Welcome to the MediaTek 2018 Second Quarter Investors Conference Call. Your speakers today are David Kuo, Media Tech's CFO and spokesman and J. C. Wang, MediaTech's Manager of Investor Relations. Mr.
Jesse Wang will record 1st Quarter Results and Mr. Debbie Koon will provide prepared remarks. And after that, we will open for Q And A. Now, I would like to turn the call over to Ms. Jessie Wang.
Ms. Wang, please go ahead.
Good afternoon, everyone. We'll continue with our Tech Second Quarter to 18 conference call. As a reminder, all content provided on this teleconference is for informational purposes only. Investment advice. Finally, the issuer, know any of independent providers is liable for any actions taking reliance on content content use.
ZIATech provides non TFR's financial measures and supplemental information. Earnings distribution is made in concludes with financial statements based on T. Ibrance are authorized recording solution of the video audio text and presentation contents of this teleconference is truly prohibited. By participating in this teleconference, you agree to accept the foregoing terms and conditions. Now let's start with the 2018 second quarter financial results The currency here is the NT dollar.
Revenue for the quarter was $50,500,000,000, up 21.8 sequentially and up 4.1% year over year. Gross margin for the quarter was 38.2%, down 0.2 percentage points, sequentially, and up 3.2 percentage points year over year. Operating expenses for the quarter were $19,000,000,000 compared with $17,200,000,000 in the previous quarter $18,000,000,000 in the same period last year. Operating income for the quarter was 4 $1,000,000,000, up 112.1 percent sequentially and up 73.5% year over year. Operating margin for the quarter was 6.8% compared with 3.9% in the previous quarter and 4.1% in the same period last Net income for the quarter was $7,500,000,000 compared with $2,700,000,000 in the this quarter and $2,200,000,000 in the year ago quarter.
Net profit margin for the quarter was 12.4%. Compared with 5.4% in the previous quarter and the 3.8% in the year ago quarter. EPS for the quarter was $4.75 compared with $1.69 in the previous quarter and $1.51 in the same quarter last year. Please note that main content profit margin and EPS this quarter include 1 off non operating disposal gains, which were not included in the previous quarter and the same period last year. We also provide non CFRS financial measures, which exclude share based compensation, amortization of a position we related assets and tax expense.
Please refer to earnings press release and the presentation for details. For the third quarter of 20 18, we saw revenue to be in the range of $62,300,000,000 to $57,100,000,000. Up 3% to 11% sequentially and the forecast exchange rate of RMB0.4 dollars to $1. We are forecasting the gross margin at 38.2%. Plus or minus 1.5 percentage points and the quarterly operating expense ratio to be at 30% plus or minus 2 percentage points.
For shipments, we spent shipments of smartphone together with Tesla to be 100 to 110 in units in the third quarter. And now I would like to turn the call to CFO, Mr. David Good for prepared remarks.
Good afternoon, everyone. I think before we get into Q And A, I'd like to spend some time to talk about providing a few comments about our 3 major business products segments. First one, we'll talk about the mobile computing. In general, I think mobile computing, including small and tablets, which will come for 37% to 42% for Q2 revenue. Smartphones, especially for the new product ramp up for a 16 quite successful in Q2.
That's why you see for Q2, our revenue is somehow slightly exceeds our original guidance. On top of the T6, successful TCC launching and also, engagement with a key customer, we've also launched to new products in Q2, which included the Helio P22 and also we have the Helio A22. If you don't need to assign it was, compared to P60 and K22, despite lower than P22. By general, I mean, right now, the you'll cover pretty well, both for the mainstream and also for the entry level. Also, I think one of the key, despite what we have on a 22 PDO A22 ish Calamase new product, which moves a margin Q2 rate.
From a shipment perspective, overall, for the mobile computing product, we shipped around $100,000,000 to $110,000,000,000 in 2, which is slightly existing original guidance. When we're talking about the shipment, which include the smartphone and tablet shipment, total. Also, from the marketplace perspective, we still see the consolidation trend among the Tier 1s continue. So, for this year, we see the Tier 1 guys on the big brand, the big China brands continue to consolidate market shares. And in consequence, we the 2nd tier brands or the smaller brands turn somehow conservative in the second half, which really is part of that we see in stylists are less seasonal growth in 3rd quarters.
On the product portfolio side, in addition to the P60s, we also expect to launch the new product, which is, equivalent to category 12 and also category excludes our modem capability, SLC before end of the year. We do believe with the new product coming out before end of the year, we will continue to extend our product portfolio and also further enhance our technology competitiveness into the next generation products. The last but not least for the small small product is, as we have a non small 5G plan, in the country that's around June this years. I think just want to reassure everyone that we are actually among the leaders for 5G product portfolio. And based on our current product portfolio, we are fully ready, for, for a commercial launch for 2020, 5G market.
First CV and 70, models will be happening running next year. And also the first SLC 5G SLC will be happening running by end of years. And in 2019, it will be up beginning in 2020 as well. But in general, since our product portfolio is pretty ready for a big pickup for 2020 for 5G business. I mean, that's conclude about the business opportunities.
