MediaTek Inc

TWSE:2454

Earnings Call Transcript 2020-Q1

[Operator]

Welcome, everyone, to the MediaTek 2020 First Quarter Investor Conference Call. Financial results and Presentations for today's conference call are available on the Investors section of the company website at www.mediatek.com.

And now I would like to turn the call over to Ms. Jessie Wang, Deputy Director of Investor Relations. Ms. Wang, please go ahead.

[Jessie Wang, executive]

Good afternoon, everyone. Joining us today are Dr. Rick Tsai, MediaTek's CEO; and Mr. David Ku, MediaTek's CFO. Mr. Ku will report our first quarter results, and then Dr. Tsai will provide our prepared remarks. After that, we'll open for the Q&A.

As a reminder, today's presentation will provide forward-looking statements based on our current expectations. The statements are subject to various risks and factors, which may cause actual results to materially differ from these statements. The presentation material supplements non-TIFRS financial measures. Earnings distribution will be made in accordance with financial statements based on TIFRS. For details, please refer to the safe harbor statement in our presentation slides.

In addition, all contents provided in this teleconference are for your information only, not intended for investment advice. Neither MediaTek nor any of independent providers is responsible for any actions taken in reliance on content provided in today's call.

Now I would like to turn the call to our CFO, Mr. David Ku, for first quarter financial results.

[David Ku, executive]

Thank you, Jessie. Good afternoon, everyone. Now let's start with the 2020 first quarter financial results. The currency here is all in NT dollar. Revenue for the quarter was $60.9 billion, down 5.9% sequentially, and up 15.4% year-over-year.

Gross margin of the quarter was 43.1%, up 0.6 percentage points sequentially and up 2.4 percentage points year-over-year.

Operating expenses for the quarter were $20.4 billion compared with $21.3 billion in the previous quarter and $18.3 billion in the same period last year.

Operating income for the quarter was $5.8 billion, down 6.8% sequentially, and up 83.1% year-over-year. Operating margin for the quarter was 9.5%, slightly decreased by 0.1 percentage points from the previous quarter and increased 3.5 percentage points from a year ago.

Net income for the quarter was $5.8 billion, down 9.1% sequentially and up 69.9% year-over-year.

Net profit margin for the quarter was 9.5%, decreased 0.4 percentage points from the previous quarter and increased 3 percentage points from the year ago quarter.

EPS for the quarter was TWD 3.64 compared with TWD 4.03 in the previous quarter, and $2.17 in the same quarter last year.

In addition to our financial updates, we also provide non-TIFRS financial measures, which is excluding share-based compensation, amortization of merger and acquisition related and also tax effect. Please refer to earnings press release and presentation for details. That concludes my comments. Thank you.

[Jessie Wang, executive]

Thank you, David. And now I would like to turn the call to CEO, Dr. Rick Tsai, for prepared remarks.

[Lih Shyng L. Tsai, executive]

Thank you. Good afternoon, everyone. Before we start our business review, I would like to talk about some COVID-19 precautionary measures we are taking at MediaTek to ensure employee safety and minimize operational risk. We implemented preventive actions such as temperature check and health screenings in certain offices as early as mid-January this year. With employees around the world, we're operating in full compliance with local regulatory requirements and take strict control of office entry. At this stage, we keep our product development on track, thanks to all our employees' efforts. We will continue to make our best efforts to adjust to a rapidly changing situation. Also, we wish you and your family health and safety during this challenging time.

Now let's start today's business review. MediaTek delivered solid first quarter results, bolstered by our balanced revenue mix and diversified regional exposure. Revenue came in above guidance range with 15% year-over-year growth. Gross margin continued to improve to 43.1%.

Now let me further elaborate on our 3 business groups. Mobile computing, which includes smartphone and tablet, accounted for 37% to 42% of revenue in the first quarter. Mobile computing had a very strong year-over-year revenue growth, mainly driven by our 4G share gains as well as initial 5G revenue. 5G contribution will continue to rise and drive growth in the second quarter. Aside from smartphone, tablet demand is picking up recently due to remote learning needs. Our view for 2020 global and mainland China 5G smartphone shipment remains unchanged. We expect 170 to 200 million global 5G smartphones, out of which 100 million to 120 million will be mainland China. Mainland China's 5G rollout plan is on schedule, and MediaTek's competitive 5G SoC product portfolio is ready across multiple segments.

Dimensity 1000 series are making successful inroads into the high-end smartphones. The first model powered by Dimensity 1000 series started ramping in the first quarter, providing multi-mode 5G and WiFi 6 connections as well as premium multimedia performance. There will be more models adopting our Dimensity 1000 series in the second quarter and beyond. We expect 5G to penetrate at a fast pace in higher volume, mid-range and mass market segments, bringing 5G connection's premium AI and multimedia features to more consumers.

