Okay, dear investors, portfolio managers, and the analysts, welcome to our fourth quarter 2023 institutional investors meeting. This meeting will be hosted by me, Daniel Wang, CFO of Alchip, and our CEO, Johnny Shen. So for the next page. Okay, this, as routine, is just a public disclaimer. Next page. Okay, this meeting will be in English. If you need Chinese presentation slides, please go to the MOPS to download the Chinese version. At this moment, I believe you should be able to download the version already. Participants, please write down your question through the Zoom message message board, and then we can answer your question during the Q&A session.
Again, Johnny and I are all Mandarin speakers, so if you don't speak English, you can ask questions directly in Mandarin. This video and audio content will upload to MOPS about 2-3 hours after this meeting. Okay, next page. Again, in case that some of you may not know Alchip too well, Johnny will start with a very brief introduction and then his message to the investors.
Okay. Good afternoon, ladies and gentlemen. Yeah, I'm Johnny Shen, President and CEO of Alchip Technologies. Thank you for joining the investor conference meeting. Yeah, we appreciate the opportunity to share our Q4 and 2023 results, and provide a guidance for our future business outlook. So let me provide a brief company update, as usual. Our company was founded in 2003, IPO in 2014. Our current market cap is a little bit over $10 billion. Current employee around 600 people. Since we founded the company, we've been successful, tape-out 500 design in leading-edge technology. Within 500, more than 55 are FinFET technology, and we have more than 15 CoWoS tape-out already. Last year, our revenue was $978 million.
Compared to a year before, we have a significant amount of growth. 85% of our revenue is directly coming from HPC and AI area. We are the TSMC 3DFabric Alliance member, and also joined the VCA since 2009. Our current capacity is 20-30 tape-out new tape-out annually. Our market focus is HPC, AI, and also automotive. Let me provide some update. For Q4, we are pleased to announce another record-breaking quarter, historical high for all numbers, including revenue, operating income, net income, and EPS. The detailed quarterly breakdown and comparison will be presented by CFO Daniel in a later section. Now, as for 2023, allow me to provide us a summary and recap. The past year is truly exceptional for Alchip. Let me highlight some major achievements.
As for the financial performance, our revenue reached TWD 978 million, more than doubling compared to previous year, with net income TWD 106 million, and EPS TWD 45.5. This figure represent a historical high and significant growth year-over-year. In terms of share performance, our share saw extraordinary, extraordinary growth, from TWD 988 at the beginning of the year, to 3,275 by the year end. This is a TWD 2,500 appreciation, sharper than TSMC, sharper than Taiwan Stock Exchange record for biggest stock dollar amount gain within a fiscal year. It also make Alchip share price the highest among all listed company in Taiwan.
As for the market leadership in HPC and AI, most of our AI, most of the AI-related market segment performed very well last year. In terms of HPC and AI concentration and purity, Alchip is the highest among all players. Approximately 85% of our revenue is contributed directly from AI market. ASIC dominance, in terms of ASIC revenue and market share, Alchip has surpassed all other pure-play fabless ASIC company, become the world's number one in this category. Moreover, when compared to several standard product company, for whom doing the ASIC business as a secondary endeavor, Alchip still rank as a leading contender. Successful GDR fundraise. Earlier this year, we completed GDR offering, raising $400 million out of overwhelming demand, $3 billion orders.
This achievement set new record in terms of discount range, overbooking demand, and percentage of long-only fund involved. Now, the fundraise position us strongly to support and expand our current business conditions. As for the future business outlook, demand for mass production in HPC and AI application remain robust. The PO from couple of our largest customer continuously increase, and this year's forecast significant surpass last year's figure. Additionally, several other customer has drastically increased their demand as well. We anticipate substantial revenue production revenue growth for the whole year. Fortunately, capacity-related challenge is much less than last year and the year before. As for the new potential business, we have worked very closely to major CSP companies, and we have several design wins from many AI-related company who are using leading-edge technology like N5 or even N3.
Overall, we are expecting much strong NRE revenue growth for this year. As for the geopolitical risk management, we have successfully diversified our business concentration beyond China to other regions. In 2023, less than 15% of the revenue originated from China. But our future business direction to China remain unchanged. We are continuously believing and support business in China as long as they are financially healthy and complying with the rule and regulation. In terms our workforce, we have embarked a very aggressive hiring plan to strengthen our engineering support in Japan, Taiwan, and Southeast Asia. Currently, we have around 80 people working in Japan. Our Malaysia offices already staff more than 20 employees. The workforce in Southeast Asia is planned to be around 60 people by the end of this year.
This strategic expansion is designed to offer more flexible and cost-effective solution to meet our customers' dynamic requirement in the global market. As for the conclusion, yeah, we are confident that our business is in an excellent stage. We anticipate very strong growth for this year. 2024 is going to be another outstanding and record-breaking year for Alchip. Thank you.
Okay, and then that's the easy part, the numbers. For the fourth quarter last year, as Johnny mentioned, we had a record-breaking revenue and profit. So for the revenue, in fourth quarter last year, the revenue is TWD 291.1 million, which is a 21% quarter-over-quarter growth and a 96.3% year-over-year growth. In terms of the... Okay, please don't use the Zoom functions to disrupt, to disturb the meeting.
Thank you very much. For operating income last quarter is $39.4 million, which is 23.3% quarter-over-quarter, and 96% year-over-year. For the net income is 35.4% for the fourth quarter last year, which is 26.2% quarter-over-quarter growth and 115.7% year-over-year growth, and then translating into EPS of $15.2. Okay, for the yearly income statement comparison, you can see for the revenue part we enjoyed more than doubling growth last year. For the net income part we enjoyed 73.3% year-over-year growth. Next page.
