operating leverage, what we mean by that is actually hopefully continue to see the operating margin ratio increase in the meantime, the absolute dollar increase at a meaningful pace.
Understood. Okay. Could you talk a little bit about your market share? I think you mentioned in the Chinese call that 5G market share should be at least similar to 4G, or if not, could be even higher. Could you talk about your degree of confidence, maybe first half next year and second half, I think obviously, the product is still coming out. Just wanted to understand where is that confidence coming from. I guess first half is probably more in the back, given you probably already had sampled and kind of secured some of the designs.
Well, yeah. Let me give the detail. Since you asked this question, let me just take this opportunity to do a small clarification, especially during the Chinese call. During the Chinese call, I think one analyst asking about, Rick, about our view for the 5G market share, right? Our view is actually pretty straightforward. Our goal is actually in the 5G product cycle, our overall market share should be at least the same, if not better than 4G. I think that's the big statement. Somehow people link that directly to our earlier guidance, talking about our view, say, for 2020 in China, we believe overall 5G should be around 100 million units. People then talk about the market share is 40%, so does that imply our 5G shipment is going to be 40 million?
The short answer is no, because actually the TWD 100 million is not the addressable market. It's the total addressable market, not the surface market, because there are some internal solution vendors out there.
We're trying to calculate the shipment on the MediaTek side. There's two factors out there. A, I think market share-wise, we feel comfortable with looking for 4G, if not higher than 4G market share, that's our goal. For the drift market, people need to apply to your judgment on that. That's, I think, point number 1. Point number 2, let me answer your earlier question. You say, what's the confidence level? Why we feel confident about that? I think, again, it's all about the product portfolio, the comprehensive product portfolio, and more importantly, the timing of the product portfolio. When you think about market shares, especially for the 4G market shares, one thing you need to realize, actually, in the past, our market share on the high end is near to nothing, is like 0%.
This time around for 5G, if we can get something, okay, on the high-end side, assuming on the entry level and mainstream side, we can maintain the market share. If you do the math, which means our market share should be higher in 5G product cycle versus 4G. I think that's a simple assumption. In the 4G side, I don't have the high-end. On the 5G side, I start with the high-end right now based on this design win situation, it's actually much better than 0%, because in the past, I got 0% on high-end. Assuming on the mainstream and entry level, I only get the same 4G market share. Overall, if we do the math together, the market share should be higher. Okay?
When you take into consideration about the timing this time around, about when I have the comprehensive 5G product portfolio ready, it's actually much faster than earlier compared to my 4G market share. In general, from the industry perspective, when the player have the comprehensive product portfolio ready at day one, they actually got a better chance providing the product portfolio and also product performance is actually very competitive. In general, you got better chance to get a better market share. I think that's basically the assumptions.
Understood. Okay. Could you also talk a little bit about, I think, on the competition side, looks like number 1, number 2 merchant player seems to be very disciplined on pricing. Pricing is going up. Do you see any competitive risk from number 3 player like Samsung coming in and disrupting the pricing dynamics in 5G? How do you think about the price premium for 5G versus 4G? Is it just that 5G die size, foundry node, all those kind of things are more expensive and the price premium that we are seeing 5G versus 4G, is going to stay similar in pretty much every segment on a like for like basis?
I think actually, I don't have a straight answer, to be honest, okay. I think overall, again, maybe it's come back to the baseline is, our view is actually is have the comprehensive product portfolio starting at day one. I think that would change a lot of dynamic, both from the customer perspective and also the competitive landscape. That's point number one. Point number two, I think, again, during the earnings call, some people talking about our high-end maybe is getting to our competitor, like 700 series. In reality, I guess, we feel very comfortable our high-end product on the 5G side is actually very competitive, even compete with our peer companies, the flagship product, which is the 800 series. I think that actually change a lot of the competitive dynamics out there. Yeah.
Okay. you don't see
Yeah, let me just-
Yeah, go ahead.
For example, right, in the earnings call, we're talking about we are probably the first one and only one right now, put a new radio carrier aggregation, so the download speed will be up to 4.7 Gbps. Our view is actually, we are probably the leaders in the high-end SoC with the fastest download speed. That's just one example, right? Another example is actually, if you think about from the CPU perspective, we are the only one using Arm, the latest A77 CPU architectures. That actually will translate into pretty good application processor performance. I think we will have a lot more detail to talk about, by end of this year. I think we will have a 5G product launch event.
