MediaTek Inc

TWSE:2454

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to the MediaTek 2018 First Quarter Investors Conference Call. Your speakers today are David Ku, MediaTek's CFO and spokesman; and Jessie Wang, MediaTek's Manager of Investor Relations. Ms. Jessie Wang will report quarter results first, and Mr. David Ku will provide prepared remarks. After that, we will open for Q&A.

Now I would like to turn the call over to Ms. Jessie Wang. Jessie, please go ahead.

[Jessie Wang, executive]

Good afternoon, everyone. Welcome to MediaTek's First Quarter 2018 Conference Call. As a reminder, all content provided on this teleconference is for informational purposes only, not intended for investment advice. Neither the issuer nor any of independent providers is liable for any actions taken in reliance on content contained herein. MediaTek provides non-TIFRS financial metrics and supplemental information. Earnings distribution is made in accordance with financial statements based on TIFRS. Unauthorized recording or redistribution of the video, audio, text and the presentation content of the teleconference is strictly prohibited. By participating in this teleconference, you agree to accept the foregoing terms and conditions.

Now let's start with the 2018 first quarter financial results. The currency here is the NT dollar.

Revenue for the quarter was $49.7 billion, down 17.8% sequentially and down 11.5% year-over-year. Gross margin of the quarter was 38.4%, up 1 percentage point sequentially and up 4.9 percentage points year-over-year. Operating expenses for the quarter were $17.2 billion compared with $22.3 billion (sic) [ $21.3 billion ] in the previous quarter and $17.6 billion in the same period last year. Operating income for the quarter was $1.9 billion, up 49.5% sequentially and up 59.2% year-over-year. Operating margin for the quarter was 3.9% compared with 2.1% in the previous quarter and 2.2% in the same period last year.

Net income of the quarter was $2.7 billion compared with $10.2 billion in the previous quarter and $6.6 billion in the year-ago quarter. Net profit margin for the quarter was 5.4% compared with 16.8% in the previous quarter and 11.8% in the year-ago quarter. EPS for the quarter was $1.69 compared with $6.50 in the previous quarter and $4.29 in the same quarter last year. Please note that net income, net profit margin and EPS for the previous and the year-ago quarters both include one-off non-operating disposal gain, which was not included in the first quarter. We also provide non-TIFRS financial metrics, which exclude share-based compensation, amortization of acquisition-related assets and tax effect. Please refer to earnings press release and the presentation for details.

Now I would like to turn the call to CFO, Mr. David Ku, for the prepared remarks.

[David Ku, executive]

Good afternoon or good morning, depending on where you are. Now I'm going to go through Slide 3 for some more detail for the 3 major business segments. I will start from mobile computing. Mobile computing, by the way is -- which including both smartphone and tablet. I think for first quarter -- for this quarter, mobile computing has account for roughly 30% to 35% of our overall first quarter revenue. I think for first quarters, we have pretty good quarters for both for market share gain and also for gross margin improvement on our smartphone product, especially for new Helio P60 product, which is the first one of its kind to integrate APU and also we partner with several artificial intelligent vendors, which is starting to ship very small volume in Q1, and I think we will see much stronger shipments in Q2. And also -- we will also like to [ reiterate ] that MediaTek has been investing in 5G aggressively, currently are [ posting sub-6 gigahertz and also millimeter wave ]. Currently, I think we are targeting to have 5G pre-commercial launch in 2019. That's a quick update for mobile computing.

Now I'm going to move on to the growth sectors. The growth sector which including IoT product; PMIC, power management IC; and also a customer design ASIC chip. In Q1, I think our whole growth sectors account for roughly 30% to 35% of overall revenue. I think the growth sectors early last year -- early this year and late last year would kind of indicate last year's growth rate [ of what's very strong ]. I believe last year and year-over-year growth rate was more than 30%. And for this year, the guidance -- for the full year, the guidance I will give out is also we're looking for 2-digit growth for this year. I think for first quarter and also with our second quarter visibility, we feel fairly comfortable that for the first half this year, we'll see a pretty strong year-over-year growth, which is a double-digit growth this year.

Looking to second half this year. We're still looking for a pretty healthy growth, but given the fact starting from second half last year, the base was very high. So I think intrinsically the year-over-year growth rate will be slightly down a little bit. But overall, we're still looking for pretty healthy growth rates for the mid to long term. Again, double-digit growth rate, that's what I mean by the healthy growth rate.