Dimensity 800 series smartphones in the mid-range began shipping in the second quarter. Mass market models adopting our next 5G SoC will be released in the third quarter as planned. Moreover, all major Chinese brands will stop -- will start shipping MediaTek-powered 5G phones by the end of second quarter. International brands will also launch MediaTek 5G in cell phones in the second half of this year. We are at an early stage in the 5G era with a strong pipeline of designing projects from multiple customers. We expect 5G momentum to continue with shipments increasing quarter-by-quarter throughout the year.

For 4G, thanks to a higher market share, 4G quarterly shipments in the first and second quarter are pretty stable. Visibility on the second half and demand is still limited at this stage, but we are confident that we will be able to outperform the market.

Now on to the growth area, which principally consists of AIoT, PMIC and ASIC, accounting for 30% to 35% of revenue in the first quarter. Impact from COVID-19 varied from product to product. Overall, products relating to work from home, remote learning and 5G performed better. For AIoT applications, demand for WiFi router and media streaming box is strong. People are seeking for faster connections in consumer electronics and it becomes a strong driver of our product mix. In addition to high-end smartphones and routers, our WiFi 6 chip is also adopted by the world's first WiFi 6 8K TV from Samsung and we expect more WiFi 6 devices to come across various platforms. Power management products continue to grow nicely in the first half of this year. Demand for laptop, tablet, 5G base station and smartphone remains healthy.

For ASIC, first quarter was soft due to effective product transition. Shipment of ASIC chips for the next-generation gaming consoles will start from second quarter. On the enterprise side, our cloud AI project will start mass production in the second half of 2020.

Next, smartphone and others. Primarily, TV and other traditional consumer electronics accounted for 26% to 31% of revenue in the first quarter. Customers [ polling ] TV components in the first quarter, but became more cautious entering the second quarter. Recent cancellations and postponement of global sporting events led to softer demand in the near term. We expect demand for -- to gradually improve from the second half of 2020.

For 2020, in general, despite near-term uncertainties due to COVID-19, we continue to believe this is a year of reasonable growth for MediaTek. As explained earlier, we think the potential business impact on the full year should be manageable, mainly due to our balanced and diversified business portfolio and strong 5G product cycle.

Looking forward, this unprecedented COVID-19 event may have profound changes in the way people live and interact. We anticipate those changes to increase demand for products relating to a fast speed connection and data transmission, artificial intelligence features, multifunctional displays as well as remote communication. With a broad and diversified technology portfolio, we firmly believe MediaTek is in a good position to capture those ongoing opportunities. 5G upgrade is one of the examples in the coming year. In addition to 5G, we believe there are great opportunities ahead of us to enable more innovative devices with our diversified business portfolio to enrich people's life.

Now moving to guidance for the second quarter of 2020. We expect new 5G product launches to drive revenue growth and fully offset near-term weaknesses in certain consumer electronics. And we expect gross margin to remain stable. We expect the second quarter revenue to be in the range of TWD 621 billion to TWD 669 billion (sic) [ TWD 62.1 billion to TWD 66.9 billion ], up 2% to 10% sequentially, and up 1% to 9% year-over-year at a forecasted exchange rate of TWD 30 to USD 1. We are forecasting gross margin at 42.5% plus or minus 1.5 percentage points, and quarterly operating expense ratio to be at 32.5% plus or minus 2 percentage points. In addition, our Board of Directors proposed the cash dividend of TWD 10.5 per share today, subject to approval at the shareholders meeting. That concludes my prepared remarks. Thank you.

[Jessie Wang, executive]

Thank you, Rick. We are now ready for Q&A session. Can we have the first question, operator?

[Operator]

[Operator Instructions] The first one to ask questions is Bill Lu from UBS.

[William Lu, analyst]

My first question is really, I hope if you can compare what you're seeing now versus a quarter ago. A quarter ago, I remember you guided pretty conservatively given that COVID-19 was just starting up, and at the end, seems you were a little bit better than what you expected, it looks like. If you look at the guidance for Q2, I'm wondering if you can compare sort of the level of conservatism. And then two is, how are things now if you look at China stabilizing but some of the other regions may be having more issues versus a quarter ago?

[David Ku, executive]

Bill, because your voice is actually breaking out a little bit, can you just -- would you mind just repeating the question again, especially, the first sections of your question?

[William Lu, analyst]

Yes. Sorry about that. I am wondering if you can compare the guidance now versus a quarter ago because it sounds like a quarter ago, you were fairly conservative in terms of providing guidance and then at the end maybe the COVID-19 impact wasn't as drastic as what we expected. I'm wondering what you're seeing now versus that?

