I guess now it's about time to start our Q2 institutional investor companies meeting. Again, please keep on mute your speaker to better process this meeting. And then for today's meeting, first of all, Welcome to our meeting and today's meeting will be hosted by me, Daniel Wang and our CEO, Zhang Yucheng. And as usual, we will start from the Q2 presentation, which includes our 2nd quarter financials and then the industry view and the future outlook for the second half of this year. And now we would like to welcome our CEO, Johnny Shen for the opening.
Before that, again, Here is the Safe Harbor disclaimer as usual. And this meeting will be in English. If you need Chinese Slide please go to the to download the Chinese version. And Johnny and me are also good. Actually, Chinese is our mother tongue.
So if you have any question you want to ask and being answered in Chinese, please let me know. Don't be hesitate to just Yu's Chinese follow-up for your question. And Johnny, please.
Good afternoon, ladies and gentlemen. Yes, Mr. Johnny Shen, President and CEO of LG Technologies. Yes. Again, thanks for attending the Q2 investor conference meeting.
Yes, we appreciate the opportunity to share our Q2 results and also provide guidance for future business. Yes, in case you are not to familiar with the L Chip, allow me to make a company quick update and identifications. Our company is founded in 2003, IPO in 2014. Our current headcount is 4 85 people. Majority of our employees are engineers, about 75%.
Since we found the company, we've been paid about more than 470 designed in leading edge technology. Last year, our revenue about US240 $1,000,000 And currently, we are supporting more than 30 design in parallel. Majority of our revenue are coming from AI and HPC area and we are one of the TSMC BCA members. Quick update for Q2. Yes, overall, we can say We have another good quarter with record breaking numbers in almost all categories, including revenue, net income.
EPS Q2 EPS $5.54 slightly lower than the Q1 number Yes, due to fractional outstanding share increase and also the exchange and weaker NTE exchange rate. Yes. All detailed number analysis will be provided by Daniel in a later section. We had multiple Taebo and Design Wang, mainly the 7 nanometer designs. Leading edge technology businesses remain very strong, especially in GPU, CPU and AI application.
Quick update on financing status. Yes, since the incident happened on April 8, We are working with the customer, U. S. Attorney and communicate with our major supplier very closely. Yes.
Finally, we have achieved a memo from U. S. Attorney clarify the fine tuned product are not subject to EAR. So I think that's a very good progress since the incident. Daniel, please.
For the Q2 financials, the Q2 total revenue, I guess, we already announced the revenue. So the total revenue in terms of the U. S. Dollar is RMB97.4 million, which is 3.9% quarter on quarter and 77% year on year. And for operating income, the operating income for the 2nd quarter is RMB70.5 million which is quarter on quarter declined 1.2%, but for a year on year basis is 101% increase.
The net income benefited from a a little bit higher non operating income. The net income turns out to be higher than the first quarter. The 2nd quarter net income is RMB13.9 million which is 1.7% quarter on quarter 117 percent year on year. As Johnny mentioned that due to the increase of our total outstanding shares because of the realization of option and the strong NT dollar performance. The 2nd quarter EPS is 5.5.
This is the revenue breakdown by application. You can see we are still concentrate in the HPC area. In the Q2, the HPC account the revenue from HPC accounts for 87% of our total revenue and the other three, the consumer networking niche combined accounts for 13% of our total revenue. For this year, the first half, the HPC revenue accounts for 89% of our total our total sales. So you can see we are very concentrated in the HPC area.
For the technological, I can very proudly saying that Altria should be the leader in terms of the process node. For the leading edge technology node, especially for the 7 nanometer or even higher 5 nanometer or 6 nanometer, In the Q2 combined this revenue from 7 millimeter or higher accounts for 74% of our total revenue. And if you combine the 7 nanometer, 16 nanometer and the 28 nanometer, which already accounted for more than 95% of our total revenue in the Q2 this year. And for 2021, the first half, you can see the 7 nanometer accounts for 67% on total revenue combined with the 16 nanometer. These 2 these advanced technology notes already accounted for more than 90% of our total revenue.
And for the regional breakdown, in the Q2, again China is still our major revenue contributor, which accounts for 64% of our total revenue in the 2nd quarter. You can see the others increased by 5% to 27%, which is contributed by our North American and Middle East customer. We have 7 nanometer tape out for our U. S. Customers in the Q2.