A little more detail about the growth sectors, especially we have some pretty good update -- progress in our ASIC business. I think for the ASIC business, our top [ long-term customer ] profit is the ASIC business. We are also seeing a pretty aggressive yield margin to the new segments. So we announced first 7 nanometers silicon-proven 56-gigahertz IP on SerDes side, I think in the [indiscernible]. I think currently, MediaTek is one of the few companies who can provide a comprehensive product portfolio on the SerDes IP, all the way up to [ 112 gigahertz ] IP. And coupled with our SoC integration capability and the process and technology, we do believe the ASIC business will provide a pretty good long-term growth opportunity not only on the console products but also right now in this high-speed IO. And going forward, we believe we [ should include AI ] and also other areas as well.

The next thing in line in this segment is the PMIC business. I think for the power management IC this quarter, we see a healthy growth. I think for the PMIC, which including -- we have a different exposure in the segment which including PC, smartphone, consumer products. I think the highlight this quarter is actually we are -- the new product into the SSD markets and the [ proven ] and started to ship with hope that will provide a new growth driver for PMIC business.

The last but not least is really IoT. I think IoT this quarter Q1 and Q2 are really stable. But for IoT, I think for this quarter, we have a joint development with Microsoft to launch our IoT solution, which basically connect directly to Microsoft cloud service. And for a lot of -- some of the [ lucky vendors ] out there, all they need to do is just purchase our product so they can just work very smoothly and easily with Microsoft cloud service, so that will provide the new revenue opportunities for us. And on top of that, I think we've also been quite aggressively investing in narrow-band IoT. I think the products are rolling. Right now, it's in the design-in and [ design win ] stage. We do believe we should be able to see some [ winning ] for volume ramp-up starting from second half this year. I think that conclude my update on the growth structure.

So last but not least, show you the other customer products and [ seasonal ] product. One, I think other in this segment which including digital TV, feature phone, [ solid actual ] storage and also Blu-ray DVD. For this sector, I think the overall revenue accounted for 30% to 35% in Q1. I think for this quarter, the highlight for other consumer product [indiscernible] product is after 3 years of mark of anti-trust rulings' observation period, I think finally we got relieved from the observation period in February this year. So in today, basically both MediaTek and also MStar's board meeting approved a truly full integration among these 2 companies. And we have a targeting effective date of January 1, 2019. I think due to this new mergers or new integration, I should say, this merger happened a few years ago. Due to the full integration efforts, we will set up a new business group which will host the TV business from Mstar and also from MediaTek side. We believe by consolidating our new resource and also the technology expertise, [ smart ] product portfolio, we should be able to provide a much better service, and much more competitive solution to our customer and I hope it will further grow this business.

And I think that pretty much concludes my other consumer and also [ official ] products. I thought -- I would add last point is today, we're also -- the board also passing about a cash dividend approval. I think this year, we will pay out TWD 10 per share as the cash dividend for this year. Of course, this was subject to the shareholders' approval, unless for today and the board having approved that proposal, we will submit that for shareholder approval for our shareholder meeting which is scheduled in June -- mid-June. I think that concludes my update.

[Jessie Wang, executive]

Okay. Thank you. We are now ready for Q&A session. Will you please start the first question, operator?

[Operator]

[Operator Instructions] The first to ask question is Randy Abrams from Credit Suisse.

[Randy Abrams, analyst]

Okay. I appreciate the additional remarks today. I wanted to ask the first question about the assumption to grow units for this year, which I think is based on the first-half run rate. It's about -- it would imply a pretty big ramp to about 120 million per quarter in the second half. And I'm curious of the drivers -- like what you're factoring in just both from a market -- from a market share and mix to see that type of ramp, if we're doing the math, right?

[David Ku, executive]

Okay. Randy, first of all, I think last year, when we talk about the overall shipment for mobile computing, the numbers are ranging from -- [ more than ] 35 million to [ 45 million]. Please bear in mind that, that also including the tablet shipment. Okay, so when we're talking about volume growth for this year, we're talking about the volume growth for the smartphone, not necessarily in the tablet business. So probably the first thing I'm going to highlight to everyone actually is [indiscernible] the smartphone revenue is -- you need to separate the smartphones and also from the overall shipment. Just bear in mind last year's numbers also included tablets. So that's the first point.

