Asustek Computer Inc

TWSE:2357

Earnings Call Transcript 2021-Q4

[Operator]

Welcome to the 2021 Fourth Quarter Online Earnings Call for ASUS. Today's earnings call will be hosted by our co-CEOs and our CFO. First, our CFO, Mr. Nick Wu, will go over the 2021 financial results. Then Mr. S.Y. Hsu and Samson Hu will talk about ASUS' strategy and outlook. Following will be a Q&A segment. [Operator Instructions] So first, a presentation from our CFO, Nick Wu.

[Nick Wu, executive]

Good afternoon, everyone. It's good to meet everybody online again. So first, please look at Slide #5. This slide discloses our financial results for the fourth quarter of 2021. Our net revenue was TWD 141.8 billion for our quarter-over-quarter growth of 9% and year-over-year growth of 25%.

Our operating profit was TWD 12.3 billion for quarter-over-quarter growth of 14% and year-over-year growth of 50%. Net profit was TWD 12 billion. Quarterly growth was 6% and year-over-year growth was 22%. Our gross margin was 19.6% and our operating margin was 8.7%. These 2 margin numbers are both quite good, reflecting our good performance for the fourth quarter and our -- the continued optimization of our product portfolio and operations.

In our next slide, we see our nonoperating items. For the fourth quarter last year, our investment into Askey saw a turn to profit, from TWD 180 million loss to a TWD 34 million profit, a breakeven -- reaching a breakeven point. That is mostly because Askey saw improved operations and better raw material supply, allowing it to reach an economy of scale and to break even. In addition, we had TWD 936 million exchange gain. So our total nonoperating item income was TWD 1.7 billion.

Next is our balance sheet for the fourth quarter last year. This quarter saw very high revenues. And as we adjusted our operations, our cash reserves reached TWD 62.5 billion. Our inventory was TWD 158.1 billion, showing our improving revenue and the momentum in our operations. It also reflects the state of the industry in -- such as material shortages and strategic stockpiling. It also reflects other challenges such as logistics delays, resulting in a growth in inventory.

We project that in the first and second quarter of this year, ASUS -- as ASUS sets ambitious targets for operations and revenue growth, we forecast that our inventory in both products and materials will start going down as we experienced high sales.

Please look at Page 8 of the slides, which is a collection of profits and losses for ASUS in 2021 as a whole. In 2021, ASUS' net revenue was TWD 500.4 billion for a year-over-year growth of 31%. Operating profit was TWD 48 billion for a year-over-year growth of 90% and net profit was TWD 44 billion for a year-over-year growth of 68%. Earnings per share was TWD 60 per share.

Looking at the nonoperating items for 2021, we recognized an investment loss of TWD 1.78 billion (sic) [ TWD 1.718 billion ] in Askey, mostly because Askey experienced material shortages and insufficient scale. So there were relatively high losses in the start of 2021. But as I said, after some adjustments to operations and hard work in the fourth quarter of last year, Askey managed to reach a breakeven point.

As for our other investments, they also grew compared to 2020, and it reached TWD 2.355 billion, including our investments in various companies. In 2021, exchange gains was TWD 3.9 billion. So these are some of our major -- the major highlights of our balance sheet.

Now please look at Page 9 of the slide. Looking at our revenues for 2021, PC -- the PC market accounted for 64%, phones accounted for 2% and components accounted for 34%.

In the next slide, looking at the region mix, Europe accounted for 33% of ASUS' revenues, Asia accounted for 43% and the Americas accounted for 24%.

Now please look to Slide 11, which is our outlook for the first quarter of 2022. In our planning, we did take into account the events taking place in Russia and Ukraine and how it may affect market demand and the macroeconomic conditions. Russia accounts for about 2% of global GDP and also about 2% of the global PC market.

So in our planning, we certainly account for the situation going on. ASUS has also transformed itself in terms of culture and management. So over the past year, we have planned out our product and operation strategies for the future. And so overall, we are confident that in 2022, we will be able to hit revenue targets that represent growth that is far higher than the market as a whole.