[Lih Shyng L. Tsai, executive]

Okay. Bill. Yes. I think you're right. I think a quarter ago, when COVID-19 really just started, it was -- we really struggled to estimate the potential impact on our businesses, knowing very little. Now that the first quarter passed and the situation in China, certainly things are more stable. The supply chain situation, thereby, still not great, but much more predictable also. So we have -- along all this time, we have kept really very close contact with our key customers, the upper management. So we feel pretty -- now reasonably comfortable with where we are. I think our first quarter results kind of demonstrated what we believe during that conference call and the -- all the -- we really have kind of scrapped our business assumptions. We look at all the possible downsides from the mobile, from TV, 2 of our largest verticals, and other AIoT business. We believe we are sufficiently cautious in our business assumptions to give our today's guidance.

[William Lu, analyst]

Great. That's helpful. My second question is for David on gross margin. It looks like for Q2, you're guiding for 5G shipments to be up and gross margin, I guess, mostly flattish. Can you talk a little bit more about that now that we are a quarter into the 5G shipment? Can you talk about maybe a little more detailed 5G pricing and margin and the flat guidance? Can you maybe talk a little bit more about the margin maybe in the mobile computing group versus the others?

[David Ku, executive]

Okay. Bill, first of all, we probably will not be able to breakdown, provide a detailed 5G shipments. So we will probably keep that. But overall, I guess, the first quarter is -- is the first quarter, we started to ship 5G. The overall revenue contribution is relatively small. Second quarter is, we see a much stronger 5G shipments, both from the shipment and also from the revenue perspective. Gross margin perspective, I mean the key was, starting from Q1, also including what the CEO Rick was talking about when we gave our guidance, it actually stabilized, maybe within the range of right now. If you're judging from fourth quarter and first quarter and also including our guidance, roughly speaking within 42% to 43% within this range. I think we see this stabilized within this range at least for the near term. For the longer term, it will depend on the overall situation, we probably will not be able to provide a comment right now. But overall, if you recall an earlier statement from CEO, is actually 5G, when we start to ramp more 5G, overall, we still believe 5G will be overall accretive to our corporate gross margin. I think that's a key one.

[William Lu, analyst]

Yes. Sorry, I guess I'm just wondering if 5G is kind of shipped into Q2 and it's favorable for margins, why the margin guidance isn't going to be a little bit better in Q2 versus Q1?

[David Ku, executive]

Well, it depends on if you're looking at the higher end or the mid-range. I think we -- when we give out, we just give out the range. Yes, and also, there are also other part of the business where...

[William Lu, analyst]

Okay. Great. Sorry, if I can ask 1 more question on the ASIC business. One is you talked about an AI project in the second half of the year. Can you give a little more details in terms of what kind of customers and how big this could be? And secondly, what is the expectation for gaming consoles into the second half of the year? Specifically, when you ramp new consoles, I think, typically a little bit bigger into year 2, right, is that more a 2021 story?

[Lih Shyng L. Tsai, executive]

Okay. Bill, on the AI part of the ASIC, cannot give you the customer's name, it's a large -- very large company. So I would say a good volume for ASIC type of chip. It's a very high-value chip. We -- project is going very well, as both our customers are briefed. And we are also very happy to have the opportunity to move into a more data center cloud regime of business. On the gaming consoles, did you hear the question well?

[David Ku, executive]

No. Actually, I didn't really hear your question well about the game console.

[William Lu, analyst]

I'm sorry. I'm just wondering if you think about volume for the game console, is the bigger volume really coming in 2021 or do you think you might see some of that this year?

[David Ku, executive]

Maybe I'll take this. I think for volume-wise for the game console this year, we will only see the upgrades this year, but the volume probably will come on later. So to answer your question, probably we're to gear into later this year or beginning of the next year from a volume perspective.

[Operator]

Next we're having Randy Abrams from Crédit Suisse.

[Randy Abrams, analyst]

First question I want to ask on 5G and then 4G. You mentioned an encouraging comment about design. And I believe you said all the China smartphone OEMs towards the end of first half. Could you discuss a bit more in terms of market share? At what point you think you start approaching the 4G market share? And then the second part, there's more discussion there could be more restrictions on Huawei inability to fabricate their own chips. I'm curious, at least from your ability to ramp up, how quickly you could support them into new designs to ramp their business if they need to rely on you more?

[Lih Shyng L. Tsai, executive]

Okay, Randy. Our 5G SoC are now being designed into all major Chinese phone makers. We have -- I think we have -- we believe we have a pretty good demand from all those customers. I don't think we are ready to give you market share kind of answer yet, especially 4G. Our 4G phone, actually, it's really having a very, very strong market share gain this year. But what I can say is the share in 5G or 5G SoC, especially considering the percent, then we're looking at, well, significant market share for the year of 2020. We cannot comment on specific customers. However, we have been working -- from a supply point of view, we have been working with all our customers with sufficient lead time. And even during this difficult time where we cannot go to our customer's site and they cannot come to Taiwan, we still manage to, I believe, keep all the projects moving according to plan. And from the supply point of view, we are working well with our foundry partner and the OSAT. We -- I think we are able -- we will be able to provide our customers pretty much what they need.

