Welcome to the MediaTek 2026 First Quarter Investors Conference Call. Financial results and presentations for today's call are available on Investor section of company website at www.mediatek.com. Now, I would like to turn the call over to Ms. Jessie Wang, Deputy Director of Investor Relations. Ms. Wang, please go ahead.
Good afternoon, everyone. Joining us today are Dr. Lih Shyng Tsai, MediaTek CEO, and Mr. David Ku, MediaTek CFO. Mr. Ku will report our first quarter results, and then Dr. Tsai will provide prepared remarks. After that, we'll open for Q&A. As a reminder, today's presentation will provide forward-looking statements based on our current expectations. The statements are subject to various risks and factors which may cause actual results to differ materially from the statements. The presentation materials supplement non-T-IFRS financial measures. Earnings distribution will be made in accordance with financial statements based on T-IFRS. For details, please refer to the safe harbor statement in our presentation slides. All content provided in this teleconference are for your reference only, not intended for investment advice. Neither MediaTek nor any of independent providers is responsible for any actions taken in reliance on content provided in today's call.
I'd like to turn the call to our CFO, Mr. David Ku, for the first quarter financial results.
Thank you, Jessie. Good afternoon, everyone. Now let's start with the 2026 first quarter financial results. The currency used here is NT dollar, and the average exchange rate for the first quarter was 31.62 to $1 . Revenue for the quarter was TWD 149.2 billion, down 0.7 sequentially and down 2.7% year-over-year. Gross margin for the quarter was 46.3%, up 0.2 percentage points from the previous quarter and down 1.8 percentage point from the year-ago quarter. Operating expense for the quarter were TWD 46.2 billion compared with TWD 47.4 billion in the previous quarter and TWD 43.8 billion dollar in the year-ago quarter.
Operating income for the quarter was TWD 22.9 billion, up 4.8% sequentially and down 23.8% year-over-year. Non-T-IFRS operating income for the quarter was TWD 26.6 billion. Operating margin for the quarter was 15.3%, up 0.8 percentage points in the previous quarter and down 4.3 percentage point year-over-year. Non-T-IFRS operating margin for the quarter was 15.8%. Net income for the quarter was TWD 24.4 billion, up 5.6% sequentially and down 14.4% year-over-year. Non-T-IFRS net income for the quarter was TWD 25 billion. Net profit for the quarter was 16.3%, up 0.9 percentage points from the previous quarter and down 3 percentage points year-over-year. Non-T-IFRS net profit margin for the quarter was 16.7%.
EPS for the quarter was TWD 15.17, up from TWD 14.39 in the previous quarter and down from TWD 18.43 dollar in the year-ago quarter. Non-T-IFRS EPS for the quarter was TWD 15.52. A reconciliation table for our T-IFRS and non-T-IFRS financial measure is attached in our press release for your information. That concludes my comments. Thank you.
Thank you, David. Now I would like to turn the call to our CEO, Dr. Lih Shyng Tsai, for prepared remarks.
Thank you. Good afternoon, everyone. Thank you for joining us today. MediaTek's first quarter revenue came in at the high end of our guidance range. Thanks to the steady demand from our diversified platforms and a more favorable foreign exchange rate. First quarter growth margin was around the middle point of our guidance range. During the quarter, the rapid adoption of agentic AI use cases such as OpenClaw AI agents and other compute-intensive workloads have marked the inflection point for the industry. The acceleration of computing requirements under the ubiquitous AI mega trend are not only broadening the addressable market for Edge devices, but further expanding AI infrastructure investment. Our differentiated combination of technologies and product propels us to meaningfully benefit from structured growth in both the Edge and the cloud.
In Edge devices, building our strong positions across numerous markets, we continue to invest in and deliver advanced SoC and faster connectivity solutions, spanning mobile computing, automotive, IoT, and beyond. I will elaborate more in the business discussion sessions.
In data center, demand momentum is particularly strong. With our comprehensive and solid capabilities across design, integration, and supply chain execution, our first AI accelerator ASIC project for a U.S. hyperscale customer is progressing very well. We are on schedule for production and now expect AI ASIC business to contribute around $2 billion in revenue in the fourth quarter of this year. For 2027, based on the capacity we have now secured, we are very confident that this project will scale to multiple billion U.S. dollars. Meanwhile, design for the other AI accelerator ASIC project is currently underway in close collaboration with our customer and supply chain partners, with mass production targeted to start by the end of 2027. Furthermore, we are actively engaged in several new data center ASIC opportunities, some of which are already in the final stages of discussion.
