Dear investors, portfolio managers and analysts, welcome to our institutional investor meeting for year 2020. For this meeting, since we have the investor conference meeting for the 1st 3 quarter last year. So, this presentation, this meeting will 20 recap. In addition, in this presentation, I, Daniel and our CEO, Johnny Chen, will cover also cover the 2021 outlook. So after that, we will enter the Q and A session.
For the Q and A session, Please use the raise hand function by room. Please click the button and I will unmute you and then you can ask the questions. And then, I guess, By the way, the video and the audio content of this meeting will upload to the months after the meeting closed. It may take several hours and you may watch the video or listen to the audio of this meeting, maybe in the evening today. Okay.
I'll invite our CEO, Johnny Shen, to to the opening of the routine starting from the company
update. Ladies and gentlemen, again, thanks for coming to the investor conference meeting again. Yeah, this is Johnny Shen. I'm CEO and President of company. Once again, allow me to do the quick company identification and update again.
Our company is a funded in 2003 and listed in 2014 in Taiwan Stock Exchange. Current headcount, we have 450 employees. More than 75% are engineer. Yeah. Since we found this company, we've been successfully tape out more than 4.50 designs.
For last year, We are achieving $240,000,000 revenue and we are taking more than 30 design in parallel, including project already taped out and also projects still in the middle of design. Companies are focused on HPC and AI. Yeah. I'll do a quick calculation. The revenue from HPC and AR are more than 3 quarters.
Yeah. We are one of the TSMC VCM member, yes, in fact, only 2 VCM member has a worldwide TSMC distribution, PDK distribution, right. I think owning LG and GOC and can do the design service and production for all over the world. Next slide, please. Yeah.
I don't want to spend too much time to expand the AC market again. Yeah, AC market is very big and growing. Our company is focused HPC and AI area. Yes, we consider the entry barrier for HPC and AI are much higher than most of our application. And design is very big and complicated, and HPC and AUI always require the most leading edge technology.
Yes, for this year, as I mentioned before, more than 75% of Total revenue are coming from these fields and we truly believe HPC and AI market will continuously grow and sustain Since this is the beginning of a meeting, let me do the quick company recap for last year. Yes, obviously, our company doing very well last year. We have a record breaking number. Yes, we have a record breaking year for all numbers, Yeah, including revenue, operating income, net income and also EPS. Capital Market update.
I think our share price performance is also very good. Beginning of last year, it's about 200 something. By the end of last year, it's 6.21. One of the major achievements, GDR, we successfully attract many famous idea investors. And sales side coverage is also quite promising.
They give us a very aggressive target price We have a great position in high end, leading edge business. Last year, highest NPE volume with a strong also with a strong forecast. We have the most new logo 1 and also ongoing projects. Multiple 7 nanometer in production right now And one of the biggest achievements by the end of last year, we signed a contract to win our first 5 nanometer, Fulton T Design. Next slide, please.
Yeah. Last year, everybody Suffer the trade war tension and but we always consider that's the one of the advantages for the company. Tray World does accelerate the China IC Industry. All the China IC maker Has a higher dependency from the proven channel like L Chip. We have more opportunity and demand from existing and startup companies.
COVID-nineteen, overall, we have an insignificant impact on project deliveries. The quarantine requirement favored the local supplier. To be honestly, we see last year where we encountered much Less competition from our side. We rarely see any competition from India, from U. S.
Or even from Taiwan in the China market. But travel constraint does slow down our Japan and U. S. Business. China Capital Market, we call Star Market, that's a quick and easy Actually for China IC Companies.
Yes, Starboard stimulates emerging IC market. We all know that. And we have a lot of more opportunity due to the stock market. That's a quick recap for last year. So, Daniel, please go over the statement.
I will take over from the financial numbers on this page. On the page is our Q4 quarterly income statement. For the Q4, our revenue reached $66,400,000 and while the operating income is $8,300,000 In Q4 last year, we have quite good non operating income, which is mainly contributed by the China government subsidy to our China Southeast across Shanghai, Wuxi, Hefei and Guangzhou. So the net income for the Q4 is 8.1000000 almost 8,200,000 translating into EPS is 3.8 You may notice that the net income for Q3 and Q4 are different, but the EPS is the same. That's because of the FX exchange rate impact to the EPS Taiwan dollar numbers.
So the total revenue for last Q4. For the Q1 last year, the year on year growth is 41% and the net income year on year growth 77%. For the yearly P and L performance, you may notice that We have a very successful year last year. The total revenue is $239,500,000 is 71% year on year growth. For the operating income part, the operating income is $33,400,000 which up 138% year on year.
And for net income, it's almost it's more than double growth for last year, $28,200,000 for the whole year 2020 translating into EPS of $13,600. And for the revenue breakdown by application, you may see the HPC has become a dominant portion to our revenue. Last year, the HPC related revenue contribute about 76% of our total revenue, While the niche market contribute 11% and the network is 8% and the consumer down to 4% from 9% in year 2019. For the process technology, We are very proud that in terms of the process process breakdown, L Chip should be the leader within this industry. You may see for last year, the 7 nanometer 7 nanometer related revenue already accounts for 27% of our total revenue, while the 16 and the 12 nanometer combined contribute 53% of our total revenue.
