MediaTek Inc

TWSE:2454

Earnings Call Transcript 2021-Q1

[Operator]

Welcome to the MediaTek 2020 (sic) [ 2021 ] First Quarter Investors Conference Call. Financial results and presentation materials for today's call are available on the Investors section of the company's website at www.mediatek.com.

Now I would like to turn the call over to Ms. Jessie Wang, the Deputy Director of Investor Relations. Ms. Wang, please proceed.

[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 will open for 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 the statements.

The presentation material supplement non-TIFRS financial measures. Earnings distribution will remain in accordance with financial statements based on TIFRS. For details, please refer to the safe harbor statement in our presentation slide.

In addition, all contents provided in this teleconference are for your reference only, not intended for investment advice. Neither MediaTek nor any of the 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 the first quarter financial results.

[David Ku, executive]

Thank you, Jessie. Good afternoon, everyone. Now let's start with the 2021 first quarter financial results. The currency here is in NT dollar.

Revenue for the quarter was $108 billion, up 12.1% sequentially and up 77.5% year-over-year. Gross margin for the quarter was 44.9%, up 0.4 percentage points sequentially and up 1.8 percentage points year-over-year.

Operating expense for the quarter was $28.3 billion compared with $27.5 billion in the previous quarter and $20.4 billion in the same period last year. Operating income for the quarter was $20.2 billion, up 31.4% sequentially and up 248.1% year-over-year. Non-TIFRS operating income for the quarter was TWD 20.5 billion.

Operating margin for the quarter was 18.7%, increased 2.8 percentage points from the previous quarter and increased 9.2 percentage points from the year-ago quarter. Non-TIFRS operating margin for the quarter was 19%.

Net income for the quarter was $25.8 billion, up 72.3% sequentially and up 344.1% year-over-year. Non-TIFRS net income for the quarter was $26 billion.

Net profit margin for the quarter was 23.9%, increased 8.4 percentage points for the previous quarter and increased 14.4 percentage points from the year-ago quarter. Non-TIFRS net profit margin for the quarter was 24.1%.

EPS for the quarter was TWD 16.21, up from TWD 9.35 in the previous quarter and up from TWD 3.64 in the same quarter last year. Non-TIFRS EPS for the quarter was TWD 16.38.

A reconciliation table for our TIFRS and the non-TIFRS financial measure is attached in our press release for your reference.

And that concludes my comments. Thank you.

[Jessie Wang, executive]

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

[Lih Shyng L. Tsai, executive]

Good afternoon, everyone. MediaTek began 2021 with a very strong first quarter. First quarter revenues grew 77.5% from last year to TWD 108 billion, exceeding guidance, mainly driven by better product mix, healthy market demand as well as favorable exchange rate of TWD 28.3 to USD 1 versus guidance of TWD 27.9 to USD 1. First quarter gross margin came in at the high end of the guidance due to a better [ climate ].

Before we start business discussion, I'd like to introduce you on how we now break down our revenues. We categorize our revenues into 4 product groups: the first is mobile phone, the second is IoT, computing and ASIC; the third is Smart Home; and finally, Power IC. We believe, by updating our revenue groups, we could better present our growth strategies for MediaTek, the diverse product portfolio in their respective markets.

Addressable market for all 4 groups are around USD 70 billion this year, among which mobile phone accounts for USD 29 billion; IoT, computing and ASIC is USD 28.5 billion, representing another sizable market opportunity in addition to mobile phone; Smart Home and Power IC is USD 5.5 billion and USD 7 billion, respectively. With our competitive IP portfolio and technology investments, we are confident that we could not only capture the industry uptrend, but also outperform in each of these markets.

I will now discuss our business according to these 4 groups. First, mobile phone. Mobile phone accounted for 54% of first quarter revenue, growing very strongly at 149% year-over-year and 32% sequentially. The substantial increases were mainly driven by 5G revenue share gain as we further expand into high-end models. We are seeing healthy smartphone end-market demand and continue to believe global 5G smartphone shipment would exceed 500 million units this year.

Among 5G products, which we name Dimensity, our high-end 5G products adopt advanced processing technology that offer excellent AI, camera and multimedia features. They are highly recognized by the market. Numerous high-end smartphones powered by our Dimensity 1200 from global major brands were launched in the first quarter. We expect a strong shipment and revenue ramp to continue in the second quarter and beyond. With that, we believe our revenue share in the high-end segment to continue to rise throughout the year and beyond.