I think This trend will continue to the second half or even 2022 as the contribution from non China customer will increase in the future. And for the Q2 2021 operation review, again China HPC chips remain the main growth driver of our total revenue. Production contributions from our major China HPC customer, which Formerly is FATA now is what we called the 2nd largest customer before. Its 7 nanometer HPC chip shipment is the major reason and the major growth driver for our 2nd quarter performance. The gross margin in the 2nd quarter went up slightly because of higher mass production revenue mix.
Our Q2, the mix between design and the production is around 40 something percent to 50 something percent. The design accounts for about the high 40s about our total revenue. And again, our revenue kept concentrating in leading edge process now which is a very obvious trend for our revenue mix. The operating income for the Q2 came at RMB17.5 million, which we are very happy that's up 101% year on year. I think the promising result was mainly due to first of all all the projects went on schedule and as expected.
We get very good revenue support from our suppliers, of course, thanks to TSMC's full support. And the operating expense went down quarter on quarter. As I mentioned in our last conference meeting that for the Q1, the operating expense, which include some one time expense such as the GDI expense, such as the other fractional one time expense. For the 2nd quarter, for those one time items, they are less than the Q1. So our operating expense went down slightly quarter on quarter.
The net income again hits the record high at RMB13.9 million for our 2nd quarter. And then for the second half outlook, I will roughly talk about this outlook and the part. First of all, I have to up to say sorry to all the investor less because the authority warned that we cannot give some guidance in a very clear numerical way. So we cannot defile the numbers anymore. So I would like to try my best to give some directional guidance to you.
First of all, for the industry, the industry wide demand outlook remains bright. I guess many of you already know that there are massive investments into the semiconductor industry, especially for the IC design in both China and North America. So the design opportunity keeps on increasing. So for now, winning project is not is not a concern anymore. There are plenty of projects out there waiting for the design resource.
The dilemma for LG right now is to decide which projects we are going to take. So for the business wise, the industry is very hard. For HPC related design, the demand keeps strong for both the computing and the AI applications, which means the CPU, GPU which is computing and for the AI influence chip training chip all across the board, the demand is very strong. And for the 7 nanometer AI chip shipment, we believe it will become a very important growth driver for our 2nd quarter for our second half this year and for 2022 the whole year. We plan to kick off the shipment for our first 7 nanometer AI chip to very important U.
S. Service provided customer. And we think the revenue contribution will be starting from I think middle of the third quarter and we have very high expectation on the future revenue contribution because it is a high volume project. And our second and the third AI chips to another U. S.
Important customer will sequentially begin shipments right after the first one. So we believe these 2 chip, the revenue contribution will become very significant in 2022. And for the second half, the China HSBC customer, which I call it our 2nd largest China customer, its sevannatto shipment
tapers
because its for the last cycle near the end in Q3. And we don't expect very significant achievement for this project starting from the Q3. But the good news is we expect future demand another future demand for the sanction to kick in in 2022 because this customer won't extra orders for the system. So the demand would temporarily is, but we expect the revenue contribution to grow again from for this chip in in last year 2022. And that's the rough guidance for the second half.
I know
many of
you want to know some revenue or product guidance. In our previous institutional investor meeting, we told that we are aiming on 20% year on year growth for this year, which means close to RMB300 1,000,000. And For now, we are becoming more and more optimistic toward the second towards the Q2 performance, especially for the towards the second half this year, especially for the Q3. In the past previously I think many of you already heard about I was worrying about The Q3 performance which will be a very challenging quarter for Alchip. But for now because the mixed result of, 1st of all, the NII inflow is very strong, the design inflow is very strong and some customers are pulling in the production shipment and then many, many other reasons.
So for now, the Q3 outlook is much, much better than our previous thoughts. And for the Q4, Again, we don't think Q4 will be a weak quarter. Usually Q4 is the high season for our design. I think this pattern will also apply for this year sales performance. And another thing is I guess everybody knows later.
We do believe as long as we can have some breakthrough for the for our customer, we may have asset potential for the second half and year 2022. And that's the I guess that's pretty much all the content in the presentation for today's conference meeting. And then now we are entering the Q and A session. If you have questions, please use the raise hand button And I unmute your speaker. We will take questions.
Okay, J. Lo, iPhone 11, please.
This is Jeff Ho from Macquarie. I know Johnny mentioned that the 5 TM products are not subject to EAR. What does that mean? And what do you have to do beyond that to start shipping again?