We are confident that our proven capabilities can address the rapidly growing AI demand of the market and deliver strategic value to customers. Meanwhile, we continue to invest significantly and have made tangible progress in building best-in-class system-level technology roadmap for future data center architecture. On the optical front, to address the industry trend towards leveraging silicon photonics to achieve higher bandwidth density, we made a $90 million investment this quarter in Ayar Labs, a leader in optical engines for CPO, as part of our co-packaged optics partnership. We also announced a successful design with Microsoft Research for the next generation active optical cable powered by MicroLED light sources, which can significantly improve power efficiency in data centers. Furthermore, we are making solid progress in the development of enabling technologies for future generations of data centers with successful test vehicles.
We are very proud of our status in building next-generation 400G high-speed SerDes, 64G die-to-die interconnect, and advanced 3.5D platform, which covers IP design enablement and advanced packaging technology to realize designs with much larger reticle sizes. Additionally, our development in custom HBM solutions and integrated voltage regulators, IVR, are also advancing as planned. These ongoing investments will further improve performance per watt and power efficiency of multiple kilowatt XPU in future data centers and further strengthen our long-term technology roadmap, positioning us to support the evolving requirements of next-generation data centers and AI workloads. With that, now let me talk about the recent business performance for our three revenue groups. In the first quarter, our mobile phone revenue declined 17% quarter-over-quarter and 15% year-over-year, accounting for 49% of total revenue.
The current concentration of industry resources on data centers has led to elevated costs for smartphones. Our customers have raised retail prices and shifted their product mix toward higher end models to manage that. Given such adjustment will inevitably lower the market demand for smartphones, we expect global smartphone shipment to decline by about 15% this year. For the second quarter, as our customers stay cautious while pending further visibility into end market demand, we expect mobile phone revenue to decline sequentially, and we will continue to work with our customers and navigate through this period together. Nevertheless, the indispensable role that smartphones play in our daily life, coupled with accelerating agentic AI innovation, support our view that the smartphone replacement demand will recover when the supply conditions normalize. Therefore, we continue to invest in and empower more advanced smartphone.
We have already secured several design wins for our next generation flagship SoC, which is our first 2nm product, featuring a meaningful step up in user experience enabled by stronger computing and AI capabilities. Smartphones powered by this 2nm flagship SoC are scheduled to hit the market by the end of the third quarter, and we anticipate our mobile phone revenue to improve in the second half of the year. Moving on to smart edge platforms. In the first quarter, this group grew 23% quarter-over-quarter and grew 13% year-over-year, accounting for 46% of total revenue. Our global market share gains were a key driver of both sequential and year-over-year growth. We also saw a sequential demand recovery as demand rebounded from a seasonally weak fourth quarter.
We are pleased that several new projects that we have cultivated over the past few years in collaboration with top-tier consumer brands, notebook makers, telecom operators, car makers, and CSPs have begun or are expected to start volume production in 2026. We expect small edge platforms revenue, excluding the contribution from the new data center ASIC project, to grow by double-digit % this year. This is mainly driven by our global share gains across connectivity, computing, and automotive products. To a lesser extent, higher blended ASP for certain TV SoC to reflect the increasing DRAM costs. As these drivers continue, we expect smart edge platforms revenue to grow sequentially in the second quarter. In the future, given our leading technology and product roadmap, together with agentic AI trend discussed earlier, we are seeing structural growth opportunities for edge devices.
The strong lineup of our advanced computing solutions allows us to expand in multiple areas such as high-end computing devices and automotive. Specifically, last week at Beijing Auto Show, we showcased our 3nm Dimensity Auto Agent AI cockpit solution, which enables active and intuitive in-vehicle agent features for both drivers and passengers. We have received very positive feedback from customers. Moreover, we will be leading the automotive industry to migrate to 2nm process technology to enable more innovation. Building on our strong connectivity foundation, including Wi-Fi 7, 5G modem, and 10G-PON, we continue to lead the market with next generation Wi-Fi 8 and 5G NR NTN satellite solutions to achieve faster and more seamless connectivity. We believe the combination of strong computing and connectivity capabilities will make MediaTek a strong partner for agentic AI device matrix.