So for the breakdown by application, you can see for the fourth quarter, our HPC related, the HPC here include the AI application, already surpassed 89% of our total sales. And the other networking niche and the consumer makes about 11%. And for the yearly, last year, the HPC related application is accounted for about 84% of our total sales. And for the process node, you may see that 89% of our total revenue belongs to 7 nanometer or even more advanced process nodes, like 5 nanometer and the 3 nanometer. And we did have 3 nanometer revenue starting from last year. And sorry, there might be something wrong here. For the yearly, for yearly breakdown, I mentioned it already.
... for the yearly breakdown, sorry, next page first. I'll look for the correct yearly numbers. And for the revenue breakdown by region, like Johnny mentioned, North American market already become our biggest market among our overall revenue exposure. 67% exposure to North American markets in the first quarter last year. And for the Asia Pacific, it accounted for 20% of our total revenue in the first quarter last year. And for 2023 as a whole, 63% of our revenue contributed from North American region, and the 22% of that coming from the Asia Pacific region. And for China in 2023 last year, the China exposure already down to below 15%.
Okay, for the business review, again, record-breaking revenue. The reason, the reason for this strong revenue growth was because the strong AI chip shipment to the company's biggest North American customer. I believe most of you already know the name of this customer. Another reason, starting from the late 2023, our second largest North American customer, who is IDM, gradually amplified their AI shipment orders to us. We expect the shipment and the revenue contribution from this customer will keep on growing significantly in 2024. For the NRE, last year, the NRE revenue, the design revenue, accounted for around 20%-30% of the total revenue. While the rest was the production sales.
For the gross margin, I know many people pay a lot of attention to our profitability. Our gross margin, blended gross margin last year did went down, from 32.3% in 2022 to 22.3% in 2023. The gross margin went down due mainly to the surging weight of the production revenue. For last year, for 2022, our production revenue accounted for 70%-80% of the total, total revenue. For last year, the production revenue accounted for 70%-80% of the total revenue. Another reason for the gross margin is, for our biggest customer, because of, because the shipment volume is huge.
So the average gross margin for this product is relatively lower to the other products, and lower to our average production gross margin. I think those reasons combined to cost the gross blended gross margin to 22.3% in 2023. Next page. For the business outlook, we believe the AI shipment to the North American customer and the overall demand, the overall AI chip design demand or production demand from North American customers keeps on growing. The biggest customer of us gave us year-on-year shipment forecast for its AI chip strong year-on-year shipment growth. And for the AI chip shipment, yeah, let me sum up. Oh, okay.
Oh, you know, like I mentioned, the biggest one and the two customers all delivered very promising outlook to us. I can remember in our last quarterly investor meeting, we guided to our investors that for 2024, the product, the AI chip shipped to our biggest customer in 2024, will be flat or a little bit growth on quarter-on-quarter year-on-year basis. But for now, we believe I would say, we revised up our guidance from flat to slightly growth, to more than 30% year-on-year growth for this product. And, for the second largest customer, I think the demands, the demand is not the issue. The issue right now is the CoWoS allocation from our tech partners.
... Because this customer is using the CoWoS-S, which is a very tight capacity status right now. So, to see if there is any upside for our yearly revenue target, it depends really, it depends heavily on the CoWoS capacity allocation for our second largest customer. And, for the NRE demand of North American market and China, and, I'll say the NRE demand for AI-related budget remain very strong for the North American region, for both startups and the mega customers. And, for the NRE demand of China, I think the NRE revenue suffered a little bit last year because of the macro environment, the weak macro environment in China. But, we feel the overall demand is recovering starting from the late 2023.
We believe for this year, for the NRE revenue, we may enjoy quite significant growth because of these two markets. Another reason for our NRE growth is the process node migration will continue. The process node migration from 7 nanometer to 5 nanometer, and even from 5 nanometer to 3 nanometer, keeps on moving. It benefits our NRE growth. And we will see very promising growth for our 3 nanometer-related revenue growth, for the year-on-year basis in 2024. Which means we will have significant NRE milestone to happen this year for the 3 nanometer projects. And I believe that's the outlook for the 2024. And now we are going to have our Q&A session. So if you have any questions, please use the Raise Hand function through Zoom.
When we call your name, please unmute your speaker. The first one, I will invite Charlie, please unmute your speaker.
Thanks, Daniel and Johnny. Good afternoon. Congratulations for a very strong results. So my first question is about the industry competition, right? So no doubt the addressable market for AI is growing, but recently you probably noticed that there's an Arm Total Design alliance, and also some Taiwanese IC design companies joined the alliance. So my question is, first, why Alchip does not participate this opportunity? And secondly, would the company consider to build a front-end design service team in the future? Thanks.
Okay, let me take this question, and Daniel can add in later. We all know Arm have the kind of alliance try to put together a subsystem. Before, we've been thinking about, because Arm-related IP, we consider is a soft IP. In usual case, our company involve architecture design, not too much. So we are not thinking about to join this alliance. But later on, after when we talked to Arm, Arm also approached us very aggressively, tried to buy out some of the partnership. We consider that it might be benefit for our end customer. Before, we have a very strong alliance to all physical IP provider.
But for soft IP, in order to save some time and, we may—we consider to join this alliance directly or indirectly. As you know, we have a few portfolio company doing the, and also the partner company doing the front end, and we may consider using them to join this subsystem program. And if we consider there's a certain benefit for both Arm and Alchip, we can also consider joining directly. But right now, to be straight, we don't see any end customer and also potential customer complain about we are not joining this alliance. Yeah, but again, we are... Because Arm, I think, is a long-term partner that we don't against it, we can consider to join. That will be sooner than you expect.