For high-volume, mid-range and the mass market, we expect 5G penetration to continue. MediaTek is already a leading 5G solution supplier to all major Android smartphone-based brands. Based on our strong road map and designing pipeline, we believe we are able to grow this business further.

Moreover, with MediaTek's continuous advances in 5G, we are making significant progress in U.S. and the Europe markets with further share gain. In early second quarter, a global major Android brand launched MediaTek-powered 5G and 4G smartphones in U.S. market. Together with other models, we expect our smartphone shipments in U.S. and Europe markets to grow meaningfully in 2021.

Moving forward, we continue to launch new products to further capture market opportunities next year and beyond. One is to offer millimeter wave technology in addition to our sub-6 gigahertz 5G solutions. The other is to expand into the flagship segment. By adopting leading advanced process nodes and high-performance designs, we believe our flagship solutions will be competitive in penetrating into flagship models. With these initiatives, we are confident that our mobile phone group will grow better than industry for upcoming years.

For our IoT, computing and ASIC group, it consists of several fast-growing markets such as WiFi, ARM-based computing and ASIC. In the first quarter, this group accounted for 22% of revenue. It grew strongly at 50% year-over-year, thanks to growing demand in routers, broadband and Chromebook as well as strong WiFi 6 migration. The group declined 4% sequentially due to consumer electronics seasonality.

With comprehensive wireless and wired connectivity, ARM-based computing and high-speed data transmission service IT, MediaTek enjoys a highly competitive position in these markets. We continue to gain great traction in Chromebook and notebook PC markets via our competitive WiFi 6 5G SIM modem and ARM-based computing SoCs. We also see [ spec ] migration continues. We forecast our WiFi 6 to account for 15% of our total WiFi shipment this year, substantially increasing from low single-digit percentage last year.

For ASIC, we have seen very robust gaming console demand in its product introduction last year. Our switch IP and AI-accelerated ASIC projects are also ramping smoothly into rest of the year. With more innovative connected product, we are able to increase our market share in these product lines. We believe our IoT, computing and ASIC group will be a major growth driver for the next few years.

Next, Smart Home. MediaTek has a strong leadership position in this market. This group accounted for 16% of revenue in the first quarter. Smart Home grew 42% year-over-year, driven by recovery of the global TV demand from a year ago and grew 5% sequentially as we see a better mix. For coming quarters, we see healthy demand in anticipation of global sports events, such as European Football Championship in June and Tokyo Olympics in July. Consumers are also more willing to upgrade TV specs as they now spend more time in home entertainment.

Now let me make a few comments on Power IC. In the first quarter, Power IC accounted for 7% of revenues. It grew 47% from last year, mainly driven by higher Power IC content from continuous consumer product upgrades as well as recovery of global market demand, and grew 3% from last quarter, reflecting continuation of the market growth.

MediaTek provides comprehensive and reliable Power IC solutions. Power ICs are widely adopted by the majority of our business lines. Not only can it grow as a stand-alone business, but also bring synergistic benefits to our overall businesses. We expect Power IC business to exceed USD 1 billion this year and to grow faster than the overall company in the next few years.

Now turning to second quarter guidance. Following a strong first quarter, we expect second quarter revenue to continue to increase for the 4 revenue groups, mainly led by 5G smartphone [ reps ]. We expect our second quarter revenue to be in the range of TWD 118.8 billion to TWD 127.5 billion, up 10% to 18% sequentially and up 76% to 89% year-over-year at a forecasted exchange rate of TWD 28.2 to USD 1. Second quarter gross margin is forecasted at 45%, plus or minus 1.5 percentage points; quarterly operating expense ratio to be at 23%, plus or minus 2 percentage points.

For 2021 full year, compared with 3 months ago, we are seeing a stronger growth momentum based on healthy end-market demand and the strong key customer design wins. Amid the industry-wide supply constraint, we expect our capacity to support a better than 40% year-over-year revenue growth target. We also raised our full year gross margin target to 44% to 46%.

Now I'd like to expound on major changes in our dividend policy. Based upon the confidence of our business outlook, underpinned by our competitive product portfolio and future cash generation policy, the Board approved a regular cash dividend payout ratio to 80% to 85% as our dividend policy this morning.