Moving on to power IC, this group accounted for 5% of total revenue in the first quarter, increasing 14% quarter-over-quarter and 11% year-over-year. In the second quarter, we expect our IC revenue to be flattish. Moving to the guidance. In the second quarter of 2026, we expect the revenue growth from smart edge platforms to partially offset the weakness in our smartphone business. Quarterly growth margin is expected to be stable within the current range. We expect our second quarter revenue to be in the range of TWD 140.2 billion-TWD 149.2 billion. Flat to decline 6% sequentially and down 1%-7% year-over-year at a forecasted exchange rate of TWD 31.5 to $1.
Gross margin is forecasted at 46% ± 1.5 percentage points, and OpEx ratio is forecasted at 31% ± 2 percentage points. For the full year, we expect revenue to increase by mid to high single-digit percentage in USD year-over-year. Meanwhile, through disciplined pricing strategy, we aim to sustain our full year gross margin within the current quarter guidance range. We will continue to build long-term growth both at edge and in the cloud. We are highly focused on disciplined execution across our growth opportunities. I expect these efforts to drive significant operating leverage over time. This concludes my prepared remarks. Thank you.
Thank you, Rick. Operator, we are now ready for Q&A. May we please have the first question?
Yes, thank you. We're now in question and answer session. If you would like to ask the question, please press star one on your telephone keypad. Please ask your questions after your name is announced, please limit your questions to two at a time to allow more participants to join the discussion. After two questions, we will move to the next caller. Should you have more questions, please press star one to come back to the queue. To cancel your question, please press star two. Thank you. 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. Our first question will be Bruce Lu, Goldman Sachs. Go ahead, please.
Thank you for taking my question. Congratulations for the recent progress for the ASIC project. I want to ask more about your next project. After you successfully demonstrate your SerDes I/O technology, which is already proven a global tier one, can you do more? I mean, can you do compute I/O, other functional die for your customer for the next project? For the ASP, as you provide a lot more value than in comparing to the first chip, our recent research suggests that the pricing is meaningfully higher than the first one. It seems to be like too meaningful to be true, I want to get some color in case I made a mistake in my assumption. Lastly, for the gross margin and operating margin.
As you provide a lot more value, can we assume like higher gross margin, operating margin compared to the first project? In summary, my question is like, can you do more than I/O die for your next project, and can you update the ASIC TAM in 2028?
Again, first, we cannot comment our customer's chip architecture clearly. However, what we can comment is we are adding more value in various ways, including silicon and packaging, both. Of course, together with our IPs, so it is die-to-die, et cetera. As you probably can imagine, the second chip is, well, first is a second chip, and it's the next generation. It certainly will. If you look at the track record of the previous generations, Again, it is fair to view the second generation chip to a much stronger, also bigger chip. The value covers from both silicon and packaging. We, and we are gaining values in both areas.
With the value going up, we certainly, I think, will have a higher pricing for such a much more powerful chip. I think this is a require, as I stressed before. We continue to work with our customers to also enhance their own capability. That's, that's always at the heart of our business model with our customer. It's a win-win situation. We together add a lot of value to their chips, and the customers can utilize those powerful yet power efficient chips to implement in their data centers and provide a lot more values to their customers. I, I think that's basically how I would address your question. Thank you.
Do you have the updated number for the addressable market for ASIC? I think last time you were talking about like, I think it's 70, TWD 60 billion-TWD 70 billion, you were starting in 2028. Do you have updated numbers?
Yes. I mean, sure, we have done kind of a first-order estimate. The market, the market is changing so fast, well, as you can attest from just less than 24 hours ago or the announcement from the four major CSPs. Everybody can see that the demand for the data center infrastructure, data center computing power is just continuing to grow, and if anything, continue to accelerate. Our estimate, in my mind, is first order in nature and I don't know it's conservative or not, but it's not really aggressive. We now view the market size to be about TWD 70 billion-TWD 80 billion in 2027. That's our view now. Thank you.