The second point related to your earlier question, I think we see starting from Q2 a big healthy the final [indiscernible] numbers. As people can tell, I think starting from fourth quarter last year also by and large first quarter this year, I think the channel inventory is getting evolved. Starting from Q2, we see pretty much all the major players in the market start to [indiscernible] the channel -- the overall [ market ] channel. On top of that also starting from Q2, normally that new product cycle for the customer side, so we believe the pretty good brand stock holds for Q2 and by now, maybe it's a bit too early to talk about Q3, but we do feel momentum and should be able to continue to get into Q3.

[Randy Abrams, analyst]

Okay, great. If I were to...

[David Ku, executive]

And we're looking for the market share gain this year. It was based on the design-in and the design win situation with key customer. We do believe we are actually getting market shares back -- actually winning more market share [ this year ]. So it's coupled with the customer product portfolio and also the product launching schedule and also our market share gain, so that's why we see pretty good opportunity for us to continue grow shipment on the smartphone side on a year-over-year basis.

[Randy Abrams, analyst]

Okay. And maybe 2 quick follow-ups on that, if you could give us a little -- get a feel on the mix where in first quarter Helio was and your latest expectation on Helio. And then on your -- I guess on your own inventory level, it looks like a pre-build, but I want to make sure it's -- or see the mix, if any from the older products due to the market slowdown or most of that some of the new products ramping up.

[David Ku, executive]

I think most likely it will be new products ramping up. And maybe one way to define the overall situation is when we [ deliver ] new product, which including Helio P60 product, but not only limited to Helio product, in our definition, new product basically mean the new mobile architectures. So Q1 always, for the revenue contribution from the new models is roughly 35% plus. In Q2, we believe the revenue coming out from new mobile architecture should be more like 50%.

[Randy Abrams, analyst]

Okay. And do you have a Helio, like what percent you expect the P or just the Helio series to ramp up to?

[David Ku, executive]

Well, I think for Q2, it's obviously a big [indiscernible] in Helio P series, specifically Helio P60. And also in second half this year, I think we will [ want another ] Helio P series product. I should to everyone with more details [indiscernible].

[Randy Abrams, analyst]

Okay. And for the carrier aggregation, though, it's the -- the move where you now have sweet spot on Cat-7, do you see any other shift? You do have that modem that can do Cat-12, but is there any new change in the market requirement? Or is that thing pretty stable for a while for most of the market?

[David Ku, executive]

I think from a technology or product revenue perspective, we have everything with [ me ] right now which including carrier aggregation and also a category-12 [indiscernible], but the focus on what the product really needs right now, our view is actually Cat-7. Pretty much is that this -- it's what product needs -- what market needs for the [ mainstream below ]. For the super high-end product, special product, might be people looking for some [ differential ] in the price tag. But in reality, I think Cat-7 right now is actually pretty [ sufficient ]. But again, like I said earlier, technology-wise and also product-wise, I think we have given the market our Cat-12 product.

[Randy Abrams, analyst]

The last question I have was just on the networking, where you have now the SerDes and some of the IP there. If you could give a view, it's probably more next year, but the type of contribution and opportunity you're going after in that market.

[David Ku, executive]

Well, I think for networking side, we probably won't be able to provide any more detail right now. Otherwise, the recent product announcements are for our 56 SerDes IP, I think for the company and for business, we will not be able to provide more details at this moment.

[Operator]

Right now we are having Brett Simpson from Arete Research.

[Brett Simpson, analyst]

David, just wanted to add, it's great to see the detailed update on the other parts of the business and not just smartphones. Thanks for that. I just wanted to ask on the ASIC side, can you help us just frame, when you look at your assets, the IP that you produce at MediaTek, you've had a consumer focus with a lot of the cloud players, Amazon, and you mentioned Microsoft and Google and such. What is your capability from an ASIC perspective, where do you see the opportunities? Are you targeting the cloud players from an ASIC perspective and you mentioned AI with SerDes, is this something that you will be developing long-term?