Okay, regarding the fate and status, we can only say that we currently have positive results from the lawyer, which is U. S. Attorney. That those projects are not subject to yet. The result we are receiving is positive right now.
And we are processing the BIS classification right now. Other than that, in order to serve the best interest of our customers and the suppliers, we are unable to further state more or comment more on Faitan. Please understand our stance.
Okay. All right, great.
2nd and last question and I'll get back in line. For your 2nd largest customer, which I guess became your 1st largest customer in Q2, what percent of the sales? And can you talk a little bit about what Exactly project is it that they're doing? Just a little more specifics on their product or end product. Thank you.
Okay, the end product is for HPC application. The contribution percentage, I don't have a number. I don't have the exact number in my mind and I don't have the excel right now. But let's say the 2nd largest customer maybe accounts for about 30 something percent of our total revenue in Q2.
Great. Thank you.
Thank you.
Siho, please. Hi, gentlemen. Two questions from my side. The first one regarding the U. S.
Customers first 7 nano chip shipment. How long would that last in terms of the volume production?
Okay. If you are referring to the 1st chip, the service provider in US customer, we don't so far we don't know when the product will end its lifecycle, but at least it will contribute full year next year.
Okay, great. And then any chance you can talk about any 5 nano NRE project we are working on now?
Actually, in previous meeting, I already told that we have 1 full mast, on 1 format, the 5 nanometer format project from, Israel customer, which is AI application. And then now we are in the design phase and hopefully, hopefully, the tape out will be in the early next year.
Okay, I see.
And in the same time, we are currently engaging many talks with customer for the 5 nanometer or 6 nanometer projects right now.
I see.
All right. Sounds great. And also in terms of the Past the booking, I mean for foundry, how comfortable are we getting enough support next year?
I was maybe Johnny can comment later. So far not comfortable the supply chain is a risk to our revenue performance next year for sure, because the leading edge technology know the capacity, the wafer capacity is still tight and the substrate capacity is still tight. But for the first half this year, we did get good support from our suppliers. We will keep on working. But at the current stage, nobody can guarantee how much we can get or how much Lei can give us.
Okay. Siho, let me try to add to that. Yes. I agree with Daniel at this moment. It's not appropriate to comment on the capacity commitment from supplier, not only from wafer, but also from substrate.
I think information is quite sensitive. But based on the track record And based on the history, we should get more than most of people. I think for the first half, Like Daniel mentioned before, I give a full credit to our supplier. Basically, our demand is almost all filled. Yes.
So looking forward for the next year, next year will be very challenging, but we are working with the customer and supplier very closely. Yes, sometimes if necessary, we can do the prepay, we can do something in order to secure the capacity. Yes, right now, I think the most challenging one is not only in the production side. I think the resource is also quite challenging, especially in China region. The design result.
Okay.
All right.
Thank you. Thank you very much. Yes, good luck. Great work.
All right. Thank you. Okay. Charlie, please.
Thanks. Good afternoon, gentlemen. So my question is about your 7 nanometer NIE, does that include any contribution from FITIAN in 2nd quarter or 3rd quarter?
Okay. For the Q2, because the fatal incidents happened in April 8th, we think there were very, very minor revenue contribution from beta in the second quarter. But for The second half, third quarter, we will see. As mentioned, regarding the latent status, we cannot talk into detail for single customer too much. But If there any chance we will fully support FATE and FOLIA design.
Okay. But how about those NRE? I mean, do you continue those designs for 7 nanometer. I mean, it's a kind of the future revenue stream, right? I mean, 7 nanometer
projects. Okay. Yes. Let me try to answer Yes. The patent design, I think is ongoing.
We never put on hold. But the PayPal, I think is we are working with major supplier whether they are agreed to proceed prototyping or not, but design stage, we never stop. So that's why we have we still have a certain revenue Milestone revenue recognized based on the design milestone. Yes, fortunately, today are still few months away from their original table target and hopefully everything goes through, we can table on schedule. But right now, we are recognized according based on the contract without any progress.
Okay. Thanks, Johnny and Daniel. My second question is about the AI contribution. It seems like you're 2nd largest U. S.
Customer, the contribution get a little bit pushed out according to my impression. So can you kind of Refresh the guidance, the AI revenue contribution by the end of 2021 And what do you think that is going to be in 2022? Thanks.
