Hey, Oh, okay. Hello, everyone. Welcome to, LJ Technologies, 2009 it's a good to know you met the meeting. This meeting, we will be, in English. So if you need the, the Mandarin version, the Chinese version of Slack, please go to the maps, the one time one time to download the, presentation material.
And, I wish all of participants, please write down your questions, to host, through, Zoom's message function. And please, write down your name and your company's name, with your question. And, we will, answer 5 questions, verbally. So if you want to ask the questions verbally in the Q and A session. Please use the raise hand function through the room, application.
And, Lynn, I will mute you for your questions. And, the video and the audio content of this meeting will be uploaded to, this meeting when we, finish the recording of the video. So because of the coronavirus, I'm, oh, yeah, so sorry for use of this, foreign, institutional investor company. So, I think in the first session, I will hand it to our CEO, Johnny done, to do a brief opening for our company and, some, 2019 results report. Thank you for participating with me.
Okay. Johnny, please. Alright. Okay. Okay.
Ladies and gentlemen, thanks for coming to the investor conference meeting. Yeah. My name is Johnny Shen, CEO and co founder of LG Technologies. Yeah. It's a very first time for us to host a conference meeting online.
And also due to the foreign investment percentage increase, yeah, we decide to use English to run this meeting. Honestly, companies still prefer to have a face to face meeting, yeah, instead of online, But during this special virus situation, please bear with us, and thanks for your understanding. Quick go through our company, current status. I believe most of people are already familiar familiar with L chip. The company is founded in 2003.
We went public in 2014. Currently, we have 450 people and companies still growing. By the end of this year, we are shooting for 500 or plus. 75% of our employee are engineer, so we are purely engineer oriented company. Since we found this company 2003, we've been successfully tape out more than 420 designs.
Last year's number, we have achieved a 140,000,000. Yeah. We also have a more than 22,000,000 R and D investment. And we are the one of the TSNC agent. We call Barry Chen Aggregator.
Next time, please. I believe, most of people still understand the ASIC market now. AC market is very big and unique. Unlike a standard product company, one chip needs to serve multiple customer, By definition, ASIC, 1 ASIC chip only serves one product. Yeah.
Outstanding product company need to make their own chip. In order to improve the product efficiency and also differentiate to their competitors. Ultra is doing the AC business things where we found the company, we focus on HPC and AI area. HPC and AI Always to require the most of ADHD Energy Technology, currently using 16 nanometer or 7 nanometer, Eventually, we'll use a 5 nanometer or below. The chip itself is very big and complicated.
The entry barrier for our competitor will be getting higher and higher. We truly believe the big data accumulation too fast and also the internet bandwidth improve, industry always need a more powerful and efficient chip in order to analyze the data. Therefore, this this application will continually grow and sustain. We also expect property margin will be reasonable since most of our HPC and AI company are highly profitable. They've I believe this application will continue a, bring reasonable profit to the company.
Next slide, please. Let me recap. The the achievement for the last year. Yeah. Basically, we have a conference meeting every quarter and and also smaller group of of, a meeting host by Daniel, sometimes weekly, sometimes biweekly.
At the end, we meet our revenue target. The revenue number is a 140,000,000. We're up 22% year over year. Net income, 14,000,000, EPS 772. Both of them are record high for the company.
It's a historical high for the company. The capital market performance, we are also doing a very good job. Share price appreciate more than 3 x. Also with a very high liquidity. And our investor wait for the foreign investment getting higher and higher and also institutional investor, keep increasing.
Company, achieved all quarter, even monthly profitable. We also have a last year, as you remember, we start to penetrate US Region. Yeah. We also have a very good progress on US. We've been successfully penetrating all target AI users.
Right now, we can proudly to say, every single merge, every major, AI user, they all know about l chip. For sure, we will be one of their solution, one of our our their choices if they want to do the AI chip. We gradually diversified the dependency of the China region. In fact, we already won few few key account even with the 5 nanometer opportunities. We do it.
