Welcome, ladies and gentlemen, to MediaTek 2019 first quarter investors conference call. Your speakers today are David Ku, MediaTek CFO and Spokesman, and Tienyu Tseng, MediaTek Senior Manager of Finance Division. Mr. Tseng will report first quarter results first, Mr. Ku will provide prepared remarks, and after that, we will open for Q&A. I would like to turn the call over to Mr. Tseng. Please go ahead.
Good afternoon, everyone. Welcome to MediaTek first quarter 2019 conference call. Just a reminder, all content provided on this teleconference is for informational purposes only, not intended for investment advice. Neither the issuer nor any of independent providers is liable for any action taken in reliance on contents herein. MediaTek provides non-GAAP financial measures as supplemental information. Earnings distribution is made in accordance with financial statements based on GAAP. 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. Let's start with the 2019 first quarter financial report. The currency here is in USD. Revenue for the quarter was TWD 52.7 billion, up 13.4% sequentially and up 6.2% year-over-year. Gross margin of the quarter was 40.7%, up 1.8 percentage points sequentially and up 2.3 percentage points year-over-year.
Operating expenses for the quarter were TWD 18.3 billion, compared with TWD 19.9 billion in the previous quarter and TWD 17.2 billion in the same period last year. Operating income for the quarter was TWD 3.2 billion, down 13.7% sequentially and up 64.3% year-over-year. Operating margin for the quarter was 6%, compared with 6.3% in the previous quarter and 3.9% in the same period last year. Net income of the quarter was TWD 3.4 billion, compared with TWD 4.1 billion in the previous quarter and TWD 2.5 billion in the year ago quarter. Net profit margin for the quarter was 6.5%, compared with 6.7% in the previous quarter and 5.1% in the year ago quarter. EPS for the quarter was TWD 2.17, compared with TWD 2.63 in the previous quarter and TWD 1.61 in the same quarter last year. We also provide non-GAAP financial measures, which is share-based compensation, amortization of acquisition-related assets and tax effect.
Please refer to earnings press release and presentation for details. For the second quarter of 2019, we expect revenue to be in the range of TWD 59.6 billion-TWD 63.8 billion, up 13%-21% sequentially at a forecast exchange rate of 3.980 dollars to one US dollar. We are forecasting the growth margin at 40.5%, ±1.5 percentage points, and quarterly operating expense ratio to be at 32%, ±2 percentage points. I would like to turn the call to CFO, Mr. David Ku, for prepared remarks.
Thank you. Good afternoon, everyone. Before the Q&A, let me just give you guys a quick update for Q1's overall performance and operation details. For the Q1, the overall financial performance, revenue especially, reaching the original upper end of the guidance. The gross margin also reaching the mid to high end of the original guidance. On top of that, for our 3 major business line, which is smartphone, growth sectors, and smart home sectors. Generally, all contribute equally around one-third of overall revenue. Overall, we have a much more balanced business portfolio after 2 to 3 years of overall adjustment. Earlier this year, our CEO, Rick, mentioned that 40% gross margins is one of our goal trying to achieve this year.
Now, we're happy to report that in Q1, we already see the more than 40% gross margin. That's a quick overall update on the corporate level. I'll give updates on the 3 major product line level. I will start with mobile computing. For mobile computing, which include smartphone and tablet, overall mobile computing contribute 30%-35% of Q1 revenue. For Q1, in general, due to the seasonality issue, the mobile computing is relatively weak compared to the other line of business. We do see a strong seasonal growth in 2nd quarters from mobile computing sectors. On the product front, both for P70 ramped up pretty well, and for P90 ramped up pretty well. We should be able to see our customers start ramps with our P90 inside products in beginning of Q2.
We will also foresee the strong momentum extending to 2nd half 2019. Both for P70 and P90, as MediaTek's been the leading players in providing rich AI functions, not just for camera, but other AI functions in a smartphone. We are probably the first one to promote something we call the APU. It's on top of CPU and GPU. It's an AI processing unit. APU stands for AI processing unit, for our customer and lots of app developer to truly leverage the AI computation function to provide more and better user experience to our end customer. That's pretty much the P70 and P90 front. Looking for the 5G front, like what we explained to the capital market, we already demo our M70 modems during this MWC earlier this year.