[David Ku, executive]

I think from the customer ASIC perspective, probably the easy way to think about that is actually is, first of all, we needed the key IP ready, and on top of that we need to provide the leading-edge process node technology. I think [indiscernible] given our sizable mobile business, given our sizable consumer product business, I think on the consumer product side, we have pretty much all the necessary IP you can think of. And on top of that, I guess most of our IP we have in this technology and [ makes sure ] is actually depending now on the high-end process node, I think that's on the consumer product side. Other than the consumer product, I guess we are working on different product verticals. And you get -- kind of judging from the recent IPs that we are [ guessing ] so, [indiscernible] what areas are we getting because we probably 10, years, 4, years, 5 years' time to develop in-house SerDes IP technology and right now we believe we are about the world leaders in terms of SerDes technology both from the speed and also from the processing technology. So I think switching is one of [ getting the ] area, but there are some other areas for the base station unit because the base station unit has the high speed I/O for the digital O/I and that [indiscernible]. In [indiscernible] you look for the future, say for the AI servers, you also need to have the circuits to [indiscernible] it. So with IP, I guess what we are going to do is we're trying to find different verticals and -- but it would take time, it will take time but all if you think about for the data driven, that's your perspective, the high-speed service is really a pretty valuable IP and also a key IP for us to help us to open a lot of new opportunities. And other than that, I guess we're also working on different verticals. I think earlier if you try to recall, we had been talking about -- for example, it doesn't mean we're actually in there yet, we're ready. So something like cryptocurrency, the mind machines and all other stuff. I think we do have the necessary IP, but we just need to find the right customer and to find the right sensors.

[Brett Simpson, analyst]

And I just wanted to follow up on MStar is getting integrated in with MediaTek after all these years of waiting for approval. How much headcount has MStar got and when looking at 2019, when you integrate the headcount with MediaTek, how do you plan to sort of allocate resources with the fact that today you have 2 large TV teams, for example, going to 1? How do you think about the allocation of all these engineers that are coming into MediaTek next year?

[David Ku, executive]

I think for the near term because right now, both sides have a pretty sizable digital TV presence [indiscernible] and also as I said earlier, we're still trying to provide the best solution to our customer. So for the near term, even though we -- just -- anyway both team, it's probably because your team -- most of the team are [ passive ] in the near term. We probably will start with some technology partnership and also the product definition partnership. But again it will take time because for most of the product when we ship this year, it's pretty much out there already. So I think for the true synergies you like [indiscernible] probably we need to wait for the mid to long term, say next year. And I guess, if you take one step back, when you think about MediaTek as a group, right now we have been investing quite heavily in lots of new area. Like last year, we talked about like consumer products, like AI product. I think what we'd do is, we will take basically a group view to find the best distribution or allocation if you like, for R&D resource to basically support a different view and initiative. So having MStar as a new addition to the family members, I think would -- which will provide a pretty good addition to our overall new business initiative on top of -- help us to continue to grow the digital TV business and hopefully we can continue to improve the market share situations which may have some uphill challenging in the last few years [indiscernible] constructional restriction on both sides.

[Brett Simpson, analyst]

And maybe just shifting gears to smartphones, can you help us, I mean, where do you think your market share is in Q1? I mean, I know this is not a quarter where there's a lot of P60. But if you sort of frame your market position today in Q1 and where do you think products like the P60 and the other Helio product you're planning to come out later this year when you look at your market share, where do you think that goes to going into second half? How much share gains do you think you'll be adding this year?

[David Ku, executive]

In Q1, I think the market share didn't really move that much because if you're judging from a similar perspective that's the guidance we gave out earlier in the last quarter. We generally see a huge increase in Q1, so I'm assuming Q1 market share was similar like Q4 last year, say low 20%. Starting on Q2 for the full year, we probably will not be commenting on quarter by quarter market share. Maybe the easy way to think about that is on a similar market share perspective, as you know we're looking for, 40% plus similar market shares and we believe actually we have every chance to reach that.

[Operator]

Next, we're having Gokul Hariharan, JPMorgan.

[Gokul Hariharan, analyst]

First one is, I think you mentioned that OpEx is likely to go up around 3% to 5%, slightly higher than the previous range. Could you talk a little bit about what is -- is there anything changing? Are you starting to hire more people in any of these new areas? And I think last time you mentioned that the mix is pretty much proportional to revenues. Is there anything changing from that perspective?