We have a great position in HPC and AI field. Right now majority of our revenue, yeah, so called more than 70% are and contribute by the HPC and AI. We have a 6 design in high volume production right now. Multiple seven designs, 7 nanometer design ongoing. Yeah.
That will gradually pay by, from this year. Yeah. In fact, other than the 7, other other than those ongoing design, we have a manning design in the pipeline. For 7 nanometer. In addition to 7 nanometer design, we also have a manning 22, 16, and 12 nanometer design win, and some of them are on the building.
Yeah. Last recap and also the highlight for the companies, our crisis management and control. Yeah. We have a limited in impact but huge benefit from the trade war. Yeah.
China cover government, I mean, China government and city continuously injjia, a lot of in get a lot of funding on the CPU and HPC. And most of our our customer, a beneficiary of the China investment, and we see more and more older from them. Great reaction during the coronavirus situation Yeah. Government just announced an additional 2 to 3 2 to 3 weeks holiday. But our engineer, 90% of our engineer could work from home efficiently.
Yeah. As you know, we have, our database is all sitting on the cloud. So you make a no difference for our engineer walking from office or from home. Things are all the database are sitting on the one place. So at the end, all projects are high security well with no delay.
So that's a quick recap. And also review for the 2019. Yeah. Right now, I will pass, the detailed numbers, discrimination to our CFO and speaker. Daniel, please.
Okay. Welcome, everyone. For the financial, session, our, state our, last year performance. So for the numbers, I believe for you since we already announced the, every month, top and the bottom line, I think the revenue and the the net income issue should be well known by the market, but I still, brief a little bit for for the fourth quarter last year. The total revenue is 47,000,000.
Which is a 61% quarter on quarter and, 83% year, year growth. And, for the operating for the operating income is 44,600,000 for the 4th quarter, and that is 35% for that, for the growth. And for net income, since we have done, government subsidy, came in, in last 4 quarters. So the net income is 4,600,000, up 24% quarter on quarter. Translating into EPS of $2.34.
NT dollars. For yearly, 2018, it's a good year for us. The total revenue is 140,100,000, up 22% year on year. And the net income is 14,000,000, up 64% year on year, translating into EPS $7.2.90. And the land the following is a breakdown for the, application and the technology note.
And, the original breakdown for l chip last year. For the quarterly breakdown, you can see on the left hand side, this time, we we separate the HPC, from other, applications. It's a new category for our for our application breakdown since we didn't review the previous, conference meeting. Everyone can see that the HPC, revenue accounts for a majority of our total revenue each quarter last year, especially for the 3rd quarter 4th quarter. For the whole year, the HPC, the revenue come from HPC accounts for 59%.
Of our total revenue, followed by the networking 14% and the niche market, 18% and the consumer now it only accounts for 9% of our total revenue in 2019. For the AI application, the AI education is within the HPC, as SD HPC field. So, the 59% include the AI and the CPU. For the, process, process, no breakdown. You can see the protein breakdown, and, it's very obvious that the 7 nanometer and, the 16 nanometer has, have already become the majority of our revenue source.
And for the advanced technology, you know, you can all see the 28 nanometer or even all the vent or more advanced to recognize, you know, already a come accounts for 90% of our total revenue in 2019. And, for the 69 nanometer, for the 7 nanometer, in 2019, it accounts for 27% of our total limit I believe, such performance issue be the leader that we're seeing in our industry. For the revenue breakdown, by region, it's pretty straightforward. You can see the Korean. Now we don't have to we don't have too many business, from Korea.
And, obviously, because of China CPU and, other projects, the China region is already become the number one, revenue contributor, to, balance sheet. And, for the others, you may see the others keeps on growing for the past 4 quarters and for the past 3 years. The reason behind this, the US market we have been very we have been we have been very, I would say, I would say successful in the US market penetration. So I believe the US market, the revenue contribution, US market, will gradually surpass the contribution from Japan, maybe 1 or 2 years later. For the interview, many investors, focus on our, China CPU business and, kids are asking, how the coronavirus will affect the shipment.