In general, I guess we feel this time around, we feel fairly comfortable for the product performance, not just on the timing and the comprehensive of the product portfolio. More importantly is with the product performance itself, actually give a lot of confidence.
Understood. Just one last question, just shifting gears a little bit to ASIC. Can you give us an early read on how you think about ASIC growth next year? I think we were expecting some of the networking ASIC to start ramping up, I think in Q3 or Q4. Also, I think consumer ASIC probably has a good cycle. I think 5G obviously is the spotlight, but if we step aside into the growth businesses, could we say ASIC is probably going to be the fastest growing segment within the growth segment next year?
When you talk about ASIC, I'm assuming you are more focusing on the enterprise sector rather than the consumer product, right?
Right.
Okay. I think for the enterprise sectors, I think starting from Q3, this is the first time we start to ramp our, actually we start to ship our enterprise solution. I think overall, both from the performance perspective and also from deliverable perspective, the customer are all very pleased about our performance. In return, I think starting from this year, we have few more design-in and design wins. Given the fact for the enterprise assets, the revenue base is very low this year. I think from the revenue growth momentum perspective or growth rate perspective, to be precise, next year will be pretty strong. On the absolute scale, I mean, the absolute revenue scale, I think no matter this year or next year, are going to be still relatively small.
For the end price solution, I think the ramping up time is actually taking much longer compared to the consumer product. Overall, if we're judging from the adjustable market perspective, and more importantly, based on the current design in design win, the momentum perspective, we feel fairly comfortable that will become another growth pillar in a two to three years' time.
Understood. Okay. Thank you very much. Right now, we're having Brett Simpson, Arete Research, for questions. Go ahead, please.
Yeah. Thanks very much. David, can I ask about the segment breakdown in Q3, just to go through the three divisions and where exactly sales splits between those. Just on Q4, do you expect to report positive year-on-year sales growth in the mobile business? Thanks.
Sorry. Your first question was something about the revenue breakdown among different business lines?
Yes.
Because I didn't really hear you properly. I think for the smartphone or the mobile computing specifically side, which including smartphone and tablets, in third quarter, which account roughly 32%-37%. For the growth sectors, which include IoT, PMIC, power management IC, ASIC, which is consumer ASIC, and also the enterprise. All together, I think that accounts for 32%-37% as well. Pretty much the same size of the mobile computing. The rest goes to the smartphone and others, which include TV and others, which account for roughly 28%-33%. I think that's the revenue breakdown among our three business sectors.
Okay. Great. Thank you. Just on mobile computing specifically, does that suggest, just given the guide for Q4, it sounds like it won't be declining, maybe it's relatively flat for you guys. Does that mean we go back to positive year-on-year growth in mobile computing?
For Q4 precisely, Q4 year-over-year growth, I think it's positive. On a smartphone side, the answer is yes.
Okay. In terms of unit numbers, because I know you sometimes talk about how many shipments in mobile computing. Are we around about the 100 million a quarter level? Can you give us some insights there?
No, actually, we didn't really provide the detailed shipment right now, unfortunately.
Okay. Then I guess in Q4, you have a couple of things happening that's a little unusual in consumer tech. You have Chinese New Year coming a little earlier, in January versus February. Also, you have, in the U.S., you have tariffs potentially being introduced in mid-December. Are you seeing any pull-ins because of both these issues? Can you talk about what impact this might have? Are you concerned at all about finished goods inventory heading into year-end, this year?
Different business unit probably have different implications. If I may, let me just go through one by one. I think for the growth sector and also for smartphone and others, by and large, they are mainly consumer product related. We all see a seasonal downturn in the fourth quarter, which from our perspective, is pretty much in line with the past seasonality. To be precise, actually, you talking about several macroeconomic factors out there. We didn't really see those macroeconomic factors somehow cut in and cause a severe seasonality. When I say severe, I mean, compared to the normal seasonality. I would say it actually is a normal seasonality compared to the last few years. I think that's on the non-mobile computing sectors. On the mobile computing sectors, on the other hand, I guess, it truly somehow will show in this year is actually a different seasonality pattern.
It's actually a much better seasonality. I think the reason behind that, A, our view is actually we probably still managed to gain some market shares in the mobile computing. That's reason number one. Reason number two is like you say, this year is actually with our earliest Chinese New Year, some of the customers started building the inventory in fourth quarter. Number three is actually, in the fourth quarter, we see the exporting market, which is outside China. They are all pretty healthy and stable as well. I think that's a combination of all those three factors out there.