We forecast that for the first quarter, the PC market will be down single digits quarter-over-quarter, but year-over-year, the growth will be -- there will be about 40% growth. As for components, considering the higher base last year driven by crypto currencies, we do anticipate components being down quarter-over-quarter and a flat year-over-year performance.

And that wraps up my review of financial results. So now we have Mr. Hsu and Mr. Hu, who will talk about our strategy and outlook for 2022.

[Hsien-Yuen Hsu, executive]

Investors, our friends in the media, good afternoon. I am Hsien-Yuen Hsu, a co-CEO. So I am here to talk about our strategy for 2022. This is our first earnings call for 2022. And actually, for this year, we have adjusted our key business objectives that -- which I will talk about.

The first main key objective is One ASUS. You might think that this is just an empty slogan. But actually, our Chairman, Mr. Shih, announced that ASUS must undergo a transformation in 2018, and he was -- he targeted remaking of our culture. And our hope is that through this remaking of the culture, our operations can be improved as well. Now ASUS has many product lines. And earlier on, the horizontal integration between these product lines was lacking. So our hope is that through One ASUS, we will be able to build up an unified team in ASUS.

To give an example, we have many sub-brands right now. For example, Republic of Gamers, ROG. ROG has products across several business units in ASUS. So now we have an internal committee system in order to pool together the resources of various BUs. For example, our ROG product line has a very popular feature, the Armory Crate, and it actually started from one specific business unit. But once it was so well received among our customers, we have now incorporated this feature across the entire product line so that all of our customers can enjoy this experience. So this is the power of One ASUS.

Now of course, ASUS is still a very much a product-based company. Our products include hardware, software and services. So we will continue to invest in innovation and R&D so that our products, our company operations, our company processes will all become better and more efficient, thanks to the hard work of our team. But for investors and for -- the most important thing is, of course, our performance.

And over the past few years, all of our business units have set very ambitious targets. We set very high challenges for ourselves. We see that in our PC core business, right now, the market is seeing relatively only moderate growth with an exception of the 2 pandemic years that we just had. However, we always set growth targets that are above the target, in general, and we also look to maintain margins above 8%.

In terms of our new businesses, in 2022, our goal is to establish a good position in these markets and economic -- economies of scale. We will continue to invest in these businesses. And although in 2022, these new businesses will probably not contribute to our profits, we do believe that in 2 to 3 years, these new businesses can be an important engine for growth.

Now as a brand company, ASUS also employs our brand Golden Triangle strategy. The 3 points of the triangle are design thinking, market position and NPS. Now all of our products are based on design thinking. We try to identify the pain points for our customers. And then through the design thinking process, we provide innovative solutions. Once the products are on the market, we use CRM and connected services to improve the market position of these products. And finally, we use the NPS as a tool to understand our customer responses so that we can improve the value of our brand in the minds of customers.

Of course, we need to thank our customers for your support and, of course, the hard work of our teams so that we were able to register very strong growth for the fourth quarter of 2021. Our year-over-year revenue saw a 21% growth in open platform products and 29% growth in system products.

This chart shows our revenue growth from the first quarter of 2020 to the fourth quarter of 2021. And as you can see, in the fourth quarter of 2021, we reached TWD 141 billion in revenue, which is an all-time record high. Of course, our efforts were also recognized by awards and organizations. For 8 years, we have been named as Taiwan's most international brand. Our brand was evaluated as being worth USD 1.87 billion, representing a 23% growth. We are also expanding our partnerships across different industries so that our customers can have new impressions and experiences of our brand. We are also looking to give back to society and to protect our environment and sustainability.

We were also named for the seventh time as one of the world's most admired companies by Fortune, and we were ranked very highly in terms of social responsibility. We give -- we bring excellent -- which -- showing that we bring excellent experiences to our customers and we bring innovative breakthroughs, whether in software, in AIoT or other solutions. We provide better and more perfect products for creators and gamers.

In 2022, at the CES show, ASUS won a record 20 awards. The ROG Zephyrus Duo 16, the ROG Flow Z13, the Zephyrus Duo G14 Alan Walker Special Edition and the ROG Strix G15 and G17 and the ROG Maximus motherboard. These were all products that were recognized with awards at CES, which shows our -- the power of our R&D and our success in providing better experiences for our customers.