[Randy Abrams, analyst]

If I can follow-up on the inventory, your own inventory increased a bit. Could you talk where the buildup on your own levels? And then if you could take a look at the customer activity, it's been relatively strong despite some shutdown downstream. If you could give a view on how you feel customer channel inventory levels are?

[David Ku, executive]

Well, Randy, first of all, let me just comment about our own inventory. For Q1, if you measure it in terms of days of inventory, I think overall for Q1, our days of inventory was 81 days. For Q2, based on our current revenue forecast, we're expecting our inventory days to be around 80 to 90 days. I think that's how we view our inventory. I think in terms of channel inventory, so far, especially after Q1 coming out, in Q1, as you know, a lot of activity is fixed. So we really see right now it's actually restocking of the channel inventory right now. So -- so far, it looks stable and actually recovering from the stocking inventory perspective -- general inventory perspective.

[Operator]

I'm just wondering, Randy, are you still with us? Okay, Randy are you still with us?

Okay, we are now moving on to the next question. Next question is coming from Gokul Hariharan, JPMorgan.

[Gokul Hariharan, analyst]

Congrats on the good results. My first question is on 5G. I think you had mentioned that 5G is starting off at multiples of the price points that we have 4G products at equivalent price segments. Could we talk a little bit about how that price premium versus 4G will hold as we move down to more mainstream and even lower end products through the course of this year and early next year? Do we talk -- do we think that the price premium compared to 4G is still going to be substantial, like multiples compared to what we have for the high-end segment? The second thing, there is a lot of noise about price competition and, obviously, a lot of comments about price cuts from your competition. Could we talk a little bit about how we see the competition evolve in 5G compared to what we have seen in the early days of 4G, when obviously, MediaTek had a slight disadvantage in terms of product specifications, et cetera? And could we also talk about 5G margins versus 4G margins? Are we still sticking to the view that 5G should be better or higher on gross margin compared to 4G? And I have a follow-up as well.

[David Ku, executive]

Yes. Let me try to answer that one by one. First of all, I think for 5G, as CEO explained, we have Dimensity 1000 series, which is high-end phone. And also we have the Dimensity 800 series, which is the mid-range phone. I think we're also talking about, for the second half of this year, when we also have the mass market phone. So to make a long story short, I think for all segments, if you compare something like called apple-to-apple or like-for-like comparison compared to the 4G average selling price, we still see a pretty decent premium for 5G, see the average price -- selling price 5G or 4G even until end of this year. For next year, again we don't have the visibility yet. But at least for this year, all 3 segments, again, high end, mid-range and mass market on the like-for-like comparison, we all see pretty decent price premium between 5G and 4G. I think that's the first question.

The second question is regarding the gross margin. I think Bill kind of asked a similar question, but let me try to answer that from a slightly different perspective. I think from the gross margins, the overall key word from our perspective is, a, it stabilized, b, [indiscernible] 5G. Overall, we all -- we still see a stable and also a slight increase of the overall corporate gross margin. But more importantly, this year, especially like Rick was talking about earlier, this year will be a reasonable growth. This year, what we focus right now in addition to gross margin are also on operating leverage. And actually this is going to be much more significant this year if we can just somehow pull everything together. As you can see for 2019, that was last year compared to a year ago, the gross margin -- both the gross margin -- operating margin dollar and also ratio improved substantially. I think, if everything goes well, we are also looking for another year of much stronger growth on operating margin line on top of stabilized and slightly increased gross margin line. So maybe that's another way when we think about the profitability, we can think about, again, not just focus on the gross margin, but also focus on the operating margin. I think that's the feedback.

[Lih Shyng L. Tsai, executive]

I think you also asked about the price competition. I'd like to comment somewhat. We -- actually right from the start, we never expected the pricing to be easy for 5G. I think for one, we are now in the first wave in 5G SoC products compared to 4G era, we were something like 2 to 3 years behind. So the fact that we are in the first wave increased the competition and changed the landscape. So the competition comes, with it the change of the landscape. I think the -- but if you look at our -- the portfolio, our -- as David just mentioned, 3 different products this year in 3 different price segments. And if you look at our specs -- the technical specs and the level of execution, the time to market, we are quite confident of the competitiveness of our portfolio. Pricing, I mean we always face competition with our very strong competitor. But we just firmly believe for the 5G product that we have, we have really a strong competitive portfolio. We will deliver the results.

Thank you.