So far, let's say, the customers couldn't forecast we may have changed. Even though the coronavirus epidemic and the communication change between China and the US, for now, the forecast is still very strong until year end. If we look at if we look into the quarterly pattern, the first quarter will be higher and the second quarter will dump a little bit. And the length in the second quarter China shipping will be covered to above maybe 1 quarter level. And then the fourth quarter will still remain strong.
And, in addition to the current shipments of 22 to 3 chips to our China customers. The message generation projects are taking in, actually, we are already doing the design for 3 to 4, 7, you know, 7 nanometer projects for our China customers. For the air market demand, which is still strong. Although, for now, there is no significant production shipments currently. The new design demand, gets stronger and gets stronger for the North American market.
And the for the Middle East and the for the China region. The shipment for AI check, I believe you are gradually kicking, starting in, I would say, like, the 2nd, early second quarter this year. Since, the shipment will love the shipment to the, North American customers, the shipment to the middle is the customers will begin, in the 3rd, in the 2nd quarter this year. And, as the other projects enter in the cutoff phase, we will see, we will see an uptake for the AI shipments this year. And, we have key accounts even with the 5 nanometer opportunity.
For design. For the business outlook, I think China CPU I think everybody already, I'm already, acknowledged that the China City of Xiamay is still a major revenue driver for DCS revenue growth. First of all, we the shipment will be a 4 year shipments. Last year, we shipped the China CPU in in only the first quarter, which is kind of which was kind of sluggish. And, a very little amount for the second quarter last year and, small amount for the second quarter last year and, a pretty good amount for the first quarter last year.
For this year, every quarter will be good for the China shipping CPU shipment. And, of course, the older size, is expanding. So we expect the China CPU shipment to drive this year's revenue growth. And, for this year, the shipment for the 7 nanometer CPU chips could be the critical factor to the 2nd half, revenue growth. Based on our schedule, we will start to ship out 7 nanometer, CPU type chips to our customer starting in the third quarter this year.
But but since the 7 nanometer quarter, the 7 nanometer capacity, of TSNCs, very tight right now. We cannot make sure so far for the capacity support. From TSMC. But since it's getting, better and better, we are currently, optimistic, toward the product on TSMC since the overall consumer market demanded for 7 nanometer capacity in we can. So, accept, honestly, at current stage, we are becoming more optimistic.
Well, the 7 nanometer projects will become ah, this year, the 7 nanometer projects will come on mainstream technology notes. Actually, this, this kind of, see, breakdown already began starting from the third quarter last year. You can you can check it from the, process, you know, break that, previous in previous slides. And, there are multiple 7 nanometers modules from China. We are either already take out or we ask our own or or in, the design phase.
And then we have multiples and the nanometer projects. From Middle East, customers. All of them are, AI type customers. And, we also have multiple 7 nanometer projects from most American customers. And, for the tape outs, the 7 nanometer projects, we also based on our schedule, we we also believe that our multiple 7 nanometer projects, I would say, more than 3 to 4.
We'll pay back this year. So according to the information, we are currently very optimistic, towards our revenue growth this year. And, then I think, our CEO can do some, outlook, closing statements, from now. Johnny?
Okay. Yeah. Yeah, just a quick recap, we reserve more time for the question. Basically, 2019 is a was a great year for the company. Yeah.
In fact, though, it was the best year so far. Yeah. Based on our current outlook, if we count out all the uncertainty, for example, the TSMC capacity issue, or any unavoidable disaster, yeah, we have a confidence that 2020 is going to be another record breaking year. Yeah, for for both top line and bottom line, for both production and service. Yeah.
Right now, just like that, Daniel say, 7 nanometer become mainstream of our product line. Yeah. We have a lot we have a a lot of a current project. The current project will ensure our revenue growing for this year. The strong pipeline and project that will keep the momentum that's all the way to next year.
So overall, I think the 2020, again, is going to be, another wonderful year for the company. All right. Thank you.
Okay. Now is the Q And A session. I haven't seen the questions from, the the the recent questions. I only see the handwriting. So let's start from the Purple Purple 1.