Let's move on to the next sector, which is the growth sectors, growth sectors including IoT Vimi, power menu IC and also ASIC. For this quarter, the growth sectors account for 25% to 30% of our core revenue. We see, the 7 quarters revenue on the growth sectors, on a quarter over quarter basis, actually, it's a gross in line with, whole company growth. But for 3rd quarters, we see a much stronger growth compared to the company growth in 3rd quarter figures reported. So the 3rd quarter normally is pretty strong seasonality for the growth factors.
Especially, I think the IoT market, which a fairly strong pickup for the VAD, which is therefore voice of active device, pickups in China. And also, we have a new product, I mean, our AI audio integrated device. But in general, I think we see pretty strong gross the growth sectors in the third quarter of this year. And, auto and IoT product, I think might see continued growth, our revenue in the multiple platform, which included a smartphone and also BAD. The last while I'm seeing the growth sectors for the out asset business.
I think right now, asset investment business is merely coming off the consumer products revenue, customer product segment. But right now, we have a pretty good idea into the networking product and on the current design win and also cape out situations, it's all been pretty smooth and successful. We do expect we will some networking product revenues, hopefully coming up starting from next year in 2019. That concludes the update on the growth sectors. The next one is we are harvest products, which include digital TV, feature phone, optical storage and DVD, for the largest processor in Q2, revenue wise, which account for around $25,000,000 to $30,000,000 of our own revenue.
Again, it's a gross rate in 3rd quarters in garbage products, is pretty healthy and it's actually stronger, it's entirely lower average, generally driven by signal demand, especially I think for additional TV. Right now, we're in the progress in process of our fully integrated media tech DTV team and LSTAR DTV teams. We do expect the consolidation plans will have some synergy coming down next years. And, I know all goes from the operating expense perspective and also hopefully from the market share perspective, we will see some further improvement next year after we realize our operating synergies. Think that's a pretty tough day for the all fees product segments.
In the end, I think before you need to Q And A, also trying to highlight, due to the relatively weak third quarter's seasonality, right now, for the full year perspective, we kind of expect full year revenue of basically 2018 versus 2017. The full year revenue maybe just coming down a little year over year basis. I would say very low single digit down. So you can consider it's grown. The flattish will come down a little bit.
But I think, it's funded earlier this year. The focus of this year is really trying to have profitable growth. So if you focus on the gross margin, operating margin and more importantly, operating margin dollars, you will see pretty strong year over year growth for this year. I think that's the overall choice for this year. On top of the gross margin and also operating margin improvement.
We are also when we talk about the proxy growth, we are also committed to looking for diversification of a blended across multiple platforms. So mobile computing this year has accounted for roughly 35%, 4%, growth sectors will account for another 30% and also the cash cost business or the harvest business. I think Australia is usually trying to reallocate the resource amount of job without increasing overall resource, but trying to invest more resource for those sectors And also, we necessarily know our 5G investment. So we do believe for the B2O1s parents, we should be able to create a much more balanced growth portfolio, on top of our, getting TLCO recovery business on the smartphone side. In the meantime, having the profitable roles, especially on margin and also operating margin side, it's, also a very clear evidence to see the 1st stage go.
It's kind of like I think that concludes my quick update, and we can be able to jump in directly.
Thank you, David. We're now ready for tonight's session. We have the first question please.
Questions. And as a reminder, it is greatly appreciated that you turn off the speakerphone mode of your device to prevent possible echo effects. We thank you for your cooperation Thank you. 1st, we're having Randy Urban from Credit Suisse. Go ahead please
Okay. Yes. Thank you, David, Jesse. The first question I had, and maybe 2 clarifications from the Chinese conference. So first on the ASP trend.
I think you made a comment about the Healio ASPs, but if you could give a sense of the overall smartphone ASPs, for both the second quarter and then outlook for 3rd quarter. And then the other clarification was on seasonality for the mobile products in fourth quarter. I guess your expectation at this stage, I think you're expecting the growth, but maybe what's driving that, whether it's new product launch or market share or a view on the market?
Okay, Randy. Thanks for asking this clarification. I think for, during the charter school, when we talk about ASP, we're actually talking about the blended not just the HeliosV, first of all. And also what we're talking about is going to be 0 to 5% down. We're actually talking about the 3rd quarters because I have been trying to support some people call and ask about the 2nd quarter.
I think for the 2nd quarter, it's due to the higher P-sixty contribution For the second quarter, ASV is actually coming down a little bit. So I would say for Q2 blended ASV due to higher P60, this overall will be 0 to 5% up for Q3 because we'd see a more, so we got a $22,000,000 or $8.22 coming up. So there is the blend is Marvel ASV, we're coming down a little bit, obviously, the 0 to 5% down. I think that's how the smartphone ASP from that clarification number 1. I think for the second question, talking about the 3rd quarter's growth.
I think overall, 3rd quarters right now for the whole company. I think we're looking for 3% to 11% quarter over quarter growth. Among 3 different product segments, I would say both growth sectors and also the harvest sectors have higher growth rates than corporate average. I know for the small growth, it's roughly relatively weaker compared to the corporate growth rate.