Okay, thanks. Thanks, Johnny. So, I think attached to that question, for example, some IC design peers, like Novatek, are getting some AI startup company in the U.S.. So I'm wondering, besides the bigger CSP you want to engage, do you consider to also allocate some resource for those AI startup company? And, if that's the case, how are you going to differentiate yourself to those potential competitors, like Novatek and Realtek? Thanks.
... Mm-hmm. Yeah, I think, for CSP and other startup company, we have a different approach. Yeah, for CSP, to be honest, I don't worry about the competition at this moment. Yeah, because the selecting criteria for CSP is very strict. You need to have a track record, you need to have a reference, you need to have a production experience, you need to have a CoWoS-related design experience, and also you need to have enough funding. Those kind of challenge we go over one by one, one by one. For smaller company or the new company just consider to do the ASIC for CSP, I think the entry barrier will be much higher than they expect.
As for a startup, yeah, if the startup company has some fundraising or funding challenge, they may consider to use the unproven solution from the newcomer. Now, I think that's possible. We also win a lot of startup company. For startup company, to be honestly, the chance for them to go to production at one shot will be very slim. The reason we are trying to select some startup company as our future customer, there's a few selecting criteria. Yeah, for example, if they're using a very unique technology, either it's a D2D side or on the interface side, we consider they have a trend, we have a brighter future.
We can thinking about from R&D standpoint of view, we want to take. Another example, if a startup invests by some, for example, CSP customer, directly, we consider the production chance will be higher. I think we have a few significant win for startup. I think later on, once both company agree, we can share accordingly. I think that some startup company, even they are, they are new, but are very, very famous in the industry.
Got you. Thank you. Yeah, I will, I will have some more question, but I will be back to the queue and ask a second round. Thank you.
Right. Thank you, Charlie. Okay, Haas, please. Haas of UBS.
Hi, Johnny and Daniel. Congratulations on the solid results in quarter three, and this is outlook for quarter four, and thanks for taking my questions. I guess my first question would be regarding your sales pattern for this year. In the past few years, as you have been ramping up the chipset production for your customers through the year, and therefore, the sales has been more second half weighted. Based on your current order visibility and-
Haas, you can slow down. We cannot catch up with your speed. It's okay.
Okay. Yeah, what I mean is that basically in the past few years, that your sales has been more second half weighted because you have been ramping up the chipset production throughout the year. So maybe you could provide your view on the quarterly sales pattern for this year. Would it be the same as the pattern in the past few years, to be second half weighted? Or do you think this year could be a little bit different? Yeah, that's my first question.
Okay. To be honest, the first quarter, we previously were expecting a very strong first quarter. However, because of the manufacturing issues and the Chinese New Year, the first quarter actually will be still strong. We believe for the first quarter, we can still post quarter-on-quarter growth. And, for the whole year seasonal pattern, right now, we expect quarter-on-quarter growth for each of the quarter sequentially for the rest of this year.
Okay, so you mean throughout the year, you expect QOQ growth for the fourth quarters in this year. Okay. So what are the positive and also negative factors for your outlook in second, especially in second half this year? And, I think a separate question is that, do you think NRE mix will be higher compared with the previous few years for this year? Thank you.
For sure, for sure. As I mentioned, the NRE revenue, because of the reasons I just mentioned, we do believe our NRE growth could be significant this year. To be honest, for last year, our NRE revenue was not like what we expected previously, because the China market status was really, really bad, due to the funding, due to the macroeconomic environment, due to the geopolitical restrictions. But for this year, as I mentioned, the demand, the NRE demand in China, seems recovery, and we do receive pretty good project inflow this year. Mm-hmm. Yeah, let me add more. As for production, the demand is absolutely no issue. The challenging side is still from the capacity.
Yeah, fortunately, one partner lines capacity already, we already allocate to a certain degree. That ensure our production revenue grows, and our upside will be coming from additional capacity for our second largest customer. Demand is also very strong.... but, capacity is more challenging for the second logic customer, because using different, different solution.
Okay, got it.
Yeah, NRE, I think is very much better than previous years. Mm-hmm.
Okay, got it. As a follow-up to my first question, I think I want to dig a little bit more detail about your China projects. Could you share-
Mm-hmm.
What kind of applications and also which nodes these new China projects are going to use for 2024 and beyond? Thank you.
Okay. Yeah, I go first and then you can. Yeah, for in China, we try to—we try not to touch, like, AI or GPU-related project if they are using the most leading-edge technology, like the 503. But right now, market focus will be automotive, which is going pretty well, and also CPU. Oh, CPU, even they are using the most leading-edge technology, like the N5 or even N3, but the total compute power and also the bus transaction speed will be within the requirement. So these are two area we are focusing, we are focused. As for the more consumer side, I think there's a few opportunity on AR/VR, because the Vision Pro, many opportunity I think is appear in China, so we are taking some of that.
Okay, thank you. Yeah, Daniel, do you have any additional comments?
No, as Johnny Shen mentioned, the majority will still can coming from the HPC sector. Mm-hmm.
Okay, got it. Thank you. That is very helpful.
Mm-hmm.
My second question will be about your growing opportunities on the advanced nodes across high-performance computing and automotive applications, as you just mentioned. We have saw your sales been growing at around 66% CAGR in the past three years, and I was wondering if you could share your sales CAGR outlook or view in the next few years following the strong ramp in the past few years. Thanks.
