MediaTek Inc

TWSE:2454

Earnings Call Transcript 2021-Q2

[Operator]

Welcome, everyone, to the MediaTek 2021 Second Quarter Investors Conference Call. Financial results and presentations for today's call are available on 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 second 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 materially different from the statements.

The presentation material supplement 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 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 second quarter financial results.

[David Ku, executive]

Thank you, Jessie. Good afternoon, everyone. Let me just update you for the Q2 financial results. I think for the 2021 second quarter financial result, the currency here are all in NT dollars.

Revenue for the quarter was $125.7 billion, up 16.3% sequentially and up 85.9% year-over-year. Gross margin for the quarter was 46.2%, up 1.3 percentage points sequentially and up 2.7 percentage points year-over-year.

Operating expense for the quarter were $29.2 billion compared with $28.3 billion in the previous quarter and $22 billion in the same quarter last year.

Operating income for the quarter was $28.8 billion, up 42.8% sequentially and up 288.8% year-over-year. Non-TIFRS operating income for the quarter was $29.1 billion.

Operating margin for the quarter was 22.9%, increased 4.2 percentage points from the previous quarter and increased 11.9 percentage points from the year ago quarter. Non-TIFRS operating margin for the quarter was 23.2%.

Net income for the quarter was $27.6 billion, up 7% sequentially and up 277 percentage points -- percent year-over-year. Non-TIFRS net income for the quarter was $27.8 billion.

Net profit margin for the quarter was 22%, decreased 1.9 percentage point from the previous quarter and increased 11.2 percentage point from the year ago quarter. Non-TIFRS net profit margin for the quarter was 22.1%.

EPS for the quarter were $17.44, up from $16.21 in the previous quarter and up from TWD 4.58 in the same quarter last year. Non-TIFRS EPS for the quarter was $17.57.

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

That concludes my comment. 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]

Thank you. Good afternoon, everyone. I am very pleased to report that Mediatek delivered another strong quarterly results.

In the second quarter, we again set a new record of revenue, achieving TWD 125.7 billion driven by growth in all 4 product groups. Second quarter gross margin was 46.2%, close to the high end of our guidance. Operating income amount was almost quadrupled from last year. And operating margin, we achieved 22.9%, benefiting from increased gross margin and operating leverage.

I will now discuss our business by each product group. First, mobile phone. Mobile phone accounted for 57% of second quarter revenue, growing very strongly at 143% year-over-year mainly driven by the ramp of our 5G high-end products, known as Dimensity 1000 series.

We continued to see increasing adoption of our 5G high-end SoCs among our customer base. As a result, MediaTek market share in the high-end segment has been rising steadily since we first entered 5G high-end market at the end of 2019. We believe it was attributable to our competitive 5G offering, successful product position and solid execution.

With an aim to empower more differentiated high-end and flagship smartphones, we recently launched our 5G open resource architecture that provides a greater flexibility for customers to customize high-end features such as AI, multimedia and camera parameters. The first high-end model built on MediaTek 5G open resource architecture has already started shipping. More models for multiple customers will come in the next few months.

Our estimate for 2021 global 5G smartphone market remains unchanged at a level that exceeds 500 million units, which is more than double the amount of 2020. We expect 5G migration to accelerate and penetrate into more regions next year, bringing 5G smartphone market to a much higher level.

With market share gain in high end and a leading share in mainstream market this year, MediaTek continues to expand product portfolio into the flagship segment to drive future revenue growth.

We are on schedule to deliver our first 5G flagship SoC solution by the end of this year. Adopting our latest flagship core and best-in-class TSMC 4-nanometer process technology, MediaTek's flagship solution offers industry-leading power consumption and premium performance. In addition, with advanced AI, multimedia IP and our proprietary open resource architecture to enable customer differentiation, we believe our flagship offering is superior to all products available in the market.

The flagship product development has been progressing very well with multiple customers. First customer model is scheduled to launch in the first quarter of 2022 and that we expect more to come. We believe our entry into flagship segment investments in advanced features would benefit our entire 5G product portfolio going forward.

With comprehensive and competitive product offering, we are confident that MediaTek can continue to expand our global presence in the smartphone market and enjoy a strong growth in the next few years.