Thank you. Okay, my next question is for the packaging solution for your ASIC business. It seems to me that MediaTek choose a different path for your next chip, which is not the mainstream solution, at least not for now. Can you provide some color that how you manage the execution risk? Do you have a backup plan if things are not moving in the right direction, or you are comfortable with the recent technology progress of your partner? I think this one is definitely one of the biggest concern from the investors. Any color would be appreciated.
Again, we cannot comment specific technologies that we are doing together with our customers. I think suffice to say that we are investing in two packaging solutions, packaging technology solutions. Because in the industry, the demand in the AI infrastructure being so demanding, packaging is now becoming a really, really critical part of the overall total solution. We need to invest in various technologies so that we can better prepare ourselves for various demand from various customers. We believe, we understand your question. We believe a second approach of the packaging solution has merits, good merits. Technology-wise, execution is getting quite good. We are, again, we are working closely with our partners for both packaging solutions, and we will provide a good high yield solutions to our customers.
I have no doubt about that in my mind. Thank you.
Thank you. I'll go back to the queue.
Thank you. The next question, Sunny Lin, UBS. Go ahead, please.
Thank you very much for taking my questions, and congrats on the very encouraging progress made for the Cloud ASIC project. My first question is, double-check. Rick, did you just mention, now you're expecting the addressable market for Cloud ASIC to be TWD 70 billion-TWD 80 billion, by 2027, not by 2028?
Correct. You are correct. Yes.
You are still expecting, a share target to be 10%-15%?
Yeah, we keep that for now. Yes.
Right. Good to know. Well, my first question, is, given, what, the CSP client released on the product, last week, it seems like, the project that you're working on, should be for training. I think that's a bit surprising, and that should be a good setup, in terms of the volume potential. Now, if your project is indeed for training, then how should we think about the fair split, of your project in terms of the overall volume, within, the client portfolio, in 2027 and 2028?
Sunny, number one is the architecture of the customer's data center. Of course, it's their decision based on, let's say, as I mean, said there are two chips. Both chips probably can do the job. It's more, well, rack topology, architecture decision. With all that, again, the market, if you look at the total market size, as I just said, we know we're. My last, in our last meeting, we said TWD 70 billion, market size for 2028, and today we say TWD 70 billion-TWD 80 billion in 2027. It's much more. The first order effect is the total growth, the rapid growth of the market, of the demand. We have a tremendous chip together with our customers, and they will be used extensively. I have no worry about it.
I think, I wouldn't say what we worry, what we really focus on is execute to deliver the very strong demand from our customer, be they training or influencing, inferencing. I think, you know, whether it's a T or I, tell the truth, is second order in nature. Thank you.
No problem. Very clear. My second question, if we think a bit beyond, you just guided up the expectation for 2027. You just also mentioned that the next project, which should be ramped by late 2027, I believe. Meaningful contribution going to 2028. How should we think about the trajectory of the growth beyond 2027? If you are able to provide more value and then the product itself, the value is also a lot higher, then should we expect the growth into 2028 to also be quite significant, like maybe you can double or even more than double?
Yeah, Sunny, I think in general for based on the two projects we are executing on, I think for the growth profile from this year to 2027, 2028, that's very clear. In terms of magnitude, especially if you're asking for 2028, I think right now maybe it's too early. It was just a combination of what's availability for the overall capacity and also what's the customer's actually demand profile. Overall, if we think about the year-over-year growth, that one is certain. In terms of magnitude, I guess actually right now it's only April 26th. I think it would be a little bit too early to talk about that. If you're judging from trend and certain perspective, I'm overall, we are positive about that.
Got it. Sure. No problem. Thank you very much.
Thank you. Next one, Laura Chen, Citi. Go ahead, please.
Yes. Hi. Thank you very much for taking my questions and also congrats for the great outlook. My question is also similar to how should we think about the company's product mix profile in like a two, three years perspective? Like Rick just mentioned, if we're assuming like $2 billion contribution for this year, and also assuming that the same like run rate quarterly into next year or even based on like 10%, 15% market share in 2027, that means that the AI accelerator revenue contribution could be 50% higher. I'm just wondering, in the longer term, how should we think about our product mix profile?
The smartphone, of course, Rick also mentioned that we're resuming the growth momentum, but just for maybe a longer term perspective, how should we think about the priorities and also business outlook for MediaTek? That's my first question.