ASUS maintains a lead over our competitors in components. For example, our core product, motherboards, we still have an over 40% share of the global market, and we dominate the high end market with over 55% market share. In the Intel Alder Lake platform and AMD's high-end platforms, we are the dominant force. And we are still growing in sales in the United States.

In graphics cards, we are also the top company in market share, and we were voted the best graphics card brand by the European Hardware Community Awards in 2021. And in the future, we are also cultivating applications in AI and the Metaverse. Even in the monitor world, where innovation is difficult, we are still the best-selling portable monitor brand. We are #1 in market share. And in 2022, we won 2 innovation awards at CES, and we were -- won the Reader's Choice Award by PC Magazine for best monitor brand.

In addition to individual products, we are -- we have also introduced the Powered by ASUS brand, which integrates motherboards, monitors, graphics, shells and routers, et cetera. And we work with suppliers to provide fully customized devices, building the most beautiful and powerful products available for our customers.

Next, I would like to talk a little bit about our investments in AIoT. ASUS is investing into AIoT to develop new breakthrough technologies that make the world better, including smart retail; smart manufacturing, which turns factories into smart assets; smart healthcare that uses AI; smart cities to improve governments and agencies and also secure and reliable cloud storage.

Here, I would like to focus on one example, which is our smart healthcare efforts, the xHIS platform. Our team has worked on the xHIS smart healthcare platform. Now it is -- has rolled out in TzuChi Hospital in Taipei, starting from a single department to now across all departments of this hospital. And we are also building up a new xHIS platform architecture so that it can be implemented across more hospitals. We have also signed memorandums of understanding with Taipei Veterans General Hospital and Taipei GanDau Hospital to further develop this platform in the future. I am sure that we will have more to say about this in the second half of this year.

So now I would like to turn the floor over to Samson.

[Samson Hu, executive]

Thank you. Good afternoon to our friends, investors and media. I am Samson Hu, and I will have a little bit more to say about our performance in 2021. In 2021, we continued to execute our Golden Triangle and segmentation strategies. And we have continued to respond to changes in the supply chain and logistics.

Overall, all of our product lines grew more than the overall market. For example, for regular PCs, ASUS grew by 10% to 15%; in gaming PCs, we grew 20% to 25%; and for commercial and education PCs, we grew by 40% year-over-year. So these are all very positive numbers.

This slide shows our commercial PC business. If we exclude Chromebooks, in 2021, we reached 100% growth, mostly in Windows PCs. Looking at the regional breakdown, in Europe and the Americas, we grew by 170% and 350%. And in the Asia Pacific and China, we still grew by 60% and 40%, respectively.

As Mr. Shu mentioned, ASUS has increased our investments in the commercial segment, and we are very confident that this segment will become a major driver for growth this year and in the coming years.

Of course, we focus on both quantity and quality. So we are also looking to improve our share of high-value product lines. If we look at the pre-pandemic and post-pandemic industry, the total addressable market for PCs grew from about TWD 260 million to TWD 350 million, so a growth of about 35%. But for ASUS, including our gaming PCs, our creator PCs and our high-end Chromebooks and premium PCs, these premium product segments saw 68% growth between 2019 and 2021. So our growth is far higher than that of the overall market.

So when it comes to product value in regular laptops, one very good example is our introduction of high-value OLED panels in -- across our entire product line, including the ProArt Studiobook and the Zenbook and the Vivobook. All of these product lines now have OLED screens. So we are a leader in the PC industry in terms of creating higher-value products.

Looking at the next slide, another high-value product line is gaming PC. And for this product segment, we are also looking for -- to target higher growth than the market as a whole. In 2021, shipments grew by 16% in the market as a whole but 20% for ASUS. Looking at the regional breakdown, you can see that growth was 15% in Europe, 10% to 15% in the Americas, over 30% in the Asia Pacific and over 25% in China.

Looking at the next slide. If we look at annualized growth for the 3 years between 2019 and 2021, the overall market grew by 19% annually, but ASUS grew by over 30% annually. So ASUS is doing 10 points better than the market as a whole.