And of course, maybe most of you already know the major Driver for the 60 nanometer node is our biggest customer, beta, CPU for both PC and the server. And combined 28 percent 28 nanometer, 15 nanometer, 12 nanometer and the 7 nanometer. Those related revenue rates already account for more than 90% of our total revenue. For the regional breakdown, You may see China now is our most important market. Last year, revenues from China Customer accounts for 64% of our total revenue.
Japan, last year, although the absolute numbers Absolute number of the revenue to grow at certain level, but the percentage contribution down to 15% from 18% in year 2019. And for the others, the others include the Europe and North American market, which combined contribute 70% our total revenue. We expect this breakdown, the regional breakdown this year to relatively keep the same. The Japan Contribution in terms of percentage will go down certain level and for the contribution from North America and Europe will go up. So that's the revenue breakdown by region.
For the business review, For last year, China CTO shipment is the major growth driver for our revenue growth. We keep on seeing strong demand from our major customers extended from the second half year 2019 to the whole year 2020. China and the U. S. Tension, as Johnny mentioned, You must stimulate greater demand of China IC designers to release their orders to Elkchip or to start even more projects, which all create more this opportunity to us.
In addition to the strong CPU shipments, I think the 7 nanometer project flow was another reason for a very good 2020. And those projects came from both the existing and the new customers. The second part is the AI. The 7 nanometer AI projects, many of them are in design phase in 2020. We expect we may see the shipment to start in the second half this year.
Actually, To our major AI chip customers will sequentially kick off the production starting from I think late Q3. The 15 nanometer AI shipment last year It's a little bit disappointing because according to our customer, they consider this technology note Today will be a trial and test purpose. So the overall shipment volume for those chips are not quite significant. And then for last year, as Johnny mentioned, we won new AI 5 nanometer full mass 10 gs project from a Europe customer. And We already taped out the 5 nanometer attached to project for our North American customer.
Sorry.
I guess I missed.
Yes, that's okay, Daniel.
Okay. Johnny, can you see the slides?
Yeah, I can see the slide, but you don't, we don't have that page. But anyway, yeah, We can go to the Q and A section.
Okay. Okay, let's go to the Q and A session. Please use the recent button. See hope, Please.
Once again, you're welcome to raise your question in English or Chinese.
Hi, Johnny and Daniel.
Hi, Suh. Congratulations.
Yes, two questions from my side. First, regarding the GDRs, so very good response. So you turn out pricing around R95, R96,000,000 more than your get right, dollars 100,000,000 initially. So what's your latest plan for the use of proceeds? That's my number one question.
Okay. That's the answer sequentially. So Daniel, why don't you answer for Okay.
For the GDI, actually the use of proceed already announced last the board meeting in the last invest this additional investor conference meeting. We will use the money We raised from the GDR, 1st of all, to purchase the mask because the 7 nanometer and the 5 nanometer Either mask is quite expensive. So we have to prepare the cash. Secondly, we Want to use cash to try to secure the 7 nanometer capacity. And until now, I would say for the Q1 and the Q2, we have been doing pretty good.
You may notice that from our January revenue performance. For the 1st 2 quarter, I would say the 7 nanometer capacity is pretty much satisfied by both of our chip and our customer. And for another purpose, there are a lot of opportunity on market especially in China right now that we want to use the money to acquire some design capacity. I mentioned or Johnny mentioned many, many times that currently we are short of design resource. The business inflow is much, much greater than our capacity.
We try to expand the capacity organically and maybe through some acquisition. And Of course, we want to create a maximum design flexibility. It may also require some fund to do for trying to kind of think to maximize our resource flexibility.
Okay. Yes, second question. Yes, so this year, the focus will be more on the 7 nano and 5 nano, So the NRE, the project value would definitely grow up a lot. But in terms of the design engineering input, Would that grow in tandem with the project value or would you be able to generate more efficiency when you migrate to this model? Johnny?
Yes. Let me try to cover that. Increased design efficiency It's always one of our engineering goal. Currently, leading edge technology require a lot of resource. Let me just give you an example.
For 7 nanometer design, in usual case, we need about 30 to 40 people. Yeah. Concurrently, I think the design cycle is about 8 to 12 months. So we can, starting from last year, we can, We successfully, we can shrink the desired resource and also shorten the desired period. I think that's Increase the design capacity is always our increase our design efficiency is always our goal.
But as you all know, The demand is much, much more than we can supply. So we still aggressively try to hire more people. Yeah. Current headcount is 4.50 people. By the end of this year, we are shooting for about 600.
Hopefully, we can achieve. Yes. As you know, the resource, the fighting, especially in China is Resources situation is very tight. So, luckily, LG is doing very good and being very famous. And we are the only company, one of the only company doing the 7 nanometer and 5 nanometer design in China.
So we are attracting Talented resource, I think, compared to most of our company, we are doing okay.
Okay, great. Yes. Chris, one last question, a very quick one. In terms of the revenue mix, NRD and also the production, we expect it to change from last year to this year.
Okay. Phil, let's say this way. For last year, the Although, I revenue accounts for about 44, 45 percent of our total revenue. For this year, because the online revenue is also strong. So, we don't expect too much decrease from the NIE in terms of percentage.