For the AI contribution, I don't have for numerical numbers, exact numbers for you right now, I will check with my itself to get back to you later. But as mentioned, we have very high for the revenue contribution starting from the Q3 this year and especially for next year because this 7 nanometer AI chip is considered a very meaningful chip for our customer. And our customer will use their own chip to gradually replace their current solution. So the shipment volume, we do expect we do have very high expectation. And for the you say, according to your memory, there is delay for our second AI important AI customer, U.
S. Customer. I think the schedule is not off a lot, but there are always some design problems maybe happens caused by our customer or caused by us. But overall the schedule is not delayed a lot. And As I mentioned sequentially, we will see tape outs for our 2nd largest customer in the second half this year.
And we do think the future for these 2 7 nanometer type will contribute us in a quite significant manner next year.
Okay. Thanks very much. I will be back to the queue. Thanks. Thanks guys.
Thanks, Charlie.
And Hanshui, please.
Hi. Thanks, Daniel and Johnny for the business update. Basically, I have two questions. So first one is that, I know that it's still a bit far, but if we look at next year sales contribution from U. S.
And China, are we safe to say that the growth from the U. S. Side will be stronger than China due to the current seasonality that we have.
Okay. Okay. Okay.
Yes. Anseli, let me try to repeat your question. You mentioned The wait between U. S. And China next year, you consider the You're thinking about the China percentage from U.
S. Will increase, right? Is that your question?
The rate as well as the sales growth from U. S. As compared to China.
Sorry, Hanseli, your voice is not very clear. I can't bear I cannot hear you very clearly.
So are you saying Sorry, could you hear me on, is it better? I was saying the sales growth from the U. S. Side as compared to China if you go into next year.
Okay. Sales growth.
Yes.
Okay. Daniel, do you want to comment?
In terms of the percentage, the YY increase, of course, U. S. Growth rate from the current point of view should be higher than the growth rate of China, but the base is different. Our China revenue base is high. So, and there is also another, we see there's another swing factor which is better.
So I cannot give you a firm answer right now, but according to our pipeline and our future outlook, I think from the growing pace North American markets, we have high expectation.
All right. Thank you very much.
Okay. Thank you.
Okay. And Bill, Bill Huang, I guess you are from Merrill Lynch.
Yes. Hi. Thank you. Thank you for the time. Just like to follow-up the question that the gentleman just had.
Could you talk about in terms of the revenue contribution, maybe in the second half or even 2022 between the China and also U. S. Because I look at the China number in the second It seems like the number is still growing quite nicely despite the status being minimal. So I'd just like to get a sense as to what we'll be looking at into the second half also twenty twenty two? That's my first question.
Okay. For the second half, I think, Again, if you look at the 2021 overall, China will still be our most important mostly important revenue source. But for the second half, as I mentioned, our 7 nano HUPC project to our China customer is tapering off and coupled with the increase the tick off of the first AI 7 nanometer AI project to the service provider in North America. So I think for the second half, the contribution from North America will increase in terms of the percentage.
Yes. So Bill, let me try to add to that. Yes, then you also mentioned there's a many factor C. Wei:] C. Wei:] C.
Wei:] C. Wei:] Yes, capacity allocation, whether we can get enough capacity, yes. And also the swing factor from the patent. Yes, if everything goes smoothly, yes, we To itself, I think the U. S.
Growth rate on the second half and the future year, yes, will be quite substantial.
Thank you very much. My second question will be on your R and D capacity because you have been mentioning about you have to choose the project basically. I'd like to just get an update as to what is the RD capacity right now? How many R and D that you have? And also, are you looking to expand into this year and also next year?
Thank you. Okay. So right now, to be straight, our capacity is almost is 100% full, but we do reserve Other than the R and D people taking a project, we do reserve certain percentage like 20% for the future technology developing. And yes, we are doing the hiring very Yes, like I mentioned before, our current headcount is $485,000,000 Yes, ideally by the end of this year, we can be in the $550,000,000 range. That will increase the capacity quite a bit starting from maybe later next year.
I see. Can I have a follow-up on the R and D expansion part because I believe most of your R and D will be in China? And are you thinking when you expand, will you be still focusing China or would you be expanding elsewhere? Thank you.
