Welcome to the MediaTek 2018 fourth quarter investors conference call. Your speakers today are David Ku, MediaTek's CFO and Spokesman, and Jessie Wang, MediaTek's Manager of Investor Relations. Ms. Jessie Wang will report fourth quarter results. Mr. David Ku will provide prepared remarks. After that, we will open for Q&A. Now, I would like to turn the call over to Ms. Jessie Wang. Ms. Wang, please go ahead.
Good afternoon, everyone. Welcome to MediaTek's fourth quarter 2018 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 action taken in reliance on content contained herein. MediaTek provides non-IFRS financial measures as supplemental information. Earnings distribution is made in accordance with financial statements based on IFRS. Unauthorized recording or redistribution of the video, audio, text, and presentation content 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 2018 fourth quarter and the full year financial results. The currency here is in TWD. Revenue for the quarter was TWD 60.9 billion, down 9.2% sequentially and up 0.8% year-over-year. Revenue for the full year totaled TWD 238.1 billion, roughly flat from 2017.
Gross margin for the quarter was 38.9%, up 0.4 percentage points sequentially and up 1.5 percentage points year-over-year. Gross margin for the year was 38.5%, up 2.9 percentage points from the previous year. Operating expenses for the quarter were TWD 19.9 billion, compared with TWD 19.5 billion in the previous quarter and TWD 21.3 billion in the same period last year. Full year 2018 operating expenses were TWD 75.5 billion, increase 0.6% year-over-year. Operating income for the quarter was TWD 3.9 billion, down 39% sequentially and up 198.5% year-over-year. Operating income for the 2018 full year was TWD 16.2 billion, up 64.8% year-over-year. Operating margin for the quarter was 6.3%, compared with 9.4% in the previous quarter and 2.1% in the same period last year. Operating margin for the year was 6.8%, up 2.7 percentage points from 2017.
Net income for the quarter was TWD 3.8 billion, compared with TWD 6.5 billion in the previous quarter and TWD 10.2 billion in the year ago quarter. Net income for the year was TWD 20.8 billion, down 13.7% year-over-year. Net profit margin for the quarter was 6.2%, compared with 10.3% in the previous quarter and 16.8% in the year ago quarter. Net profit margin for the year was 8.7%, down 1.2 percentage points year-over-year. EPS for the quarter was TWD 2.42, compared with TWD 4.39 in the previous quarter and TWD 6.5 in the same quarter last year. The cumulative EPS for the year was TWD 13.26, compared with TWD 15.56 in 2017. We also provide non-IFRS financial measures, which include share-based compensation, amortization of acquisition related assets and tax effect. Please refer to our news press release and the presentation for details.
For the first quarter of 2019, we expect revenue to be in the range of TWD 48.7 billion-TWD 53.6 billion, down 12%-20% sequentially, at the forecasted exchange rate of TWD 30.9 to $1 US. We are forecasting the gross margin at 39.5% ± 1.5 percentage points. Quarterly operating expense ratio to be at 35% ± 2 percentage points. I would like to turn the call to CFO, Mr. David Ku, for prepared remarks.
Good afternoon, everyone. For the fourth quarter last year, 2018, the overall performance is actually in line with our earlier guidance. For 2018, for the full year, in general, we see some pretty positive improvement in the overall financial performance. Especially from the gross margin perspective and also from operating margin dollar perspective. Again, our gross margin grew from 35.6% in 2017 to 38.5% in 2018. From operating margin dollar perspective, the TWD amount grew more than 6% overall, on top of flat-ish revenues in 2018. For fourth quarter of last year, for mobile computing, the revenue accounted for 30%-35% of overall revenue. For the growth sectors, which include IoT, PMIC, and ASIC, which account for around 27%-32% of our overall revenue.