We are right now in promoting our 5G SoC, with pretty good feedback from our leading customer in China. We right now feel fairly comfortable. We should be able to catch up the 1st half 5G product cycle, and we should be able to see a few customers ship our 5G SoC products in the 1st half of next year. For our 5G SoC product, we will starting with the high-end product segment. For next year, we will further extend that 5G product portfolio from the high-end to medium range as well. Overall, this time around, we feel fairly comfortable both from the product timing and product competitiveness for our 5G products. For the 5G product cycle, especially. That concludes my update for mobile computing.
We're moving to the next sector, which is the growth sector. For the reference, I think the growth sector, which includes IoT product, PMIC product, custom ASIC product, and some other product. In general, I think the IoT product accounts for half of the growth sector revenue and also PMIC and ASIC probably account for another 45% of overall revenue on growth sectors. For the IoT product, I think we see a strong momentum in Q1. Also we also foresee a pretty good momentum in Q2. I think for IoT, within IoT, we have Wi-Fi product, voice assistant product, machine-to-machine product. In general, I think for IoT product, we see long-term growth, mainly due to a very diversified customer portfolio and also a lot of new emerging applications for the IoT products.
On the PMIC and also on the custom ASIC side, I think we also see a pretty strong year-over-year growth both for PMIC and also custom ASIC. More importantly, I think for the currently, the major business line or the old business under the custom ASIC, which mainly our game console from. Starting from Q3 this year, I think the second sector, which is the enterprise ASIC, will start to ship manufacturing. I think there will be a very important milestone for our custom ASIC business. I think that's a quick update for the growth sectors. The last but not least will be on the smartphone. I think for the smartphone and other product, I think for the first quarter, we see a seasonal cyclical down. For the smartphone sector, I think Q1, the overall revenue account for 32%-37%.
Even though it's actually some people think of smartphone, mainly the digital TV, is actually a mature product. On the other hand, we do believe that smart TV and also smartphone in general, still have a bit to long-term growth opportunity. Like what we demo during the CES earlier this year, we are probably the first company out there to incorporate AI with the picture quality. Now, actually, we're trying to employ more AI function in our smartphone and platform and all have pretty good received response from our end customer. I think we will continue to incorporate our new technology to the TV platform, and we do believe that will further the future growth even for the TV front. I think that concludes my quick update from the corporate level and also from the three major product line.
Thank you, David. We are now ready for Q&A session. May we please have the first question, operator?
Yes. Thank you. We are now in Q&A session. If you would like to ask questions, please press zero one on your keypad. Please ask your question after your name is announced. To cancel your question, simply press zero two. As a reminder, it is greatly appreciated that you turn off speakerphone mode of your device to prevent possible echo effect. We thank you for your cooperation. Now, please press zero one if you would like to ask questions. Thank you. First in line to ask questions, Randy Abrams, Credit Suisse. Go ahead, please.
Okay. Yes. Thanks a lot for the details, David. I wanted to ask the first question on the revenue growth for 13%-21%, which is pretty decent. Want to understand how much of that you're seeing in terms of environment, more just say, seasonal pickup, both in the smartphone and in some of the growth products. How much are you actually seeing incremental that's from your business drivers? A lot of companies are talking about a second half or a strong second half. With your guidance for second quarter being fairly healthy, I guess, do you have a view second half relative to most years, if you see certain drivers for that second half maybe coming in better?
Okay. Well, first of all, I think for the second quarter, we see a fairly healthy growth across all three sectors. Within the three sectors, probably smartphone is the one with the strongest growth. I think mainly due to the relatively lower base in Q1. Bear in mind, actually, even though we see a pretty strong Q2, I should say, stronger than normal seasonality. Because normally, if you look at our Q2 seasonality, in general, it's 10%-15% up. Right now the guidance is 13%-21%, so it's actually slightly better than normal seasonality. When we look at the full years, I guess right now we're still not changing our full year's view yet.
Really, if you recall, in Q1, I think the CEO, Rick, gave the full year's view on top line, especially as our view still remained as 2019 versus 2018, as the revenue probably was still going to be relatively flattish, maybe slightly up. We didn't really foresee a stronger year-over-year top-line growth. On the other hand, I guess, the way we're trying to manage or drive business is, because we understand from the overall demand perspective across our sectors, we didn't really see any sort of fundamental change in the outlook. For 4G right now, obviously it's quite clear people are getting ready to transit from 4G to 5G. Obviously, you will not be able to see a very strong 4G growth this year. Hopefully, that will lead to a much stronger 5G growth.