In addition, the Board approved a 4-year special cash dividend program totaling TWD 100 billion. To enhance our balance sheet efficiently and to reward long-term shareholders, shareholders will receive a special cash dividend of TWD 15 per share every year from 2021 to 2024 on top of a regular cash dividend. For 2021, subject to shareholders' approval, total cash dividend to be paid is TWD 37 per share, including a regular cash dividend of TWD 21 per share and a special cash dividend of TWD 15 per share.

Despite the increases in cash dividend, we are confident that we can continue to invest aggressively in R&D and still preserve the ability to pursue M&A opportunities should they arise in the future. As evidenced by our USD 3 billion R&D investment budget this year, we are fully committed to future R&D investments to further strengthen our global competitive position and create higher value for our shareholders.

That concludes my prepared remarks. Thank you.

[Jessie Wang, executive]

Thank you, Rick. Now we are ready for Q&A. May we please have the first question, operator?

[Operator]

[Operator Instructions] The first to ask questions, Gokul Hariharan from JPMorgan.

[Gokul Hariharan, analyst]

Great results, congratulations on that. My first question is on the flagship segment. Rick, you talked about increased progress with the Dimensity 1100, 1200. Could we understand what share of the flagship segment? What is the TAM opportunity that you see there that MediaTek can really kind of break into? Because historically, MediaTek has not really been in that segment until very recently. And could we also get a little bit more details on what are your expectations of how much market share of the TAM can MediaTek take, especially with your millimeter-wave-based flagship product coming out later this year or early next year? That's my first question.

[Lih Shyng L. Tsai, executive]

Okay. I'll try to -- let me answer you. First, the smartphone, 5G smartphone TAM, I guess that's a key part of your question. We see, as I've said earlier, for the high-end smartphone TAM to be $3 billion to $5 billion this year. And certainly, we'll continue to grow in the future years. And by 2022, we expect that to be around, together with the millimeter wave, TAM to be around $8 billion to $9 billion in 2023. Thank you.

[Gokul Hariharan, analyst]

Okay. Any thoughts on how much market share MediaTek is targeting over the next couple of years within this segment, given you're starting with very low share right now?

[David Ku, executive]

Okay. I think for the general market share right now we are talking about, we are pretty much 45% plus. But for the high end, as you know, right now, we're just in the beginning. So far, based on the designing situation, I think we feel comfortable should we have a pretty strong double-digit growth for the market share. And for the real -- I think the shipment will start up until probably second half this year for the flagship. Right now, we're shipping the high end -- for the flagship, probably we'll start to ship starting from fourth quarter and first quarter next year. I think by then, we will disclose probably more our target market shares.

[Gokul Hariharan, analyst]

Okay. Got it. My second question is on operating margins. I think MediaTek looks like getting back to 20-plus percent operating margins after a long time. Could we talk a little bit about how do we see sustainability of this 20-plus percent operating margin over the next few years? Either how we -- like is that the new norm for us when we think about the next 2, 3 years? Given -- and yet in the past, we hit that number and we were not able to sustain it because of competitive factors, et cetera. So I just wanted to understand how you think about operating margin staying above the 20% mark over the next 2, 3 years.

[Lih Shyng L. Tsai, executive]

Okay. Let me address the question first by talking about the gross margin. After all, that's the basis with the operating margin. If you look at our, I guess, the numbers through the last 4 years, you can see the -- we have been improving our gross margin rate from about mid-30s to now about mid-40s. We report 44.9% gross margin today for first quarter, and we are forecasting 44% to 46% gross margin rate for the whole year 2021.

And this really has demonstrated our capability in improving the gross margin under continuous and severe competition without the current supply chain tightness. We -- really, our policy in our approach in our gross margin improvement, improvement is not taking opportunistic pricing nor do we take the advantage of the supply disruption currently now in our industry.

I think what we really believe is our gross margin rate improvement is mainly driven by overall product competitiveness, our earlier investment in the technology and the product mix. And we're now also a very well diversified and the synergistic business portfolio. We don't -- obviously, in this tight supply environment with the cost increase from our various suppliers, we work closely with our customers and the suppliers. We have firmed up our prices. We have, I would say, adjusted. Our product mix show that we have a gross margin which deserves our value for our customers. Thank you.