For the hardware sectors, which include TV, feature phone, and other products, which account for 32%-38% of fourth quarter revenue. After a few years' adjustments, now actually we have a pretty balanced three different business implementations. Again, there's mobile computing, growth sector, which includes IoT, PMIC, and ASIC, and also the hardware sector, which includes TV, feature phone, and lots of cash cow products. Looking into 2019 is a year full of uncertainty, especially a lot of the global geopolitical issues and uncertainty out there. Despite all those uncertainty, for 2019, we are still looking for another year of probably flattish revenue or maybe even slightly up from the revenue perspective.
On the gross margin side for 2019, we are confident we should be able to see continued gross margin improvement, maybe at a much milder scale compared to 2018 versus 2017, but at least on the improving trend. From the operating expense perspective, given the fact that we're still investing aggressively for new areas, which include 5G, ASIC business, and also PMIC. OPEX, operating expense should be flat or maybe slightly up. Overall, we are still trying to manage our business so we can grow the operating margin TWD amounts and also ratio slightly, given this sort of uncertainty for the overall macroeconomic situations.
More importantly, I think we believe that after a few years of adjustment, from the business portfolio perspective, next year we will see for the mobile business and also for the growth sectors, they're pretty much contributing the equal weight of revenue, roughly 33%-35%. The hardware sector will continue to contribute, might be the stabilized force from the cash flow and also from the earnings contributions perspective. I think that pretty much concludes my quick update for fourth quarter and also the 2018 conclusion and also a quick preview for 2019.
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 question and answer session. If you would like to ask questions, please press 01 on your telephone 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. Now, please press 01 on your telephone keypad if you would like to ask questions. The first to ask questions, Randy Abrams, Credit Suisse. Go ahead, please.
Okay. Yes. Thank you. Hey, David, I wanted to ask you on the gross margin. In fourth quarter, the margin saw a pretty good improvement even though, I think the mobile was relatively stable versus non-mobile, is in the low season and usually carries a higher margin. Could you go through maybe where you're still getting improvement, if you still have some to go on the cost-down platform? Then for 2019, your view, if I guess growth products grow in line with mobile, where you're still seeing improvement, whether it's product mix in smartphone, cost reduction or view on the competitive landscape.
Okay. I think for 2019, let me just comment into the 2019 first. I think for 2019, especially from the gross margin perspective, there are some positive and some negative. I think the positive views will be because for the growth sectors, we're still looking for high single digits or low double-digit growth for the growth sectors. Overall, as long as we can continue to grow with our growth percentage, which include IoT, PMIC, and ASIC, I think that should be attractive to our whole. I think that's the positive number one. I think another positive news is if we only zoom into a smartphone perspective, we still feel comfortable that we should be able to continue to enhance our gross margin, maybe at a much mild pace compared to 2018. Because 2018 coming out from a very low base to 2017.
2018, actually the base, the growth margin base on smartphone side is higher right now. We should be able to continue to see some improvement due to the segmentation improvements for the smartphone product. I think that's the positive news number 2. Another positive news number 3 is really even for the mature product, especially on the digital TV side. If you recall last year, I think one of the reasons why we see the gross margin pressures on the TV side is due to the embedded memory price. Basically, have an embedded memory price hike roughly years ago. Now actually we're changing the pricing practice, and also we actually maybe even taking out some of that. I think we kind of getting away or getting less impact due to the embedded memory.
I think that provides some support on the digital TV side as well. I think all that's actually given us the confidence that we should be able to see a slightly better growth margins in 2019. That's for the full years. I think you also asked me about for the smartphone. I have been talking about for the smartphone, truly there's segmentation improvement and also the country improvement on the cost structure side.
Okay, great. Maybe to quantify the margin, you're already 38%-41% on the range. Is the way to think about it, maybe a point or two, or could you see a few points? Is there a range? For a long time, 40% was the magic number to try to return to, Is there a range you could be toward later part of this year if those drivers come through?
I would say maybe just aiming for the midpoint of this range. Again, it depends on the FX rate, depends on the final product mix. I would say the midpoint of the guidance range in ±. Pretty much that's the best way to go for first quarter. For the full year guidance, I'll see your rate kind of indicate that. For the full years, we're looking for the full year 40% operating margin as our target.