[Gokul Hariharan, analyst]

Got it. So one quick follow-up question. Given that we are seeing more emerging market demand weakness with India and Southeast Asia, some parts of Europe being shut down in Q2, how do we -- how should we think about 4G chipset demand? Are you seeing some -- already some correction on 4G chipset demand in Q2? Or we should expect some of that happening in second half of the year? Or as you mentioned earlier, meaning for -- like the market share gain will kind of mostly offset some of this demand weakness on the 4G chipsets.

[Lih Shyng L. Tsai, executive]

Actually, you pretty much answered the question. Yes, the 4G -- at the end of last year and even, well, pretty much into the first quarter, the 4G inventory from our point of view was quite low. And we were really rushing to fill the demand from our -- all our big customers. Of course, what's happening in India and other emerging markets are having impacts on the demand of the 4G product. However, our demand, I would say, is still quite good, still quite good. We -- as I said also earlier, we scrapped the overall demand of the 4G although down -- was severely actually from the total -- from the TAM point of view. So with that, and with our designing, we believe our 4G shipment will be somewhat flat compared to last year's. Considering the severity of the end demand, I think, in many different markets, I think, the company has done really a good job in the 4G segment.

[Operator]

Next we are having Sebastian Hou, CLSA.

[Sebastian Hou, analyst]

The first one is I want to follow-up on the -- Dr. Tsai's comments on your 5G product competitiveness. I understand from the performance, but I want to follow-on in terms of the timing and a further road map. The timing means that if you compare the timing of your next 2 generations of the products launched, where do you see that compared to your major competitors? Are you on par or slightly ahead? And my second follow-up question to this one is that what's your 5G product road map? Can you elaborate a little bit more beyond 2020?

[Lih Shyng L. Tsai, executive]

Let me first address your question on the -- our product portfolio this year. I mean I think for the Dimensity 1000 series, we know -- everybody knows quite well. For the 800 series right now, actually, the first product -- the phone -- the first phone with the Dimensity 800 is already available in the market. We have -- there are quite a few in the pipeline in second quarter and the early third quarter. The third product is also, as I said, right on schedule. And then from time-to-market point of view, our execution is really excellent. Our people have done a great job together with our customers. I think that's also a major reason that we -- I think we can have, as I said, a significant share of the 5G SoCs this year. For next year, the road map, I guess we will keep you posted on another quarter outlook.

[Operator]

[Operator Instructions] Next caller is Roland Shu from Citigroup.

[Roland Shu, analyst]

First question is for the -- your 5G smartphone shipment expectation, are you still maintaining your number at 175 million to 200 million? However, if we look at the overall smartphone number, I did learn this from the market consensus from third-parties forecast, actually it declined a lot compared to 3 months ago. So with your sale number, I think, because this denominator has been significantly smaller, that means on the penetration for 5G, according to your number is much higher than 3 months ago. Is that what you mean now? Or you just don't change your number? This is my first question.

[David Ku, executive]

Roland, David here. Probably let me just get back to you. First of all, talking about sort of the market expectation. If you recall, probably 2 quarters ago, that was the first time we were kind of giving out what's our view about the 5G global market, also including the China market, we gave it out. Back to when I think most people think we are somewhat conservative compared to sort of the street consensus or street view, but in the last quarter or so, if you just collect all those data, we -- because we did a similar exercise, we think most people somehow sort of the revised number or reduced numbers is similar to our overall estimation. So first of all, your assumption about the addressable market getting down, which is true, but just from our perspective, starting from last quarter, that's the similar view, it didn't really change, we didn't really revise this down. I'd say that's point number one. So based on that, I guess, from a market share perspective, at least internally, we didn't really see that huge shift. But by saying that, I think just like the CEO Rick talked about earlier, we do see a pretty promising and also positive feedback from the customer side, which translated into a decent market share. That doesn't mean that we will see a huge jump or assumption change from our perspective.

[Roland Shu, analyst]

Understood. So how about your own market share for 5G compared to 3 months ago? How do you think your market share for 5G this year will be? Is it getting better? Or is that still the same?

[David Ku, executive]

Again, Dr. Tsai already talked about it earlier. Probably, we are not ready to comment about specific 5G market share. But Roland, let me try to answer your question from a different perspective. I think from a momentum perspective, I think we do feel comfortable, and that will pick up by the Q1 and the solid Q1 numbers, and also a pretty solid Q2 number, especially judging from year-over-year. On top of that, I think we feel fairly comfortable for the whole 5G product portfolio, ranging from the high end, mid-range, all the way to mass market, both from the competitiveness and more importantly, overall performance and specs.

[Lih Shyng L. Tsai, executive]

By the way, Roland, I think from the TAM point of view, you probably -- at least for 2020 for MediaTek, the size of the 5G market in China matters the most, and that's because this is where we have the most of our shipment this year. And that's a number that really matters to us.