This again, the macro environment, everyone, I think has a pretty clear picture. I don't need to preach the fire. There's no question that the AI, quote-unquote, AI megatrend continues, now that not only from the infrastructure computing power point of view, but also from agentic AI point of view. If anything, this thing is continued to accelerate. It's probably also right to say that for MediaTek, the data center AI business and the revenue will grow quite a bit faster than our more mature SoC business. For the mobile business, of course, this year is facing a pretty strong headwind because of the DRAM supply and pricing.
That being said, we view mobile to resume its replacement cycle in one year or a little more than one year. The growth momentum for the mobile business, I think overall is going to be lower than the data center AI business. We expect, however, the agentic AI disruption, we're bringing new revenues for the edge devices, including mobile phones. On that front, we are quite optimistic, and we will be aggressive in pursuing that new revenues. Everything being said, I still feel data center AI revenue growth will have a higher rate compared to our other SoC business. Thank you.
Sure. Thank you very much. My second question is also about the business model. You work with your CSP customers. We know that seems like the trend of the COT, Customer-Owned Tooling, is also kind of emerging. We understand that MediaTek can provide more value, maybe just not the services going forward, and also more of the technology integrations, backends, design, etc. Just wondering your view that how the COT business model could impact the MediaTek's profit margin or the value of your future design. Thank you.
Truthfully, I think this market is growing fast with size, with scale. Yeah, the first order issue for me or for us is to presence or penetration in this continuing accelerating large market. We will, I'm very confident we will also be getting more designs in this market. Overall, in different cases, I believe we will provide different, how should I say, various degree of values for different customers, depending on customers also. In general is whether overall, if we look at our revenue and the margin, both growth and operating, I think we will do very well. I don't really worry about that. Thank you.
Sure. Thank you very much. Thank you. Next one, Charlie Chan, Morgan Stanley. Go ahead, please.
Thanks for taking my question. Hi, Lih Shyng Tsai, David Ku, and Jessie Wang. Good afternoon. Just want to follow up on the ASIC related question. I believe MediaTek can really add value for next generation 2 nm project. Just in terms of financial assumption, given very large scale of revenue, are we going to see gross margin decline, and whereas the operating margin, net margin probably can keep at the same level? Just want to get a sense about the margin assumption. Thank you.
Charlie, as we, as we planned actually quite a while ago, overall, all the data center project are really operating margin accretive in a very positive way. Mainly due to the large scale, large revenue size. For the gross margin, again, it will depends on case by case based on different business model. Overall, if you think about two-way, the EPS earnings accretion, I think that's certain, sizable. Operating margin accretion, that's also certain as well. Gross margin will depends, but because each project a different business model may be varied.
I see. Yeah. Can I follow up a little bit on this ASIC and move to my second question? Because your industry peer and also kind of end customer also talk about full system support, right? I'm not sure if MediaTek also want to develop a similar kind of customer support for the full racks. If that, if that's the case, whether MediaTek's market share assumption, you just mentioned 10%-15% can further go up.
Well, I think I'm assuming you're talking about the rack solution, selling as a rack. I think that's actually part of the business scope as well. Yeah, that's something we are discussing with our customer as well.
Really? Okay. Yeah, because I was a little bit concerned, some end customer like Anthropic specific require this kind of support. I was very concerned if you can only supply the chip, they will constrain your market share upside. It is glad to hear that you are also working with customer for more value to it for system level. Switching gear to my second question. I also asked the same question last quarter, Rick, right? Last quarter I asked about agentic AI for China, and it was specific on Doubao. Recently you also picked up a trend that Google is trying to offer AI agents on a phone and to link all the different kind of Android apps.
I'm not sure if Rick, you would become more exciting about the agentic AI becomes the killer apps or trigger for the smartphone reserve cycle. Want to get your thoughts about these Android agentic AI developments?
Oh, thank you, Charlie. I mean, I strongly believe that agentic AI is and will be creating a lot more new value and new revenue. It is now, I think, in my mind, quite clear. It's a matter of different ecosystem company, be they in China, the Baidu, Alibaba, or in the U.S., Google, Meta, OpenAI, et cetera, will come out with their solutions for their own models and their own business models.