Okay, great. Second question, just on the smartphone, if you could give a view on how you're seeing or going into the year for your year growth for China smartphone and export. Relative to that, if you think your market share is stable or you see gains, I guess from mix, how early sign on the P90, if you're seeing signs that could do better than the prior generation and help you gain a bit of better product mix.
I think for smartphones specifically for this year. Let me just take one step back talking about the overall situation for the smartphone. I think globally, our view is if from a volume perspective, it will still grow, maybe a low single digit in terms of volume growth. In terms of dollar growth, given the overall price decline, also the competition, I would say, it's pretty much flattish, maybe even coming down from the dollar perspective. That's on the global side. On the China side, both from the volume perspective, but also maybe even from addressable market perspective in terms of dollars, maybe overall coming down a little bit. I think that's the macro situation or the demand situation, if you like.
From our perspective, I guess what we're trying to do to cope with this overall situation is we're still trying to, A, increase our market share. B, I think more importantly, trying to increase our sort of segmentation coverage. That's why you see from the product portfolio perspective, by the way, we didn't really give up or get soft or easy on the actual entry-level because I think that's still a very important segment for us. We continue to expand not only in the entry level, so starting from last year, P60, later last year, P70, and now actually we're getting to P90. I guess that's the trend, and that's the way, or that's the strategy, if you like, of how we actually continue to expand from the segmentation coverage as well.
Likewise, I guess even on 5G, actually later this year or maybe even first quarter next year, I think 5G will also play a very important role for us to continue expanding into different segmentations. Because we do believe by getting into different segmentation, A, we can enlarge our addressable market. B, there will be positive and impressive to our gross margin. Overall, I guess for 2019, even though the macro situation is still very challenging, I think our goal is trying to have a flattish revenues on the smartphone side. Hopefully, if we do well, we can even see some very small growth on the revenues for the smartphone segment. I think that's our goal.
Okay, great. In a couple of the long-term areas, networking and automotive, should there be much where it could be even low single-digit percent of revenue? Or do you think it's still like a 2020+ for both of those areas?
I think for the new business, if I use these terms, I think revenue this year is still very low. This year, I think in our trying to go, kind of talking about "new business," which including there's no 5G, by the way, but mainly ASIC business. I think this year is actually we call it a high, roughly mid-single-digit. I think next year, if we can quantify it or categorize it as a new business, which including 5G, ASIC, and also automotive, we feel it's a very good chance that we should be able to see the new business will contribute more than 10% of our overall revenue next year. I think that's our view. That will be for next year. This year pretty much is still be the mid-single-digit, and most part of that is still something we call the gaming ASIC.
Okay. The last housekeeping, the non-operating income has been running closer to TWD 800 million to TWD 1 billion a quarter. I think your guidance on the call was TWD 500. I guess relative to the last year, was there a factor maybe the last year, even the last two years, aside from auto chips even, it was at a bit higher level. Is there a factor that will be coming in at that, or just conservative because there's less visibility there?
First of all, I think for the full year, for the non-operating income this year, 2019 versus 2018, I think it will come down, for two reasons. First reason is actually we pretty much accumulate or accrue most of the AutoChips deal back to 2017 and 2018. 2019, there will be the very last payment, which will be much smaller. That is point number one. Point number two, I think starting from last year, 2018, due to the Taiwan IFRS change, for example, for our shares. On the Goodix side, we would not be able to include it as the non-repeat income. Even though we continue to sell some of the shares, but that proceed will go directly to shareholder equity rather than being seen or being approved as the non-repeat incomes.
From the cash flow-wise, you will see we got some cash flow from sales proceed from divestment of our investment. For that part, we would not be able to see as the non-repeat incomes. Overall, due to that two reasons, again, A, Dimensity Auto, B, accounting treatment change, I think the non-repeat income was much lower compared to last year. For the full year, again, we didn't really provide the guidance, but, if you go back to 2016, basically prior to the Dimensity Auto deal, in general, I guess we are looking for every quarter, roughly, TWD 500 million, ballpark range in general for every quarter.