For other line of business, actually, what we see is pretty much in line with the global semiconductor growth rate, which is low single digits. Again, to answer your question, let me just summarize it a bit. First of all, for Q2, we do see a pretty healthy growth across all three sectors. Among the three sectors, smartphone has the strongest growth rate, with one good reason, which is they have risky weight in Q1. That doesn't constitute we're going to change our views. For the full years, we're still conservative right now, if you like. To be precise, I guess we're still looking for maybe another flattish to slightly up year on the top line. We do foresee we should be able to continue to improve the gross margin and control operating expense and to see another good year of operating margin TWD growth.
Bear in mind last year, I think 2018 versus 2017, the gross margin TWD growth more than 40%. I think this year, we probably will not be able to reach another 40% growth. At least we're looking for a double-digit growth, if not 20%, if not higher, basically, for operating margin TWD growth this year.
Great. Thanks, David. Again, if I could ask a follow-up then on the gross margin. I think on the Mandarin call you mentioned smartphone now at corporate average. If you could take maybe a view on margin by segment, if you now think mobile should be, you think more in line with corporate, is something here that looks more sustainable? Then if you're thinking on 5G, the initial stage, how should we think of the profitability in the early stage? Is it starts out high margin, or it's high development cost that takes time for the profitability?
Well, I think for the 5G right now, it actually is maybe a little bit premature to give out some guidance view on 5G. Let me try to answer your question from slightly different perspectives. I think our view is from the ASP perspective, I think 5G definitely is a very good product. I think compared to our current 4G blended ASP, I think 5G will be multiples higher. On the other hand, actually 5G, because right now we're going to put in more technology on the chipset, and the cost will be much higher as well. By end of day, I guess it all depends on what's the final pricing we can charge to our customer. Currently, based on the pricing portfolios, I think overall the gross margin compared to 4G should be able to sustain.
Again, the pricing is always a moving target, and by end of this year, you never know what the landscape will become on the 5G side. For 5G, probably the better way is actually we're going to report to everyone our view maybe later this year. So far, based on the currently available information, I would say 5G probably will be constituting with a similar gross margin, maybe slightly better. Again, depends on the final ASP profile for 5G.
Okay. Do you think the margin for mobile overall, or do you still think of the non-mobile as incremental gross margin driver, if that grows faster? Or it should probably stay pretty balanced between the two now?
I would say it's related, basically, to stay pretty balanced among the two.
Okay. The last question I had, it seems like you've made a bit of change where it used to be you put everything in the mature product that wasn't growing as much. Now it seems like the emphasis more to call it digital, like smart home.
Right.
I'm curious, has there been a reclass of products where now certain things are moving, where it's no longer just a mature bucket? If you have some of the Wi-Fi that goes into the home or set-top box, like other products going in there. If you change your view on, is it still a mature bucket, or now you want to see that as a growth category as well?
First of all, many reclassify. Basically, the content is the same. We do change the naming for the good reason, just like you explained earlier. Even for the digital TV or smartphone, we do believe going forward, we still have new growth opportunity, especially right now we see a lot of emerging technology will be flowing into the smartphone platform. That's why we're changing the name, from the mature product to smartphone. For mature, we don't think that's the right way to describe this line of business. In terms of content or categories, actually remain the same. It's really just mainly smartphone plus the feature phone and plus a little bit, actually, other products.
Okay, great. Thanks a lot, David.
Next, thank you for question. JP Morgan, Gokul Hariharan. Go ahead, please.
Hi. Thanks, David, for taking my questions. First of all, on the gross margins, great delivery on the margins. Could we talk a little bit about what is our next gross margin milestone and is around about 40% the best that we can do? I'm just asking that because you mentioned earlier to Randy's question that now the product portfolio margins are fairly similar across different segments, especially growth segments such as smartphone. You're also anticipating that 5G is probably going to come in at similar margins or slightly better margins compared to your current smartphone portfolio. What should we be doing to see further margin upside, gross margin upside from the current 40% levels in, let's say, a couple of years kind of trajectory?
Well, I think our view is actually for the near term. Near term defined maybe just one to two years. I think the goal will be trying to maintain the gross margins. We think basically above 40%, but to be precise, maybe it's actually in the low 40% range. In the same time, by building a new business portfolio, which including but not limited to 5G, data switch ASIC, automotive, and custom ASIC. We do believe actually, for the near term, without a slice of a new business getting in, probably for the near term, the best we can do, just gradually increase to, let's just say 40%-43% hopefully is on the high end of this range. Probably depends on different quarter, different customer mix, different BG mix. All within this, I would just categorize as low 40% range.