[Operator]

Next, we're having Sebastian Hou from CLSA.

[Sebastian Hou, analyst]

My first question is on the -- I think the -- Dr. Tsai, you mentioned that you're seeing stronger demand and also stronger customer design right now compared to 3 months ago. So I wonder, is it possible for you to elaborate more which business group or which kind of the product applications are you seeing a stronger customer design now versus before?

[Lih Shyng L. Tsai, executive]

Well, if we research, of course, the growth is now led by the 5G penetration. We are seeing 5G penetration to be on track, as we said earlier, of greater than 500 million units for the year. Our designing through our whole road map from the high-end to mid-end to the mass market segments, including flagship models, are now being in line with several or, I guess, almost all the major Android brand manufacturers, which leaves us the confidence in the demand and a good second half of the year. Thank you.

[Sebastian Hou, analyst]

So it seems like -- so follow on that, so it seems like most of that is driven by the smart -- the mobile business.

[David Ku, executive]

Sebastian, actually, I would say it's probably small in mobile. Like the CEO, Dr. Tsai, talked about earlier, we actually, at this time, will break down the 4 major business groups. And as you can see, for the IoT, computing, ASIC, for Q1, we see a more than 50% year-over-year growth. And for Smart Home, for Q1, we saw a more than 40% year-over-year growth. For PMIC, we also see more than 40% year-over-year growth as well.

So it's really the -- we see pretty strong growth as well as with a strong demand across all 4 major products business group. And from the revenue overall contribution perspective, smartphone, of course, it actually still have the lion's share of our overall revenue. But in terms of growth opportunity, it's been pretty diversified and pretty balanced.

[Sebastian Hou, analyst]

Okay. My second question is, if I look at the growth rate for the new 4 business breakdown, I think the smart -- the mobile grew almost 150% year-on-year in the last quarter. And the rest of the 3 businesses is growing, on average, about 40% to 50% year-on-year. Looking into the second -- the next 12 months, when we move into the second half this year, how do you see such year-on-year growth rate, whether or not the mobile will eventually saturate while the nonmobile business will be able to sustain as such a 50% year-on-year growth rate continuously?

[David Ku, executive]

Sebastian, I think for this year, like the CEO, Dr. Tsai, talked about, for the full year, I mean the capacity is constrained. I think we should be able to support a better than 40% year-over-year growth for the full year. And if we break this down into the 4 business groups, I think smartphone definitely have a much stronger growth, more than 40%. But for other line of business, I think in general, I think they will be either higher than 40% or slightly very close to 40% growth. I think that's what we see for this year.

For the coming few years, I think like the first question that JPMorgan talked about or asked about, once we start getting to the higher-end segment of the smartphone, I think the addressable market is actually very sizeable. And currently, we have a very low market share. And we do believe, actually, with our strong product portfolio and the competitiveness of our product portfolio, we should be able to continue to grow on the smartphone side.

For the non-smartphone side, because it's well diversified for the IoT, ARM computing, for the smart home, for the PMIC, we do believe that actually the end market demand is still very healthy. Whether or not we will continue to grow at 40%, probably not, but we still believe actually we'll see a pretty healthy growth across all business lines.

[Operator]

Now we're having Randy Abrams from Crédit Suisse.

[Randy Abrams, analyst]

Congratulations on the results and also the change in the payout policy. I wanted to ask the first one about the segments. The first part of it, just more a request, if it's possible to get the base from last year, either full year or the quarters for the Q-over-Q or year-over-year comparison as we move to the new structure.

And then just a couple of follow-ups. Looking forward, the Smart Home business, should we think of that that's mapped pretty similar to the prior TV set-top box? It originally was considered more mature product that was viewed kind of cash cow stable. Or are there some growth applications in there? And your view on that Smart Home piece because we've had the pandemic, should we view that as more of a stable business midterm?

[David Ku, executive]

Randy, the first question, first, I think because for this quarter, we start to give out the 4 business groups both for quarter-over-quarter growth and also year-over-year growth. So you should be able to basically reverse engineering to calculate about the last year, the baseline for the 4 business groups. But to save your time, I think we can give you the information after the call. I'll send it to everyone if they want to need that. And -- so that's the first one.