Okay, great. Thank you. David, just on 5G, can you give us an update around how you are thinking about the market size in 2020? Maybe split between domestic and export. What market share do you think is achievable for MediaTek in 2020 for 5G?
We actually don't have new guidance or new views about the 5G. Let me just repeat what we talked about last quarters. Our view is actually, for next year, global 5G, maybe around 140 million, and with a big portion coming out from China. I think for mainland China, our view is it will be like 100 million out of that 140 million. By the way, that was our view for last quarter. I think this quarter's overall view becomes even more positive about the potential size. In terms of the actual view, we probably would like to withhold that for one more quarter, because again, there are several factors blending in. We do see stronger demands out there. Both from the customer side and also especially from the operator perspective. On the other hand, we also worry about the global macroeconomic situation.
Brett, if you follow the recent, several big companies out there, they got somehow mixed view about the global economic situations. Not just talking about the China-U.S. trade issue, but also in general, across sector and across geography. That's something we still need to monitor and follow closely. Overall, I guess our view is still feel positive for 5G demand and the baseline China 100 million, global 140 million, it's not changed yet, but most likely, for next quarter, we're going to upsize that. Until then, bear with us. We got better view for you maybe next quarter. In terms of market share, again, that's the same targeted view. I think our 5G market share, especially if we don't just focus on Q1 or Q2, or not even for 2020, I need to be clear on that.
Our view is actually for the whole product life cycle for 5G, our market share should be better than 4G. Okay. It doesn't mean, in Q1 next year, my 5G market share will be better than 4G. I think that's not what we're referring to. Why we feel comfortable for the 5G market share versus 4G, for two simple reasons. First of all, for 4G, our market share for high-end is 0%, very low. Okay. For 5G, in general, we should have some market share for the high-end, so assuming we share the same market share for mainstream or even for the entry level, as long as we can get some more market share on the high-end, on a blended basis, our market share for 5G should be better than 4G. I think that's reason number one or assumption number one.
Assumption number 2 is actually, if you look at the 4G product cycle, when do we have a comprehensive 4G product cycle ready versus when we shall have a comprehensive 5G product ready? The readiness actually is much difference. This time around, we talked about, we have at least three products across all different sectors on the 5G ready pretty much right now, versus 4G, will probably take us two to three years. I think our positioning, more importantly, when we talking to our customer about their product planning, I think overall positioning is actually very different. That actually give us a little bit more confidence about the market share as well.
Interesting. Okay, thanks for that, David. Maybe just on understanding the number of design wins you have or anything you can help us, just in terms of the engagement you're getting. Do you have multiple customers for your first chip, your high-end chip? Or do we really have to wait for that second generation or second chip before we see the customer count really start to grow?
I think for the first product, which is the high-end product, I think we have multiple customers. We don't need to wait for the second generation product.
Multiple.
Multiple, yeah.
Okay. That's helpful. Then maybe just finally on smartphones and 5G, how should we think about ASPs? Because as you say, this is a new segment for MediaTek. We haven't seen you in the premium segments in 4G. How should we think about ASPs? I guess if we look at 4G today, you're maybe under $10 or so, around about $10 ASP. In the early ramp in 2020 for 5G, should we be assuming around about the $30-$40 level, if it's competitive with, say, Snapdragon 800 or Snapdragon 700? That would suggest ASPs well ahead of what you're producing today in 4G. I just want to get your sense as to how we should be modeling that.
First thing first, I probably would not be able to comment on the absolute number, right. Unfortunately. Let me try to answer your question from slightly different perspective. First of all, I guess, because we feel comfortable and confident about our overall product portfolio, more importantly about the product performance. We're definitely trying to make sure we capture the value we create, and which will reflect in ASP and also on the gross margin as well. I think that's how we top down our pricing strategies for our new product. We will not go low ball on ASP because this time around, I guess our product portfolio and also product performance is actually very good. We will matching, but in the meantime, we will be competitive as well. Okay.
I guess we just need to find a delicate balance about competitiveness versus capture values about our product portfolio.