Mm.
Our job is to I mean, you use the smartphone as in your question. Let me use as the example. With smartphone, I mean, we are collaborating closely with Android to ensure the agentic AI applications will be incorporated in our SoC. Even beyond the smartphones.
I think there is a spectrum of devices from the wearables all the way to automotive that will add a lot more value with the agentic AI. I'm very, very positive and excited about that.
Right.
Yeah.
To realize that, do you need more teraflops, like your MPU capacity to become bigger? Do you think your approach is that to enable or empower your mainstream phone will have this, you know, AI compute power? What would be your strategy and when these concepts can become kind of concrete projects for MediaTek?
We don't view this as a mobile-only play. We do not.
Okay.
We view as a multiple platform play. From all the way from wearables such as AI glasses to mobile, to IoT, to PC, to automotive, for instance.
Mm.
Of course, each. Well, automotive, you can, you can obviously the power, the power, shall we say, the power budget is much, much higher than the mobile. Mobile is what? What it is? eight watts, and there is about 40, 50, 80 watts. In different type of, quote-unquote, devices, the computing power implemented will be very different. As agentic, and, you know, agentic AI comes up, CPU is having a resurgence. The architecture of the computing system for this agentic AI era, within the multiple platforms is a challenge, but also major of major opportunity. Thank you.
Yes, thank you. We're going to take the next caller. Next one, Arthur Lai, Macquarie. Go ahead, please.
Hey, hi, David and Jessie. Thank you and congrats to the strong guidance by ASIC. I have two questions. First one actually is similar to what Laura just asked. When we think about this smartphone revenue, you know, make up 49% of the total, what's the implication to MediaTek's resource allocation, i.e., the 3nm silicon allocation and also your IP acquisition strategy, your team? Thank you. This is my first question.
I think overall, when we look at the AI, we really think about from cloud to edge, they all have opportunity. When you think about the application side, agentic AI will happen on every node, again, from cloud to edge. Currently, due to the overall supply chain situation, the smartphone obviously this year is having some hiccup. It doesn't mean that's due to the demand issue, it meant due to the supply issue or the memory supply issue, to be precise. When we think about two- three years timeframe, we still believe the whole AI demand, if you like, will be across the board, both from cloud to edge.
By saying that, when you look at the addressable market and also from the growth rate perspective, the data center obviously will play a very important role, but doesn't mean actually the edge device, including but not limited to smartphone. Don't forget when we talk about the edge device, which also including the computing device, the automotive, even for the IoT. That's how we see from the market perspective. With that, internally, how do we develop the technology, also develop the resources? The computing technology is the foundation. The process technology is also the foundation. Also the package as well. We will invest all those foundation technology and maybe at different time will have different application on different segments. Okay? It's not exclusive. It's not exclusive.
Obviously, from last year, the DC, and also go for next year, the investment for data center will actually almost, you know, doubled up. Okay? Almost doubled up.
Thank you, David. And the second question, actually, also, recall last time you guided and told us that you will disclose the ASIC revenue when visibility go higher, right? Since that this time, actually we are prudent to revise up the guidance. Can you share with what's the timing you decide to separate the ASIC revenue?
Well, I think we will consider probably starting from next year. Yeah.
Okay. Got you. Thank you. Mm.
Thank you. Next one, Robert Sanders, Deutsche Bank. Go ahead, please.
Yeah, thanks for taking my question. I just had a question around Arm server CPU. I think you have a license, you've licensed CSS. I was just wondering if there's an opportunity to not just sell ASICs for, you know, TPUs, but also to do CPUs for the head node, maybe do LPU equivalents. I have a follow-up. Thanks.
I think for the CPU and also for the edge server, I think there's definitely with the possibility. Currently, I think our focus will start to ramp our ASIC solution first as a first stage. Internally, we also have a team to actively monitor and working on that. So far, at least for the next two to three years, I think the focus will be the ASIC opportunity. After all, the addressable market is huge, and that's something we would like to put as a top priority.
Got it. Just a quick follow-up on packaged optics. How would you compare your capability today to sort of best in class? I mean, would you say you're six months behind, 12 months behind or on parity with best in class? Just so we understand a bit more about your capabilities in-house versus what's out there in the market. Thank you.