The second one, we talked about what's the change. I think the major change is really we take out, we separate out the Power IC. The Power IC has been a pretty sizable business right now, like the CEO explained earlier. This year, we are kind of expecting the Power IC, the revenue will be over USD 1 billion with a very strong growth rate.

And other than that, I mean the Power IC, because the strong growth is natural, in the past, we put up that category underneath something we call the growth sector. So pretty much, you can think about in the past, we carve out or we take out the Power IC because of the new group, everything else pretty much stays the same. So the Smart Home, in the past, after we made this call, Smart Home and others, but pretty much just Smart Home, TV over there. So in terms of change, the major change is just we take out the Power IC and separate that as an independent BU, actually, instead of reporting entity due to the size and also the strong growth nature.

[Lih Shyng L. Tsai, executive]

Also, Randy, you specifically asked about Smart Home. Yes, indeed, TV is a big chunk of that product group. But we also actually have a very actually high-growth and high-margin monitor display IC business, which these 2 combined to what we call Smart Home business group. And for the year of 2021, actually, they have, I would say, also a very good growth by over 30% year-over-year. We -- with the leading position we have in those products, we believe we have a pretty good picture going forward. Thank you.

[Randy Abrams, analyst]

Okay. Great. And my second question, on the mobile market, it's more just 2 concerns we hear in the market. One is whether the build rate MIIT for China showed a good rebound back to about $90 million a quarter. But I guess your take in looking at the overall market, both from a China and an export, how you see the demand health in the market. That's the first part.

And the second part, there's a bit of a concern, the competitive environment has been benign where your competitor has been quite constrained. But you've had kind of a better supply and have been able to build inventory ahead of the coming quarters. And so there's a fear that it might be less benign if they get better availability later in the year. So if you could address just a view on kind of market health or China and emerging market, how that looks and also a view on the landscape relative to your competitor.

[Lih Shyng L. Tsai, executive]

Well, as I said earlier, I think the 5G -- well, China market, I think overall, smartphone shipment probably stay about flat. The main thing, of course, is the ratio of the 5G to 4G, basically the 5G penetration. We believe there will be overall about 300 million 5G smartphone shipments in China this year. The first quarter number, they were a true number which came out. I think if you take into consideration of the seasonality, it's about on track for such total shipment number for 5G.

So we are comfortable with our 5G smartphone shipment forecast, demand forecast. We -- and we have been looking at very closely the inventory levels of our major customers with inventory and channel inventory, which were all seen at a pretty low level and actually quite a bit below what they would like to have in the more normal time. So we -- as a result, we feel confident about our forecast for 2021 5G shipment.

As to the competition, for one, first, of course, we don't comment on competitors' action or strategy. Indeed, you're right to say that up to now, it's the -- when you -- to use the word benign environment, we do not expect the competition to be benign going forward. But we always assume that competition will compete fiercely, aggressively. That's why we kind of like the comment I just made on gross margin improvement.

At the end of the day, you have to look at those fundamentals, whether we have invested in the technology, whether we have invested in the product road map from flagship to high-end, mid-end to mass market, whether they are competitive in designing with our major customers, whether they have the sell-through in the end market. With all that, we have confidence that we can compete effectively and also aggressively. We think we have good fundamentals to thrive in this market going forward. Thank you.

[Operator]

Next in line is Bruce Lu from Goldman Sachs.

[Zheng Lu, analyst]

I try to get some more color about the smartphone addressable market. Can you provide a bit more detailed breakdown in terms of the smartphone addressable market? It seems to me that your revenue share is substantially lower than your shipment share. So how big is like 4G versus 5G? What is the growth rate for the addressable market moving forward?

[David Ku, executive]

Bruce, sorry, I'll clarify your question. Just trying to understand the overall total shipment, basically the market demand?

[Zheng Lu, analyst]

No. The question is more about the addressable market. I think the -- Dr. Rick mentioned that the smartphone addressable market is about like $30 billion. Your revenue for the smartphone this year is roughly around like $7 billion, $8 billion each, right? So the revenue share is substantially lower than your shipments. So I try to know what is the building block for this $30 billion? How much is for 4G? How much is for 5G? Or maybe a little bit between like sub-6 or versus millimeter wave or mid to low to high end, how does that break down for that $30 billion?