Okay. And David, I wanted
to also ask, I think you made a comment also about 4th quarter, but if you did, if you could clarify your expectation, whether fourth quarter you expect mobile to grow and what may drive that growth for fourth quarter?
I think for 1st quarters, again, we're not from COC, we will not be able to provide full score guidance. So during the conference call, we're kind of talking about, we'll only comment about from the market perspective or market demand perspective, we do believe it's right now based on what we see, we should be able to see really to be stronger quarters. Basically, the gross quarters on the smartphone side, 4th quarter versus a third quarter based on the early your data point we have right now. I would say it's mainly due to, I think, 2 reasons. First of all, for P22 and also 822, even though we start to launch and in the second quarter, it's beginning of some of our middle of the quarters.
I think sometimes take some time to break it off. So, the new design win, we will see more revenue 4th quarter. I think that's, that's reason number 1. Reason number 2 is actually, you can assume we will have one or 2 new product coming out in the second half of this year. And then hopefully that will transfer further fuel off the the small motorcycle.
Okay, great. The second question on the margins, you mentioned the target to still get 40% as a medium term goal. Could you talk, I guess, about the 2 elements, one within mobile, with the cost I think reaching or the new architecture about 70% by year end. I guess your expectation from there if mobile before 5G, if it's more stability, and to get to 40th more from the non mobile products?
Well, I think with the gross margin for the gross margin goal, if you like, like our CEO, Rick talked about during his highest call, we still put 40% gross margin and also I think to precisely be 47 plus and also 10% plus as the, as the long term, mid to long term as our profitability. Given the current gross margin profile, I think, in the second quarter, it will be like 38.2 of a third quarter, we say pretty much within this range of +.5 percent. It really depends on the at any given quarter it's really been on the BG or business group mix. And also, on top of that, I guess, fundamentally, we still look for next year, I guess, a little bit of volatility to further grow gross margins on those models. I think that's plan, that's a strategy.
But in terms of the detailed strategy, I think there will be the combination of, the difference or the hires It's been a higher product mix, like during the conference call, we talked about for next year for Helios, even though the third quarter would have to heal P22 and also Helios A20 to, which is all relatively speaking, especially not a lot of segment compared to the D60. But next year, we have a new product coming out as the higher segment metrics of D60. So, hopefully, the banners or the higher product segmentations are well have some help on the gross margin side. I mean, that's one of the reasons. Another reason, but on the strategy, which will continue to improve our cost elements, obviously, the cost architecture is done on our smartphones.
I think that will be an ongoing pursuit.
Okay, great. Hey, one feature, I think you've been marketing at some of the conferences of the 3 d sensing, where it's more a lower cost solution. Could you maybe talk about your potential outlook for that? And if it's, an angle you see in terms of getting either AFP or market share, through offering that platform?
Well, I think to be precise, that should be something we call it 2 d or 2.5 ds. The general idea is actually we use 2 camera, 2 strong cameras, which are performing very similar on the accessory Simpson. From the full major perspective, the benefit of that is actually we have to, I would say, Sam's, 3 d sensing capability, but at the much lower phone calls, attorneys. So far, I think, we are a few customers started adopting that. And, but in terms of whether or not it will major features deals, they sometimes see the final market demand, but just from the performance perspective, we feel very comfortable with our solution.
And hopefully that will lead to a slightly higher ASP or the lift. We can maintain the current ASP and that pass over the 2 d or 2.5 ds, originations, unfortunately.
Okay. And one quick final question. Your inventory ended at I think 90 days off of ending balance. If you could give a view expectation into 2nd half, where you see your inventory chiming?
I think for Q2, the days of inventory is around 86 days. For Q3, I think we'll pretty much we maintain the same level of sales inventory. I would say in the range of maybe like day 5 to a house space, maybe that's at the wider range buffer. I think most likely, it will be very similar to Q2.
Next we're having Stefan Chang from May Bank. Go ahead please.
Hi. Thank you, David and Jesse for taking my questions. Just a 3 quick ones. The first is also about some color for So I remember in the Chinese call, you also mentioned about the full year smartphone shipment could be back slightly year over year. And it's based on the last year number and the first half number, it was Q3 guidance.
I think that implies Q4 could be up by at least 10% to 20% sequentially. I just wonder if the take is correct. And actually also a follow-up on this, because if the smartphone impact Q4 seasonality like this, but based on the full year revenue, likely decline guidance. I think Q4 revenue could be roughly to similar to Q3 midpoint. So does that mean the other business will go down in Q4?
This is my first question.
First of all, right now, we will not be able to give out exactly to the guidance for Q4 on the company perspective, Odessa needs to bear with us. But just, the trend line is wide. I think for the smartphones, it's Q1. I think Q1 EOV based on shipments actually coming down. For Q2 and Q3, that was pretty flattish if you compare it to the YY basis.