Maybe just lastly, David, on foundry availability. You're going into seven nanometer and potentially six nanometer next year, and I guess when we look at the ramp-ups that TSMC is committing to with other guys at the same node, whether it's iPhone 5G, Huawei is obviously a major customer, AMD's ramping hard. Are you happy with the availability of wafers to deliver potential upside scenarios for 2020, particularly in the second half of the year when seasonally, the leading edge is pretty tight for capacity?
Brett, I think this is a tough question. Probably the best way to answer that is actually, so far, we work very closely with our foundry partner. We've been a long-term partner to our foundry partner. They understand we have a pretty comprehensive and competitive product portfolio. So far, I think we got enough support.
Clear. Okay, that's great. Thanks very much. Cheers.
Next, we're having Charlie Chan, Morgan Stanley. Please ask your question.
Thanks. Hi, David. I'm sorry that I went through my own math based on your comments. Thanks for your clarification on those 5G market share and those comments. First of all, if I may get more color, what is your 4G market share in China or globally based on your company's own data?
Charlie, can you repeat your question again? In the 4G market share?
Yeah. I just want to get your own assumption for your 4G market share.
4G market share.
Yeah.
Again, we are judging from the adjustable market perspective, not the total-
Right
market perspective.
Sure.
It's roughly around 40%.
Roughly 40%.
40%, yeah.
It's global or China?
That's actually, adjustable market is mainly China.
Okay.
Actually say China and emerging market.
I think, the big part of the 5G demand next year probably comes from another player, Huawei. Can you comment your possibility to get Huawei's 5G smartphone order? I remember last quarter, you did try to answer this question. I remember the answer, you said that you weren't sure. How about the possibility now for Huawei 5G?
Charlie, I probably would not be able to comment on this question.
Okay. Yeah, in terms of timeframe, how long do you think that you can bring your 5G market share to your 4G market share?
I think this year we'll manage to increase the market share a bit. I think next year, like what the CEO talked about during the Chinese call, we still have a pretty solid 4G business portfolio, product portfolio for the next few years because we do believe, for the emerging market, I think 4G will be a long tail business and will be layered actually for many more years. I think based on our product portfolio and more importantly based on our current market shares, our view is actually we can at least maintain, if not manage to increase a bit our market share of 4G.
Okay. Then, I guess, on your millimeter wave products, I remember last time you mentioned it could be out around next year end. Do you think this one would target even higher-end markets or the same segment as the MT6885?
I think for the millimeter wave, I think it is mainly for the non-smartphone product. Definitely, I think for the super high-end smartphone, there might be a few sectors will require both millimeter wave and also a sub-6GHz product. At least right now, especially if you based on from the China's demand perspective, I think sub-6 actually is probably the best solutions in the high-end. People probably want more multimedia function, AI function, application possible function rather than the millimeter wave function. By saying that, we are still going to have a millimeter wave solution, but it is mainly the beginning of the millimeter wave solution will be targeting on the non-smartphone sectors, basically non-smartphone use cases, and gradually migrate that into the smartphone solutions.
Okay. Yeah, actually between the Chinese call and the English call, we start to get some investor feedback. Somehow, investors are a little bit concerned about the OPEX trend. I'm not sure why after your explanations, investors are still concerned about third quarter OPEX. If you can give us just a more comments about the future years OPEX trend. For example, next year regardless the top line, what kind of OPEX in terms of growth rate are you expecting for the OPEX?
Charlie, I probably don't have the number on top of my head with me right now, especially for next year OPEX, because right now, to be honest, we're still going through what we call the annual planning right now. If I may, why don't I just comment about this year at least. I think for this year, if you recall earlier this year, we kind of give out a guidance say, the OPEX on the absolute dollars, overall, we're looking to manage that to low single digits, mid-single digits. I think for the full year, if you take our midpoint of our guidance for fourth quarters, I think overall, we are pretty much in the mid-single digit year-over-year growth on absolute dollar terms.
I think for this year and last year, if people only focused on OPEX as a ratio, somehow we are handicapped because, from the top line in last year, this year, we didn't really see a strong top-line growth. This year probably we see low single-digit top-line growth depending on how we do, say, in the fourth quarter. How we manage our OPEX this year and last year as well, as we explained to the shareholders and potential investors, is actually on the absolute dollar terms. I think for next year, again, I don't have the detailed visibility yet. I think we will have a better view maybe later this year.
Okay.