[Roland Shu, analyst]

Okay. I read also that, for your 4G, you think even though the total market had declined, however, you think your 4G shipment will be somewhat flat compared to 2019. And then you have these new 5G shipments. So does that mean that your total 4G and 5G shipments this year will be bigger than the total smartphone SoC shipments last year?

[Lih Shyng L. Tsai, executive]

That's correct.

[Roland Shu, analyst]

Okay. Now my second question is, Rick, you repeatedly said your keyword today that is stabilized gross margin. And also last quarter, you also said your 2020 goal is to reach top line growth with gross margin stabilized and also with controlled operating expense. So have you changed your goal now? Or this goal actually will be still the same?

[Lih Shyng L. Tsai, executive]

No, we have not changed. As you can hear from the comments earlier under David's advancers. Well, we believe that we will have what we call that reasonable growth into 2020. Our gross margin will be between 42% to 43%. And a very good operating leverage -- income leverage. This is what we are striving for. We -- of course, we hope to do better, but the -- this is what the company is really striving for.

[Roland Shu, analyst]

Okay. I'm interested in reasonable growth. I think that in 2018, your revenue was flat, and 2019, your revenue grew up by 3% year-on-year. So when you said about reasonable growth, is this 0% to 3% a reasonable number? Or you think that will be bigger than that?

[David Ku, executive]

Roland, actually, we probably -- due to the Taiwan SFC requirement, we will not be able to provide concrete numbers, but probably a good reference, actually, you can judge from Q1 actual numbers and also Q2, the guidance numbers. I think overall, I think that should be a good reference. But again, for the second half, they still have some uncertainty in the overall -- just like you said, in the last few years, that revenue has been pretty flattish and [ is quite mute]. So relatively speaking, we feel comfortable this year, we see some reasonable growth over the year.

[Roland Shu, analyst]

Okay. And also for the -- your 3 segments -- 3 products I can point out to you, looks like your smartphone and mobile revenue is going to grow this year. And how about the growing segment and also the Smart Home and other segment?

[Lih Shyng L. Tsai, executive]

I think for second quarter -- I think both smartphone and also growth sectors are growing. I think for the Smart Home sector, actually, that we see a quarter-over-quarter's decline in second quarter.

[Roland Shu, analyst]

Okay. How about the whole year?

[Lih Shyng L. Tsai, executive]

We didn't really discuss the full year numbers right now.

[Operator]

Next set of questions, Charlie Chan from Morgan Stanley.

[Charlie Chan, analyst]

And hope you all stay safe and healthy. So I have a two-parter for a question. First of all is, more color on the emerging market's smartphone demand. And second part will be on the China semi localization trend impact to your company. So first of all, may I ask that the company see or witness any demand improvement for China domestic market? And also for emerging markets, have you seen a stabilization? Or you -- do you see that in demand to your QRA?

[Lih Shyng L. Tsai, executive]

For China market, certainly, we all know the first quarter was really a down quarter. But even with that, I think the numbers came out about 50 million smartphone sell-through in the first quarter compared to 70 million last year same time. It's a bit down, but it's something I think people can manage and the quarter is past, that's past. Second quarter numbers that we checked with our customers and the I think the China second quarter, we -- what we believe is that the China's smartphone market will kind of grow back to a similar level, maybe a little lower compared to second quarter 2019.

We certainly -- and if you look at the 5G phone sale in China in the first quarter, it's, I think, that's official -- that's the number from the official source, it's about 13.5 million, I believe. It's also we believe a good sell-through number. So in China, I guess, we are reasonably comfortable that the market is coming back to a more normal pattern after the first quarter.

Emerging markets, of course, is a different story because the lockdown also occurred in late March, April time, and we do not know when that will be back. It also differs. If you look at India and the Southeast Asia, I think the market impact can be quite different between India and Southeast Asia. We believe the India impact is probably greater compared to Southeast Asia. So again, if we combine all those things together, 4G end market demand is going to be down quite a bit. But we -- as I -- as we said earlier, with our position, we expect to manage above the flattish shipment for us this year.

[Charlie Chan, analyst]

There's a great power in the requirements from China semi localization. I mean can I ask about the impact of the 5G demand? Meaning, I think that the impact on demand should be more than just a shipment, but also the product portfolio, meaning do you see the consumer or smartphone brands that want to reduce those [ that maybe too ] high-end 5G products and more focus on those mass market 5G phones into the second half? And if that happens, would that impact your kind of assumption for blended ASP in the margin? Do you think that it's kind of a fair argument, meaning that's kind of thee spec or kind of shifting to more affordable 5G phone?