Okay. Your tax rate will be relatively stable as well?
Yeah. I think the guidance given out will be roughly speaking, 10%-30% of the effective tax rate.
Okay, great. Thanks a lot, David.
Sorry. 13%-15%.
13%-15%. Okay, thank you.
Next up we have Gokul Hariharan, J.P. Morgan. Please ask your question.
Hi, good afternoon. Thanks, David and Jessie. First of all, could you talk a little bit about 5G, how the evolution has been? What has been the interaction, as you launched your M70 product and sampled with some of the customers? Let's say when we think about 2020, are we primarily targeting China market or are we also qualifying for U.S. global markets where we probably need a little bit more of millimeter wave support as well?
Well, first of all, I think for our first batch of 5G product, especially for the 5G SoC, we are targeting for China as a major market. That's why we only focus on sub-6 GHz product. Again, for our first 5G SoC, there will be a sub-6 GHz only product rather than dual-mode. Internally, we do have dual-mode technology, due to the overall from the market and also product strategy perspective, we will focus on the sub-6 first, because we believe in China, due to the bandwidth issue, due to the cost issue, and also due to the use case issue, sub-6 is probably the most feasible product for the first batch of the 5G product. That will be on the 5G SoC. For the M70, the first modem, this year, I think we will have some product coming out for M70.
Given the fact that this year is the first year for the operator started building up the base station. M70, I think the main goal, objective is being served as a pipe cleaner, basically work with our customer and also with operators to do all kind of IoT tasks and also be the pipe cleaner to make sure when the 5G standard is finalized, we can drop in the 5G modem into our SoC and take off by second half of this year and getting ready for the first half of next year product cycle.
Okay. David, if I could clarify, M70 supports millimeter wave as well?
No, Helio M70 is only for sub-6 GHz.
Also only for sub-6. Okay.
Yes.
When do you plan to have millimeter wave support? Is it sometime in 2020, or you don't think that is going to be a very big priority for your customers also in the near term?
Well, I think from a technology readiness perspective, internally, just like what our CEO, Rick said, during the China's call. I think for this year, we are going to have a test kit, okay, for the millimeter wave. In terms of productization, putting into the product, probably we need to wait until 2021. Our view is for 2020, that's the first batch of 5G in China. Sub-6, probably is the best solution for first wave of 5G in China.
Okay. Second, on the smartphone side, in 2019, given the cadence of launch of P90, as well as probably some of the follow-on products after P90, probably focusing on a slightly lower segment of the market in terms of price range. Could you talk a little bit about how you feel about market share situation in first half versus second half? Is it fair to assume MediaTek market share in second half is going to be a lot stronger than first half just because of the product cadence?
I think for this year, just pretty much like last year. I think for the last years, we see our market shares. 2018 versus 2017, I think we do see a pretty good market share gains, I think especially for the leading brand, which includes Oppo, Vivo, and Xiaomi. For 2019, I think we are still working hard. Hopefully, we can continue that market share gain. In spite of first half versus second half, I would say, probably we'll be pretty even out as well. We didn't really see, say, second half will be particularly strong. Given the fact because, for first half and second half, we all have new product coming out. First half could be P90. I think, second half, we will have another new product coming out as well. We will announce it in the right time.
I would say it can be pretty even, if you ask me. Just from our product roadmap perspective and also design-in perspective. In terms of seasonality, I think in general, Q1 is the lowest. Again, right now it's a little bit too early to mature to talk about Q2, but in general, we should be able to see Q2 as a stronger out of seasonality, especially from a smartphone perspective.
Okay, got it. Just another question, David Ku. Late last year, I think some of the U.S. regulators ruled that Qualcomm was directed to license their IP to competitors, obviously, such as MediaTek as well. If that comes through long term, is there anything that materially changes in your business in terms of how you design chips, especially when it comes to 5G, et cetera, given how restrictive it has been in the last cycle, especially during the 4G cycle?