[David Ku, executive]

Okay. Bruce, let me just try and explain. I think overall, this year, we're looking for roughly 1.4 billion units shipment. Out of that, I think 500 million is 5G, and also the rest is in 4G. On average, I think 5G today is much higher than 4G. So out of that 20 -- or let's just say a round number, $30 billion, I would say probably 1/3 of that is 4G, 2/3 of that is 5G. And on that -- on the 5G side, I think we also kind of explained, if you're including millimeter wave and also the high end, overall, it accounts for roughly $8 billion to $9 billion.

So currently, I guess, why you see our revenue shares relatively low compared to our shipment share is actually, a, we don't have a sizable high-end shipment yet; b, I think our millimeter wave will start -- just actually will start to mass production later this year. So we didn't really fully realize the revenue potential yet, but we do have the technology and capability to capture that opportunity going forward.

Okay. One thing is actually, the $29 billion is also including the SIM modems, actually, the [ aero ] business as well. Yes.

[Zheng Lu, analyst]

I'm sorry, the SIM modem was not included in the TAM, right?

[David Ku, executive]

No, it's included in the TAM as well.

[Zheng Lu, analyst]

I see. I see. Okay. The next question is that the MediaTek, it's more for the bigger pictures, the MediaTek's revenue is highly geared to smartphone and highly geared to the China customer. So the revenue share from the high-performance computing segment is much, much smaller. The revenue from -- by non-China customer is much, much smaller. So can you give us more about like how do you -- what's the strategy to be like more balanced or more -- or our company will try to stick with like more focus for the consumer and the smartphone side?

[Lih Shyng L. Tsai, executive]

I think the company, certainly, as you can see from the past 3, 4 years, the company has delivered a much more balanced and diversified revenue compared to before, although we certainly are seeing smartphone revenue to occupy over 50% of the total revenue. On the other hand, if you look at the dollar amount of different product lines, product groups over the last 3, 4 years, the growth rate of which is very, very, very good. It has been our strategy to drive our growth in a balanced and a diversified manner. But certainly, we cannot control the end-market demand momentum ourselves, and that's why we need a diversified portfolio.

And it so happens, of course, our technology and our investment in the product line -- product portfolio in the 5G era just -- well, I think we hit the market really well at the very beginning and we continued as the market also expand actually more aggressively than we also expected. So smartphone is getting to be at such high percentage.

But we also know, as you guys do, all high-growth business will gradually moderate in the growth rate. So that's why we continue to invest in the IoT, the ARM-computing SoCs and the -- or the smartphone. And we ensure -- we try to ensure that they can all have a strong growth, sustainable growth. And also, as we said in the remarks that we are expanding aggressively in the U.S. and the Europe market for our smartphones, not to mention all the other product portfolio.

So it's a long road, I agree. But if you look at the numbers by both absolute numbers and the percentage, you should see the efforts and the results that our strategy has come out with. We -- I am pleased and we are comfortable that we will continue moving in that direction. And we will, as time goes on in the next 3, 4 years, we'll be much more diversified compared to today. Thank you.

[Zheng Lu, analyst]

So for the tactics perspective, your recent collaboration with NVIDIA, does that really -- can we rebuild that as a game-changer or a step-up in terms of like getting to the server business? Or how should we look at this?

[Lih Shyng L. Tsai, executive]

The collaboration with NVIDIA is mainly for the PC, on the PC side, I think, in particular probably more towards high-performance gaming type of PCs, which is really a perfect match between the 2 companies in providing that platform. It's certainly -- depending on how you look at it, I do not right now -- if you look at it from the step into the PC segment, I think it's very, very significant for us.

Our investment in ARM computing definitely is not -- or the proof of which, definitely, we're not just in the smartphone arena. It has been for a while that we want to expand that investment into different segments such as notebook PC. But from a data center point of view, I think there's -- we have a different approach basically through more ASIC type of a business model. Again, I think our investment in the ARM -- we have really close working relationship with ARM. And we are always 1 of the top 2 to going -- using their latest and high-performance core. And we expect that to bring us also results in the data center area as time goes on. Thank you.

[Operator]

Right now, we're having Roland Shu from Citigroup to ask questions.