We expect NRE revenue will still account for like around 42% 42% to 43% of our total revenue. And of course, it also depends on the production revenue growth. For the forecast, I think there is still a swing factor for our production revenue is the capacity allocation in the second half of this year. So, for now, we project the NII accounts for about 42% of total revenue this year.
Okay. Thank you very much. Yes, congratulations. Thank
you, Siho. And
Charlie, please.
Hello, Charlie.
Yes. Hi. Thanks for Thank you my question. Good afternoon. And also congratulations for great execution again.
So my first question is about The China local AI and GPU trend, right? As You can see that your U. S. Customers in Visa 3Q is going to misproduce those AI chips. I think The next leg should be coming from China.
So I'm curious, right, because from the recent Useful and research, for example, Baidu, they want to do AI startup, their Kunlun chip is 7 nanometer and several Startups like, Sui Yuan, right? They are doing like 7 nanometer chip. So those are all your clients or Do we miss anything? Because Johnny, you just said that Lchip is probably the most competitive and probably the only Decent service provider in China. So how do we think about the future opportunity for those China AI and GPU
Okay. Yeah. Let me try to answer it. And Daniel, you can add later. Yeah.
So, Yeah. Charlie, you are right. We see a lot of opportunity, new opportunity in China, people doing the AI, people doing the GPU. Yeah. A lot of, a lot of our company, acquired talented people from Nvidia, from AMD, Yeah, from Qualcomm and they start to make a startup company and doing the AI chip or doing the GPU chip and target for the most leading edge technology 7 nanometer.
These opportunities keep coming to us. To echo your statement, you are right. In China, we are pretty much the only proven Service provider who has a 7 nanometer or 16 nanometer big chip design experience. So by default, when they establish this company, they only have Two choices, go to L Chip or try to do it by themselves. Yes, most likely, They choose the first one because put together the whole team, including front end, back end, I think is very difficult for them.
So biggest challenge for us, because they are new. So the design cycle will be relatively longer. And also the production, Their forecast, I think the IFQ compared to reality, there must be certain gap. So we'd be hesitate to take too many of these kind of new project. But overall, Since their funding is not an issue, so we always are receiving very reasonable NIE from this startup company.
Yes. So that's why we are aggressively hiring more people, try to take and try to satisfy all of them. In fact, Almost every month has a new company appeared.
Okay. Okay.
So, Daniel, do you want to add?
Okay. Charlie, the situation is like this. For the hyperscaler, you mentioned like the, Ali, like Tencent, like Binance, I think Baidu is relatively weak recently. For those Service providers, we do have caught, we stand for the projects. But as Johnny mentioned, For those players, they want to do the most leading edge technology design.
But At this time, we don't think their technology is 100% ready. And we really don't think the project they are talking to us, the production Revenue will be good. We most of the project we consider are, like, trial and the test purpose. So we intend we have to use our resource smart. And so we intend not to take too many of them.
And because we do believe, Given our position in China market, as long as they have certain technology breakthrough, There's no doubt that they will look for us. For the current stage, I think those hyperscaler service providers trying to do the chip. You may see quite long, the design turnaround time for them for their chips.
Okay. Thanks for all of those information. So, yes, I appreciate the company being selective, Have some discipline in taking projects, right? But it seems like according to those public information, for example, Baidu, Kunun, to use Broadcom's design service, right, and Cambry Kong, they also use Broadcom. So I think there are still some competition in the radar screen and like a, you know, so you and They just want to decide by their own, right?
And the Tianxuan Zhixin, they seem to work with the EDA To our company. So I mean, the opportunity is big, right? But I mean, does company underestimate the potential competition here?
I think there must be competition and we welcome the competition. Without Without competitor, a company cannot grow. I truly respect Arbago Broadcom this kind of service, but I think different company facing different challenge. Like I mentioned before, startup company is very difficult to complete their first project. Yes, with international service provider, we've been working very closely to our customer almost Shoulder to shoulder every day.
So can you imagine the other service provider who has the most of the resource outside of China. Yes, it's very difficult to understand and satisfy with the Local company, especially they are first time or second time doing a chip.
Okay.
And also, Our support and pricing structure, I think is compared to this A company in U. S, we are much, much competitive.
Okay. Yes, that's very helpful. So Johnny or Daniel, so Put all those together, do you see any revenue contribution from those China AI GPU stop in 2022. Can you quantify a little bit and also your global AI revenue in 2022?
Okay. Daniel, why don't you go ahead?
Okay, sure. For the GPU product, actually, we already, We we we we are doing 3 GPU project. 2 is the generic GPU. These two projects are all from China customer. And another one is the AIGP, also from China customer.
Oh, really? Okay.
Yes. Currently, we have 3 projects in pipeline. And, of course, we will receive the NIE revenue this year. And, hopefully, the production will start next year.
Okay. Thank you.
To cut, make your comment on the AI chip, I think, revenue for this year. Yeah. Daniel's presentation also mentioned, but we have a very high Expectation from our North American customer. That 2 particular customer give us a very aggressive forecast. Yeah.
So hopefully, by the end of this year, Q3 and Q4 timeframe, we will see the Very significant AI revenue. Yeah. Good thing for this particular customer, we are facing Less challenging on capacity support because they also has they are also very strong and they can come to TSMC directly and fighting for the wafer capacity together with us. So once they have a demand, I think we have a I have a high Expectation for AI, especially for that H company, right now maybe I company, they give us a very strong forecast.