Okay. Charlie, you are muted. Please,
Okay. Thanks for taking my question. Can you hear me okay?
Sure, sure.
And thanks for hosting this webcast. I think it's quite efficient and congratulations for your good results and execution. So, first of all, can you give us some more qualified revenue and margin guidance for 1st quarter and a full year. And also, I am also very curious about, you also see back for your those are local PCCPU system? And do you think that demand is sustainable?
Can we start from here? Thanks.
Okay. For the revenue and the target, the the margin guidance, I would say, Okay. I think many people already heard me from, the, the, the, the meeting in our company that we our our goal, our goal for this year, the revenue target, we are targeting 200,000,000 revenue growth. 200,000,000 revenue for the revenue for the top line So the gross margin, it's hard to tell right now because, the percentage of NIE, has showed, great, influence to our gross margin. But so far, based on our estimation, we think the margin will not be as high as to the level of last year because last year, our NRE, percentage is almost like 60% goes to 60% But for this year, in the beginning, I would say the the breakdown for MIE and, production, the line will be, like, 40 something, MIE, 40, 40% something for MIE and the 50 50% something for next budget.
The gross the blended gross margin will be lower. To last year's level. But for now, since, the current production margins this, a little bit better than we previously think. So I think our gross margin level be around middle 30s. And then for the user experience, honestly, I didn't use the PC that embedded with our customer's CPU.
So, I will handle this question over to Johnny to see Johnny to see if Johnny had any input.
Yeah. I I got it. Yeah. Yeah. Thanks, Charlie.
Yeah. Overall, I think the Yeah. Yeah. As you can see, our the revenue difference between Q4 and Q3, Q4, we have a, last year, Q4, we a more significant growth. Yes, I believe this momentum will last to Q1 as well.
So I think the, the momentum will remain. So overall, just like Daniel said, we are shooting for more, break 200 1,000,000 for this year. And HPC and AI mass production will kick in. Like I mentioned before, the profit margin for these 2 fields, even the mass production profit margin for these 2 fields are much higher than the consumer. And also, we have a more and more design, more and more design opportunity based on current estimation, just like Daniel said, 4555, 55, for the service and mass production, but we do see some momentum for the additional service revenue.
Yeah. That will happen later this year. Q1, I think after confidence, I think that Q1 is going to be a very good quarter.
Yes. So on that, analytical PC system actually, besides the end user feedback performers, it would be very helpful if you can give us some color about the total addressable market in China for the end customers and potential volume this year and in the, in the next year. That will be very helpful. Thanks.
What's that
Danielle, would you want to take?
Okay. To tell you, honestly, I don't I don't have such kind of information for you because we don't know the user experience. But as I know, because fatal CPU is La PC embedded with, patent CPU is is spelled is spelled with the cheating, killing OS, currently, cheating OS. This is a most friendly operating system for ARM based for ARM based, PC or notebook. So I guess if we compare it to the user experience, between on based or, Windows based, I would say, of course, the Ooma space will be better.
But within the up, I believe, on the, the, the, the, the, CPU plus, kidings OS will be still not a leading user experience provided for the ARM based noble market. And then for the addressable market, so far, we the answer is still the same that, we think the scope now is to the SOE company. If every SOE or part of the SOE, we don't know, but, we believe the SOEs with critical information or related to the, national security. For example, the major sector and, the telecom sector, maybe, some some sector with critical information, they will accelerate the adoption the adoption rate for China CPU inside PC.
Okay. Okay. Thanks. Yeah. All my question.
I will be back to the queue. Thank you.
All right. Thank you very much.
And, Jeffrey, I will unmute you. Can you hear me? Jeff, please, iPad. 2. Just me, Jeffrey, Say I?
Can you hear me? Okay. No? Okay. Since, There's no response.
I will answer some questions, from the written from the written ones. Okay. Many people are still very interesting, in our revenue pattern. I would say, for our quarterly revenue pattern, I would say for this year, like, last year, we have a solid, potential revenue contribution throughout the whole year. So the revenue pattern will be the 1st quarter, I will still expect a flat or a little bit increase for the increased quarter for the 1st quarter.