We still need, give us some more time, say 1+ year, hopefully two years time, we can see a more structural change, mainly through a new product portfolio which carries a better gross margin. I think that's our view.
Okay. That's very clear. Secondly, on the operating expenses and R&D especially, how should we think about R&D for this year? I think previously you had said we'll try to keep R&D pretty much flat-ish for overall OPEX pretty much flat-ish for this year. Is it still the goal, given that it feels like you're accelerating your 5G SoC pipeline a little bit? I think previously you were expecting SoC shipments going probably later in 2020, looks like you're now more confident of hitting a first half 2020 goal. Does that mean that R&D and OPEX should be higher this year, or this is still going to be in the same envelope?
Well, I think the guidance remains similar. Basically, if you look at the two numbers, one is the absolute dollar terms on the operating expense line. Again, on a year-over-year basis, we are looking for 0%-5% growth. I think that's actually in line with what we provide about the view earlier this year. In terms of the ratio, it depends on the revenue range. I would suggest from a modeling perspective, maybe more focused on the absolute dollar terms. Again, year-over-year, we're trying to manage that from the 0%-5% range. The goal is actually trying to see the profit growth outpace the operating expense growth. So far, I think for most of the 5G investment, what we did actually, we do a lot of internal reallocation. We reallocate a lot of resource from 4G to 5G.
In the same time, actually, we also reallocate some of the basically smartphone people to non-smartphone business. The overall headcount increase, operating expense increase is going to be manageable and mild.
Okay. Understood. Just wanted to have some color on what do you expect, I think market share situation to be like. I think if I remember last year, especially in the middle of the year and in second half, MediaTek did have some meaningful market share gains, especially in the mid to low-end category with some of your lower-end Helio products like Helio P22, Helio A22. I think it seems like you've carried some of that momentum through in this year first half as well. Could we talk a little bit about what do you feel the market share momentum is looking like when you talk to customers in second half of this year? Are we still going to see some slow market share gains? Is it basically very balanced situation between MediaTek and Qualcomm when we get into second half?
I would say last year is slightly different because last year we're starting from a relatively low market share due to some product portfolio issue back in 2017. So 2018, actually, we see a pretty strong market share regain. 2019, I think we still see some market share gain, in terms of the pace and scale, it's much mild. I think more importantly, it's actually not just on the market share gains. When I say market share, by the way, there's two dimensions about the market share. One is on the volume perspective, another is on the revenue perspective. I think on-
volume perspective, just like I said, it's actually going to be mild. I think more importantly, it's really just the revenue market share, because if you look at our product portfolio, we obviously started to view the product portfolio all the way from P60 to P70, now it's P90. Also during the earlier China conference call, I think Rick's answering quite clearly about our 5G product portfolio will even get into higher segments. I think instead of only focusing on the absolute market share gain, I think more importantly right now, especially once you get into 5G, I think we're trying to get into all segments, rather than only focusing on mainstream below segment like what we did in 4G. I think if you guys recall what Rick explained about the change of strategies, I won't say change of strategies.
Actually, the overall strategy is, the reason why we would slow down on the X series on the 4G shouldn't be seen as a signal about we getting out of the high-end segment. It's really just we understand for 4G, because we were late again, and it's going to be a uphill battle. All from ROI perspective, probably it's not the most efficient way to still trying to get into 4G high-end. What we should do, back two years ago, is actually we make sure we catch the first wave of 5G and start from the higher end. I think that's what we did. Again, to make a long story short, this year, I think on the absolute market share gain, both from shipment or from a revenue perspective, we do see continued market share gain, but at a much smaller pace and scale compared to 2018.
More importantly right now is actually we get into the all different segments, all the way from entry-level to mid-high, and hopefully through to 5G, we can even get into the premium segment.
Okay. Just add-on question to that, David. Could you give us a bit more qualitative color on what your clients are giving you feedback on P90 and AI features, and what should we expect when it comes to adding I know that P90 is not going to be the highest volume product given the price range that it's targeting, but what should we expect as we go through the year in terms of product pipeline, which is more like derivative of P90? Do we actually have a lot of products coming towards the second half of this year that kind of fill that gap in a more lower end or more affordable kind of price range?