Okay. Thanks. Yes. So just last one should be very, very quick and I will get back to the queue. So since company is so confident, right, so can Johnny or Daniel give us The full year revenue target guidance and also gross margin.
I know your NRE mix is going to be similar, right? But Given the photo mask cost is going to be higher, do you see any margin dilution? So revenue guidance, Gross margin, OP margin guidance will be great. Thank you. Okay.
For the whole year revenue guidance. I would say in our in the last investor conference meeting, we told that The market consensus, which is about $320,000,000 $330,000,000 we Pretty confident that we can achieve it. For now, our expectation is higher. We have strong confidence that we can overachieve such kind of revenue forecasted by sales analyst. But how high we can go is really depends on the capacity allocation in the second half.
And since we cannot deliver a very clear picture for the whole year, For the Q1, as the capacity already booked, we will say we will have a very, very good first quarter. The quarter on quarter growth will be, I would say Okay, John, you can say that.
Okay. So Q1, I think the, yeah, fortunately, we get all the capacity from Yes and Z, Paul, thank you very much for this major supplier. I think Q1, as Daniel mentioned before, we have a very confidence to achieve another record breaking number. Yeah, overall, conservatively, I think, minimum 50% growth, Y o
No, no, quarter on quarter. Quarter on quarter. Yes.
50% quarter on quarter. Yeah. 50% Yes.
Yes. 50.
Well, so, yes, that is very big number. So In that case, yes, sorry, I promise it's going to be brief, but I kind of think this is important, 50% quarter on quarter. Then your full year guidance must be too low because it should mean 2Q, 3Q, 4Q is going to be higher than 1Q, 10. Johnny,
we all know that, but I think the TSMC capacity that dictate the revenue number. Without this, I think we are we have quite confidence to deliver much higher numbers. Yes, the Q1 capacity already is secured. Yes, I think the good thing is that one of the giant company in China virtually out of the market. So we get a spare a lot of spare capacity on 7 nanometer.
Hopefully, this trend will go up. And then we have a more much, much confidence to deliver higher number. Q1, Q2, I think the forecast is more accurate,
Okay. So, yes, David,
I don't want to release too aggressive guidance to all the investors. Because for the first half this year, Aside total to the investor meeting times, there is a special project. It's a data center project, it's a 7 nanometer shipment. So, the total size of these contracts is very big, but the shipment will concentrate into the Q1 and the Q2. So if you are talking about a quarter on quarter pattern, I think the quarter on quarter growth for the Q1 will be very good, but for the Q2 to the Q4, I think the quarter on quarter growth will slow down.
We're not as high as to, like the Q1. You know what I mean? Yes.
Okay. Yes. So that's clear. Thank you. I'll be back to the queue.
Thank you.
All
right. Thank you very much, Charlie.
And, Hass, please.
Okay. Thank you, Johnny and Daniel for the very good results. And yes, sorry. And thank you for taking my questions. So my first question is probably just a quick follow-up on your Q1 guidance, which you guided to be up 50% quarter on quarter.
So I was wondering, if you could provide more detail on your customer breakdown, in 1Q. And also for your For the HPC customer in China, you just mentioned that most of the shipment will be still to first half this year. So could you also give us some sense about Compared with 1Q, what do you think about the customers' contribution in 2Q? And for full year, are you still targeting that customer $50,000,000 to $100,000,000 contribution for this year or if you would think any upside from the customer. Thank you.
Okay. For the particular project, actually for this customer, our second largest China customer, they have multiple projects in design or in production by us. For the first half, It's the shipment contribute from the first project, which is data center CPU project. And as we mentioned, we guided that The contribution will be ranging from $50,000,000 to $100,000,000 I think the Actual contribution will still be within this range. And the peak of the shipment should be in the late Q1 and relatively flat in Q2 and then a little bit left in the early Q3.
So, that's the reason why I said the quarterly pattern, the growth For Q2 to Q4, we are not as high as to the Q1.
Okay. So could you provide more detail about your customer or probably the revenue contribution by region or customer mix in Q1 this year. And also what about your 1st or largest China customer Contribution in Q1. Thank you.
I okay. I have because the Q1 is not finished yet, So I have been lazy. I didn't do the breakdown for the Q1. But based on my memory, I would say for Faethon, The contribution in Q1 and the Q2 will be lower than our second biggest customer because of this spatial data center project. And let's say this way, you see Our January revenue, which is already announced, is about 27, 28,000,000 US dollars.
And we expect for the February and for the March. We may see certain growth in February and we may see further growth in March. So, if you do a simple calculation for the Q4 last year, our total revenue, Last quarter is $54,000,000 I think for January February alone, The numbers will be already higher than the Q4. So that's why we are guiding very aggressive revenue performance for the Q1 this year.
Okay. So just a quick follow-up, clarification on your Q1 guidance. Is it up 50% quarter on quarter or at least 50% up quarter on quarter? Thank
you. Not up to, I think 50% quarter on quarter is relatively
Okay. Anyway.
Yeah, one of the highlight for Q1, I think, Our U. S, I think revenue from North America, I think increased quite a bit compared to before.