[Roland Shu, analyst]

For -- your gross margin target this year had been raised from 43% to 44%, to 44% to 46%. So my question is, how much of this gross margin upside is contributed by the higher price? And -- or how much upside is contributed by our beta product or beta mix?

[David Ku, executive]

Roland, I'm assuming when you say higher price, are you assuming that we increased the pricing? Is that what you mean? Or...

[Roland Shu, analyst]

Yes.

[David Ku, executive]

I think that's the raw impression. I think like the CEO explained, we didn't really take the opportunistic approach to adjust our pricing. I think what we did, actually, we're just firming up the pricing, which means I will slow down or no decline for the ASP. And more importantly, we adjust our product portfolio. So it's mainly coming out from the product portfolio and also segmentation expansion.

[Roland Shu, analyst]

Okay, understood. And also, are your full platform of the product, gross margin are growing at the similar magnitude as you raised it?

[David Ku, executive]

A different product. On an absolute level, I think most business groups have a similar product, very close to corporate average, of course, some of them are lower, some of them are higher. But in general, they are all within that range. We didn't really see any one like the big laggers.

[Roland Shu, analyst]

How about smartphone? Is smartphone's gross margin higher or lower than the corporate average now?

[David Ku, executive]

I think smartphone is very close. But given the fact that the smartphone right now contribute roughly more than 50% of the revenue, so based on the math, the gross margin need to be very close to the gross margin, yes.

[Roland Shu, analyst]

Understood. Okay. And my second question is, I remember when Rick first joined as the CEO for MediaTek, let's say, I've been -- one of the decision Rick made was just stopped doing for the high-end or flagship chipset for smartphone. And now you would like to try to reenter this flagship smartphone business. So I just want to ask, what has been changed from this time and compared to several years ago?

[Lih Shyng L. Tsai, executive]

Yes. I think you're talking about back about 4 years ago that...

[Roland Shu, analyst]

Yes.

[Lih Shyng L. Tsai, executive]

We -- I mean almost 5 years ago, we did have a line of -- a series of -- Edge series...

[Roland Shu, analyst]

Edge series, yes.

[Lih Shyng L. Tsai, executive]

For the 4G market, of which -- well, the numbers was there, which was not very successful and which also took up quite a bit of resources of ours. So we decided at the time that we will go back to the mid-end and the mass-market products. And with -- actually, at the time, with a very robust, by that time, what we call 93 modem, 4G modem because we really believe that we must put our foot down and make a comeback, try to -- also with the right product, with the right capability to convince our customers.

And fast-forward to 2021 or 2020, actually, if you look at the, what we call the Dimensity 1000, when we had that product back in the end of 2019, it was designed to be a high-end, what we would call high-end product already. It had a tough fight, I would say, in the first half of 2020. But going into second half and into first quarter this year, that product has done really well with customers and also with the users in the end market. And Dimensity 1200 followed through, and we're seeing a tremendous design and also mainly because our R&D investment, which we are really focused on getting the 5G modem, getting the leading-edge ARM CPU, leading-edge AI processor and the multimedia, our traditional strength, we doubled down on all those things. And they -- where the -- we proved ourselves right, I guess, in such investment. And the -- now we are really very confident that the flagship chips we are designing and going into production soon will be a very competitive one. Thank you.

[Roland Shu, analyst]

Understood. Yes, understood. Yes, I think I get your point for you have the right product and the right technology now. But I think another question...

[Operator]

Sorry for the interruption, Roland, we still got several analysts on the line. So I'm going to put you back in the conference room. Ladies and gentlemen, next one to ask questions, Brett Simpson, Arete.

[Brett Simpson, analyst]

David, just to clarify the revenue outlook, are you saying MediaTek grow sales over 40% in 2021? And if that's the case, it implies your second half sales might decline half-on-half in the second half. Is that the right way to read this?

[David Ku, executive]

I think, first of all, it's better than 40%. I think secondly, this year, our overall growth is somehow still constrained by the overall supply constraint. So for the second half versus the first half, I think the seasonality will be different compared to the last few years, mainly due to the supply constraint on the demand side, even though it's still very strong.

[Brett Simpson, analyst]

Understand. And just on the supply constraints, can you maybe talk about to what extent is wafer pricing going up this year and next year? And to what extent can you pass this on to your customers?