Just like you say, P90 is more on the high end, especially premium range. On the absolute shipment volumes, I think it will be much smaller compared to the other line, the mainstream product and also the entry-level. If we only focus on quarter-over-quarter P90 revenue contributions, we should be able to see starting from Q2, the P90 increase their revenue contribution, our overall smartphone revenue. Hopefully that will provide some positive influence on the gross margin as well, because after all, P90 carries a higher ASP and also, that actually help our gross margin.
Okay. How should we think about, I think you guys have been ahead of the pack in terms of launching some of the AI functionality. How quickly does that migrate down to more mainstream segments as we get into the second half of the year?
Actually, right now, all our segments, again, from the entry-level to mainstream to high-end, all have AI function. We probably realize those AI function with different implementations. For the high-end product right now, obviously, it's like P90, with something called APU, which stand for AI processing unit. The general idea is, I think if you are trying to understand that, actually is in the past, we have CPU and also GPU. Now we actually have a new sort of processing core, if you like, embedded processing core, we call it APU. For all the AI functions, mainly will be performed by the APU. If we need more horsepower, we can also dynamically call both for GPU and CPU as well. In general, I would say 80%, 85%, or even 90% of the AI computation will be carried and performed by the APU.
They'll be much more efficient, both from performance perspective and also from power consumption perspective. For the mainstream product, we also have APU, it's going to be a less powerful APU core. For the entry product, I think we don't have a dedicated APU yet. We're mainly using CPU and GPU to perform the AI functions, plus a little bit of DSP. Going forward, I think when time is right, we will also consider to put certain APU cores even for the entry-level as well.
Okay. Thanks, David. One question on the ASIC side. Could you talk a little bit about, I think in the Chinese call, I think Rick mentioned, there are multiple new programs that you're ramping up on the ASIC side, especially non-consumer ASICs. Could we have some color in terms of what kind of categories these are? Also, when we talk about ASIC and 5G together accounting for 10% of revenues next year or 10% or more, the ASIC is including consumer ASICs, or is it primarily looking at the new ASIC projects, which are mostly non-consumer?
Well, first of all, when Rick gave out the guidance earlier this year, when he talked about 10%, it's not just the ASIC. Actually, it's the new business, which include 5G or multi, and also customer ASIC. I want to clarify that it's not just ASIC. Also for the ASIC, which include everything, basically, existing business and also the new business as well. You do the ASIC business, 5G business, and also the module business. I guess we are hoping-
Okay.
-and targeting, we're going to see more in terms of revenue coming out from this new business. Again, the general idea is actually if we have more new revenue from new business, hopefully that would provide better support, both from the revenue growth perspective and also from the gross margin support perspective. That's point number 1. Point number 2, to answer your detail questions. I think, when we talk about some of the customer ASICs, I think the second pillar or second segment we talk about is really just the enterprise ASIC. I think Rick tried to explain, actually, for the enterprise ASIC, maybe most people are only referring to something we call the data switch. But in reality-
-actually, this scope is actually beyond only data switch. Data switch definitely is one of the largest sector right now because it's existing and also due to the data center and also the whole data phenomenal. Nowadays, actually, it's regardless you're using smartphones, PCs, even wearables, sometimes IoT, they all generate data. It's unbelievable pace. That all needs to be processed. I think the sector or subsection number 1, other than the enterprise ASIC, is definitely data switch. I think we also mentioned starting from Q3, our first product on the data switch actually start to ship already in Q3. Revenue this year will be still very small. Actually, it's a very meaningful milestone for us because that's B2B, the customer's customer, and also the customer is global Tier 1 customer have really high requirement, both from the performance, quality, and also technology perspective.
On top of data switch sectors, I think there's another new sector, which is called the server sector and also AI server sector. Just one of the examples, not the only example, because nowadays, actually, lots of AI functions need to form both on the edge side and also on the server side. I think different people have different approach for the server AI arrangement. Some people using GPU, some people using different processing unit. All those processing unit will have requirements for something we call the high-speed SerDes, because maybe have different core, and that will be transmitting in between different core. They will all require high-speed SerDes within a chipset and also within a different system. I think that's actually another opportunity. Thirdly, I think, which including but not limited to, because we do have a pretty positive view about the potential 5G rollout.
In order for 5G rollout, there's also some base station opportunities for 5G as well. Again, within the 5G base station, there are also high-speed SerDes needs and also high-speed IO needs. We believe actually that could be another potential opportunity. Again, doesn't mean we have that business yet. We just say, I think from Rick's perspective, he shall explain. The better way to think about that is really enterprise ASIC, which including, not limited to data switch. I think that's the key one.