That will be 2 type for the design, Physical design, yes, mainly in China. But for the packaging type of design, including COVAX, including Circuit design, COT, I think Taiwan will be the area we are growing the resource.
I see. Thank you very much. I'll go back to the queue.
Thank you. Okay, Charlie, please.
Thanks. Yeah. So this question is kind of more industry wise, maybe not just My question is about you have seen lots of China assistant companies, Internet companies, even module house, right, like Sunny Apicel, etcetera, announced they want to do their own ASIC. So I'm wondering, Whether these potential customers really have that kind of capability to do ASIC design? And How do you think those ASIC design can be fulfilled?
Okay. That's a very good question. Yes, because right now, selecting the right customer is one of Our number one priority, we're doing we have a meeting internally talking about the so called internally we call beauty contest, yes, in order to choose the right customer. Yes, some of the system house, they decide to do ASIC. In fact, most of the system house right now, they have a plan.
But we have our right selecting criteria. And yes, basically when we approach This customer, we're doing the two way interview. They're interviewing our executive ability. We were interviewing their front end design experience and also the selling channel etcetera and also funding situation. So I think that will be very complicated process.
By the end, we can say, We do select few of the seasoned households making the late ASIC. But right now, majority of our customer we select Still the ASIC GPU, CPU maker, we consider they have more experience than most of Sysenhalls. I hope that answer your question.
Yes. I think that's very, very helpful. Just want to get a sense whether you notify any kind of dynamic In terms of competing landscape, right? Your interest peers, EDA tool companies, whether they also see the similar demand. And also given such a big demand, whether Or how you are going to retain your talents or compete with those talents?
Exactly. Okay. Yes. And just a follow-up, I think follow-up data 5 nanometer Question from a previous speaker. So I remember you have more than just one 5 nanometer projects.
So how do you define those 5 nanometer project in the pipeline? If we want to have more aggressive assumption, for example, how many 5 nanometer are you engaging and for 2022. How many 5 nanometer project probably you can win? And any Thought about revenue contribution from 5 nanometer for 2022.
Okay. Let me Try to answer this and Daniel you can comment if you have later. Yes, right now at least at this stage, we do have multiple 5 nanometer But to be straight, Charlie, right now, we are when we selecting the customer, design technology is not our number one priority. Yes, we're choosing the right technology, which has a potential volume. That will be our number one selecting criteria.
Number 1, for sure, all our existing customer will go to 5 nanometer sooner or later. Yes, they are doing 7, they have tons of funding, they have to go for 5. So whether we show pushing them to go to 5 or not, I think it's not It really depends on, as you know, 5 nanometer in terms of ROI, in terms of PPA and this is a big Trade off between 5 and 7 and 6, choosing the right project potentially will produce the bigger volume will be our number one priority. Yes, so I can say, we do have a multiple 5 nanometer design, but based on the revenue forecast next year, majority of contribution will be coming from 7 or 6 Okay,
understood. Yes.
One more thing. For the 5 nanometer plane, it's kind of complicated because as mentioned, currently our design resource is very precious. So it really depends on the customers technology. Usually, we want usually based on our experience, a startup company. Now you I guess you know many startup company has very strong ventures ambitious to go directly to the most leading technology note.
But for such kind of customer, we may worry about the Decentralong time will be prolonged or delayed because of some technology issue, because the customer is not that familiar with the technology. So I think the 5 nanometer plan, another dependency is how we view the potential customer, how we view their technology is ready. So I think demand is never a question for now.
Okay. Okay. Yes. So that's all my question. I look forward to your next quarter results and guidance and hope we can get better clarity about the difficult situation then.
Thanks. Thanks, Charlie.
Okay. Hanfling, please.
Hi. Okay. Is my voice clear enough right now?
Much better. Yes, much better.
All right. Okay. So I have a follow-up question with regard to the 2nd largest China Previously you've mentioned that entering Q3 some of their project will start to see some tapering. But Moving into next year, how should we see the contributions as compared to this year from these clients? Yes.
Okay. For mid customer, I mentioned in previous meetings that for this year we have 2 projects in production. The first one the production period starting from last year's December until July this year. So we may see the contribution from this project to taper off in Q3. But in the same time, we have second project, but the shipment volume is not favorable to the first one.