Yes, we have a
yes, we're shooting for a low be a 7 nanometer table, yes, having in the North America, I think, based on current forecast.
Okay. Thank you. That's very clear. And my second question would be regarding Your GDR proceeds. I think you just mentioned the purpose for the proceeds from the GDR.
It's mainly for the investment in China and also TABO for the capacity and also some for the R and D capacity and also to secure foundry capacity as well. But could you also provide us some update on the Korea HD Land Investment as well. Thank you.
For the HD Land Investment, actually, it doesn't use too many Cash, the total investor amount is not big. We already announced it last board meeting. And the all the terms has come to the end almost and we will proceed the investment maybe We will complete the investment maybe by the end of 6 months.
So does that mean that you can start working with this company for some of the SSD controller business from later This month.
So far, at this point, we cannot say it too much because we cannot represent We just invested in the partner. So Based on our information, we can only say, its plan has good opportunity to win SK Hynix project and maybe Samsung projects in Korea market. If those projects are 7 nanometer with massive shipment wallet, Acelyn's current company scale is not capable of handling those production. So for those projects, work with us, we provide the technology support for the 7 nanometer. And If the project won't happen, won't or happen, we We'll handle the production.
But for now, we cannot give you a clear answer about whether we whether or
not. Okay, got it. That's very clear. And my third question would be regarding, you just I mentioned you have a lot of design opportunity in China and the US, while the capacity is still quite constrained. So could you discuss more in detail if you can sign the contracts with your customers, certain amount of the wafer production
Okay. Hans, for your question, I think I can tell what I know and I guess Johnny will be much more aware of this question. For the 7 nano capacity, it's not like We negotiate, not negotiate, we talk to TSMC alone about how many wafer we want. We have to tell them the reason why we want so many capacity. That's and we have to tell them because Our customer name is how many wafers and our customer being is how many wafers and they will analyze, then they will make their decision to decide the strength of the support.
And So, there's nothing that we just tell TSMC that we want like 4000, 5000 wafers without no any backup results. So that's the mechanism we discussed with TSMC. So I think the things always come down to what application you have and what the customer you have to try to get the capacity allocation.
Yes, I believe, Hass, your question is toward the design capacity or wafer capacity?
Design capacity, because your design capacity is quite confined now.
Yes. To answer your question, I think The reason they want to work with L chip, I think it's mainly because our design track record and design capability. Yes, of course, if it's a production only type of a design, it's totally welcome. Just like Daniel mentioned, that's effortless. We don't need a lot of resources.
We can enjoy the revenue, but currently the demand is all toward the design. Yes, we help them to do the Entire backend implementation plus production. So we welcome the design, the production only design, but we refuse Design only type of project. No matter the company, how big it is, if they come to us, they only want us to do the design without production. We will refuse no matter how big the company is.
In the past, a few North America Customer, in order to demonstrate our design capability, we do take a few design service only type of project. But right now, at this moment, we are a company already make a decision using our design resources has to use our production channel.
Got it. So when you signed And are you contracts with your customers? At the same time, will you also sign guaranteed major production as well?
Yes, we own the mask. Yeah, that's one condition. So we have they have to do the production go through us.
Okay. So there's some housekeeping questions I want to follow-up. Could you discuss more in detail What's your subsidies from China government in Q4? What is that for? And the expectation for the subsidies for your Subsidiaries in China for 2021.
Thank you.
Yes. Daniel, do you want to answer that?
Sorry, I just received a message.
I didn't hear clearly.
Okay. The subsidy from China.
Okay, the subsidy for China, I think is there are different subsidy scheme from different local government, we ignite that how and there are many conditions we have to meet to get to the subsidy. For last year, I guess my guess is the total subsidy The deal will be around like $2,000,000 to $3,000,000 I guess. And I want to clarify, I just received Maybe I'm wrong about the 4th quarter Numbers I just told. The Q4 numbers last year, the revenue is 66 meeting. Instead of, I cannot remember it right.
I guess I told 54.
Okay. So there is no guidance for the subsidy issue can potentially receive in 2021?
Right. Sorry, Q4 20, the total revenue is $66,000,000 And so forgive my calculation, I would say for the Q1. The quarter on quarter growth is based on $66,000,000 for the 4th quarter. I will say the quarter on quarter guidance will be
Yes. Daniel, the last year, you mean the quarter on quarter, I mean, Y o Y is the No,
yes, yes, sorry, I was wrong. I think the 50% growth should be year on year.
Okay. That's very clear clarification on your I'll look for our Q1.
As some comment on the subsidy, The China support, I think last year we received certain subsidy from China before. We consider the China subsidies a one time deal, but right now based on the policy, and this is subsidy I can consider as sustainable. So we expect, yeah, this year we can get a similar or even higher from China because of many PayPal and also the revenue in China subsidiary.
Okay. Thank you. So my last question is for and I will be back in the queue for further questions. It will probably be regarding your OpEx outlook this year. You are going to expand your R and D headcounts to close to 50% year on year this year.
So what should we think about your OpEx growth in 2021? Thank you.
Okay, we take a top down approach. The year on year's OpEx growth to be like we currently plan to grow 20%.
Okay. Thank you very much.