[David Ku, executive]

Actually, I'll say nothing changed from that perspective. And if you focus on -- if you take a look, for Q1 and Q2 guidance, I think Q1, the total OpEx is actually TWD 17 billion if you compare to Q1 last year, which was roughly TWD 17 billion as well, so this one was flattish. I think Q2, the guidance we give out, again if we -- excluding the employee bonus, is roughly TWD 16.5 billion to TWD 17.5 billion. If you compare to Q2 last year, the numbers again excluding employee bonus is roughly TWD 17 billion. So the first half, obviously, pretty flattish. But the only result here we're trying to talk about it might be those 5% increases because within our OpEx raise I think that we also account the royalty as partly the OpEx. So normally when revenue going up, the royalty expense will come out as well. I think that's one reason. Another reason is actually is, because on year-over-year basis, right, once we have higher earnings or higher OpEx earnings, basically we will see higher employee bonus as well. Likewise, we will see year-over-year [ salary and merit ] increase on the service space. So overall, I guess, 0% to 5% is really a buffer. Probably the better way to think about it is flattish to slightly up from an OpEx perspective year-over-year.

[Gokul Hariharan, analyst]

Okay. That's very clear. Just wanted to understand a little bit on the granularity of smartphone products as well as Helio P60. First one, do you think Helio, the P60 momentum peaks in Q2? Or you think it is going to continue into Q3 as some of your bigger customers launch products towards the end of Q2? Second is, you mentioned, to Brett's question, that you're targeting a 40% shipment market share. Is that for 2018? And what is that compared to last year based on an apple-to-apple comparison?

[David Ku, executive]

The first question is actually is -- second question first. I think when we say 40%, we're talking about the Mi-2 launch [ or some market share products ]. So it doesn't really refer to any particular model. I'm talking about more from a Mi-2 long-term perspective, okay, because I think it makes sense to think -- talk about Mi-2 launch [ well ] into the given quarters. So that's the second question. The first question, I think for the Helio P60 momentum, [indiscernible] will continue at least to Q3. But normally when the customer starts shipping a product, you will start to ship, I think the life cycle is actually, in general, much longer than 2 quarters. So in the beginning, basically the customer needs to start to building their channel -- building up their channel inventory. So normally, at least a quarter, if not more.

[Gokul Hariharan, analyst]

Okay, that's clear. On the market share side, I understand the 40% is the mid- to long-term target. What is the starting point, if we use 2017? Is it like 20% to 25%? Is that how we're talking about it?

[David Ku, executive]

It's roughly 20% to 25%.

[Gokul Hariharan, analyst]

Okay, understood. And secondly, on some of the areas that you mentioned on automotive, could you add a little bit more color on what you guys are seeing? I think you're starting with some revenues end of this quarter. Is that largely telematics related revenues? And when do you start to see some of the millimeter wave radar and other more advanced products that you're trying to break into automotive market contribute?

[David Ku, executive]

I think this year the focus really is like you say telematics product and also the millimeter wave radar. I think, based on the current designing pipeline, we should be able to see some very small early stage revenue coming in for telematics and also for millimeter wave as well.

[Gokul Hariharan, analyst]

Okay, understood. Last one, if I could squeeze one more in. Could you talk a little bit about holistically what is MediaTek's approach on AI? We have only seen the results on the smartphone side with the P60 and the APU, but could you think about -- could you also talk a little bit about how MediaTek is approaching AI, both on the edge as well as on the cloud? Do you feel it is mostly an ASIC kind of opportunity? Or do you think there is more room to have AI enabled products across your product line over the next couple of years?

[David Ku, executive]