So we expect the contribution from these customer to decrease in the second half. But for next year, as I mentioned, the good news is for the first project. What I said the first project, there will be another demand from our customers' portfolio. So in the same time, we also received other design projects from this customer and we are realizing the milestone right now and the loss design will probably tape out in the second half or the first half last year. So these customers are repeating customer and their project will keep on contribute our sales for sure.
Next year the contribution since we have since there is another system we have to ship certain amount of the chip to fulfill our customers' needs. And if we assume the supply shortage is not an issue. We don't expect I don't expect the contribution will be lower compared to next year and this year.
All right. This is very clear. Thank you very much.
Okay. Is there any question? And again we are we are welcome we welcome questions in mandarin so if you have Questions you want to ask in Mandarin, Johnny and I will be very happy to answer. For the computing type of project. To GPU the project.
Handset maker Xueihanpa, the contribution with the meaning of the high volume project because the China handset brand almost indirect. Daehee Oh, please. Hi, Johnny. Can you hear me okay?
Yes. Great. I just had a, I guess, a bigger picture or longer term question to ask. I saw an article about how we will have used AI to design a tensor processing unit. And I'm just kind of curious, I'll send the link to the article in the chat box, but I'm just kind of curious whether this is something you had heard about and whether you think this could represent a future disruptive threat to you or the IC design industry overall?
Yes.
I was wondering whether you
had any thoughts on Google using AI to design AI chips more quickly and
possible to send to you.
Yes, I'll just include the link to the article here.
Okay. Yes, I can make a quick comment on this. I think that's a similar question I've been asked many times. Yes, to be honestly, I don't worry about the AI to doing the design, especially on the future technology. Yes, because we are doing the AI chip inference or training.
The reason the AI is so useful and so powerful because they have enough data. They inference each other in order to find out the best solution. If you have enough data, Yes, I believe AI can put among all the data, they can choose the best path. But for leading edge technology, so called 5 and 3, they don't have any data, then how can they do any inference. So I think it's AI is very good to pick the right answer among all the data by First of all, you need to accumulate all the data.
You know what I mean? So If you're focused on more mainstream technology, yes, eventually, the desired resource will be decreased. That already happened. It's not future. It's already happened.
When we do the 28 nanometer design, 5 years ago, we need 40 people. Now when we're doing a 28 nanometer design, maybe we only need 10 people. Why? Because machine, They're taking care most of result. They are they can save a lot of unnecessary design effort.
By leading edge technology, when we're doing the 5 nanometer, we need 40 people, need 50 people. It's very difficult to reduce the headcount Unless the design reference become big, data become big. And we can say, I can easily tell 10 years later, when you're doing a 5 nanometer design, you may only need 5 people. That's highly possible. But for currently, if you stick with On the leading edge technology, AI is very difficult to replace the actual design resource.
Thank you very much.
Okay. Thank you. And,
Tina from HSBC, Please.
Hi, Daeza. Thank you very much. Can you hear me? Yes. Okay.
I just have a question on your human resources, right? I think earlier you mentioned we're going to You're trying to add, increase headcount to about 550 by end of this year. I look past 2 years, I think the increase of the employee count, the headcount is actually quite small. I think the year before about 20 people a year or 20, 25 people a year. But last year 426 all the way up to 550, that's like 120 people.
So can I say you're doing this line just based on your project in hand, That's why you want to increase your capacity by so much?
Okay. Let me answer you first. To we actually we have done aggressive hiring for a long time. But in China, since our operation is mainly in China, in China, all the engineering, actually every company is fighting for engineering to increase the design resource. Honestly, it's very challenging right now.
The good thing is, we have advantage in recruiting fresh graduate students from campus because they know if they work in L chip, their value will increase very fast. So that's the reason why Johnny said, we are shooting for 540, 550 by the end of this year. That's because there is another wave of new fresh engineers is going to coming in, in our company. And for the experienced engineers, Actually, the salary is hiking very fast and almost everywhere is fighting for hiring those engineers. So, we have tried our best, but the situation, the environment is very challenged.
And Johnny, you want to add some more?
Okay.
Yes. Based on the history, our headcount increase is not so That's a reality. And for this year, we make more aggressively offer. And to the just Like Daniel mentioned before, it's a 2 new college grads and also we established a subsidiary in a more remote area. I think those area competition is much easier compared to Shanghai and major cities.
So hopefully hiring is easy to keep the employee, reduce the turnover. I think that's some area we need to pay more attention. The 550 is still my goal for this year.