Well, I think the major difference, really, the timing of our products. If you recall, for 4G cycle, arguably, we are probably slightly more than a year behind. For 5G, I think like Rick, the CEO, talked several times, we want to make sure we will be among the first batch. That's why we say, the M70, the modem will be ready. Actually, we did a demo that in few weeks time, during the MWC, they'll be end of March, by February, and also the SoC will be ready before the end of this year. I think this time around, compared to 4G, in terms of the timing of the readiness of our product, is actually very different.
Okay. Maybe if I can ask a little bit about the 5G product. What do you feel about 5G pricing? I think we've heard different commentary among 5G pricing from some of the market players, given that the pricing is likely to be significantly higher than where 4G came in at the early stage of ramp up. Could you talk a little bit about how you feel? I think it's probably too early to fixate on specific matters pricing, but could you talk a little bit about how pricing is going to shape up when it comes to 5G next year?
I probably won't be able to comment exactly about the pricing in terms of range. I think if we talk about trend, I think 5G pricing has got to be higher than 4G because, given the fact 5G is a much more complicated in terms of the communication standard. You can assume even from the cost wise, the cost of 5G is actually much higher than 4G. If we don't have a higher ASP, actually, not just us, if the industry don't have a higher ASP, it just doesn't work out. The math doesn't work out. I think in general, the 5G ASP got to be higher. In terms of how much higher, I guess it depends on, again, the timing of the product and also the segmentation of the product.
If you talk to the people who are familiar with this industry, especially 2019, given a very small volume over the CDC, I think the pricing is actually much, much higher compared to 4G. I think the overall volume is too small, so the pricing out there is not a good reference, if you ask me. If you fast-forward that to 2020, next year, our view is actually the volume will be much more meaningful. Even with much more meaningful volumes, I guess, the ASP is still going to be significantly higher compared to the 4G ASP. Because, again, like I say, if we work on the physics or work on the maths, you just need much more die area to accommodate and to perform all those new features and functions on 5G side. The ASP most likely will be higher, much higher.
Okay, that's great. Last question from my side, David. You guys have talked about potential M&A, and adding for some diversification through M&A, et cetera. Valuations have been a sticking point. Semiconductor industry valuations have come down. Could you refresh us in terms of what are you looking for from an M&A perspective in terms of maybe size, diversification objectives in terms of end markets, teams, et cetera?
We will not be able to be specific about M&A. Let me try to be a little bit general here. If you look at the history of MediaTek, we've been quite open and to some extent, aggressive about adopting M&A strategy. In the last few years, we spent billions of TWD doing M&A. In general, it's all been quite successful. When you think about the acquisition of MStar, the acquisition about Richtek, and the acquisition about Ralink. In general, it's all been pretty synergetic, especially after a few years of integrations, after we can truly realize the synergy. Just like you say, for 2019, given all those uncertainty scenarios, but just from an M&A perspective, maybe that's actually good timing from a valuation perspective.
We will continue to be active, if you like. In terms of the area, we will be more focused on the new area, for example, like the automotive, like maybe even for an enterprise ASIC and also on PMIC side. When we look at our business portfolio, on the mobile side, we believe actually that we can pretty much grow based on organic growth. We don't really need to use M&A routes. For the growth sector, which include IoT, PMIC, and also the automotive and ASIC, that would be the area because we do believe actually that area still harbors a lot of opportunities, and we can definitely leverage M&A to sort of speed up or jump-start the business. That will be all of our focus, if you ask me from the target perspective.
Okay, got it. Thanks, David. Next in line, Brett Simpson, Arete Research. Go ahead, please.
Yeah, thanks very much. David, I just wanted to ask about inventory levels that you're seeing in your customers. I guess right now the industry is at elevated levels of inventories, particularly in China. I was just keen to get your perspective. You said if you go through what you see in smartphones, what you see in areas like TVs and some of the bigger areas in the growth division, what do you see in terms of inventory levels versus normal? When do you think we'll see a burn-off of these inventory levels and we get back to normal trends in semiconductors?