On top of that, I think how we manage that with the P&L, so operating leverage, core operating leverage, is really trying to increase the operating margin dollars at a very healthy pace. Like last year, operating margin dollar growth more than 60%. This year, again, if you take the midpoint of the guidance, I think overall, we're looking for very strong double-digit growth on operating margin dollars this year as well.
On top of that, you also see the operating margin ratio expand continually nicely in the last two quarters.
Okay, thanks for those comments. Lastly, can I switch gear to your kind of new growth drivers? Besides the networking ASIC, can you comment about your progress in those AI or kind of data center server type of ASIC? When do you think that is going to contribute to your revenue?
We probably would not be able to break down in such details as expectation. In general, for ASIC, we break it down to consumer product. Right now, actually, the majority of our revenue coming up from consumer product, mainly from the game console, both for basically two big platforms, the Xbox and the PlayStation. For other new initiatives, mainly something we talked about on enterprise sector, which including data switching and also all the AI and other stuff you talked about.
We only don't do further breakdown, level 2 breakdown. We're only just categorizing as enterprise solutions. This year, the revenue is still very tiny, very small. Last year, we see a very strong growth rate, but because the base is still very low, even with a very strong growth rate, I think on the absolutely TWD revenue perspective, it's still pretty small.
Okay. On TWS, what's MediaTek's view about the market size and the pricing trend? Do you think it already reached a point that the chip for TWS is commoditizing? What is kind of MediaTek's overall target to grow this kind of overall IoT business in next year?
Well, I think for TWS, our view is actually currently, if you join in from the market share perspective, well, I think we are still a leader in this space.
Don't really think TWS is being commoditizing because we can see a lot of new application coming in, and still a lot of new technology need to be put in into the TWS solution.
I think overall, we have several new product coming out in TWS, and we do believe, once we get into fourth quarter and first quarter next year, we should be able to get more market share on the TWS front.
Okay. Okay, gotcha. Thank you.
The next one to ask question from CLSA, Sebastian Hou. Go ahead, please. Hello, Sebastian?
Yes.
Okay, you're on the line. Please go ahead.
Okay, thank you. My first follow-up question is, I think the company mentioned about the second generation 5G SoC will target the phone selling price at CNY 2,500. What about the third and fourth following 5G SoCs? Will it target price at a lower one, lower tier phone?
Sebastian, sorry, your voice is kind of breaking out. Can you just repeat the question again? I can't really hear you properly.
Okay, let me repeat. The second-generation 5G SoC that MediaTek has targeting the selling price, phone selling price at RMB 2,500. How about your third and fourth following 5G SoC? Would it be targeting even lower tier or pricing of the phone? What would that be? What kind of the price range?
First of all, I guess again, we're trying to clarify that during the Chinese call, and I'm trying to clarify again. I think the precise way to describe that is actually RMB 2,500 and above. Most likely for the next year, beginning or starting from RMB 3,000, really RMB 2,500. I think that's actually somehow caused lots of miscommunication during the Chinese call. I want to be clear that we're talking about RMB 2,500-RMB 3,000, and most likely to the beginning of the product cycle, we'll be gearing toward RMB 3,000, really RMB 2,500. That's my clarification. Going back to your question, I guess with third generation product, the answer is yes. We're trying to cover the all segments. The third set product, most likely will be covering from RMB 2,500 and below.
Okay. Do you have a timeline for the third one, third product?
We do, actually, but we probably would like to withhold that until the right timing to disclose that.
Okay, got it. In terms of the foundry technology node of your 5G SoC product, what's your plan on the 5 nm? When will you move to 5 nm?
I think for our 5G solution next year, it will be all on seven. We do have two projects coming out from both six and five. Again, we will just close that in when the time is right.
Okay.
We do have projects on both six and five.
Okay. When you talk about all on seven for next year, this doesn't include six, right? Because six actually is the same family as seven.
For all 5G product, commercially launched product 5G next year, 2020, will all be seven.
Okay. Yeah, got it. Just last double check. The smartphone business in the fourth quarter is going to be up both Q on Q and year-on-year, correct?
Correct.
Okay, thank you.
Ladies and gentlemen, we thank you for all your questions. I'm going to hand it over to Miss Jessie Wang for closing comments. Miss Wang, please go ahead.
Ladies and gentlemen, this concludes MediaTek's 2019 third quarter conference call. We would like to thank you for your participation, and thank you. Now, you may disconnect.
Thank you for your participation in today's conference, ladies and gentlemen. You may now disconnect.