Okay, got it. Last question from me, David. I think you talked about growth segments starting to accelerate in Q2. Now that we are already in end of April, could we have some idea about what you're expecting growth segments to grow this year? Is it going to achieve double-digit growth, or is it going to be slightly falling short of that?
Well, I think the growth sector in general, actually, we do believe we should still be able to see a double-digit growth year-over-year.
Okay. Thank you very much.
Next one we are taking Brett Simpson, Arete Research. Go ahead, please.
Yeah. Thanks very much. David, I just wanted to get your perspective on the Qualcomm-Apple settlement. Obviously, it's a big event for the industry and also the subsequent exit of Intel in the modem business. Any thoughts just in terms of how this might impact MediaTek sort of on a medium to long term? Just be interested in your thoughts there.
For the near term, obviously, we didn't really see any material impact both for 4G and potential 5G business. Right now, a little bit more color on 5G, I think all players, basically, mainly our competitors and also MediaTek, have been super aggressive in promoting 5G solution, SoC solution to China customer. So far, we feel this is actually the pretty positive feedbacks out there, and we feel fairly comfortable both in terms of market shares and also in terms of timing. We talk without the settlements. So far, we didn't really see any material change from the customer side or in the marketplace. For the mid to long term, maybe that's something we still need to observe.
So far, the new settlement case, if you like, didn't really change our view about what's our business plan, also what's the feedback we got from the customer on 5G side so far. For 4G, I think this is a little to no impact at all.
Hmm. Okay, super. Maybe just switching gears a little bit to 5G, and comparing the opportunity that you see in front of you versus 4G. I mean, just be interested in your perspective, like we've obviously seen Huawei go more captive, or it looks like they're going to go more captive in 5G. They're a big customer for you in 4G. When you look out at that sort of 5G opportunity from a market share perspective, do you think MediaTek's market position in 5G could be larger in terms of market share than 4G? Are you focusing on a small handful of customers? Because it seems like there's a lot of consolidation in the China handset market, Oppo, Vivo, Xiaomi, but maybe there's not a lot of big opportunities outside of that.
I'd just be interested in your perspective on how you look at that 5G market share opportunity for MediaTek in the years ahead.
Overall, our view is 5G addressable market should be bigger than 4G, mainly due to a much higher ASP. I guess what we were talking about earlier is actually the internalizations or captive solutions. Bearing in mind, 5G, at least for the first year or two, most likely to talk about 5G is a mid to high-end product. Probably, you're not going to see a $1,000 5G. For most of the mid to high-end products, like you're talking about Huawei, they are pretty much, currently as we speak right now, is a pretty high percentage of the solution that I use, internal solution anyway. You can consider those stock is actually is not in the markets already. 5G getting in is going to be similar. Unless you believe that going forward, even for the entry level, we're going to use the internal solution.
Otherwise, I would say for the near term, from the volume perspective, the impact should be mild, if there is any. On the other hand, don't forget, actually, as right now, as for 5G ASP, we're talking about multiple times higher compared to the 4G ASP. If I do the math, I assume the 5G market should be much higher, unless people believe they're going to see more internalized solution. Right now, it's people who have internal solution, maybe just Huawei and also Samsung. Unless you believe there's going to be new people coming out and provide internal solution, otherwise, the overall view is mainly due to much higher ASP. Also from MediaTek perspective, because right now we're getting into something called segmentation expansion, our addressable market become bigger as well. Overall, I guess we still feel positive about that.
Okay, super. Then just maybe a bit more near term, just on the P70, P90, looking at 2019, do you think the scope because I think you were sort of suggesting this year there may be some modest market share gains, or maybe relatively flat market share. Is that still the case, or do you think with some of the advances and your guidance for Q2, you think there's scope for more share gains this year for MediaTek in smartphones?
I think overall, it's a flat to slightly market share gains. It's flat to slightly up in terms of market share.
Okay, got it. Then also, maybe just switching gears to the ASIC business. There's not many guys doing advanced ASICs today. Maybe Broadcom is one of the dominant guys, and obviously their margin structure is significantly higher than your gross margin structure. Normally, when you get into this ASIC business, you have very large backlogs. You can see multiple years ahead of you, and it's not so much, this is obviously building up for MediaTek, but can you maybe just talk a little bit about the backlog you have today, the pipeline of business you see today, and where you really see the biggest opportunities for ASIC? To what extent you can build tier one relationships, particularly in networking, and autos with your ASIC capability.