Okay, I knew that the market has a very high expectation of us, but to be honestly, I would say, first of all, the revenue base right now is already big. As Johnny mentioned, if you take a look at the pure ASIC player, Alchip is already the number one among this marketplace. And even comparing with those mega companies like Broadcom, Marvell and MediaTek, by doing the apple-to-apple comparison for the ASIC business, actually, we were just behind Broadcom. So for next few years, first of all, for 2025, we believe the growth momentum will not be as strong as we've had in 2023. However, we don't see any demand decrease.
The reason for the momentum, for the relatively weaker momentum in 2025, is because we may encounter some generation migration thing. But for sure, for 2026, it will definitely be a very, very good year of Alchip. So I think for the revenue pattern, it will be very, very good this year, slowing down a little bit next year, and then we'll regain the momentum, really good momentum in 2026.
Mm-hmm. Yeah, let me share the general guideline for the company. In usual case, we are targeting, we are targeting like a 30%, minimum 30% YOY in each of the category. For the good year, we can overperform, like last year, like this year, but, sometimes, I mean, our fundamental requirement, I think target will be minimum 30% YOY.
Okay. Yeah, got it.
Mm-hmm.
If I can squeeze in one more question before getting back to the queue. Would you be able to discuss the hyperscaler opportunity you are seeing now, in addition to your existing projects, and would those new potential hyperscaler opportunity be meaningful for your revenues in 2026, to sustain your lower terms from growth? Thanks.
You wanna go first, or I got you go.
Okay, okay, it is, Haas, you are so good, you never give up. Okay, for the other mega, mega accounts in North American market, to be honestly, the confidentiality requirement right now is through the roof, off the charts. We cannot talk too much about the progress for the project. We are in talk with other mega accounts. However, I will say this way, that, given our good position within the AI, ASIC, marketplace, I believe, no matter which of the mega accounts or the hyperscalers in North America, if they want to do an ASIC, they will give us RFQ. So if you are asking, if we are talking with those hyperscalers or, mega accounts, yes, we are in talk with them. But-... win or lose, that's another story.
That's what I can tell you the most about those mega accounts. Yeah.
Yeah, let me add a little. I think Daniel covered it very well. First of all, it's we've been warned, not mentioned by anything so many times on the customer or direct potential customer directly. But right now, I can share each of the CSP are very aggressively trying to minimize the dependency from current single supplier. So the only solution is to go and proceed ASIC. There will be very limited ASIC player has experience. So if market trend like that or CSP continuous growth, we will have. We definitely will be one of the winner. Yeah, as you know, we have a very aggressive year-over-year growth target. Yeah, to win the startup, we may, those kind of company may maybe help the R&D story a little bit.
But fundamentally, the revenue need to grow every year. Our target is very specific. There is no hidden customer. We have to win in order to grow. And so far, I think, the chance is coming to us.
Okay. Yeah, that's very helpful. Thank you so much again, and I will be taking the-
Thank you, boss. Mm-hmm. Okay. Prior to go to another question, I will say, for the message board, I received a question maybe most of you are interesting about. Brittany asked that first, for the NRE, what is the expected growth outlook for 2024, and which quarter, what is the mix percentage of tape-outs from CSPs versus startups? And the gross margin impact, even strong growth in production as well. I would say for the 2024 outlook, I already mentioned. And forgive me that we are not going to give you such detailed information about the status of our business with the cloud service providers in North America.
But I believe for this year, the revenue breakdown, the revenue mix between NRE and the production will be pretty similar, with what we did last year. So for the growth margin, I would say will be still pretty similar. The good thing, the good thing is, first of all, for this year, there will be another, big contributor to our production revenue. Unlike last year, almost, the majority of our production revenue contributed by one customer. And for this year, it will be more diversified. So we expect it will be helped a little bit to our growth margin. And secondly, we are working very hard to talk with our suppliers in order to get better pricing and a better margin. That's for the margin side.
The second question is, Johnny, please share your thoughts on the competitive landscape, given NVIDIA's new AC business unit and ARM's Total Design platform, in particular on competition and the pricing.
Okay, let me try to take that. For competition, I think, yeah, like I mentioned before, if for the CSP customer, I don't worry about the small or new competitor try to win this market. There's a few players we consider will be the major competitor. Broadcom, Marvell, yeah, MediaTek is also a very respectable company. They try to get into this market. They do have some IP solution, and they do have a very good supplier relationship. But I thinking about competition from MediaTek may influence, may produce another choice for CSP. I think that's possible.
But if you look at the design side, for CoWoS related tape-out, for all the track record, we, I think everybody still consider, even the potential customers still consider, Alchip is the one holding the most track record. And also, even different technology, different form factor, we already have a solution for them to select. Yeah, for recently, I know there's a lot of company, the IC company, all kinds of all IC company, even they are set, current market is saturated or they are not doing very well, they are considered to do the ASIC. For those company, I think they have a-- they may have a chance to win mainstream consumer or IoT-related business.
I think, as long as they have a strong design team, they do tape-out, they do production before, we all have some market. I think for those ASIC businesses, the target consumer IoT, those type of that, I think, they may have a chance to win. But for new—again, for newcomer, if you want to win the CSP, that will be very difficult. So overall, let me emphasize again, Alchip will never afraid of any competition. Yeah, we don't—we always sharpen our, ourselves, yeah, very, very strong. Yeah, we, yeah, we need a competitor, yeah, in order to position ourselves. I'm not enjoy dominating the market.
... So I think for the past 20 years, we're going slowly, step by step, with all the competition, and at the end, we are winning all. Thank you. And then for the total design platform. Oh, on design platform, I also, yeah, I think I already addressed that during the Charlie's question. We are working with Arm right now, aggressively, and we, in the short period, we are consider joining this program directly or indirectly from our portfolio company. Mm. Okay, and Robert, J.P. Morgan, please.