Q4 against on 2018, based on the current visibility,
we do foresee on volume
and both on volume of the drilling actually, for smartphone, not only from the smartphone. We actually have a pretty good opportunity to see, an order off. So I think that's probably the only information we can provide for the Type B. For other sectors, in general, the fourth quarter, I explained it earlier, for 3rd quarter in general, it's a pretty strong quarter for the growth sectors and also for the harvest sectors. But for Q4 in general, that's, there's a normal $10,000,000 for gross action and also hardware sensors.
Okay. This is very clear. Thank you. Also the second question is about the smartphone or the follow-up on smartphone ASP. I think based on the release number and also the sales mix it looks like this year so far the smartphone ASP is declining year over year.
And I just wonder if this is due more to the product mix or because of the competition. And if you look at the next year, I understand you mentioned about some even higher end products, how do you view the impact from the competition as well as product mix and the impact to the ASP in the next year. If you can give any broad color.
Well, I think for the full year blended SP, 1st of all, we'll start from a full year blended SP I think for this year versus last year, it should be pretty flattish. For example, this year, we see, a lot of the P-sixteen relative to the high end, product coming out. So the ASP should be flat ish and maybe even top it a little bit. That's actually the charging from both from the Q1 and Q2 ASV. If you recall, we keep out, we just give out the guidance, we're not guiding, we'll just give an update for 2 days, usually after 5% But remember, for Q1, actually, we provided a similar guidance.
So at least for the first half, it was on the Q2 perspective, it actually popped a little bit. So, first of all, I just want to clarify, say, for 2018. So that we should be pretty flattish to start up a little bit. For next year, it will depends on how successful we can continue to push,
for
the hiring product, which means the hiring is higher than the discipline. But right now, it's a little bit too early to tell, but the general idea if you somehow link that in the earlier question, asked by Randy basically. So we do, the problem full year planning perspective, we do trying to introduce a much more balance. And, I want to say tying So it will be much more balanced across the portfolio, which also include new segments, which is higher than D66, So, but we also need to compete about the overall completion landscape next year, but right now it's really a little bit too early to comment beyond that. But The general idea is that it will be a new product higher than T3 next year and continue to be hands on the central level.
And hopefully, by adding features, and we can somehow either have a flattish on the entry level and also management or maybe just a slower decline. ASB on the engine of wells on the industry.
Yes, understood. Thank you. I guess that you have paid properly elsewhere by the Q1, but I understand we from and that is very clear. And probably one last quick question is about, again, on the operating margin. I think the company has done very good job in gross margin improvement.
So far, operating margins looks still volatile probably due to the revenue scale. I'm just wondering when you mentioned about the mid term goal for the gross margin and operating margin, what is the time frame? Do you define the be tied?
We don't have the fixed timeframe. Hopefully, when we're in return, normally, hopefully, it's actually 2 year plus, I guess.
Okay, that's good. Yeah, thank you for taking my questions.
Right now we're having Gokun Hari Harlan from JP Morgan. Go ahead please.
Thank you. Hi, David and Jesse. Thanks for taking the questions. First of all, could you talk a little bit about the ASIC business. Could you give any details about what how this ASIC business is looking like?
You mentioned that you starting to have some success beyond consumer and networking. Could you talk a little bit about what kind of wins are you having and what does the pipeline look like beyond networking? Do you have engagements in more data center, AI related stuff? Or is it still going to be mostly consumer centric kind of projects And maybe broadly, you could talk a little bit about what are the criteria that you're applying in terms of Ritzelocation in ASIC as well as criteria to pick up some of these projects, given I think there seems to be a lot of ASIC projects coming to the market as well as to you guys?
Well, I think first of all, before I get into any detail, fantastic question. One thing I'm trying to remind, actually, because for a lot of our ethane customers, they're all global tier 1. So by the service customer would not be able to provide any customer specific information. So I can only provide any general, so the Russian wise, the Russian wise integration. So, well, 1st of all, currently, most of the revenue now both, it will be pretty much all coming out from the customer product.
And I think it's basically, it's, again, console related products and also a this with the multimedia related product. I think that's a majority of our revenue. The good news is, both for the games also and also for the multimedia, which include VRs and AR to make sense are all still growing. So the overall strategy for our asset business is we're trying to further enhance our growth in also revenue size based on customer product, again, which includes but not limited to the game consoles, ARBRs, you know, some multimedia product. And so for this year, it looks solid.
Next year, we still believe that we have a gross opportunity even based on customer product. So that, sure, is 1. Special number 2 is currently based on the design design win and also the engineering development. We actually get into a new sector, which is called, the data switch, which are established at all high end, then very successful service technology, I think, maybe a few weeks ago, we just announced we're probably worldwide number 1 to officially announce, service technologies, arms, 70 we believe we have probably won't believe that you found the leaders on that front. And so that one, with technology, I think we can focus on we will probably start with data switch business first.
But when you think about the highly speed service, I think they are also our education of Adobe a lot of areas where it's fortunate as well. But the problem for the Essex business is sometimes takes the deciding and the design wins, I would argue pretty long. Normally, the design wins have been versus the revenue coming up is, in general, it's only about 1 year plus some diagnosed even 1 or 5 years or 2 years. So, even even we have any plan to looking for beyond the networking switch business, I guess we probably still need to wait for you're coming from now, I would say probably 2 plus years, but we do have plan to date on the similar IP, to look beyond the networks business.