I think, in terms of AI, our starting point is always, how should we call it, [indiscernible] AI. When you look at the MediaTek business portfolio, we actually provide a lot of customers shipping huge amount of products. Every year, I think, if you count, all those products shipped together, we ship together with our customer. I think we're talking about 1.5 billion of device, which including smartphone, feature phone, tablets, all those device. The Edge AI, maybe it sounds like [ old thing ] but from our perspective, [ old ] products actually have the room to include AI function in there. So I guess we're starting from Edge AI, and also basically the general idea is we want to make sure that all our product as well as we can find a suitable modifications, we're trying to put the AI functions into our product. And to be more precise, I guess, when we talk about AI function, really the -- probably the best way to describe that is when you think about from CPU-GPU perspective right now. [ I think for the IM ] products right now is over CPU and GPU. And with the AI, what we're trying to do is actually we do believe that we should include a special integration of computation units, we should [ go with an ] AI calculation. So starting from P60, I think we have [indiscernible] terminologies, sometimes we use a term like that, [indiscernible] something we use in DSP. I guess we are actually using a APU, which is the AI process units. And actually it's -- a little bit more detail is, whether it's the AI calculation needs to come down or certainly we can use the APU to support that calculation. But based on our new pilot platform, we have also [indiscernible] on the computation piece also for CPU and GPU. Even though sometimes, the CPU and GPU, may not be the fast-approaching [ fishing ] information powers for AI calculation. But when this -- search these for AI calculation, [indiscernible] introduction, we can dynamically [ choose ] a computation power from 3 different units. And for other products, which may not have strong CPU and GPU, but we can still put [ DOA in there ] again we have still got an APU just in terms of computation units, think about there's at least a DSP or MCU that is specialized to -- for the AI calculation. I think that's our approach. So to answer the first question is, we will start on Edge AI, our view is for all of our current products [indiscernible]. Once we empower the AI integration function, or [indiscernible] plus if you work with all the ecosystem products, we should be able to enable a lot of the AI functions of different devices. Maybe small AI functions, not huge like autonomous driving, but think about if all of electronic device around us, all equipped with some AI function, I think all together, collectively, you will find lot of [ convenience to ] elsewhere. I think that's our starting point. For high speed [indiscernible] versus the -- I think, the opportunity including the applications or the AI service type, it doesn't mean we won't get into the AI service side. Currently, we don't have plans to get into the AI [ call ] side, but we're just looking for [indiscernible] AI is actually a new product trend. If any other components which might be fit into our call portfolio, which including but not limited to [indiscernible]. I think when we talk about the high-speed service, it's more for the component to support AI cloud device [ perspective -- grow in ] for AI engine perspective.

[Gokul Hariharan, analyst]

Understood, understood. Just one small last question. It looks like the gross margin trend is pretty much on the right track, and you have the low-cost modem or a portion rising to almost 70%, 80% towards the end of the year, what is the risk factor that is kind of holding you back from talking about a 40% gross margin? Is it that you worry about pricing still in second half? Or is there something else that we should be aware of?

[David Ku, executive]

Obviously, first of all, the gross margin improvement is actually -- especially if you’re tracking for the first quarter and also the second quarter guidance, is actually ahead of our earlier, sort of, comment already. I think for second half last year, [indiscernible] first quarter last year, I think the long-term guidance we give out is [ we tend to holding up ] looking for gross margin will reach high 30, high 35 like 38%, 39% by second half this year, but given our first quarter's gross margin also the second quarter guidance was at 38% even with the baseline numbers. I think we've kind of reached that already, starting from Q1. But [indiscernible] that doesn't mean that we are ready or feel comfortable to adjust our guidance say up to 40% because there are still a lot of moving parts out there. I mean I think the price competition like you say is definitely [indiscernible]. The second part we hope for the supply chain situation, the third one is actually because -- in our business right now, so we also have a pretty sizeable business, pretty sizeable product, all [indiscernible] memory. But as you know with the memory price actually literally going up, I can't stop of thinking a way to show our profit. So I think overall -- but the net-net basis that we consider ever since, we still feel comfortable for the full year gross margin will be high 30s. If we only focus on the smartphone product, we still feel fairly comfortable we see a smartphone product gross margin continue to improve. But if you couple with the [indiscernible] the price, the embedded [indiscernible] price coming up trend, I guess that somehow have taken away a little bit our gross margin improvement. But overall, I still feel comfortable with our earlier statements with the high 30s gross margin. But again that somehow, related to your question in a way, that somehow made us feel a little concern or not feel comfortable to give out any guidance, say where we should focus on right now unless we see a better visibility.

[Operator]

Next in line, Michael Chou from Deutsche Bank.

[Michael Chou, analyst]

David, just 2 questions. One is, what is your smartphone ASP in Q1 and would that be up quarter-on-quarter in Q2?

[David Ku, executive]

For Q2, I think it will be slightly up as we will be -- should be low to mid-single digit in general I think for Q2. I think for Q1, it’s actually slightly down. I think for Q2, it will vary because for Helios P60, we saw pretty good [ rent ] on the Helios P60, which has a better ASP.

[Michael Chou, analyst]

Okay. So do you think the trend will continue in the second half of this year given that your Helio solution portion should continue to go up?

[David Ku, executive]

I think for the second half our relative way -- until probably is -- the right time you talk about that, as I said, the pricing volume is still competitive. [indiscernible] we don't have visibility. On the pricing side, [indiscernible].