Brett, assuming you're talking about inventory, the channel inventory, right? Not MediaTek inventory at all.
Yeah. General inventories. Yeah, absolutely.
General inventories. I prefer to use the term, say, channel inventory because it is what we check on a quarterly basis. I think for the channel inventory, especially in the fourth quarter, we do see a sort of building up a little bit. It's actually higher than the normal level, if you ask me. I won't say it actually is reaching to something we call the risky level. Somehow that lead to a relatively soft demand in Q1. That's why it's the, I would say in general, Q1 is a normal seasonality, but actually, I think the higher inventory level of building out in Q4, that's actually part of the reason. We do see the inventory being digested and trailing out smoothly, in Q1 so far. It's actually end of January, I think the overall sell units or sell-through numbers, we feel it's actually getting better.
Again, especially in China and also in emerging countries, I think in general, February is going to be the Chinese New Year. That actually provides some holiday shopping breeze. Hopefully, actually, that will help to digest the channel inventory. In general, based on the current visibility, even though we haven't finalized the Q2 review, in general, based on the past seasonality and also based on the current sell-through numbers, we believe actually Q2 should be better, okay, compared to Q1. Again, that is a tool. It's all about sort of the guidance or view for Q2. You can consider that actually is based on the currently available information or kind of a guesstimation, what's our view on that.
I just wanted to pick up on that as well, David. I guess a lot of chip makers have been guiding for the year, generally the theme has been very soft Q1, a very strong or a much stronger than seasonal second half. You've talked about a flat year or a flattish year for MediaTek for sales in 2019. You're starting from a low base in Q1, much like last year. As you look at the order book and how you see the year progressing, do you see a very similar pattern to 2018 where it started slow but really picked up into the second half of the year? How do you think the momentum builds in your business as you go through 2019?
Honestly, I don't have the clearest full year view based on the quarterly base yet. If you ask me, at least for Q1, I would say it's very similar pattern compared to last year's. When we talk about the full year going to be flattish, maybe slightly not, pretty much based on assumption, actually, if you see the Q1 this year versus Q1 last year, we see the flattish, then seasonal growth a little bit. Q2 currently, again, we see the similar pattern. If you ask me again, my best guesstimation, if you like, will be the similar pattern compared to last year.
That's very helpful. I wanted to just comment a bit on the growth division, David. Can you maybe just go into a bit more detail about 2019? I'd love to know areas that you think are going to be particularly strong for MediaTek and perhaps areas that will be weak, what you're most excited about from this division. I think we all can see that you're allocating a lot more R&D resources to build up this growth division, and the momentum should be coming through over the next few years. Anything more you can sort of share with us and some of the highlights in growth that we should expect. Thank you.
I think for the growth sectors, we kind of talked about that in the past. We truly diversified. If to help our people understand that, we kind of categorize that into three major categories, if you like. The first one is really IoT. Again, the growth sectors in last year, fourth quarter last year is 27%-32%. For this year, I think for the full year, roughly speaking, we're looking for maybe 33%-35%. Within that growth sectors, I think half of that is something we call IoT. Again, we use the term loosely, which including Wi-Fi, Bluetooth, voice assistant device, NB-IoT. In general, it's all IoT. I think we see IoT will have pretty good growth this year. That's the first one. Again, half of our growth sectors. The second largest chunk of growth sector is something we call the power management IC.
For power management IC, for fourth quarter last year, which will account for roughly 20%-25%, basically a quarter of the growth sector. I think for this year, you will probably come through with a similar pattern. Again, when we think about growth sector, think about half of that is IoT. A quarter of that is actually PMIC, the power management IC. Basically, that's acquired business for the Richtek. I think this year we see last year, this is pretty much double-digit growth. I believe that PMIC will have the strongest growth as well, will be the double-digit growth as well. That's the second largest chunk of business. The third one is something we call the ASIC business. ASIC business account for 10%-15% of overall growth sector. Again, let me just repeat that a little bit, because I think that's important.