Okay. So Daniel, before you're taking the next question, let's do the forecast, I mean, the Clarification on the Q1. Yes, we mentioned about last year, our Q1 number is a 50,000,000, it will be over 50,000,000 For this year, we have a high confidence to achieve YOY growth.
Growth more than 50,000,000. Okay. Yes.
Okay. Yeah, let's take our next question.
Okay. Chi Ho, Shi Ho Wang, please.
Hey, hello, Daniel, Johnny. Congratulations on the growth result. Yeah, this is Chi Ho. So My question is regarding your because I was looking at your employee number again. So by 2019, you have about 4 0 4 employees and 2020, You have 450 as you mentioned.
So you only grow your employee by about 10%, but when I look at your NRE revenue, You nearly grew the annual revenue by some 30% something or 40%. So that's like a massive increase in employee So my question is to you, do you like use a lot of outsourced engineer last year and that's why you need to and your in house engineer by almost like 30% 2021. And then regarding the future employee productivity improvement, right? So Like 10% employee growth last year, we saw in some 40% and now you grow that's like pretty amazing multiple. How should we be expecting this multiple to trend in the future?
Like if you grow your employee by 30%, Will your productivity be even higher that will generate even higher NRE revenue growth? Thank you.
Okay. Yeah, Chi Hao, very good observation. I think you are paying a very close attention to our headcount and revenue. Yes, our revenue increased quite a bit, quite significantly, but headcount doesn't increase too much. That's true.
And to be straight, we do use some in source. I'm not saying outsource. We invite some contractor working under our facility. Yeah, overall, but not too many. Yeah, as I mentioned before, our design efficiency Increased a lot before we need the 4 key people to complete one project.
We can successfully shrink to about 30. One additional thing is, It's not healthy to be straight. Our company, our engineer work extremely hard Day and night, honestly, it's not healthy. Yeah, because our company doing very good. Most of our employees are benefit from start option.
They are eager to work long hours, including weekend, including holiday. But this is continuously to go through these trends, not healthy. So this year, we have to more aggressively do the hiring. Yes, to see China cost structure, honestly, The entry level engineer is not so expensive. Yes, we try to increase more college grad, not increase our OPAS drastically, but we can increase our capacity and increase our design efficiency.
So, Chiho, does that answer your question?
Yeah. So my question is probably going forward, like maybe your NRE revenue growth will be more in line with your headcount growth. Is that like What are you describing?
Not really, because as you all know, that will be linear function, But you all know that leading edge technology, we expire much higher NIE. So, 30 people we're doing 7 nanometer exactly the same thing, doing a 7 nanometer versus the 5, the NRE will be 5 nanometer will be much higher. Even without capacity increase, the revenue will still grow because the
Okay. Jeffrey, please.
Yeah. Johnny, Daniel, can you hear me okay?
Yes, yes. Go ahead, Jeffrey.
My question is first question, crypto prices pretty high recently. So the question is, have you seen any orders come your way for that? Or what's your strategy for or not taking any of those orders over the next year or so?
Yeah. Jeffrey, which pricing? You mean the Bitcoin, the cryptocurrency? Okay.
Yes. Yes. So just curious, are you guys seeing orders there or you planning?
This is, To be honest with you, we see a lot of demand, but to be straight, because our capacity is So limited, we choosing, we have, we set a much lower priority to take a Bitcoin business. So does our major supplier. Yeah, their 7 nanometer, the exact capacity is a very, very precious. So they don't want to give it to the Bitcoin provider. So that's why we are, we set a very low priority To be straight and honestly, many customers are approaching to us, but we didn't take any of them at this moment.
Okay, great. Understood. Thank you. And I guess next question, in terms of your expectations for the AI customer In Europe and the U. S, where do you see the most upside for the turnkey business for is that coming from the U.
S. Customer or your customer over the next couple of
all the major giant social media company, they all start to make an AI chip. Yes, we already want to approach some of them. For example, the biggest data center company is already doing a multiple generation with us. The eye company just acquired One of our customer, they have a strong forecast and demand on the AI And the G company, which is complete the test ship, hopefully we can win their next generation design. Yes.
And other than these 3 giant company, we also aggressively approach others, N company, F company. Yes, they all have a clear roadmap to making
Great. Thank you. And then my last question, I know you talked about revenues for this year. Can you talk a little bit more about the margins? You have scale increasing, but you do have more 7 and 5 nanometer.
So how do you think the gross margin operating margin trends versus last year this year?
Okay. For the gross margin, we still expect that gross margin should be above 30, but it should be in the lower thirties.
Okay. How about operating?
Actually, I don't have the numbers in my mind. But as I mentioned, our OpEx growth target is 20%.
Okay.
Yes.
All right. Great. Thank you very much.
Okay. Thank you, Jeffrey.
There are questions from the message. First question is, Fu Bong Toshi is asking, How should we evaluate the contribution from North American AI chip in the second half or even on 2022? I will go for it first, and I guess Johnny will tend to do some details. For the AI chip, Since we have high expectation for those projects to the North American customer, We expect the contribution will start mainly in the Q4 this year. And of course it still depends on the capacity allocation.
Although we don't worry too much, but there are still scheduled risk. So to be conservative, I would say the revenue contribution These shifts in the second half will be not that significant. The major contribution will happen in 2022 and for the whole year. And the reason why we are so optimistic is because we already received The PO and the forecast from the customer, for both the A customer and the full For the pilot run PO, the amount is quite significant.