Unfortunately, we will not be able to talk about the backlog situation. I think just like you say, when we get into the enterprise ASIC, in general, it's a longer-term, stable business once you get in. That's why we say, I think more importantly, probably just understand starting from third quarter this year, our first product start to ship on our customer side after, I think maybe it's almost more than, slightly more than a year of designing and design win process and also manufacturing process. On top of that right now is that we're just winning more projects from the existing customer and also from new customers as well. In terms of backlog, we probably will not be able to provide information right now.
Okay. Just building on that then, David, I guess, we've always known MediaTek as more a consumer-centric conductor play. This is a very different business. In terms of the product cycles for ASIC, typically, when you win some of these enterprise ASIC businesses or other things that you're doing around SerDes, how long are these engagements? Are they sort of two, three years in nature, and you have that sort of locked in and you can see the forecast quite clearly? Just give us a sense for some of the deals you're signing, how long they spread for.
Well, I think the general idea is actually from design in and design win to first time revenue, we're talking about maybe 12 to 18 months time in general. Okay? Depends on different projects. Sometimes maybe it's quicker, some may be even longer, but in general, on average, I'll say 12 to 18 months time from design in, design win to first time revenue. Okay? The good news is once you see the first time revenue, in general, it actually, on the other hand, it also depends on how the end customer products shipment is going. In general, that should be pretty long-term steady growth or demand is out there.
Okay. Can you provide any sort of number of design wins you have in ASICs, just to get a sense for how many engagements we're talking about here?
I think for this year, like I say, from the shipment perspective, we have a one-project ship. From designing perspective, I would say probably it's four to five projects ongoing.
Okay. Super. That's really helpful. Then just maybe on switching gears on Wi-Fi, because this is obviously the largest part of your growth segment today, and we have a transition to 802.11ax or Wi-Fi 6.
Yeah.
Where is MediaTek with that product, both in the sort of router space, but also in the device side, TV side, or whatever client side. When do you start shipping 802.11ax, and how does the pipeline look for this, and the ASP opportunity look for this for MediaTek?
I think for the 802.11ax, basically taping out this year. The customer start to ship with our product maybe early this year, first quarter next year. This year, we didn't really foresee any, didn't really include any 802.11ax revenues on the Wi-Fi side. For the longer term, we do foresee it's actually going to be a pretty strong demand out there for the 802.11ax. Again, from our perspective, that's another example of our segmentation expansion. In the past, traditionally, we are not in that sectors. Now with the 802.11ax, actually we get into the higher-end sectors.
Is Wi-Fi a billion-dollar business for MediaTek today, including smartphones, just looking at the Wi-Fi, the growth division?
We didn't really disclose Wi-Fi only. For the IoT, it's 15% out of our TWD 8 billion revenue. It's close to TWD 1 billion, yeah. For the whole IoT, which including, but not limited to Wi-Fi.
Okay. Super. Maybe just the last question on the balance sheet. You have one of the more healthy balance sheets in semis, healthy net cash position. Any recent thoughts or changes in thinking at management level in terms of how to either change the way you return cash to shareholders, or whether you think there's more appetite to look at maybe M&A, for example, to help boost the non-smartphone side? Any thoughts there on the use of cash?
I think for the use of cash, on top of that is usually just cash dividend. We've been maintaining the cash dividend policy for the last 10 years. In general, we pay out in the range of 60%-70% of our free cash flow, non-GAAP EPS, back to our shareholders. For this year, I think we will continue to do that as well. On top of that, the remaining cash, if you take a look at the cash flow in the last few years, we do spend quite a bit on the M&A as well. Going forward, M&A is going to be one of our important strategy in building our necessary business portfolio. When you look at our business portfolio, again, there's the smart home, the growth sector, which is IoT, Imagiq, and also ASIC, and also the smart home.
It's a big portion of that, through the range of M&A. Going forward, we do work continuously to M&A as a tool to build a much more balanced and diversified, and also more importantly, stable and profitable business portfolio. I think that's something we'll continue to do. On top of that, if we continue to improve our operations and also if we continue to improve our profitability. I think when the time is right, I think the board will consider about a different policy on the cash dividend. They form, which including but not limited to cash dividend, also basically active return to shareholder policy.