[Michael Chou, analyst]

Okay. Second question, actually it's a follow-up, can you give the color for your Helio [ push ] -- or you don't want to give Helio [ push ] anymore?

[David Ku, executive]

I think probably again it's a -- for the charges right now, we’re trying to provide some perspective, we’re talking about what's the new models, what the revenue coming here the new model architecture because from the gross margin perspective, it’s actually more than Helio because Helio is definitely our new model architectures. But we also have the entry products with the new model architectures. So if we’re judging for the new model architectures for Q1, it's roughly 35% where the new model architecture, our smartphone revenue coming up from the new model architectures. For Q2, I think we are looking for more than 50% of the revenues on the smartphone side will be coming out for the new model architectures.

[Michael Chou, analyst]

Okay. So your new model sales portion seems to be quite positive. So does this test Helio's previous internal expectation or is still in line with your internal expectation?

[David Ku, executive]

I would say like up to first quarter and second quarter they are all in line. I won't characterize actually [indiscernible] what we see. I’ll say in line, we’re stable, we’re recovering both for the market share segment and also the growth margin perspective. It's pretty much in line.

[Operator]

Right now, we’re having Peter Chan, CIMB.

[Yiqun Chan, analyst]

David, one question I have on the -- more probably on the grand corporate strategy level. As we know that U.S. has a huge [ endeavor stake ] in China. And Taiwan has a huge [ endeavor stake ] in China as well. And today, there are only 2 independent third party mobile solution provider in the world, fabulous, basically you folks and Qualcomm. And China has a lot of pressure to balance that surplus. And do you see yourself at disadvantage on a geopolitical landscape that China now in a future they were under a lot of pressure buying more from the U.S. And actually Xi Jinping said that earlier that they are open to buy more semiconductor from the U.S. And in the semiconductor business today, smartphones are still the biggest, the biggest portion. So how do you see that yourself -- your strategic position in that, that grand scheme on a geopolitical level?

[David Ku, executive]

I think that's a very complicated issue because that also involve lots of like you say, a lot of geographic and political consideration and probably the best answer from my side actually our view is that there are a lot of moving parts out there. To be honest, nobody knows what Qualcomm will be between China and also in U.S. From our perspective, there are so many things that is out of control. But on the other hand, if we have focus on the customer diversification, focus on the geographic diversification, focus our product segmentation diversification like starting from last year, we kind of talking about smartphone income forming 30%, 35% of our overall revenue. And more importantly, we focus on our product compassionately. I guess our solutions, if you like, or if we can focus on some things we can control, focus on some things we can make an impact and probably [indiscernible].

[Yiqun Chan, analyst]

And a follow-up to that, would there be any strategy that are increasing or expanding your presence in China through the joint partnership, alliance in order or on the -- or going the other way, doing such a thing with a -- in the U.S., so it won’t put yourself in the middle. If your presence mostly in Taiwan, given the pressure to balance the surplus/ [indiscernible] but 2 major power in the future G2 structure. Do you have any strategy to expand your presence in China or in the U.S. through the M&A or alliance partnership?

[David Ku, executive]

Well, I think carefully if you -- judging from an operation perspective, we do have a sizeable operation in China. Actually, it’s -- more pretty size. We do have operations in -- outside Taiwan which including [indiscernible] China. China, India, pretty much everywhere. So if you only focus on China, the answer is yes, I mean we have sizeable operations. We've been doing a lot of partnership. We’re doing investing activity. That's a [ short ] activities it's a very important market for us and a lot of good customers out there. But again, by doing, it's actually just a normal course of business. We don't believe there will be a quick fix, if the worst comes out. I can say [indiscernible] China is going to be only buying more U.S. companies chipset. The first tricky question, how do you define a U.S. company chipset? If you're just making the [indiscernible] Qualcomm, the Broadcom deal, U.S. product and Singapore company. So in that case I don't know during that situation with U.S. companies – is it Qualcomm or Broadcom or the China will buy product from a U.S. company or Singapore company. So again, it’s pretty complicated and we're just not [ counting ] on that, only focused on what we can do. I think that's probably the best thing to do, simply running our business.

[Operator]

Next, we're having Charlie Chan, Morgan Stanley.

[Charlie Chan, analyst]

So my first question is just a follow-up of the Chinese call regarding the [ revision ] on your smartphone [ shipment to VTE ]. So why there is such a [ revision ]? And is that because of some IP cross license with U.S. company? Or any legitimate reason that government can restrict you to ship your product to this customer? Can you clarify?