I would say we are a late comer. I think there's no denial of that. However, I think again, the technology now is a lot more mature compared to even a year ago or 18 months ago. We now have a very strong partner in Ayar Labs that we can, I think we can catch up and accelerate our progress in the coming couple of years. If you look at the real needs, well, depending on who you talk to, of course, I think it's probably more in the 2029s or after 2028, 2029s timeframe that the CPO will become a must. We feel confident and comfortable that we will be there when the need is there. Thank you.
Thanks a lot.
Thank you. Next one, Bruce Lu, Bank of America. Go ahead, please.
About to join the call a little bit late, so apologies if there's any repeat, repetitive questions. I think my first question is just regarding your comment just now that you are also working with your hyperscaler customer on the potential rec solutions. Does that mean you are actually in addition to work-with on the collaboration of the hyperscalers AI accelerator and ASICs, you are also looking into something networking switch for this related projects? How should we size up that part of the opportunity as part of our-
Sorry. Excuse me. Bruce Lu, we cannot really hear you actually. Your background noise actually is very strong. We can't really hear you actually.
Okay. Can you hear me better now?
Not really, okay. Not really. For some reason, actually, we hear a lot of background. I'm not sure actually if I'm outside or the operator hear the same thing. Operator, do you hear the same thing? Can you hear me?
Exactly, yes. It should be coming from Bruce Lu's side.
Okay.
Hello, can you hear me better this way?
Yeah, yeah. This is much better. This is much better. Okay.
That sounds good. Sorry. I just wanted to ask about your AI ASIC, you know, when you discuss that you are working with your customer on the potential AI ASIC solutions, system level solutions. Does that suggest that in addition to the core AI accelerator project you are working with your customer, you are also engaged with your customers on the potential networking switch and also the related peripheral chipsets and the system level solutions? If so, how should we size up that part of the opportunity? Is it part of the ASIC opportunity you mentioned earlier on this call? Thanks.
I think it's too early to comment all the detail because that's something we're still developing and working with our customer. After all, we need to start to ship our ASIC solution first, and the customer will turn our ASIC actually into the rack. If we get into there, at least based on what the customer providing, actually for the whole rack solution, technology-wise, that will become the customer's product, so will provide by the customer. We don't need to worry about all those details. It's more of the business model. Okay. Again, it's too early to provide all the detail. We'll provide more detail when it becomes material.
Got it. Just a very quick follow-up on this. If there's a business like this, should we consider more margins dilution from this kind of project or not really? Thank you.
Again, it would depends on the final business model, and it's too early.
Okay.
To comment. Yeah. For this year and next year, when we talk about the growth profile, we're not factoring in any rec business, just for the record. It's purely ASIC.
Okay. Sounds good.
Okay.
That's very clear. Second question is just regarding the scarce of the industry supply across memory and also logic wafers. I would like to specifically focus on logic wafers, that this year, because of the mobile demand is probably weaker, that you could reallocate the capacity you got from your foundry partners, convert it more easily to your other ASIC projects. Into 2027, since the scarce of the supply across the industry on the 2nm , 3nm wafers is still going to continue. I was just wondering how you are going to allocate the wafer supply you could get from your foundry partners, between your ASIC project versus your own core merchant business. Thank you.
Well, of course, this question not just for us, it's industry-wide issue. I think certainly, we're trying our events, Process wafers. Let's just talk TSMC. TSMC's investment is increasing significantly. I forgot the numbers, TWD 60 billion.
Right
CapEx. They are certainly accelerating their capacity for the advanced technology, 3 nm, 2nm . We work very closely with our partner. I cannot speak for TSMC, but I do believe when a customer like MediaTek provides tremendous value for the industry, for our customers, and our customers are really doing very well in their market, there will be supply from that point of view. That's, I cannot say exactly how much percentage-wise, but I believe as a long-term strategic partner with our supplier, we will get our fair share of the supply. Thank you.
Got it. I think just a very quick follow-up before I jump back to the queue is that in an extreme scenario, for example, you only get 80% of the allocation versus what you are demanding for those supply on a wafer level. I was just wondering how you are going to prioritize for your customers ASIC projects versus your core business. How are you going to manage it or balance it? Thanks.