Great. That's it for me. Thanks so much, David.
We are now in question and answer session. Please press 01 on your keypad to ask questions. Thank you. We're having Charlie Chan, Morgan Stanley. Go ahead, please.
Hi, David. Thanks for taking my follow-up question. You can reiterate your full-year revenue guidance. Even with first quarter at a high enough revenue guidance, 2Q revenue guidance also very strong. Do you see any risks in second half? Your full-year guidance implies that second half-on-half growth could be a little bit mild. Any comments on that part?
We don't have a clear view for second half yet, Charlie. Based on the first quarter and second quarter, I have to say it's actually somewhat slightly better than our original expectation for the full year 2019. Currently, we didn't really change our view for the second half yet because different business line have different implications and considerations. Like taking smart home, for example, even though we see a pretty strong quarter-over-quarter growth in Q2, we're still kind of expecting and getting ready for the 4G, 5G transition. In terms of how fast or how sizable that the transition will impact the second half of smartphone, especially for 4G smartphone demand, that's something I guess we need to monitor closely. I think that's point 1.
Point 2 is actually, when we look at it from the macro perspective, even though our business is actually pretty diverse in factors, from the macro perspective, I think recently you can see both from Intel's or TI's earnings announcement. I think we share the similar view. We didn't really see any sector have a very strong year-over-year growth. It's actually holding up well, basically, for the whole semiconductor, obviously, maybe year-over-year growth, low single digits, 2%-3%. I guess that's why our view, actually, for the full year this year is, because our perspective, we really see the new products kick in and contribute sizable revenue. That will be more for next year, but this year is pretty much the existing product. The best thing we can do is actually is to improve the profitability.
That's why when we give out a full year view, especially on the top line side, we're still being conservative, say, it's only flattish to slide up. I go along with the answer of the question is, we don't have a solid view for second half. If you do the math, it does mean the second half may be softening a little bit if we're trying to work out the math. Whether or not we're going to change our views, we don't know yet, actually. We just still need to see more data point coming in as when time is approaching.
That's fair enough. I think we're also concerned about where the strength coming from. For example, second quarter, your smartphone business still grow quite rapidly. I think according to the market research, it seems to be only one OEM, which is Huawei, gaining share. In terms of your customer pool, where do you see the growth except for that single customer? Can you give us some color, maybe domestic versus overseas markets, and also how are those other OEM customers are doing in second quarter?
We probably will not be commenting on individual names. Let me try to answer your question from a slightly different perspective. Again, from the overall demand perspective, our view is actually for China this year, on the smartphone, I'm talking about, is really year-over-year, probably down 10%-16%, from volume perspective. From the overseas market, especially the emerging market, is still growing. On the global scale, our view is actually the smartphone will still grow very low single digit. If you use that number reflect to our smartphone view or smartphone revenue slide, I think for full year, our view is that smartphone year-over-year going to be flattish to maybe slide up. We don't really foresee or forecast a strong smartphone growth this year. Okay. Likewise for the full year on the whole company, I think we share the similar view.
Okay. Lastly, maybe, on the blended ASP, I know you no longer disclose smartphone shipments and ASP. For 1Q and 2Q, what is the trend of the blended ASP, and what is it going to be in second half?
I think for Q1, quarter-over-quarter is trending up a little bit. For Q2, we foresee it will be trending up a little bit as well, mainly due to the product segmentation migrations into the higher end, mainly P90.
For second half, I guess we still need to see what's the final product mix looks like. At least for Q1 and Q2, we see a slight trending up on the ASP side.
Okay. Lastly, maybe some preliminary assumption for your 5G chipset ASP versus 4G. Do you have that number?
Unfortunately, I don't have the numbers today. Again, it is still a moving target right now because.
All major players are in discussion with our customer. Customer have different view, plus the competitive dynamic.
Right.
In general, I guess we're still looking for multiple times the higher of 4G SoC compared to the ASP.
Okay, got it. Thank you very much.
Please press zero one on your keypad to ask questions. If you would like to ask questions, please press zero one. There appears to be no further questions at this point. I'm going to hand it over to Mr. Tseng for closing comment. Mr. Zeng, please go ahead.
Ladies and gentlemen, this concludes MediaTek 2019 first quarter conference call. We'd like to thank you for your participation, and you may now disconnect.
Ladies and gentlemen, we thank you for your participation in today's conference.