[David Ku, executive]

Charlie, first of all, from the overall market perspective, we're talking about 5G market only here, I think our assumptions stayed the same in the last 2 quarters. So that ones didn't really change. In terms of end market products and patent mix, if I use the terminology, I think it's similar as well. Probably the only thing change if any, we see the customers trying to move into the mid-range and the mass market at a fast pace -- faster pace, okay? But in terms of the reduced -- when we get into the 5G product cycle, we kind of have a view about what's the segmentation mix. I think that is somewhat similar because just based on a true example, basically price is still going to be a major indicators or major catalysts, decide how much volume it can have on each segment. So from that perspective, that route didn't change that much -- didn't really change that much. But we do see the customer trying to move into -- at a faster pace because, obviously, in the first quarter and also the fourth quarter last year, all the smart -- 5G smartphone you can get right now, it was like pretty high-end or high-priced phone. And so the overall shipment is just okay, not great. But all major customers right now, they're trying to get into the mass market or the mid-range market in the second quarter and also in super aggressive mass market. So I think the volume is similar. And -- but the pace is actually faster right now.

[Charlie Chan, analyst]

Sounds great. It is clear. So if I may, very quick on the kind of deeper China semi localization. I guess, first of all, market is chattering if TSMC were to be banned to shift to Huawei and maybe other smartphone third-party vendors like MediaTek can benefit to fill the gap of Huawei smartphone chip demand. So can management give us some color about MediaTek's position here? And also given this kind of U.S.-China trade tension, do you think your 4G share gain is largely because of the American [ trend ] of the China smartphone brand? So if you can answer this 2 parts of questions, that would be great.

[Lih Shyng L. Tsai, executive]

Okay, Charlie. Number one, we do not talk about specific customers. I think you -- and number two, as we also said, we have -- how do we say that? All -- all major Chinese brands will start shipping MediaTek-powered 5G phones by the end of second quarter. If you want to ship phones by the end of the second quarter, you must -- we must work together 3 to 5 months before that time. We've had or whatever will happen, the rumor says might happen or may happen. So I think our designing -- I guess, what I want to say is the designing of our chip with all major Chinese brands, we earned them. It's not by whatever localization. That's -- so I just want to make that point. For 4G, all the major design wins actually were along last year, even earlier. So as I said, we have really -- and by the way, 4G, we have not just the Chinese brand, we have also a global brand, international brand, design wins. So that's where we are.

[Charlie Chan, analyst]

In your opinion, do you think MediaTek is considered as a local vendor? I mean in the long term, if China wants to continue to localize, do you see any potential competition or replacement from the current China local suppliers? And then there is more for long term.

[Lih Shyng L. Tsai, executive]

I really don't think this is a question for us to answer. We run business. We're doing all we can to provide strong competitive product for all our customers and we -- our business at this point.

[Operator]

[Operator Instructions] Next we're having Bruce Lu from Goldman Sachs.

[Zheng Lu, analyst]

My question is for the 5G ASP premium, I mean we understand that there is a meaningful ASP cleaner at this moment. I mean when -- can we ever expect that ASP from the 5G will be similar to 4G at any time in the future? Or let's put a shorter time frame for like -- even like 18 to 24 months behind cycle time frame, do we expect to see the ASP premium shrink to a minimal level in the foreseeable -- in the coming 18, 24 months?

[David Ku, executive]

Bruce, I guess, to answer, it's probably not in view of the fact we need to squeeze in so many circuits over there and don't forget the 5G speed that is 10x 4G. It's just hard to go against the physics. So probably the new trend is not going to be feasible, plus, right now, due to the new phone, they all require sort of higher end processing, and -- which all we know is actually costs us more. So based on what we know right now, it's unlikely even to see 5G cost will be equal to 4G cost. It's just physically probably not possible in the near term.

[Zheng Lu, analyst]

I see. Do we expect that mobile platform to be more than 50% in any quarter this year?

[David Ku, executive]

Not in this quarter.

[Zheng Lu, analyst]

This year?

[David Ku, executive]

Next year, we probably won't be able to comment right now.

[Zheng Lu, analyst]

This year? This year?

[David Ku, executive]

This year, for the full year, I don't think it will be more than 50%. Yes.

[Zheng Lu, analyst]

For the single quarter?

[David Ku, executive]

Again, we can only provide information about the second quarter right now.

[Zheng Lu, analyst]

Understand. I want to follow-up with 4G profitability. I understand that management mentioned that before, 4G smartphone gross margin still below corporate average. And given the strong growth or the meaningful market share this year, do we expect 4G profitability to be similar or higher than corporate average?

[David Ku, executive]

I would say similar, I would say similar.

[Zheng Lu, analyst]

I see. Okay. My second question is that can we talk a bit more about the plan for the ASIC? I believe we discussed that like 2, 3 quarters ago, but we didn't talk much about the AI. Can we have an understanding about like what is the total addressable market for the ASIC exact?