The revenue, compared to the first quarter last year, I still believe there will be growth. There, there will be growth. And for the second quarter, 3rd quarter, is relatively flat. In general, we may see mild quarter on quarter growth for the 1st quarter, 2nd quarter, 3rd quarter this year. And, we expect a relatively significant job for the revenue for the fourth quarter since the 7 nanometer, for Russia, for Russia, is scheduled to start shipment in the late third quarter this year.
And, yeah, that's the question many people, are asking about. And the second, question is, the operating expense plan for this year. For last year, our operating, operating expenses are $37,000,000 to $78,000,000. For this year, since we are developing our R and D resource, the design engineering, hiring, and especially in the machine. So the 7 nanometer or even the 5 nanometer projects, it consumes a lot of machine power.
So because of that, I personally expect the operating expense For this year, we'll be ranging from, like, 44 something to 46 something medium. Depends on the recruiting and the the machine the machine usage. Okay. That's the second question. And, also people, are asking about the 7 nanometer project profit margin.
I think I was split into the NRE and the production. For the NRE, for the design NRE, the absolute amount of profit is is the highest among all process notes, but for the but for the gross margin, since for 7 nanometer, the mask is expensive. The IP is also expensive. So the for the gross margin, the 7 nanometer actually, it's lower than, maybe the 60 nanometer or the 20 nanometer for the gross margin rate and the percentage But for our company, I guess many of you know already that we capitalize our mask IP. So most of the time when MIE, when the when MIE revenue ticks in, it's almost like 90 to 100% gross margin.
It depends on the master. And then the mask and ID will go to our fixed cost on the amortization cost. So I I believe this, answers your questions very well. Okay. Jiaobo, is asking about the CapEx.
CapEx guidance in year 2020. Actually, if you, look at our financial report, that the majority, over 90% of our type CapEx is a mask and the IP. So as long as our our business is doing well. The CapEx increase is it has a high, it has a very high, high correlation with our, NII revenue. And, Mass is asking about the first quarter this year, the NRE and the mass production breakdown.
The revenue the revenue breakdown for the 1st quarter icing will be around 40 something for NIE and 50 something for NPE. But it really depends, the scheduling of our, and I milestones. Here, I would like to remind everyone that for the 7 nanometer project, a single milestone is easily, like, 2,000,000 to 3,000,000 if less the paper milestone is easily 8,000,000 dollars, 9,000,000 dollars, $9,000,000. So if any of the milestone delay or pre, either will affect the revenue and especially the margin a lot for the single quarter or for the single miles. So, yeah, That's the, that's the our view to the, to the first quarter.
Okay. I guess Jeffrey is back I will unmute to Jeffrey. Okay. Jeffrey, can you hear me? You are ready to to speak.
Everybody can hear you. Bye now. Hello? Jeffrey from Macquarie. Jeff?
Okay. Maybe be awesome. Some technical difficulties. So I will answer the question, directly. Jeffrey is asking, us to discuss more on the networking related business.
Honestly, we are not put too much, focus or attention to the networking right now since I know I think about the the 5 gs, the hot topic, for the market, but We don't think, the 5 g market is, is a supermarket for basic I still believe the 5G market, belongs to the ASSP product. And currently, we have to we have 2 projects related to 5 gs. 1, I can remember is the is the like, extension, networking, kind of, chip for 5 g network. But to us, it's the this is not a big project. So it's, So we don't expect, we don't expect, significant or very quick work from these sector.
Yeah. That, let me add some comment on the 5 g Yeah. Like Daniel mentioned before, yeah, we are not focused the 5G client application. But we do have a few customer interest in a cloud, yeah, in a station side. As you know, the 5G bandwidth increase a lot, but the system becomes shorter.
So some, all of our customer consider even on the station side, the volume will be higher than 4G. So I'm looking forward to see some contributions starting from later year on the 5G station. Now there's a comment. Yeah, for the Q And A, I think, you're welcome to raise the question, either in English or Mandarin, I think, we're welcome to
We can understand Mandarin. No. No problem. Okay. Here is a question.