Okay. Could you talk a little bit about any quantifiable numbers in terms of number of design wins or something like that? I think I understand that customer specific revenue numbers are quite sensitive given it's a custom product, but could you talk about the number of engagements that you have and how that changed over the last 12 to 18 months or something like that?
Unfortunately, we would not be able to provide any more colors on that.
Okay. No worries. So just sticking with the growth engine segments, David, I think in the Mandarin call, you guys highlighted ASIC WISE assisted devices in China, NB IoT and probably PMIC as the key areas Could you talk a little bit about where is the growth likely to be the strongest in these categories? Is it is it more the consumer IoT like NB IoT VAD kind of products where the growth is going to be strongest or you think ASIC is also going to kind of come in as a big growth we're going into next year?
In terms of growth rate, I would say MBLT probably the one with super strong gross because right now, the MELT space is very low by looking into the second half of this year and also with the visibility we have for next year. I would say it's probably the one carried with the strongest world's race. And on the absolutely scale. I think semi outages are still really small, but for next year, we do kind of expect semi outages will become pretty become one of the meaningful revenue on this IoT, but even the growth rate, I mean, that's the strongest. Other wins, the gross I guess if you focus on Wi Fi, focus on VAD, voice and device, and also focus on M3 I would say the growth rate is somewhat similar.
Maybe VAD risk taking VAD is I have the example obviously pretty strong pickup. VAD I think last year was in U. S. And Europe this year is in China. I think really speaking, VAD progress is a higher growth rate.
But Wi Fi looks good and also, machine engine and also sometimes actually Bluetooth looks pretty solid where it can go
Okay, understood. So when you talk about, your 5G plan, I think if I jog my memory and remember correctly, I think for 4G, your stand alone modem and your SOC pretty much came out around the same time and we didn't hear much about the standalone modem. 5G looks like you're going with a slip modem next year and SoC following in 2020. Is there a reason for the change in strategy in terms of the timing gap, is there a clear, is there a credible slim modem to be had either in mobile or in other kind of end markets, given that historically you guys have not really had a meaningful the modem business?
Well, 1st of all, I guess we are not currently, we are not looking for, we're not looking aggressively for some modem business. So the SIM modem is really, I think the overall strategy about having the SIM modem is first when you have the SLC just like what we did for 4G is really for the idle task, basically, the carrier certification, because every time we have a new generation of money coming out, so it will be relatively easy and faster to, 35 simulations. They would have to also see just a similar plus AP, and we feel fairly comfortable with our AP technology, but for the modem, especially from 4G to 5G, I guess, given the fact right now that even the industry scanned us during the moving talk better to have us see more than 1st to walk closely with the equipment vendor, the base station equipment vendors plus the carrier income also I think that's a similar strategy. And, but I guess my point is that we're not trying to use inductive modem to aggressively looking for similar than business. Okay.
So that's point number 1. Point number 2, I think based on your descriptions, sounds like we have different strategy in 5G versus 4G. I would say yes or no, basically, the major difference is when you think about for 4G versus 5G even for 4G by the time we have a 4G regarding the SIM modem or SOC From an absolutely industry perspective, where properties, you know, sometimes, some people say, years, some people say, 2 years behind or industry development, But for 5G, I guess, we'll model the leader group because for next years, even from the algorithm perspective, the next year will be the pre commercial launch 5G, which means general or not the huge 5G smartphone picking up, you will see a few coming down, but it's not going to be mainstream. Overall, even the most aggressive view, we're talking about 2020, you will see some, I won't say meaningful is like meaningful small balance coming out in 2020, but our overall profit for us aiming for that is especially ready for that. So for me, that's probably the major difference we're talking about.
4G versus 5G, to make a long story short in 5G, we are, by the end of the curve, we are much more ready for the 1st wave, battle for the 5G. And also, it's actually, it's the 4G, the 5G model is a standalone mode versus LC is really coming out as a year because what we talked about end of this end of next year beginning of the 2020, we're really commenting from the customer manufacturing perspective. It's not from the Tivino perspective. I mean Tivino is only like the 6 models. Ahead of a customer's shipping.
So it's really just the same time frame. The only difference is once you have a stand alone modem, we can just much bigger complete of the IoT test, the carrier certification. I think that's the situations.
Okay, understood. So one related question on 5G, David. So your competitor Qualcomm has been talking about pre baked 5G RF solutions, kind of like bundling the RF with the base station paper and processor for 5G to reduced potential design time and complications. Any thoughts on how MediaTech is going to address this Is there a closer partnership with some of the existing RF vendors? Does media tech think about getting into potentially RF?
I think you guys have some initiative outside of a smartphone, but is there any thoughts on that?