Okay. To add to that, Our internal goal is, remain the same. Right now, the North America owning country be about 50% of the total revenue. Yeah, hopefully starting from 2021 will be around 30%. That's our goal.
And another question from the message that It's also the thing I want to do. Sorry for the mistake I made. For the Q1 guidance, First quarter guidance, the year on year growth should be over 50%, five-zero, not a quarter on quarter, the year on year growth for our Q1 this year should be 50% or more. And for the whole year, We don't have a very clear picture because of the capacity allocation. But For the previous guidance about $320,000,000 $330,000,000 for this year, we think We can definitely overachieve, but how far We can go.
I read some of the recall that they are estimating Our total revenue this year to be about 3.60, 3.70. I would say for these numbers, It's not I think it's achievable, it's not impossible. But If it is 100%, it depends on the 7 nanometer capacity allocation. And, Charlie?
Yes. Thanks for clarification and also taking my second round question. So Daniel, I know it is not a 50% wen wen, but I assume it is Based on the U. S. Dollars, right?
Yes. Based on Europe. Okay. So we should also consider the NT dollar Appreciation to calculate your NT dollar 1Q revenue. Is that right?
Yes, of course, if you are because our functional currency is US dollars, so we internally, we use the No matter internally or for the public information, we use U. S. Dollar as our functional currency. For the numbers translating into NT dollars, of course, it will be affected by the FX exchange rate. But given the growth percentage, the number is I think the impact will not be that significant.
Okay. Okay. Thanks for that. In terms of the GDR share dilution, when would that start? And by how much?
The GDR current currently our total shares outstanding now is about 6.90 something million.
JZQI. Okay. So that's after the GDR?
Right. Yes. That's after the GDR.
Okay. Okay. Thank you. And so that's a switch back to some long term focus. I mean, I really care about your 5 nanometer test chip with a net North America customer because your main competitor global unit also very confidence that they can when this decide.
So just to give us some more details, I mean, Why both of you are so confident? Are you competing with the same project? And what you should improve to Because sometimes there are still comments about your capability for those advanced packaging for Kimpo, HBM2, etcetera. Can you give us some color on this competition? Thank you.
Johnny?
Okay. Yeah. So, yeah, of course, The G company is a very respectful competitor. They are working with that particular company, I think, for quite a long time. And I think because of successful of other project, the G company grant us the 5 nanometer test chip.
And the result is, overall, during the design, they are very satisfied with our service. So hopefully, We have a good position to win this project. I'm not saying, where the 100% chance by thinking about we have a great chance to take this opportunity because We already have a 5 nanometer proven test in our hand. Yes. So, in terms of Design capability for HBN, I don't know why they are always mentioned about That part, like a weak part to us.
In fact, we have a many proven HBN design ongoing and also in production. And with the Israel company, or we said, we said, we said, China company. So I think, whoever has HBN tool, this kind of a question or customer, they can come to us directly. We can address accordingly. We have a Production chip, we have a test chip in hand.
Yeah. So HBN to this kind of a design capacity is not our weak spot. In fact, I think we have many, many case and can do the demonstration. Yes, 5 nanometer, 4 10 ks design win, yes, we already have it. And also earlier in the slide, in China.
So we have many 5 nanometer design opportunity.
Yes. So I would assume there will be a kind of sort of major projects after this proven Test shape, right. So when would that be? And is that totally confirmed? And Is it a kind of 0 sum can between you and the GOC for that major chip?
Yeah, the test share will be come out very soon and we are sharing all the result with the customer and yeah, that Yeah. This particular customer is also very dynamic. And to be straight, They are shooting for 5 nanometer, 3 nanometer, one of them. Yeah. That's all.
They even think about 3. Very, very dynamic.
Okay. Okay. Got you. And next is also really kind of A concern from foreign investors, right? I mean, we are glad that your customer fee can It's growing so rapidly.
And maybe one day they will pursue the China IPO, right? But it's just hard to imagine that a company with US500 $1,000,000,000 or US1 $1,000,000,000 revenue We'll continue to use design service. Are you confident that Fijian will continue to use that design service in the coming 3 to 5 years?
Yeah. In the recent year, I think the, if they continuously using our Sorry, Sohne, I think, I always tell the general manager, LG need to provide a value in order to Sustain the business. They all agree. Like I mentioned before, we 2 company grow altogether. They are Our customers, since 12 years ago, the dependency bounded quite high.
And due to a lot of restriction And they're thinking about is the best way to work with L Chip instead of a go to supplier by themselves. That's exactly the wording from their general manager. Yes, I'm not saying We will do their business forever, but in the near years, this year, next year, the year after, I don't think that's a problem.
Okay.
Yes, they don't have a direct compare to TSMC and they don't want to.
Okay. And I'm sure if you notice that it seems like SMIC very likely you already get The U. S. Equipment's supplier again.
Yes.
Yes. So any kind of Information you can provide, I mean, this may change the dynamic again, right? Meaning, if a SMIC will be able to do 40 nanometer or even 10 nanometer, like what has shared the last time, right? There were some BTM's project at SMIC is a 40 nanometer. Do you think they will go live again?