Taking another perspective, in the gaming laptop premium market, you can see that the market as a whole -- for the market as a whole, the share of premium gaming laptops was about 24%, but for ASUS, the share of premium products grew from 31% to 35%. So the share is significantly higher than the market as a whole.

We've also looked at this chart several times in the past. In addition to gaming PCs, we are -- we also invested in other gaming-related product lines. So revenue from gaming products as a whole has increased as a share of ASUS' revenues, reaching over 40% -- nearly 41% in 2021.

So of course, the gaming product line is a very high value product line. So within ASUS, we consider it a highly strategic product, and we want the share to be as high as possible.

Looking at the next slide. In terms of our strategy for our gaming segment, we have 3 major points: first is, of course, competitive products; the second is community; and the third is a premium brand positioning. In terms of our products, as I said, we are committed to providing the best experience and the most comprehensive products and solutions on the market.

In terms of community, we continue to broaden and deepen our connections with the overall gaming ecosystem, including the traditional power user segment but also improving for -- including, for example, gaming vendors, eSports organizers and also different lifestyle segments.

So these are the crossover collaborations we had mentioned in the past. Using the ROG brand as a core, we worked with other major cultural players in the gaming culture. For example, figures in music, sports, fashion, lifestyle, et cetera. In 2021, these efforts has -- have improved our brand and our market share. So in 2022, we will continue to expand these efforts toward crossover collaborations.

At this year's CES, we worked with our partners in the gaming ecosystem to communicate the value of our entire product line. For the first time, we launched an interactive website for CES, and we sent out invitations that were modeled on video game disks, which touched off a lot of discussions among the gaming community. And on the day of the presentation, we -- there was -- we were -- appeared in New York Times reporting. And we had a major presence among influencers, which continued discussions of our presentation. Across all social media platforms, we had over 860 million impressions. So it was a very successful promotion of our ROG product line for 2022. It was a very good start to the year. And I'm sure that this will be very helpful for our ROG business for the coming year.

As I mentioned in the past, gaming is not just -- is not our only important customer segment. Another important segment is creators. And I said in the past that, actually, we began targeting creators in 2011 with the ProArt display monitor. So building on this space, in 2019, we expanded our creator-targeted product lines and solutions. So in addition to display monitors, we now have laptops, workstations and peripherals like projectors as well as motherboards and also software solutions to meet the needs of professional content creators.

Looking at the next slide. Our products and solutions for creators are not just individual products, we are also integrating our advantage in innovation to create a whole creative ecosystem, working with partners across the entire ecosystem so that our -- so that we don't just meet their needs with products but also with solutions and services.

Please look to the next slide. So our efforts over the past 2 or 3 years have borne fruit in the fact -- in the positive response among creators, some of whom accepted or even were willing to accept sponsorships from us.

So looking at the product lines for our -- for creators over the past 2 years, this product line has become a major driver for growth for ASUS. Looking at GFK and NPD data, in 2021 -- at the end of 2021, as you all know, graphics cards are very important for creators. And currently, the most popular, discrete graphics cards are the NVIDIA GTX and RTX. So within this segment, we were the #1 laptop brand worldwide with a 27.7% market share. So we really are very grateful to our team and to all creators around the world for your support for ASUS. In 2022, we will continue to invest in the creators segment.

So that was a quick overview of our operations and strategy for 2021. Thank you.

[Operator]

Thank you to our co-CEOs and CFO. Now is our Q&A segment. [Operator Instructions]

Okay. The first question is from JPMorgan, who asked, what is inventory in the channels like compared to normal? And right now, we see that for the industry as a whole, inventory is relatively high. So as supply and demand normalizes in 2022, when do you see inventories starting to go down?

[Samson Hu, executive]

Okay. I'm Samson Hu. I think I'll answer this question. I will -- I think I'll also give an overview of our supply situation because I think we have -- the component and parts shortage problem is now mostly under control with only minor exceptions like power ICs and IDM manufacturer ICs still in shortage. Most of the other components and parts are seeing more stable supply and the shortage is now controlled.

So because of these improvements to supply chain, inventory, I believe, is back to pre-pandemic levels for -- I would believe -- I would say, to 2/3 of the major regions, including the U.S. and most of Europe as well as some parts of Asia.