Okay. Yeah, thanks, Daniel. Thanks, Johnny. So, first one is on your existing projects. So can you help us understand about your biggest U.S. customer, the growth momentum for 2025 appears, sounds a little bit softer. Is that due to your conservativeness or is it just we're not sure whether there'll be a kind of transitional product launch or not? Because, I remember same time last year, your guidance for this project was to decline 30% in '2024. And then-
Mm-hmm.
Over a period of time, you revised up the project revenue for this year. We will see a similar trend in the next few quarters that you could revise up the revenue for 2025 as well. And then for this project, you seems to have won the next generation, and that will ramp up from 2026. Can you help us understand how to think about the growth margin for this new product generation starting to ramp in 2026?
Okay, Robert, your question is long, but my answer will be very short. We are not allowed to talk about this customer and his project. I will say this way, for this year's growth, which is coming from the same product we shipped starting in 2020, 2021, actually 2021. This chip is very efficient, and it is a very big success for both our chip and our customer. For the upcoming projects or business, we can only say we will continue our relationship with our biggest customer going forward. That's the maximum we can say right now.
Okay. Thanks. Second, on your automotive project, so I think you have won a big autonomous driving project with the Chinese OEM, and it sounds a little bit quite positive on the China auto customer for this. So can you help us understand about what should we expect, should we expect another big project win sometime this year? And, for the current project win, when should we think about the mass production revenue to kick off?
Okay, I'll go first, then Johnny may add some color on it. For the automotive customers in China, we believe the customer is actually the jackpot. This customer is, I would say, the most wanted customer among all the China automakers, even include BYD. So, the outlook and the forecast for this project is really promising. The only concern, or I said, the only worry is the scheduling, because as I mentioned to the investor many times, that for the automakers, they are new to doing a chip, so they need a lot of supports from front end and the back end. So, if the schedule is perfect, we will have the production revenue contribution starting from 2025.
However, for the scheduling, if there is some delay, we may have limited revenue contribution in 2025. The massive contribution will be in 2026. So, if you are asking me about the schedule, yes, we do worry. But you are asking, asking me about the volume, the forecast, and the extension, they are all very positive to us.
Okay. So my last question is about your second biggest customer for this year, the IDM customer. How should we think about the future outlook, say, in 2025 and 2026 and beyond? Because this IDM customer seems to have some some in-house AI projects that based on their product roadmap. Yeah, so can you help us understand about this project outlook in the longer term?
Okay. For the IDM customer, I would say this year will definitely be our second largest customer, and they contribute us a lot by comparing with the contribution in last year. For this customer, we support their 7-nanometer and the 5-nanometer chips. We do believe that for the 5-nanometer AI chips, the shipment will extend it to 2025. For now, the information we've received is too good to be true. Yeah, another too good to be true. But we believe, given the profile of this customer, the shipment volume, the messaging we've received, there are certain, yeah, there are certain chance we can, we may have it in 2025. If that happens, 2025 will be another good year to us.
Like you asked, that this customer, it is an ideal customer, will they bring back the project, the future project in-house? I would say possible, but we will try very hard not to let this happen. We will keep on delivering our value and show our value to the customers. Yeah. Okay. Let me add some color for this. Due to a reason, yeah, a specific reason, and I have a chance to meet the division leader from this chipmaker. I think, personally, he has a very high confidence on the result. It's a 5-nanometer design. They say it's in the current market, it's very difficult to find any chip again has a higher performance than this, in terms of interface, even in terms of performance.
So the forecast they give us is just the capacity we receive for this year, just maybe little bit over, like 20%. I think eventually, according to them, the volume will be very significant. I think the most of the volume will be will happen on 2025. This year, I don't think the upside for CoWoS-S will be too much. I think that's the way it is. Okay. And let me go to the next questioner. Szeho, please.
Oh, hello, Johnny. Hello, Daniel. I have a few questions for you. First one regarding our IP collaboration with Synopsys. When would the IPs be available for customers, and when should we expect the product starting to come out?
Si Ho, are you asking me about the partnership with our IP supplier?
Yes, Synopsys, the IP co, co-development.
Okay. I would say it echoes to the question on the message board, that there is a question, could you talk about how the Alchip's partnership with Synopsys, what is the value proposition here that differentiate Alchip from the other in winning projects? The solution looks very unique, very large size, very large die size, eight HBM modules, two 24 giga, two 24 giga surface. I don't know what is, how come you know the numbers, but I would say our partnership is kind of, it's right now is, I won't say conceptual, it's already consolidated, but not connected to any specific project so far. And for the partnership, I would say Johnny is a better speaker than me.
Yeah, I have a frequent meeting with their new CEO and also all the IP leader quite frequently. I think right now, we can say the two company are complementary to each other. Why? Yeah, I think it's very easy. For the standard product company, in usual case, they're doing their IP by themselves. The common interest for Synopsys is a CSP provider and also system provider. But CSP and system provider not only need IP, but also need a ASIC provider. So by natural, it put us together, I think, very closely. We try to win together.
Yeah, as you may see on the news, starting from last year, both Synopsys and Alchip are join a lot of event. For example, TSMC OIP, our CPO and also the Synopsys IP leader, we have a co-presentation at every single event. Yeah, so looking forward, I think there's a lot of thing may happen. Yeah, we never compete each other. It's quite complementary. Again, according to them, that's the same word they say, they consider Alchip will be the best partner for them.
I see. And in terms of investment, can you talk about the implications and how much we would contribute to that IP co-development project?
You are saying how many projects?
Mm-hmm.