[David Ku, executive]

I think with this year, it's mainly on the capacity really and the wafer pricing because the wafer pricing right now has pretty much been all been reflecting in our financial already, in our cost model. So this year is really just the industry-wide supply constraint and especially for some companion chip for the mature technology.

[Brett Simpson, analyst]

Okay, super. And maybe just shifting to Dr. Tsai. In your prepared remarks, you talked about the new breakdown for the business, but you didn't talk about automotive as a kind of a focus area. Can you maybe just share with us your perspective on what's the automotive strategy at MediaTek? And what areas in the car can you address? What sort of content per car does that translate to? And when might automotive deliver a meaningful contribution to revenues at MediaTek?

[Lih Shyng L. Tsai, executive]

Okay. Automotive, actually, we are shipping real products to real customers. And actually, the growth of the revenue is pretty substantial. However, compared to the overall company, revenue is still rather small. So we're not reporting that specifically.

We are focusing on the 2 -- mainly 2 segments. One is telematics, the other one being IVI or some people call that smart uplift, utilizing, basically, obviously, utilizing our strength in the modem and WiFi capability as well as our computation, ARM-based computation capability. This -- we -- our -- well, if you want to call that strategy, our strategy really is to make sure we have these products to be very solid with the major OEM makers. We want to build our reputation.

As you know, automotive industry is a very difficult one to penetrate. But we show that the strategy simply is to have those 2 products really showing our ability in the automotive industry, and we want the OEMs to recognize our brands, our values. And we will and we continue to invest in that. Once we understand a little better, I think with the current focus now everybody almost in EV and autonomous driving, MediaTek, with our computation, with our connectivity, with our Power IC capabilities, I think we really have -- I look forward to a much brighter future.

[David Ku, executive]

Brett, just one more follow-on. I think for the automotive industries, our revenue, we actually put that underneath IoT, computing and ASIC business group.

[Operator]

Ladies and gentlemen, we are running out of time, so we are going to take the last one to ask questions. And the last one to ask questions is Sunny Lin from UBS.

[Sunny Lin, analyst]

So my first question is on your strategy to penetrate into the high-end 5G SoC. So just wonder if you are seeing any changes to the industry dynamics that now puts you in a better position to tap into this market.

[Lih Shyng L. Tsai, executive]

I guess what I should say is the major changes, our capability, being able to design such chips and our trusting relationship with our key customers, so they are willing to work with us on such flagship phone design. The overall market, I think, is still good, as we described earlier in the TAM numbers. I think these are very attractive TAM numbers. We -- so for us to continue growing in this very important mobile phone business, we just have to move into the segment. Thank you.

[Sunny Lin, analyst]

Got it. And maybe a very quick follow-up. If you look into 2022, is there a target for the volume contribution or revenue contribution from this flagship 5G SoC?

[David Ku, executive]

Sunny, we will try to provide some guidance probably later this year or earlier next year.

[Sunny Lin, analyst]

Sure, no problem. My second question is on the supply chain tightness. So as the supply chain tightness appears to continue, but the overall 5G volume continues to ramp. So if we think into second half of 2022, how do you continue to grow? And what's the diversification efforts that you are taking to ease the supply chain tightness?

[Lih Shyng L. Tsai, executive]

First of all, we are working certainly on already 2022 capacity supply with our major -- or our major foundry partners, and they are progressing, I would say, well. I don't think we can get everything we want as everybody else does. But what we believe is the capacity we're getting for 2022 will give us, I cannot say the numbers now, but will give us a pretty good growth for next year. I'm not too worried about it.

As to the diversification, I mean this strategy is our long-held strategy, and it will not change just because of the capacity tightness or not. We will work within ourselves and with our customers to ensure that we can comply to satisfy mostly the customers' growth objective, be they in smartphone or in IoT, computation, ASIC or in smart home or power. That's our general strategy. Thank you.

[Operator]

Ladies and gentlemen, we thank you for all your questions. But right now, I'm going to pass it on to Mr. Jessie Wang for closing comments. Ms. Wang, please proceed.

[Jessie Wang, executive]

Ladies and gentlemen, this concludes MediaTek's 2021 First Quarter Conference Call. We would like to thank you for your participation, and you may now disconnect.

[Operator]

Thank you, Jessie. And we thank you for your participation in today's conference. You may now disconnect. Thank you, again, and goodbye.