I think, Johnny can can can ask comments on it. So, investor asking about the Middle East and the North America AI market. Can you give us some thoughts about the customers and, the timing for production with Ashland and, the future outlook for these two markets. The middle east there in the North America.
Okay. Yeah. In the middle east, we are doing a good job. As you know, currently, we are on the NDA. We cannot disclose the customer's NAND.
But I think few famous customer in Israel are our customer. And we've been doing, and their company are also doing very good. Actually, they have a great exit already. And currently, we have a 1 sickening nanometer, 2 sickening nanometer, is ready to production. And in fact, their 7 nanometer design are ongoing, will be tape out very soon.
Yeah, we have a no problem, to serve their, to continuous the service to their mother company. And in fact, the new 7 nanometer design will be tape out soon and another big design will be coming. The contract already signed. So Israel, in the middle east area, we're also doing, in addition to this customer, we have a 2 to 3 additional customer. U.
S, I think, we already won few. Yeah. The the few major player for the cloud service, our customer, and their product is ready to production yeah, in fact, they already have a small volume production right now. And we are looking forward based on their forecast, we are looking forward to have a very reasonable amount of production starting from middle for the middle of this year. They will start to make a contribution starting from second half.
And in parallel, layer next generation is ongoing, we will take out before the end of this year. So other other account, we are also penetrating all the giant company, like I mentioned before, they all know about El Chip. They have a lot of pipeline. So we are looking forward to seek a big contribution from U. S.
Region, yeah, they will surpass Japan soon, and sooner will be the 2nd high is the region right behind China.
And, I think this question is also to Johnny. That in our view, is there any chance that China government to act accelerate its demand for CPUs, for for the local CPUs going forward.
In fact, we've been working with our customer very closely, to be honest, our customer are very, very optimistic for their market. And as you know, the mass production, they need to place the order, 3 months earlier, so we can easily tell on Q1 or Q2. But Q3 and Q4, right now, we can we don't have a clear picture based on their, the discussion between us, they have a confidence but they will but all the conversation will go back to prior to the Chinese New Year. Right now, I think entire China is suffering about the coronavirus prevention. I hope this one will not, influence their demand.
But overall, for the first half, We already received a solid order from this customer, and the momentum is very, very strong.
Okay. Here's a question asking about 7 nanometer CPU. The one that, is scheduled to going to mass production, in the later quarter this year. The question is asking, this CPU for server or for PC. So I can answer you, for, for for the CPU plenty to start my production late in this this year should be we think, server server area, not the, PC MB used CPU.
For the PC and the NV used the CPU currently, we're shipping out the products to the our channel customer feed data. These further websites will be longer than we expected. According to the current plan, the next generation father, will is scheduled to pay down maybe by the, in the second half, next year, So, we may we can only see the production to start maybe near the very year end of last year, year 2021. So the current generation, Simba will last at least 2 year, 2 years. Okay.
If Is there any question, please use the raise hand function, of zoom or with 10 send me a message. So far, I guess we already cover the questions. Investors are asking And, again, sorry for the inconvenience because of the the coronavirus. Okay. Okay.
People is asking. I guess this question should be should we belong to, should belong to Johnny that, the investor is asking 7 nanometer is tight. Evernail capacity, I think, is tight. How do you get the capacity from TSMC?
Oh, that that's a very good question. Okay. 7 nanometer capacity is very tight. Everybody knows But right now, this year, both the CPU market and also the HPC majority of our design in production are 16. So I did I the insignificant impact, on the production revenue on the first half of this year.
But second half, we already start to communicate with the TSMC on 7 nanometer capacity. And in the in the past, if we follow the TSMC download to give them a 6 months, prior forecast ahead, they never fail us. But 7 nanometer is, there there is uncertainty. Yeah. We can only continuously working with the TSMC.