Currently, you have evolved from it. Actually, it's not our focus. Our product focus because right now I think the focus really is just getting 4G healthier, which are largely profitable for you, time, we're trying to accelerate 5G development. On top of mobile device, I guess, we're also trying to allocate or reallocate some more resource get into the growth sectors, which including, you know, IoT, PV, the asset, I mean, that's the overall strategy been very mild, like we explained in the Chinese colleagues, with all new products, new technologies to be coming out from MediaTAC. The bulk will argue resource of income, it keeps us the same.
So we didn't really use that. So we really need to prioritize and also be Australia drives about whichever it won't go to, which way it will not get into. So for the market, frankly, in the secondary area, we decide not getting to the current station, you know, even the overall consideration. But on the other hand, we do work very closely with our harsh partner, basically just the two 3 d major auction partners out there, we all look in very close to Queensland, both for 4 g and 5 gs Australia. And we don't really see that as disadvantage for us to promote 4G and 5G.
We go after, you know, if I am, avoid at work and also as long as it's called concatenative. We do believe actually it's probably the best strategy given our current situation to work with and are really trying to turn everything else.
Okay, fair enough. Yes, that's all my questions. Thanks, David.
Next one to ask question, Brett Simpson, Arity.
Yes, thanks very much. And David, can you maybe talk a bit about the entry segment of the mobile phone of the smartphone market. And I just wanted to get your sense for the competitive environment here because I mean, it seems like Qualcomm is not a successful player in entity. They're not a big player, not part of the market. And we think it's well known that bread trim has been struggling.
So mean, it sounds like you must have a very strong market position in this segment of the market. I'm just trying to understand whether there's scope to see a much higher gross margin returns as you are able to sort of leverage more of the position you have on that segment of the market?
I think so far for the entry segment, general, I think our market share is winning market share is interesting. And from a gross margin perspective, I can know what we feel comfortable you say, I won't say we're leveraging the market position. It's really just, right now, we have a much better cost structure product. So overall, I think the gross margin among all segments, which include an entry level and also, the mainstream staff of getting better or getting better. And given the customer's needs, I should say the customer's full needs, financials, I guess we do, I'll turn you solution and also our huge operation in China does give us your negative advantage in supporting this group of customer.
We will definitely try to capture that going forward. But, if you take one step back, when you think about selling the smartphone, comparative landscape perspective. I'm not talking about from the chipset perspective. I'm talking about from a phone perspective. There's another big trend is, the big brands actually getting more and more market shares.
So basically top 5 or top 6 brands, you name it, just getting more and more market shares every year. So, we also need to take that into consideration as well because when the big brands are trying to get into taking more market share, chances are they're trying to be their perspective, they're also a single way to increase their phone ASP. So chances are they're just promoting more mainstream products And but in general, I think from our perspective, that's actually a good news because right now, especially for this year, for the first half of this year, our market shares for the top 5 or top 6 brands are all getting up meaningfully. And if the overall market trend is actually the top tier guys, it's just consolidating all market share and on top of that, because top guys trying to see a more mainstream product or mainstream bug product. I think that should be a positive trend from me to the perspective.
Both from the ASP perspective and also from the overall revenue perspective. I think that's the update.
Okay. Thanks for that, David. And just in terms of the consolidation process, can you just give us a sense, I mean, where you are, where we are in that I mean, the top 4 have been clearly structurally taking share, but what portion of the market has your top 4 sort of taken in your time to today? And what was that
a couple of years ago? Well, I think for last year, we don't want top 6 or top 7, okay. The top 6 or top 7, I would say probably a come for a good 70% to 80% of our market share from a smartphone perspective last year. This year, I would say, there's a lot of us definitely getting higher in our cell devices, maybe plus. I think there's opportunities.
And both for China, when I say the market share, I'm talking about, basically, it's not just China, it's really China is also in emerging markets.
Got it, got it. Okay, super.
And just in terms of your ASP as a percentage of the selling price of phones in China. I mean, we're at record lows levels today. I mean, we haven't seen I mean, we're structurally seeing phone ASPs go up. And we're seeing your ASP fall. And I'm just wondering, do we see this situation with us at some point?
Is this the the new normal where you will continue to see your ASPs as a percentage of your customers' handset price continue to fall? Or how should we think about that?
I would say probably to sustain, in terms of the ASP, obviously, in terms of shifts that value, chipped ASV versus the overall cost, basically, as soon as your question. I would say Hitachi is staying up the same, holding up K. And so, again, in general, but if you focus on the top 5 or top 6 side, downwards actually holding up pretty well, you know, sometimes even going down with it because, as I explained earlier, they're also trying to upgrade their product portfolio and chances are getting a mid to high end SLC is probably one of the important factor for the phone makers upgrade the So Tier 1 is actually holding up quite well. It may be that it was opportunity going up. For the other players, they be more of a, edge levels, folks, players, I would say, these, maintain also probably coming down with it because most players actually competing very aggressively with, what's that called the top 6 or top 5 and top 6.
So they need to be aggressive on pricing. So in general, the turnaround pushed out basically everything on my phone cost.
And then maybe just a question on OpEx. I mean, it's growing faster than still growing on a year on year basis. And I'm trying to get a sense, like what portion of your OpEx would be mobile today, particularly with 5G now on the development. What portion of OpEx is smartphone?