For-
Oh, no, no, no. I mean for the IP co-development, how much money we need to-
Co-development? I think we are not trying to involve for IP development. We're just working with the Synopsys very closely, tell them what potential customer need. Yeah, in terms of our IP has the cooperation. I think every year, we majority of our tape-out using Synopsys IP. I think in terms of IP user, we are the one of the biggest customer for Synopsys for years. Yeah, the IP, the new IP design, again, we are not yet try to, we, we try not to get involved for any analog mixed signal IP design. We just tell working with the Synopsys and potential customer, identify what they need and what's their roadmap, and Synopsys will doing the design forward that direction.
I see. All right. Second question.
Mm-hmm.
I think, earlier you mentioned that for every year, the company will focus on around 20, 30 NTO project, right? Every year. So going forward, should we expect the number of projects to grow over time, or the company will be more selective in picking the project with the biggest potential, biggest benefits to the company?
Okay. We don't intend to grow largely the number of customers, or tape-outs, or projects we are doing, which means it requires considerable design capacity expansion. We want to choose the project wisely, because you can see only 1-2 projects can constitute the majority of our revenue. Given our position right now is really good, we want to win those so-called important projects, rather than those projects that only deliver very small amount to our revenue and the profit. I think the purpose to maintain the number of annual projects we can do is to maintain our technology, to keep our engineers busy in order to take important projects. That's our intention.
Yeah. The goal is remain the same. We plan to tape-out 20-30 design every year. Yeah. We all know every single company is quite similar. Top five customer can dictate more than 80% of total revenue. But for us, I think in order to bring continuously position ourselves as a leading ASIC provider, and also bring the ecosystem, and also getting more design reference, we will maintain the capacity for 20-30 tape-out. The headcount will be increased accordingly. Yeah, so for leading edge technology, so for your information, 5-nanometer, we may need about 60-70 people. Three nanometer, usually we need about 80-100 people. So I think in order to maintain our design capacity, we, our headcount will be grow accordingly.
I see. Very good. And last question. Yeah. Right now, our foundry partner is TSMC, but would some point in time you would consider to explore the engagement with some other foundries, let's say, the ones in the U.S., focusing on leading edge?
So far, we don't have this plan.
Mm-hmm.
Yeah. Uh-
All right.
Right now, I think, yeah, the partnership with the TSMC is still very strong. Yeah, we all follow the guideline for VCA status. Yeah, if the customer really want to go for the other foundry, and that will be the prior notice and last look, those kind of requirement from TSMC, I think. In fact, we are happy with their support and also capacity.
Okay. And, next one-
Okay, thanks.
Okay.
Yes.
Yeah. Hi, Johnny. Hi, Daniel. Thank you for taking my questions. Just one quick follow-up on what Johnny just mentioned about the capacity, the HR that you've been expanding for the R&D going forward, given that we have been getting more 3 and 5 nano technology going forward. And what kind of the expansion are we looking at? And would you be able to break down into the geographical, let's say, Japan, Taiwan, or outside of the or Southeast Asia? So any particular part you know project that you could actually share with us? That's my first question.
I think the Malaysia subsidiary is the one we want to grow our engineer number aggressively this year. For now, we have about 20-something people there, and by the end of this year, we are planning to have, like, 70-80. Yeah, that's the target for our headcount growth in Malaysia. For Japan, I would say the majority of the headcount increase is from the engineer relocation from China to our Japan office. And of course, we will also do the organic growth for the engineers in Japan and Taiwan. But the overall pace will be much slower to the pace in Malaysia. And then for this year, we will kick off the Vietnam plan. We also plan to have a subsidiary in Vietnam to extend our engineering tool.
Yeah, in terms of geopolitical breakdown, my goal remain the same. By the end of this year, China and non-China engineer will be 50/50. The non-China one, including the engineer, are willing to work outside of China. I think, right now, I think so far so good, our that direction.
Got it. Thank you. And just quick follow-up on, in terms of the total R&D, what's the number right now, and what are we planning on for this year and next year?
RD, are you saying the designer?
Yeah, the engineer, you know, for your, for your NRE project.
More than 300. Yeah, the doing the design. Total engineer, we have 600 people. 75% of our employee are engineer.
Okay, got it. And my second question will be on your EV, or the auto-related. Because we've been seeing that it could be a post-growing potential business for us in the next few years to come. And do you have a forecast in terms of the revenue for this year and the next year or even the year after, in terms of the rough number? Because we have been hearing mostly about the HPC. Just wondering, is there anything outside of that, that we could, we'll be able to see some meaningful growth? Thank you.
EV? Electric. Oh, electric, EV. Okay. I would say not limited to EV. I would say it's automotive chips. The autonomous driving, obviously, we believe will be another revenue contributor in 2025 and 2026. And of course, we will receive quite good amount of the NRE revenue this year. And, yeah, besides that, I would say, regardless of the applications, the leading edge and the big chip is our focus. So for any application requiring leading-edge process node and large-scale design, it fits our business model.
Okay. Got it. All right. I'll jump back to the queue. Thank you very much for your answers. Thank you.
Thank you. Okay. And, Joy. Joy, please.
Hi, Daniel. Hi, Johnny. Thanks for taking my question. I have two questions here. First, Johnny, I think for your opening statement, you mentioned about the order size is around TWD 3 billion. Did I hear that correctly?
Hmm? Order size?
Yeah, like, I think, like, Johnny, talk about, like, TWD 3 billion order, like, or, I might misheard it.
3 billion order, that's a GDR. We are raised, we are-
Understood.
Successfully, yeah, raised $400 million out of $3 billion orders.
Understood.