[Lih Shyng L. Tsai, executive]

It's a very difficult question to answer because of -- for certain -- for the more consumer -- we are strong in the consumer ASIC. I say that's fairly easier to estimate, but for the enterprise or the data center or AI kind of a research, because it's really still early in the age of AI data center and the early phase for the big data center players to plan and to defy and to execute their ASIC strategy, so it's -- if I give you any number, I think it's really not going to be very accurate. I just want you to know that the -- but -- that the frank answer is the -- I think we -- at least in our plan -- in business plan, we set at least $1 billion as a TAM, at least for us to strive for our part of the business.

[Zheng Lu, analyst]

I'm sorry, I need to make it clear, the $1 billion addressable market as a business plan is for the AI alone or the total ASIC you are targeting?

[David Ku, executive]

Total. Total. Total ASIC.

[Zheng Lu, analyst]

Total ASIC, for -- including like networking, AI and [Indiscernible].

[Lih Shyng L. Tsai, executive]

Yes.

[Zheng Lu, analyst]

Understand. Can we have some color about next year. Given the non-product cycle for this business, I think can we have some visibility for next year in terms of adjustable market?

[David Ku, executive]

Bruce, probably not actually because like you say, due to the design in, design win, also the ramping up schedule is actually not in our hands. There is so many variables out here. So I think probably the best way is to just report it when it becomes more material.

[Operator]

Right now, we're having Brett Simpson from Arete Research.

[Brett Simpson, analyst]

Question for Rick, please. It looks like you're growing your smartphone revenues in Q1, about 20% year-on-year, roughly, when the overall market is declining, I would say, safely double-digit year-on-year, so quite a big imbalance. And I understand you can partly reconcile this with market share gains for MediaTek, but many of your large Chinese smartphone customers haven't yet cut orders. So -- and they're indicating they will at some point because obviously, we've had significant impact from COVID, et cetera. So I'm just wondering what's the dynamics that you see near-term with these customers? And does your guidance reflect some order cuts? And if not, what gives you confidence that this won't happen?

[Lih Shyng L. Tsai, executive]

As I said earlier, the customer -- the demand is still very good for second quarter. We obviously are concerned about the demand -- a rapid demand decline in the emerging markets -- you guys have several times -- let me say at the end, we have scrapped the numbers in our third quarter, which -- second quarter and third quarter 4G demand in the emerging markets, including India. I think these 2 quarters probably are the most severe quarters for 4G phone demand. We have placed with demand in our forecast. And we -- then with our design, we -- that's why we are giving you estimate of a similar unit shipments in 2020 compared to 2019. That's how we did it. And I think in a way that answers your questions.

[Brett Simpson, analyst]

I'm just wondering whether in Q2, does your guidance for Q2 reflect an expectation that OEMs will cut orders?

[Lih Shyng L. Tsai, executive]

Again, I cannot give you the details. What I would say is the demand is still very good. I'm not saying everyone is very strong. But overall, demand for our 4G shift in second quarter is very good.

[Brett Simpson, analyst]

Okay. That's helpful. And maybe to David, I think we -- last quarter's earnings call, you said about 15% of sales this year would be new products. And factoring in the ramp of new products, it's obviously going to be very second half weighted. So how should we think about second half seasonality this year factoring in the ramp of new products? Would you expect it to be much more pronounced than prior years or not? Any perspective would be very helpful.

[David Ku, executive]

Brett, unfortunately, we probably will not be able to provide the second half number right now. But, again, take one step back, probably the best way to think about that is actually what the CEO talked about earlier. From a full year perspective, we're looking for a reasonable growth, maybe you can factor that in. But in terms of the detail Q3 and Q3 seasonality, unfortunately, we're not going to provide this right now.

[Brett Simpson, analyst]

Okay. Maybe just 1 last question for Rick. And it's really about M&A. I mean we've obviously seen valuation in semi gets cheaper since the start of the year and MediaTek has an attractive balance sheet, a large cash position, so I'm just wondering what sort of appetite do you have from the acquisition perspective? And where do you think it makes the most sense to strengthen looking across your portfolio from an M&A perspective?

[Lih Shyng L. Tsai, executive]

We -- yes, I understand your question. People are wondering about that. What we are doing is, as we have done throughout the time of the year, we have a dedicated group to look at the potential opportunities continuously. I cannot really say anything more than that. We look at the potential technology or good financial opportunities. That's all I can comment.

[Operator]

Ladies and gentlemen, due to the time matters, we are closing the Q&A session right now, and thank you for all your questions. I'll hand it over to Ms. Jessie Wang for closing comments. Ms. Wang, please proceed.

[Jessie Wang, executive]

Ladies and gentlemen, this concludes MediaTek's 2020 First Quarter Conference Call. We would like to thank you for your participation, and you may now disconnect.

[Operator]

Okay. Thank you for your participation in today's conference, ladies and gentlemen. You may now disconnect. Thank you, again, and goodbye.