Is pretty much in line with the revenue contribution. Smart mode right now is accounted for 40% of our overall revenue. Even though right now there's no revenue from 5G. But for 4G plus 5G, the overall resource we spend is, accounting wise, it's actually pretty much in line level or what are your reasons right now here?
Right. Okay. And then maybe just one last question, David. Your name is always mentioned as a beneficiary of AI, and we're starting to see in your Helios series, both the AACVs and the C Series seeing AI as a feature more and more in your portfolio. How should we think about the revenue opportunity for MediaTek?
Today, it seems like it's embedded inside the die of the SOC. And so there's no, specific revenue that you can attribute to AI. But how should we think about the sort of the requirements going forward and of the other segments you play in like TV, how should we think about AI as an opportunity for, from Media Connect over the long haul
From a revenue perspective, maybe I'll explain that concept. From a revenue perspective, I mean, AI brings 2 opportunities. The first one is really we see AI as an enhanced features, you know, maybe one idea is, you know, so the comparison is more like in the past, we have, like, VTA all the way to upgrade to, like, you know, HD and even 4K, okay. AI may be from our perspective for our last product, which including, but not limited smartphones, and also TV, were because of new features. So, AI is, in terms of revenue impact, really new features, sometimes it's even ISV or embedded ASV maintenance.
So that's one opportunity for AI. I put out combined AI would be the same problem. For you. Well, another one, actually, we have hotels right now, but currently there's no revenue yet. It's really just, ai as a new revenue stream, okay?
Arguably, I think, all AIS and new applications. I think, for example, for the VAD, if AI simplification even over the VAT are really part of AI and not the full AI, but that's because of that new AI features, we can just somehow link that there's mainly the AP functions into the VAD field. So again, The quick summary is in general, I think we do see AI as a positive opportunity for media that both for the existing business perspective and also from new business perspective. The only problem is, the existing business in COVID with AI is a relatively easier. It's much faster.
Because that's what nobody would guess the idea about, better personnel, for existing products. But for AI, brand new revenue, some of the some of these insurance like external loan revenue. I think that's how it seems. There's no product we're still working on that right now. It's about, currently, we don't have any revenue.
That's a scalable asset. And
do you think just on the point about ASPs declining in mobile? When you look at view and you look at where AI is going, do you think these are technologies that will absolutely reverse your ASP decline? It may be that ASPs for the people will start to rise meaningfully because the penetration of these technologies becomes, much more scale. How should we think about the ASPs in your particularly in your smartphone business over the medium term?
I'll take the smartphone business, the big subscribers go to the revenue and also for the ASP, a crushing perspective, if you really find some okay, for AI, I would say it's more of a function enhancement and it will help, from the ASP perspective, but not at a big time. From 4G to 5G, you will see pretty big jump from the ASP perspective.
Right now, we're having Calent Hughes, Indus. Go ahead please.
Hi. Just going on what you were saying about 4G to 5G. So one would be the ASP going up, but it seemed that you were going to be in a much more competitive position than you were before. Would you say your market share is more likely to be higher than it is for 4g?
On the like like comparison, initial 5G versus the 4G, we do believe our initial 5G market share should be higher than our regional station of 4G that was not for roughly 4 years ago.
What about 5G versus 4Q.
1st of the current 4Q, we also believe we have opportunities to continue to grow in the market share in general. So basically, I guess, When we talk about 5G versus 4G, probably the better way to think about that is just our overall market share on the smartphone. We do believe with 5G coming out, the overall market share on smartphone, do have opportunity to grow.
Okay, cool. And now for your new modem, you were saying step 2% by the end of the year. Is that for the number of units or is that the revenue for mobile? 70% has been new
you on this, revenue.
Okay. And then sorry, I just got 1 more. Did that end up having any effects on you? The ban on ZTE, did that impact you at all?
I think the key has no impact especially right now, they're pretty much cut off the order base, please.
Next question is
coming from Michael Joe, Deutsche Bank. Go ahead please. Hi,
David. Just a follow-up question. Is it fair to say your smartphone to gross margin, should be flat to improve slightly in quarter on quarter in Q3. Fine and upside, yes. Yes.
So because you mentioned your new mode ratio account for more than 70% of the total smartphone shipment by year end. So is that fair to say your smartphone gross margin could continue to quarter on quarter in Q2 for this year?
Yes and no, because, again, on the quarter over order basis, but also one of the major functions, usually just product mix. If you take a look out for Q1 and Q2, we wish to continue should more PCC. So that actually is a big supporters, to the gross margin enhancement. But starting from Q3 is Q4, especially for Q3, like, early explanations, we'll sell ship more P22inos or 822. That's not offset a little bit about the gross margin enhancement, but for 4Q, you were really dependent on what's with the segmentation mix.
But let me take one step back to $20 gross margin. I guess probably the better way to think about that, I is, as long as we can continue to enhance our cost structures in general, we definitely have opportunity to continue to enhance the gross margin, okay, but on quarter over quarter basis there, so still a lot of out of factoring in the consumer. And based on the current visibility, those who are featured for 3 quarters and 4th quarters. Probably the better way to either way to think about that is actually flattish to slide up. Wazering about that.