That's the GDR.
Understood. Yeah, and the second question is on the gross profit margin. So Daniel, you were saying that as 2024 will be similar to 2023, but-
Yeah.
Like, yeah, but given Alchip's, like, second to Broadcom now in ASIC, like, should we expect, like, any, like, gross profit margin benefit, like, from Alchip's foundry partner in 2024? Or is the-
Mm.
The 2024 margin upside mainly come from the NRE increase?
Yes, you can expect that. But to be honest, we want to be conservative because we don't want to deliver too optimistic information to the investors. To talk with suppliers and the customer, especially for pricing, is really difficult. For now, we are more confident that for the supply side, because our position within our foundry partners is getting better and better. So we are pretty confident we can get some room from our suppliers. But for customers, doing business with, especially for the North American customers, it is very hard for you to expand the margin, especially for the same project. If we are talking the new project, maybe, but for the existing project, it is really difficult to extend the current growth margin for the existing projects.
Understood. So the margin bump for new project, that's from the pricing increase you mentioned earlier, I assume?
Mm-hmm.
Okay. Thank you so much.
Thank you. Thank you, Joy. And there is a question on the message board. Do you have more than one auto customers? Do you have auto customers outside China? Yes, we do have. And the question is, can you do project for 18A or 14A? Well, I don't really understand what is the question, so we will jump over it. 18A and 14A. Yeah, we—sorry, we don't really understand. Oh. Maybe N18, N14A? Oh, Intel. Intel. Oh, Intel. Okay. Oh, Intel. No, we currently don't have the plan to go to Intel for the projects. And Charlie, please.
... Oh, thanks for squeezing in for some follow-up questions. So, first of all, you kind of revise up your revenue growth outlook for the major North American customers. So may I get a sense what is the reason behind? Is it because of the more CoWoS capacity, as you said? And also after this kind of CoWoS supply increase, do you feel like these U.S. customers demand totally get fulfilled? I mean, whether there's a further upside for this customer in the rest of this year. Thanks.
Mm-hmm. Yeah. The demand for this specific customer we mentioned about many times this year is surpassed last year's figure. Yeah, I honestly don't quite remember what precise the number percentage we are we discussed on the previous meetings. But to make it simple, yeah, the number, the forecast we are receiving keep increasing. We never revised down any numbers. So I think this year is going to be a very, very good revenue produced by this specific project. 7 nanometer is people consider is the most cost-effective, yeah, solution. So, so I think the... Yeah, the capacity issue is solved. I think the revenue expectation from this project will be very high for this year.
Okay.
Okay. Please, please believe me that the guidance, the number guidance for the shipment, for everything I, we gave, is conservative.
Okay, okay. Yeah, I will believe you. Thank you.
Mm-hmm.
Yeah, so, and Daniel, just as some housekeeping question, I remember you write, wrote off some, NRE from Japanese customer in last two Q. Have you fully write back those, those, receivables?
Not yet. Not yet. We did receive some, but not the whole amount we write off last year. But no, no more bad debt from these customers.
Okay, so-
We won't write off any more debt.
Okay. So what was the financial implication to your marginal OpEx on this event?
If we can receive the amounts, of course, it will goes to the profit. So it's, there will be only upside, no downside for these customers at that.
Okay, got you. So I saved the one of the interesting topic at very, very last. Maybe Johnny or Daniel, if you can share your view on this topic. I believe you see the news about from Reuters, I guess. They said NVIDIA is building a team to do the custom chip for CSP customer. So wanted to know from your industry source whether this is reliable and whether they will impact your future market share as well. And also from NVIDIA's recent results, right? One surprise is that they said 40% of their GPU is now for the inferencing.
So do you have a concern that NVIDIA's GPU will continue to be very competitive, and they will kind of constrain the future growth of ASIC markets? Thank you.
Mm-hmm. Yeah, the... I also see the news. I think everybody does. And once this news announce, I will see a lot of text message. So overall, I don't think that's Yeah, to be honest with you, I don't think it's the right thing for NVIDIA to do. There's a big conflict between standard product and also the ASIC. Yeah, if the target market is the same, yeah, as you know, if standard product owner is NVIDIA, if the ASIC owner is their end customer, so financially, it's a big conflict. If they, if NVIDIA start to do the ASIC, they will, they definitely will compete with their standard product customer. I don't think that's the right thing to do. And also, in terms of gross margin, standard products, gross margin are much higher than the ASIC.
So I think for another company, standard product company considered to do the ASIC because their market are saturated. Yeah, because they are trying to change the gear. But for NVIDIA, they are the winner. I don't think they are—they try to sacrifice. It's, it's not the right move to sacrifice the winning standard product market to the ASIC. Yeah, and, and also, the developing and support effort will be different. Yeah, by definition, ASIC only serve one customer. Standard product can serve multiple customers, like 100,000 customers. If they want to tailor-make, spend a lot of effort, tailor-make the, the product to serving one customer, I don't think that's a, that's worth to do. And also, the main reason for CSP developing the ASIC, they try to reduce the dependency from NVIDIA.
... Yeah, if they use NVIDIA as a, if everybody use the NVIDIA as a ASIC solution, eventually, I think the market is still dictated by one company. That, that ruin the whole purpose the customer want to do their own design. Yeah.
Thanks, Johnny.
Uh-huh.
Yeah. So yeah, this is super insightful. So just the follow-up, right? I thought the ASIC would be very competitive for the inferencing markets.
Mm-hmm.
But it seems like NVIDIA is also has a very, very strong kind of presence in these inferencing markets. Any concern we should have that GPU will gain share from ASIC in the inference?