And based on the relationship and also past the experience, we, we should be able to get the most of, the forecast out. Because, all our customer, are very big, the major AI user and also the CPU user So, customer and us, we are working together, continuously and also free with TSMC in order to ensure the capacity.
Okay. And another question that, I can answer. Some, some investor is asking about, how many customers accounts for more than 10% of our total revenue, in China. There are 2 customers want everybody. I guess everybody knows his data.
And another one, so we cannot reveal the names. We have a basic, NDA. So there are 2 customers, each accounts for more than 10% of our total revenue. In China. And, there's a hand raised question.
Only your name on the Zoom is only an mute you.
Thank you very much. I'm the Oliver from the prior rock.
Can you hear me? Yes. Yes. I would have heard.
Hi. You just mentioned, the 7 nanometer have a lower, gross margins than, maybe copper average. So just wondering, the reasons for lowering margins because of the higher CapEx tools, expense, or additional, R and D or maybe the scale not sufficient to, amortize the expenses. So maybe over time, the margin will get back to the corporate average or even higher. Is that possible, happens that way?
Okay. Oliver, okay. I may need to correct my answer that when we talk about the margin, I assume the mask and the IP is the cost. Are at cost. But to our book, as I mentioned, I, we kept we kept we capitalize mask and the IP.
So for the milestone, when the milestone happens, we reconganize the milestone revenue. Most of the time, the revenue for the milestone revenue almost 90 to 100% gross margin. And the LAN, the mask, and the IP Since they are capitalized, they will go to amortization cost, which is our fixed cost Usually, we amortize our mask and the IP for no longer than 18 months. So why I why my answer is the 7 nanometer margin lower because many people are asking about the margin for for different, for for different technology nodes. I can only say, I'm the normal situation.
If you our our NIE, our our fee, our engineering, fee contribution accounts for, I would say, let's say, this way, our, engineering efforts the, the, the, the money we charge comes for less portion of the total country value of 7 nanometer. But the amount, the absolute amount of the effort the value of the effort is thicker than 16 nanometer or 28 nanometer. So can you understand me?
Yeah. I understood. So, let me clarify this. So if, So after, you amortize the IP and tools, and then if we just look at, on the financial statements, the margin probably looks similar because of the amortization. Is that right?
Sorry. Can you
No, I mean, the, if you look at the, you just mentioned if you just treat the IP spending expense. And then the margin might be lower in in that way,
but I'm sorry.
The the margin rate. Yeah. Margin rate might be lower. But the, but after amortizations, the margin rate might be similar to That would be higher.
That would be higher. Right. Only, but let me explain into this way. Yeah. The 7 nanometer, of course, the design effort are higher.
Entry barrier are higher. So in terms of design feed and also production margin definitely will be higher than 16 nanometer. The reason, Daniel mentioned about because, there's a huge cost for the mask and IP. Yeah. We all know the mask for seeking for 7 nanometer is much, much higher than 16.
From a durable mass fee, we need to pay TSMC. And that mass fee, we have a very limited margin. But for our design and production, if we count out the mass fee, the profit margin, and design margin are much higher than 16. I see. I see.
Understood. And you've got a part production less longer, just like you say, past 18 months past the older amortization period, all the production volume become very high, I expect the margin will be also higher. Okay?
Okay. I don't see, other questions, written, or, hand hand raising. So, if look, if there are no questions, thank you for everyone to join our, institutional investment meeting today. And, again, sorry for the inconvenience for using this online format for the presentation, as long as, the when our virus is epidemic, getting the situation, when the situation is getting better, we still click a face to face comfort for the future. Thank you, everyone.
And then I will start the connection And, for the whole, video and the audio again, we will upload it to the N OPS. Competitive advantage of that. If you are interested in, you can watch the recording online. Thank you.
Okay. Thank you very much. So the next meeting, we are looking forward to have a face to face meeting as usual. Yeah, in fact, we really missed the the face to face to face comp private converse conversation communication by the end of this meeting. But this time, not going to happen.
Yeah, we won't be able to exchange your business card as well. But anyway, thank you very much. Thank you.