Next one, we're having Charlie Chang, Morgan Stanley. Go ahead please.
Thanks for taking my follow-up question. So I already learned from the previous, discussion. That was very helpful. So it's just a simple clarification, right? So first of all, in 2Q, you booked around the 3.6to3.8 $1,000,000,000 came from the overall chip sales, right?
But I thought that you mentioned it should be $5,000,000,000, right? So Will there be any risk amount to be recognized in the following quarters?
Because that's exactly how much you're going to recognize every year. It will also depends on the business situation. So some of that will push to the next year.
Okay. So can you quantify how much it would be for for NetFID?
I probably won't be able to quantify right now. So I would say probably let's provide a number by the end of this year because it will be much more clear to us. But generally, we should be coming out next year.
Right. Thanks. And I think I mentioned also mentioned several new features for simple K-fifteen, kind of a new product will compete with 7 100 years. So do I understand this, right? You will have a new product.
That will be K15, maybe 7 nanometer. And that is going to be, competing with the 700s. Can you double confirm the spec is right?
Let's confirm 1 by 1. First of all, we'll have more than casted in product, before the end of this year, that's confirmed, okay. And also it's confirmed out, actually, so we will have a product coming down on $7,000,000,000 in the process, but that's not necessarily mean that 12,000,000,000 in cash 16,000,000 will be on 7.
Okay. Okay. So there could be separate products.
Right, right.
Okay. Yes. And you also mentioned the potential CCON content upside for next year, high end products, right? So if it is not for AI, what are the key features that you want to enable for those higher range models, right, by those that you would need to achieve?
I think, more than 1, 2, see more than what's coming down. I'll just say it's a more than one thing, and also definitely a B. A. B. A.
So I guess right now, we're talking about Smartphone that's the 3 factor of 3 diuretic adjustments based modeling application process which include CPU and GPU and possibly. So, if everything went well, we should be able to basically operate, all
Okay. And recently there are some industry development regarding using the CE CD room to store those are code data, right? So you can see the set of big demand for a company like Right Tech, right? In your company supplying the control IC for those optical storage, do you see any upside this business unit?
I think from volume, 1st of all, actually, I don't believe we evolved directly in supply chain yet because all the volatility players and all the blue world players, actually, it's, still on the traditional sooner from, really, on the corporate front, okay? Secondly, I guess, even, for the corporate, but I think the overall volume right now still relatively small.
Okay. Yes. So lastly, regarding that new more than Can you confirm this is that revenue mix or shipment mix, the 70% mix, right?
Yes, it's revenue mix,
revenue mix, right. So Yes, I'm just wondering, right, because if you look at both your new products on the roadmap, P60, P22, A22, even the low end 4G NT 6739. Those are the new models, right? So do you have any old more than inventory on the hand now that you want to sell in the fourth quarter?
Well, I think we still have some, but if everything was well, most likely, in slightly more than the quarter, it's actually, it's a dollar that will progress will be all out of note, yes, will be also up.
Okay. Yes. I just want to get a sense, whether that new more than tailwind can sustain into first quarter this year, right? Because I thought the new modem would be maybe 90% or 90 percent of your revenue fleet end of this year. So just wondering how you're going to further improve your cost cost structure.
Can you give us some comments on that?
For 2 things, first of all, for next year, right? New orders compared to last year, right? But for next year, you get referred to, and we'll have a new product coming out And none of the surveys would upgrade or overall at the moment in architecture, because our this year's and, like, last year, we need to overall architecture because we need have a big saving on modern site. But, we're pretty much getting there already. It's a nice thing to result.
But doesn't mean there's a no for the room. I think the further improvement will be much smaller, but we will continue to improve that. So point number 1, even for the modem itself, even though sort of the new modem versus, I would say, oh, the largest models. We've been quite, successfully ramping to a high percentage this year, but doesn't mean next year, we don't have any more to have And once we have new model coming out, they always provide some benefit to that. So that's point of 1, why we still see, gross margin to have opportunities to go up I'm truly truly through, product mix.
Like I said, I mean, this year's, the flagship product will be TCC. And net interest ratio, we have a new product coming down, which is even on the highest connection with the 360. And hopefully that will bring some positive looks all of those watching as well. So I think that's a strategy.
Okay. Yes. Just one last one, right. Crypto mining ASIC, you mentioned that last quarter, is that still going to take place for this project?
I mean, there was a report recently on the newspapers. I mean, mean, our explanation is we will not be able to come in a specific product or customer. But on the other hand, I guess we do have products and we do believe we will ship this product for the crypto lines
We thank you for all your questions. Now, I'm handing over to Ms. Just one for closing comments. Ms. Wang, please go ahead.
Ladies and gentlemen, this concludes Mediatek's telephony 2nd quarter conference call. We would like to thank you for your participation Yes.
We thank you for your participation in today's conference. You may now connect. Goodbye.