When you say no cause, you mean China or China, India as or Eastern Europe, other country you have in mind?
Yes, we do other At this moment, because for the sake of training and China, because we have a majority for employee engineer in China, expanding in China will be more most efficient. But to be straight, yes, We are also thinking about other countries, like India or others.
Okay. I think you don't really want to talk too much about the DOJ staff or the commerce staff. Can I say is there any implication about the segregation of the Chinese employee or engineering resources and the non Chinese engineering resources won't come into the design required by the U? S. Authorities.
That's why you need to increase the headcount.
I guess when we do I would say when we do the hiring, we mainly pay majority attention to our resource availability. But for the geopolitical issue, of course, we are trying we have planned to, I would say, separate or increase some resource overseas, but we don't feel direct pressure from authorities to ask us doing so.
Got you. My last question is regarding the leading notes on the 765s. Can you talk about what's the proportion of the cohort design Now your customers ask you to implement and how this is going to impact your kind of margin going forward?
Actually, The design resources is to the operating expense item. So for the gross margin, I don't think it has strong relations between human resource and the gross margin.
I'm talking about cohort, the packaging design cohort for you. Yes. So what's the proportion now being incorporated into the project for the 7 and those 6 and the 5? And what will be the impact on your margins for those projects coming to the volume productions?
Okay. Let me comment on the number of COVA's design. In China or in U. S, the major CPU maker or the AI Trending maker, I think they have to use the COVAX. We have a in terms of percentage, I'm not I don't have a number on top of what I have, but we have many, many COWAS design.
Yes, in fact, people consider using 5 nanometer almost of 7, I think COWAS occupy at least 50%. Yes, in terms of margin, COWAS capacity is another challenge Other than the wafer capacity, COOS capacity from the major supplier, I think even tighter. But margin wise, I don't think there's a Big impact based on our current quotation. Yes, I don't think the COVA's design will produce large margin. It's not the case.
Okay. Henry Anderson, please.
Hi. Yes, thanks for taking my question. 2 hopefully quite quick I understand this is a sensitive topic, but I just wanted a little bit of clarity around, is it all 5 TM products that you expect to not be subject to EIR or is it only certain areas such as maybe PC rather than server?
I will say for now, the results we received from the U. S. Lawyer, the result for all the projects are positive. But we for this case, we cannot do any petition because it's not controlled by us. So that's what we can save at current stage.
Okay. That's helpful. Thank you.
And my second question is just around maybe the longer term, your aspirations, your targets to growth. Do you have any kind of targets or guidance for growth in 2023 or maybe kind of a 3 to 5 year kind of growth
estimate. Thanks.
Okay. First of all, we are not releasing the guidance. I'll just say, In a normal year, usually, what the company ask, our sales, our engineer, our usual in usual normal year, we want at least the 20% growth rate. But in the next 2 to 3 years, we still believe the whole ASIC market and the backend design market is very good, is in a very good shape. So usually, we will to adjust our sales target according to the industry status.
For 2023, 2024, I'm sorry that I don't have the numbers of sales growth for you? No, that's fine. Thank you. And, Hensley, your raise hand button is still there. So Are you having questions?
No, I was lower down my head. Thanks.
And the same, Tina, Tina Chen, do you have questions? Your raise hand button is there. Okay. So is there any questions? We take one more question because we are running out of time.
So next question or if you don't have question, we will close today's conference meeting. Okay, I guess that's all for
Tina, are you I'm sorry. I just take it out last opportunities.
That's Yan, sorry. I'm so sorry.
That's fine. I just wanted to check with you because TSMC's cohorts, they actually have the different type of cohorts. I remember they got the So you'll be able to provide all type of the cohorts now given you not only engage in HPC, but also the AI influence or this type of the chips?
Good question. Yes, we can provide all kinds of service for the TSMC available to CoA solution. Yes.
Okay. Do you have any test strip or any design now is within the 3 d categories?
Yes, we do. We have 1 in 6 in 7 and we have 1 in 5. And 7 is already out there and 5 will be come out very soon within a month. Yes.
Is this within the 3 U. S. Chips you're talking about or was it in addition?
No, this is our own test
Okay. Thank you very much.
Okay. Thank you.
And I guess, That's it. Thank you. Thank you all for joining us today and have a good weekend. Thank you.
All right. Thank you very much. Thank you for supporting us. Thank you. Thank you.
Good weekend.