[David Ku, executive]

I think each -- every year, okay, or country basically will have, should we say, we call it export control. So with certain countries or areas, issue export control constraint means all or most area or country need to comply with that. So normally it's a clean-up process. You want to make sure that you can okay to ship. I think right now basically we are in this process. I mean, not just us but everyone, a lot of companies are. Again, not just in Taiwan but also in other area in the country as well.

[Charlie Chan, analyst]

Okay. So how long is this procedure is going to take and potential impact to your results?

[David Ku, executive]

Normally, we’re talking about 2 to 3 months process, claiming process.

[Charlie Chan, analyst]

Okay. And my next question is regarding your -- I guess, your mature product gross margin trend. You mentioned that...

[David Ku, executive]

Sorry, let me just put one more for you -- okay. I always have people asking a lot of detailed questions about the [indiscernible] issue, right, but in reality, I mean, in a nutshell, I think overall to us, there's no major impact, I think that's the key one.

[Charlie Chan, analyst]

Okay, that's clear. And my next question is regarding your mature [ product ] margin trend. You mentioned that specialty memory price has kind of impacted your margin there. So I guess there is no good day with your TV chipset, right, so my question is that, yes, can you pass through that to your customers in the coming quarters? Can you recover the margin in your TV chipset business?

[David Ku, executive]

I think our sales right now is actually in discussion with our customer, so I think we will know, hopefully, in a few quarter time. But at least for our Q2, the gross margin guidance is actually -- have been reflective of the fact we will basically increase cost on the memory side and [indiscernible] side.

[Charlie Chan, analyst]

Okay, got it. And also on your IoT collaboration with Microsoft, can you comment about the -- sorry, revenue contribution percentage in third quarter? And also, you said that MT3620 products can sell to other customers or just redesign a little bit and sell to other customers?

[David Ku, executive]

I think for the new products, the joint product we have with Microsoft, I think the revenue in Q2, I believe, will still be very small, with this product just coming out. I think the big picture about this product actually is -- basically is, we work with Microsoft and also we have the product linked directly smoothly to their call service. So for people like say, a TV vendors, air conditioner vendors or actually fan vendors, we're somehow trying to come back into Microsoft cloud. We sell products which is really easier for them to come back to Microsoft cloud. And so we can see that as a part of our IoT business. For IoT business, I think, for our Q1 and Q2, I think they all account for roughly 15% of our overall revenue, which is roughly half of our gross segment.

[Charlie Chan, analyst]

Right. Okay. So -- yes, because you also mentioned that [indiscernible] segment went well with the slow down into second half, so I would assume this new Microsoft SoC business is not going to contribute too much for your second half, is that correct?

[David Ku, executive]

I think the growth rate was slowing down, but also it still was a decent growth rate -- still a decent growth rate. Just relative with the first half, it was coming down a bit. But like you said, because we do expect the smartphone in Q2 and Q3, we'll continue to grow. So relatively speaking, in terms of revenue contribution from the -- for the [ gross side ], probably will slightly lower.

[Charlie Chan, analyst]

Okay. And lastly, I think you seem to be more open to talk about potential crypto mining project as long as there is a right customer. And my question is that how are we going to manage -- for example, do you think you want to take this project, let's say, take a lot of your R&D resource? And why do you think you can add value to your customer in this super competitive market? What is it [ the company image ] you can provide to your customer?

[David Ku, executive]

I probably have no more detail for that right now because [indiscernible], I think probably the precise wording should be we are exploring this opportunity. So a lot of ongoing activity, we probably will not be able to provide the detail. But [ in international ] business, for the cryptocurrency, the keyword is actually computation and also partner function. And we do have a lot of good technology about [indiscernible] and also for the power consumption. So we do believe we have a technology that we have a special [indiscernible] to provide value to potential customer. Again, right now, it's still in the exploration stage.

[Operator]

Ladies and gentlemen, we thank you for your questions. And that concludes our Q&A session. Now I'll hand it over to Ms. Jessie Wang for closing comment. Ms. Wang, please proceed.

[Jessie Wang, executive]

Ladies and gentlemen, this concludes the MediaTek 2018 First Quarter Conference Call. We would like to thank you for your participation. And you may now disconnect.

[Operator]

Thank you for your participation in today's conference. You may now disconnect. We thank you, and goodbye.