I won't say the inference or the training are the key issue, 'cause it all depends on, down to earth, it is the computing power, the cost of computing power. Obviously, ASIC is much more efficient than their product, especially under the current market status that the NVIDIA's product is very, very expensive. And the another key point is, the capacity is limited, and for those big cloud service providers, they have their own plans. And their plans cannot be jeopardized by the shortage of the chip supply.
Mm-hmm.
So to go for ASIC, first of all, to reduce the cost. Secondly, to extend the flexibility and for their infrastructure building, for their future plans. I think there are many, many reasons for that, not because of the applications. Because you can see that for Gaudi, Gaudi is training, and for the others, like, the AWS, the AWS is doing inferencing. And so I don't consider application is the key issue for the future plan of those cloud service providers.
Mm-hmm.
Think about the positive side when I see the NVIDIA news, yeah. Yeah, I consider even almighty NVIDIA start to care about ASIC, yeah.
Mm.
'Cause everybody can see how powerful the ASIC chip it is. I believe they will have a much brighter future on this area.
Yeah. Yeah, thank you.
Mm-hmm.
Yeah, so those are great comments. Thanks, gentlemen. Very, very helpful.
Thank you, Johnny. Okay, prior to go to Johnny, there is a question from Rick Capital in on the message board. "Management, could you please share a little bit more color about why you revise up guidance for your largest North American customer's growth this year recently? Is this because of new project gains, or because of longer than expected lifespan of existing product lines? Thank you." I think, the answer is really straightforward. First of all, it's the existing product. We will keep on shipping the 7-nanometer products to this customer, and the shipment volume will enjoy pretty good year-on-year growth.
The reason, to be honest, we are also doing the test, that I do believe the end demand drives the shipment up. Because as I mentioned to investors before that, this tape-out success is much, much, much better than our team's expectation and also our customers' expectation. So, yeah, I would say the lifespan and the demand increase simultaneously. And for the future projects, forgive us that we cannot disclose the whole story for these customers anymore. Yeah. Yeah, as I mentioned, we will keep on working with this customer for sure. We are long-term partners. And go back to Joy.
Hi. I'll also want to follow up on the, the ISP project. So I think, like back in 2023 Q2, I think you guys mentioned that the ISP project should have very high volume shipment in early 2024 Q1. Is that still on track?
Mm-hmm.
And another thing is, I think you guys also mentioned that for a main chip win for North America handset, which will start in mid-2024. Is that still on track? Thank you.
Okay. I guess there was some wrong information received, that the ISP chip is not for North American customer, it's for Japan customer.
Yes.
So-
Yes.
Yeah. Yeah. This customer, we believe the shipment will begin this year. However, we don't see very strong order inflow, because maybe the end application market is still weak, I think. So, like I mentioned, for consumer type of product. The single chip price is not high, so it relies really on the end demand of the market, and the consumer market is really difficult to predict. So we intend to be conservative on the revenue contribution from this product. However, for HPC, especially for the AI chip, I would say it's not that involved or related to the consumer sector. It's more related to our customers, customers' demand. And, obviously, for those AI chips, they are dealing with so many different things, like the short video, the social media content, something like that.
The demand are still really strong. So we don't worry too much about HPC-related demand, and we still believe this marketplace will be the major application for our future growth for sure.
Understood. Thank you.
Thank you.
From Mike Young, sorry, I can't use the raise hand function, but appreciate it if management can take my question. If the supply constraint alleviates on the fab partner side in the future, especially for the advanced packaging, will Alchip still need to do the fundraising for backing up the working capital?
Mike, I would say it really depends. Depends on how big the jackpot we could win. For example, if, if we win a very, very big project from those mega accounts, maybe we need another fundraising to support the project. Actually, anything like that happens is really good news to us. The project scale, we are talking about more than $1 billion revenue contribution per, per chip annually. So yeah, it really depends.
Yeah, so far, like I mentioned before, we have enough funding to support our current project, even with the upside. Yeah, unless we win another jackpot, I think... otherwise, I think the funding is good enough. I think the market, Mike, another question is asking for the constraint from the partner side and the futures. Okay, yeah, let me try to cover that. Yeah, right now, we all know the biggest constraint on the capacity is package CoWoS related capacity. Yeah, when we talk to end customer and also the TSMC, as soon as TSMC can provide sufficient capacity, we will not go through other alternative solution.
But on the flip side, if capacity continuously facing some challenge, customer may consider to use the another offset type of solution. The chip on wafers they are doing in TSMC. The wafer substrate, they can consider use the offset solution. If TSMC CoWoS capacity continuously facing a certain challenge.
Okay, and the time is late, and if there is no questions, let me do the remedy for the presentation part. That's for the breakdown, for the yearly breakdown of our... Sorry. Yearly project node breakdown. For 2023, I'll say, 89% of our total revenue exposed to 7 nanometer or more advanced process, you know, like 5 nanometer and the 3 nanometer, 89%. And the 4% to 16 and the 12, and the 5% for 28, and only 2% to 40 nanometer and more legacy nodes. That's the breakdown. And then updated slides already to the MOPS/MASS, so you can download it. That's correct slides. Sorry for that.
Okay, brother, please.
The last few questions, okay? Yeah, for this, today's investor meeting.
Hey, just a housekeeping one. So how should we think about the OPEX dollar for this year?
Okay, I would say conservatively, we plan to have about $105 million-$110 million for operating expense this year.
Okay, thanks.
Mm-hmm. Okay, and that's it. I think thank you very much for joining us today.
Mm-hmm.
Thanks for all your support to Alchip these days. Thank you.
All right. Thank you very much.
Thank you. Thank you for your support. Thank you.