Yeah. We also know the SMIC may sustain their production in 14 nanometer. I think that's Maybe the good news for many IC company in China, but for Fei Tian, I think they already There are 2 major products, HPC and CPU, already start the next generation with a 7 nanometer design. Yeah, I think the existing 14 nanometer, they may be, they will use some SMIC as a production. I think that's a missionary kind of a task.
A major product line, they already decycled to 7 nanometer. Yes, I think it will take Some time for SMIC to establish their 7 nanometer design flow. And Based on my understanding, they don't even have equipment yet.
Okay. Understood. So, that's all my questions. Thanks, Tim, for your time. Thank you.
All right.
Thank you, Charlie.
Okay, Jeffrey, you still have questions?
Not for me. Thank you.
Okay.
Yes. I have questions about the mask. So how what is your current mass portfolio? Is mass the largest cost of good of your company?
Let me answer this question. Actually, we mentioned many times that since we own the mask, So our mask and IP, the amount will be capitalized. So the mask will be our asset. So in the COGS, we have 3 Competitors, first of all, the tooling and some local for kind of tooling cost, which accounts for very minimum percentage of our total CLGS. The other 2 component is, one is the wafer cost and another one is the mask and the IP amortization.
So, the mask and the IP will go to this item.
Okay. For 7 nanometers, how many masks you have right now and how many you need to invest And how many years you capitalize the mask?
Okay. I cannot tell you the numbers. We didn't disclose how many masks we have and how many masks we are going to invest. That's because we have so many. And Secondly, for the appreciation time period, it will based on the real product life cycle.
For the principal, the math won't depreciate over 18 months. The maximum Amortization period is 18 months. For some special projects like what we did, the cryptocurrency, the bitcoin. We will amortize the mask in 6 months. So it all depends on the real product lifecycle to design the different to design the amortization period.
So is there a minimum quantity that needs to go into production in order to recoup all your the cost of mask?
Not to recoup because the mask actually when we discuss with the customer, The contract, we are discussing the total contract value or less total value. The total value include the mask and IP cost.
I see. And for the 5 nanometer and 3 nanometer, how much more expensive than the 7 nanometer.
We cannot reveal the price because of NDA between Ashik and TSMC. I can only say that 5 nanometer mask price is much, much higher than 7 nanometer.
Okay. And so this year, say, can I ask the total CapEx For like investing in the mask and IP?
Total CapEx. Actually, I can't give you a very clear number. But to be honestly, We will announce our yearly report actually maybe within 1 to 2 days. You may see the CapEx last year. This year will definitely grow quite a bit because of the 7 nanometer project.
For the total numbers, I don't have an idea of the exact number because There will still be scheduled risk for the tip out.
Okay. So my final question is that in your past experience, Have you really experienced that some of the masks you cannot really get a payback? That means that it failed?
I won't say it failed, but for some cryptocurrency customer, They do decide to take out the project which means the mask is already produced The customer already paid the mask, but there was no production. They decide not to get into the production phase. We have experienced many within the cryptocurrency application. For the other normal project, usually when you can imagine, if you invest so much money into MRE, especially in the mask, Usually, you will try to produce as much Chips, as you can, to recruit the investment from the mask.
Can you can the customer share the same mask or everyone has their own dedicated mask? So you can use that one, say particular one for several customers?
No, no, because actually the mask is the design is dedicated for a particular customer.
I see. Okay. Okay, great. Thank you.
No problem.
Thank you.
There is a question and I want to clarify as well. Someone is asking about the last investor conference meeting, John Lee mentioned the target employee numbers by the end of this year is 700. I It's a miss. I would say by the end of this year, we target The total employee numbers is 600, and we are pretty confident we can achieve it because there are 2 major incoming new employees in the March, April and Another time slides, the like after the summer vacation graduation. After these 2 massive new incoming, we think the 600 target by the end of this year It will be no problem.
And another question from the message, Someone, the company is asking, Liao, some talks about potential competition in the China local CPU market from X86 CPU Alternatives. If we also consider software capability for X86 CPU is It's arguably still better for now. How does LG view the competitive landscape in the China localized CPU market. I think this question is asking about what's the competition status between X86 architecture, the CPU and ARM based CPU. Johnny, do you want to answer it?
Okay, sure. Yeah, I think that, let me clarify. When we think about the CPU opportunity, of course, the FanDuel is our number one customer. They are using on base kind of design. We are not saying LG is not taking any X86 kind of a CPU design.
In fact, We do have a few opportunity. They are talking to us. So, in terms of The market share and also the performance competition right now, I think, Ang is the is the favorite a lot. So, we all know the Apple, a few quarters ago, just announced their on base CPU. They are completely outperformed their previous X86 type of design.
So go through the ARM, I think ARM based design is a kind of trend. Yeah, we also say that I think our number one customer has a confidence to sustain their market share. But in fact, We start to taking some X86 design also.
Okay. Is there any questions? The market consensus for earning per year. Calculation. So if there are any questions, we will come both English and Chinese questions.
Okay. I guess there is no one raised their hand. And that's If that's the case, thank you for your participation in our 2020 institutional investor conference meeting. Thank you very much.
Thank you very much. Thank you. Thank you for supporting us. Thank you very much.
Thank you. Bye.