In these regions, inventory is now back to normal levels. But right now, market demand and prices are not going down. So we believe that as supply and demand goes back to normal and prices and profits go back to normal levels as well, as the CFO said, we still have relatively high inventory for some materials and components.

But now that we are seeing high demand in the first quarter and good visibility for the second quarter, we do believe that compared to last year, at least for ASUS, we will see good growth. So we are very confident that through good sales in the first and second quarters, we will be able to lower the inventory for materials and products. And inventory should be turned to a more normal level. Thank you.

[Operator]

The next question is from UBS. What is ASUS' view for the market growth for laptops in 2022 worldwide? What is ASUS' niche or strategy for achieving growth above the industry as a whole in 2022?

[Unknown Executive]

Okay. I think I'll take this. Of course, people are forecasting a low single-digit drop for the market as a whole. So I'm not surprised that we've been asked this question. But we do think there are some strong points for ASUS in 2022. The first is our investments in the commercial segment. In the past, ASUS has had a high --- the higher share of ASUS' products has been in consumers and not in commercial. We've only had SMB. But over the last 2 years, we've increased our investments in Chromebooks, in SMB and in enterprise.

And for countries with good infrastructure, we're really stepping up our investments. So over the past 2 years, although our base was low, we've experienced very good growth in the commercial segment, and we will continue to invest in commercial. So we are anticipating very rapid growth for commercial in 2022.

As for the consumer segment, as Samson mentioned, we are focusing on high-growth segments, including the gaming segment and the creator segment. Samson talked a lot about the advantages to ASUS' products. And we believe that because of our investments, because of our well-received innovations from our results, we can see that we are seeing very high growth in the gaming and creator market segments. And of course, this helps us out a lot overall as well.

Samson mentioned that gaming products in terms of revenue now should account for a 40% share in the company. So these segments, if we do well, it will really help out -- it will really help our overall business. So these are the key points for our confidence in our growth in laptops for 2022.

[Operator]

Our third question is from [ PrimeBridge ], who asks about ASUS' cash dividend policy and what the percentage is going to be for this year?

[Unknown Executive]

I think I'll take this. ASUS' dividend policy is set with a goal to provide investors and shareholders with better yields and better cash dividends as compared to our industry peers. And actually, today, we had a Board meeting where we reported on our 2021 results and made a proposal for our dividend policy for 2022.

Looking at our EPS of TWD 60, we recommended a percentage of 70%, which is TWD 42 per share. This is our proposal for your reference. Thank you.

[Operator]

The next question is from the Economic Daily News. What is ASUS -- what were ASUS' results in the smartphone market for the 2021? And what is the target for 2022? Will there be products folding or rolling products?

[Unknown Executive]

I think I'll answer -- take this. For 2021, our phone shipments was 800,000, which represents a year-over-year growth of over 100%, in line with our expectations. In 2022, we will continue to introduce new products while maintaining a focus on the gaming segment so that we can meet the needs of different users. Of course, with this new product cycle, we do expect that the phone business will be profitable.

As for new form factors, such as folding or rollable forms, we are still watching and considering because it will require more mature key parts. Right now only Samsung has reached scale in their foldable phones because they do have the soft OLED technology. So they are well positioned to make this investment.

But for other companies, they are more conservative about new form factors, and we will continue to closely monitor these new technologies. And once these key parts have reached a reasonable stage of maturity for the market, we certainly will launch these new form factor products. But right now we are still at the stage where we only watch closely. Thank you.

[Operator]

The next question is also from the Economic Daily News. So Askey reached profitability in the fourth quarter of 2021. What will be the targets for Askey in 2022 in terms of operations and profits?

[Unknown Executive]

Well, I think everybody looks very closely at Askey, and it's been a major focus for ASUS over the past year in terms of our work. So I believe that there have been 2 keys to profit for Askey. The first is, of course, revenue growth; and the second is higher efficiency and cost savings. So in terms of revenue growth, over the past year, Askey has expanded their customer base for their ICT products, including their connected car -- including new customers for their connected car solutions.