Well, again, just like our CEO talked about, that's, the common question all industry players are facing. We will probably not be able to disclose internally what's our rules and policy or strategy. Overall, I guess, we need to consider is, all different factor. We will not be able to comment this publicly.
Yes, thank you. We are going to take the next caller. Next one, Gokul Hariharan, JP Morgan. Go ahead, please.
Hey, good afternoon, thanks for the opportunity to ask a question. First of all, on the data center ASIC business, Rick, I think your bigger competitor has signed this long-term five-year deal with the customer. Now that you have kind of executed your milestone on tipping out and potentially starting to ramp up this business with the customer, should we expect that MediaTek also kind of gets elevated to that kind of a strategic partner status, potentially look to sign some multi-year deals, given that there's a lot of noise in this business, right? If you can give some longer term clarity to your investors, this probably helps you and also helps you to plan your business on a multi-year basis.
Any thoughts around that, Rick, in terms of how you're thinking about it?
Gokul, David here. I think, first of all, we don't really have the detail about so-called all those partnership announcement agreement. Sometimes actually it's, to be honest, actually, nobody know the detail. I think probably the best way to judge is really what's our guidance for the revenue guidance. This is what it matter. If we can sign or you can sign or anyone can sign whatever agreement you like, but by end of the day, it's really whether or not we can deliver the target revenue or higher, like what we upsized this time. I think this is what matter.
Got it. Understood. Secondly, for the second or the next generation project that you're working with this customer, I think Rick mentioned that you are working on two packaging solutions, competing packaging solutions. Just wanted to understand like how do you kind of manage that, like any risk of execution on this kind of project? I think there is a view out there in the market that I think the packaging solution becomes a critical factor in terms of the success of the project.
Could you comment about your perspective on that, or is it like the packaging solution is not really the critical part, it's more on the other areas of execution that basically drive the success of this second project?
Yeah, Gokul. I think, first of all, we will not be able to comment in specific project at what technology due to the fact of this, the confidentiality. To answer your question, maybe, let me try to answer from different perspective. Like our CEO say, we actually invest on two different packaging technology. Probably it's a better way to say it's actually we are the front runner on both technologies. Okay? We try to do is actually we have, one customer or the industry need for digital technology. We wanna make sure we are fully ready and we're the front runner for that. That's point number one. Point number two, go back to TSMC CoWoS specifically. I think we've been working with TSMC very closely on all the leading-edge packaging.
For example, for the N2 or N2 SoC, I think we probably will be the first one to have a test chip out in September this year. Again, I understand there's a lot of fuss and worry or concerns out there, but the better way to think about that is actually we actually are the leading player for all different packaging technology. We are not, you know, override or underwrite any one of that. It's a really balanced strategy and to provide the best solution to the customer.
Got it. Just one follow up on CPO. I think based on your conversation with the customer, what is the timeline for your ASIC customers to potentially need CPO related solutions? Is it in this generation, the second generation that you're working on itself, or is it probably the follow on after that?
I'm sorry, Gokul, you said TPU or CPO?
CPO. Packaged optics, sorry.
Oh, okay. The current project we're working on is actually a TPU, I'm not quite following.
No, I was saying, CPO, co-packaged optics.
Co-packaged CPO. Okay. Okay, okay. I think currently, I think like our CEO said, at least right now for all those projects we are working on and some of them we are bidding on, all the way to 2028, 2029, so far the CPO is actually not a hard requirement. That's why we think most likely will be a 2028 and 2029 beyond. That's why actually we actually said to have a jumpstart to pre-prepare that. I think overall, we don't think we are behind, especially if you're judging from when the industry require CPO, because therefore, you know, you're not gonna see anything come out until late 2028, probably early 2029. So far looks actually, so we should be okay.
All right. Thank you very much.
Thank you.
Yes. Thank you for all your questions. I'll hand it over to Miss Jessie Wang for closing comments. Miss Wang, please go ahead.
Ladies and gentlemen, this concludes MediaTek 2026 first quarter conference call. An audio replay will be available in one hour after the call at investor session of MediaTek website. We would like to thank you for your participation, and you may now disconnect.
Thank you, Miss Wang. Ladies and gentlemen, we thank you for your participation in today's conference. You may disconnect now. Thank you again. Goodbye.