The growth sectors account this year, roughly 33%-35% of overall revenue, one-third of revenue. Within the growth sectors, half of that is IoT. A quarter of that is actually PMIC. 10%-15% of that is ASIC. There's a small of others. That three sort of businesses account for a good 90% of the overall growth sector already. For the ASIC business, because the base is relatively low, in terms of the growth rate, I think it's probably ASIC business have the highest growth rate. That's the sort of detail about the growth sector. In general, to make a long story short, I think we see all three sectors, IoT, PMIC, and also the ASIC, have pretty decent growth this year.
Great. Just lastly, David, I'm going to ask you a hypothetical question, there's been a lot of talk about the licensing situation in the smartphone sector, particularly in light of this recent court case between the FTC and Qualcomm. In the event that Qualcomm is forced to license chip makers rather than handset vendors, I think that would mean the rest of the industry has to follow because otherwise it's discriminatory to Qualcomm. What's your perspective on this? How would you absorb taking responsibility for your customers' licensing as well as developing the modems that you do today? Wouldn't that mean your margins would structurally decline? It just seems like a huge burden for someone like MediaTek to take this responsibility. I was just keen to get your perspective on what this all means from a MediaTek side of things.
Brett, I probably will not be able to answer your question because that actually is a question with lots of different assumptions. I hear you. I guess your concern is if it does happen, I guess I'll take this question. If it does happen, whether or not there will be a negative or positive impact to our business. Again, that really depends on what's the final ruling of the licensing deal, because, again, this is probably not a MediaTek view. It's actually, if you check on the market, some people also talking about maybe one of the possibilities actually is, even though they collecting the royalties from the chipset vendors, but overall, the royalties may be lower compared to the current level. My view is the chance to actually just transfer that to the customer, because overall, the customer is still paying less.
Again, I don't think I will be able to answer this question because that really depends on what's your assumption and also what's the final ruling. I would rather just skip that question.
Sure. Understand. All right. Thank you very much. Thanks, David.
As a reminder, please press 01 on your keypad if you would like to ask questions. Now we're having Sunny Lin, UBS, for questions. Go ahead, please.
Hi, David Jessie . Thank you for taking my questions. I just have two quick ones. My first question is regarding the 4G feature phone. Just wondering if you can give us a bit more clue in terms of how to quantify the shipment for this year. Also that management says smartphone business will be growing slightly in 2019. Does that already include the 4G feature phone?
That's including the 4G feature phone as well.
Right. In terms of the shipment for a 4G feature phone, do you think how big that can achieve for this year?
In general, we don't disclose the particular product segments. In general, I guess the 4G feature phone, in our assumption, actually, we don't really see that as huge contributions in 2019.
I see. Sure. Thank you. That's very helpful. My second question is on the 5G SoC. Just want to make sure, if it's a one-chip solution from the beginning, or it's actually a two-chip solution to start.
It is a one-chip solution. When we say SoC, it actually does mean a one-chip solution.
Sure.
Let me give you three years. We're going to have two products for 5G. The first product actually is the Helio M70, which we announced last year, and we're going to demo that during the MWC next month. That's one product. That's a single modem-only product. For the SoC, we talk about second half of this year , there will be an integrated product, which means the SoC, which includes modems, communication processors, GPU, and also something we call the APU, the AI processing unit as well.
I see. For the SoC product, the modem will be actually from M70, the same one?
The core will be from M70, definitely will. I think we'll do some modification enhancements on that.
Sure. Thank you. That's all from me. Thank you.
Ladies and gentlemen, we thank you for your questions. Now I'll hand it over to Ms. Jessie Wang for a closing comment. Ms. Wang, please proceed.
Ladies and gentlemen, this concludes MediaTek 2018 fourth quarter conference call. We'd 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. Goodbye.