So they have new sources for orders, and we believe that it will continue to grow. But of course, we do still face challenges in terms of the supply chain. And just like in the PC industry, the ICT industry is facing challenges in terms of material supply. So even though Askey was getting orders, it was not possible to fulfill them, which meant that they were unable to reach economies of scale. So the management of materials in our supply chain partners will continue to be a focus in the coming year.

We anticipate that in 2022, there will be improvement in supply chain compared to 2021. So we do anticipate that revenue will be higher for 2022. As for lower costs, we have worked with the Askey team to control the R&D costs, the manufacturing expenditures. So cost control, I believe, will also see significant progress in 2022. And so we do see positive signs for 2022, but we did encounter some challenges in the first quarter.

As you may have seen in media reports, around the Lunar New Year holiday, Askey, unfortunately, experienced an outbreak of COVID-19. There were several workers who were infected, so there was a work stoppage for about -- that lasted about 1 month. Our preliminary estimate is that this work stoppage will result in a loss of about TWD 100 million. So originally, we were anticipating a breakeven or a small profit, but instead because of the outbreak, there will be a loss of TWD 100 million. However, we do project that there will be a recovery for the coming quarters. So for 2022, as a whole, we do believe that Askey will make a small profit. Thank you.

[Operator]

The next question is from [ CUSA ]. What is ASUS' forecast for the AIoT, industrial computer and IoT segments?

[Unknown Executive]

I think I'll take this question. AIoT has been a major investment focus for ASUS since 2018. So we've invested a lot over the past few years. And as we mentioned in the presentation, our key focuses for AIoT include smart healthcare, smart retail and smart manufacturing. We mentioned in earnings calls last year that in order to have a space to demonstrate our smart manufacturing, we are actually building up a plant.

This is fairly rare to see for a brand-focused company to invest in a -- to make a major investment in manufacturing plants. So as for the industrial computer segment, you can see that many companies have a business model where they provide highly customized products for customers they closely collaborate with. This is the model for success for most companies on the market. And of course, with this model, these companies are able to build up very long-term relationships with their customers. So this will lead to more stable operations for them.

But of course, if we use this kind of business model, then these relationships take a long time to build up. So it takes a long time to build up scale. Looking at our AIoT business group right now, at the current rate, it will be fairly difficult for this business group to have an appreciable contribution to ASUS' overall products. So we are discussing whether we had -- we can have a new direction -- take a new direction for this.

And we do have some preliminary results to these discussions, but it will take some time to build up the ecosystem needed to create rapid growth. And right now I think the strategy is not yet ready for public discussion. So we will probably talk a little bit more about this in future earnings calls when our discussions are more mature. Thank you.

[Operator]

The next question is from DIGITIMES. What is the -- what will be the situation and target for the graphics cards segment? And how much growth from 2021?

[Unknown Executive]

I will take this question. If we look at the first quarter visibility for graphics cards, the shipments and revenues will see likely 2-digit growth over last year. But for the second half of the year, I think we still need to keep close watch on the developments of crypto currencies. Thank you.

[Operator]

The next question is from KGI. So in the presentation, you mentioned a 6% target from -- for 2022. Is this for revenue growth?

[Unknown Executive]

Sorry, maybe I wasn't very clear in my presentation. I mentioned that we have ambitious targets for all of our business units and revenue growth is, of course, very important. But for our investors, probably the profit margin is most important. So when I mentioned 6%, it's our targeted margin. In other words, even under our aggressive revenue growth targets, we still hope to maintain at least 6% margin. I think that's better for our shareholders. Thank you.

[Operator]

The next question is from UBS. What is ASUS' view on the overall eSports market in 2022 and the next 3 to 5 years? What is your guidance for the growth in this market? Will ASUS be able to maintain growth that is above the overall market?

[Unknown Executive]

I'll take this question. For gaming, I think compared to other segments in the PC market, I think there is clear momentum. So for ASUS, as we mentioned in the presentation, the gaming business in terms of our products, in terms of our innovation, in terms of our building of communities and ecosystem, it's a strategic priority for us.

So our growth guidance is at least 20% year-over-year growth for 2022, 20% growth for 2022. As for the next 3 to 5 years, I think the gaming industry -- the gaming segment, I think, there is still room for evolution. So over the past year or 2, we have introduced many new innovations. For example, earlier gaming products -- earlier gaming PCs are big and bulky. But a few years ago, we introduced a new product line, the Zephyrus, which is light and portable, and this touched off a new trend to have light and portable products that can still meet the needs of gamers.

This year, we are introducing the 2-in-1 gaming laptop. A lot of people might think, why do 2-in-1 products for gaming? Well, it's because we've noticed that over the past year or 2, many users are not buying gaming laptops just for playing games on them. They are also using gaming laptops for productivity tasks. And when they do that, sometimes they need to bring their laptops with them.

So the customers, the segment is changing. They need both performance and portability and mobility. So gaming PCs are now a more -- they need to be very fully featured devices and ASUS is in the lead. We are the pioneers and trying new things for this segment. So I believe that with our spirit of innovation, we will be able to achieve growth that is at least 10 points higher than the market as a whole, so 2-digit growth even for the next 3 to 5 years. Thank you.

[Operator]

The next question is from Morgan Stanley. So last year on earnings calls, you mentioned that inventory in sales channels are 30% below normal. Have they come back to normal now?

[Unknown Executive]

Well, I talked about this earlier, but I would like to expand on this. Looking at the regional breakdown, about 2/3 of regions are now back to normal safe inventory. Last time, we mentioned a 30% gap in inventory. So back then inventory was at about 6 to 7 weeks. Of course, the definition of healthy inventory varies by territory, but we usually define healthy inventory at 6 -- rather 8 to 12 weeks.

But last time, most regions were seeing inventory at 5 to 7 or 5 to 8 weeks. So there was a 30% gap, but now for 2/3 of the regions, inventory is back to 8 to 12 weeks. Thank you.

[Operator]

The next question is from [ MMA ] Wealth Management. So as materials and logistics costs go up and there is inflation, what will -- how will this affect ASUS' gross margin? And will these cost increases be passed on to the customer?

[Unknown Executive]

I'll take this question. Over the past 2 years, we've seen demand growth fueled by the pandemic. So cost increases in terms of materials and shipping can easily be passed on to the customer because demand was much higher than supply. So price increase -- moderate price increases will not lead to drops in sales. But this year, I think things are different. We need to be mindful of how much costs are acceptable to consumers. And I think one way of thinking about it is how we can improve the value of our products through innovation so that customers believe that they are getting what they paid for. It will make price increases more palatable for customers. So instead of just passing on the costs, we want to make higher-value products. Thank you.

[Operator]

Okay. I think our time is up, and we've answered most of the questions. So I think our 2 co-CEOs will give some final remarks to wrap up today's earnings call.

[Samson Hu, executive]

Okay. Thank you to the investors and the media for taking part in today's earnings call. From your questions, we can see that everybody is quite concerned about the market post pandemic. So some say on the market that the total addressable market will go down this year. But for us, we are still cautiously optimistic. So we've set fairly ambitious targets.

And of course, we know that our industry-beating growth is a challenge and that's something that Mr. Hsu has emphasized. So we will continue to watch the market developments and aim to provide better and more innovative products to -- that customers like so that we can continue to fuel our growth. As for new industries, for example, AIoT, if we have any good progress made, we will continue to keep you all updated. Thank you.

[Hsien-Yuen Hsu, executive]

Looking at this year's PC market, if we look at the market and the industry, as we all know, there are some geopolitical risks and, of course, the challenge of inflation, which will affect spending power negatively. But as we said in past earnings calls, we do believe that the pandemic has brought new digital lifestyles. So it is a positive structural change. So compared to the pre-pandemic times, we are still optimistic about the total addressable market.

For the PC segment, we do believe that it's expanded by TWD 100 million to TWD 350 million. So for 2022, we do believe that there will only be a single-digit change compared to the year before.

As for ASUS, as we said today, over the past few years, we have executed the Golden Triangle strategy and the segmentation strategy, and we have seen success in the commercial, the gaming and the creator segments. So we are very confident that in 2022, we will continue to execute on these strategies and improve the value of our products. And through these efforts, we will be able to achieve revenue growth, 6% operating margin and reach the expectations of our investors and our friends in the media. Thank you.

[Operator]

Okay. Thank you. Thank you all for participating in this call.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]