Next, let me talk about our IoT, computing and ASIC group. This group contributed 22% of revenue in the second quarter. It grew strongly at 59% year-over-year, reflecting continued strength in market demand and product upgrades. For IoT and computing, we are seeing a better product mix driven by higher contributions from WiFi 6 upgrade and higher-end devices such as larger-sized tablets, smart displays and branded TWS Bluetooth headphone. As one of few leading players in WiFi 6, we expect WiFi 6 penetration to accelerate in the coming years and will continue to benefit MediaTek across multiple applications.

For ASIC, revenue grew steadily in the second quarter. A few new switch IP projects are about to start volume production in the second half of the year to contribute further growth.

Next, I will talk about the Smart Home product group. This group accounted for 14% of revenues in the second quarter and grew 62% year-over-year. Global digital TV demand has been steady. We are seeing growing popularity in higher-end devices such as 4K models in the market due to global sport events, driving a better product mix for MediaTek. Together with robust demand in other TV-related products, we expect this group to grow throughout the year.

Last but not least, let me talk about Power IC. This group accounted for 7% of the second quarter revenues, growing 43% from last year. We saw a solid demand across the board for the quarter, especially with 5G smartphone [ rep ]. With technology becoming more complex for advanced products, the demand for efficient power management solutions has increased substantially. MediaTek has built a vast portfolio to support diversified applications and continue investing in solutions for new applications.

In addition to the robust growth coming from current major businesses such as computing and communication, we are also seeing increasing contributions from industrial and automotive, which is expected to account for around 10% of Power IC revenues already this year. With our strong capability in design for power efficiency and product integration, we expect to grow the business strongly going forward.

That concludes my update on the 4 product groups. Now I would like to talk about some exciting trends we are seeing to drive our mid- to long-term growth.

We believe digital transformation has become the new norm and is driving tremendous business opportunities. We are only at the first phase of the cycle, witnessing early infrastructure deployment for faster connections such as 5G wireless base station, 10G phone fixed network and a high-speed transmission equipment. These infrastructures will continue to nurture an enabling environment for various faster and more powerful connected devices in 5G, WiFi, AIoT, real-time computing, automotive and many other scenarios. We believe continued product upgrades and more innovative connected devices will surely [ arrive ] for people to enjoy faster and seamless connections.

MediaTek is equipped with comprehensive and competitive solutions for wireless and wired connectivity, ARM-based computing, power management and high-speed data transmission service IP. We are also aggressively investing in next-generation connectivity, technologies and more powerful processes. Equally important, we work very closely with global operators and major brands so that we are able to better capture the dynamic market trend.

We believe the strength of digital transmission will continue even in a post-pandemic era. We are very confident in our technology and product competitiveness, which will not only enable us to map -- march into 5G smartphone flagship segment [ last year ] but also capture growth opportunities in areas including ARM computing, AIoT and power IC in the future.

With the promise and long-term opportunities in mind, now let's take a closer look at near-term market situation. Despite some recent short-term supply chain data point interpreted as concerns on market outlook, we would like to reiterate that we are seeing healthy market demand across all of our product groups. It's mainly driven by our leading position in 5G, WiFi 6 and ARM computing product, all of which are important ingredients for digital transformation.

For 2021, as we indicated earlier, the industry-wide supply constraint has shaped a rather different quarterly seasonality for the year, but the different seasonality pattern should not be seen as concern for our business outlook. In fact, based on the current forecast, we are confident to further raise annual revenue growth target from 40% plus provided last quarter to a level above 45%. We also believe our annual gross margin is able to reach the upper end of our target range of 44% to 46%.

With that, we now provide our third quarter's guidance as follows: For the third quarter, we expect our third quarter revenue to be in the range of TWD 125.7 billion to TWD 131.9 billion, flat to up 5% sequentially and up 29% to 36% year-over-year, at a forecasted exchange rate of TWD 28 to USD 1. Third quarter gross margin is forecasted at 46%, plus or minus 1.5 percentage points. Quarterly operating expense ratio to be at 24%, plus or minus 2 percentage point.

That concludes my prepared remarks. Thank you.

[Jessie Wang, executive]

Thank you, Rick. We are now ready for Q&A. Operator, may we please have the first question, please?

[Operator]

[Operator Instructions] The first to ask questions, Randy Abrams, Crédit Suisse.

[Randy Abrams, analyst]

Okay. I wanted to ask the first question on the flagship segment, where in the prepared remarks, you expressed optimism to target that. Could you give a view on the TAM, how much you see the market opportunity for that segment and an initial, based on design activity, market share expectation? And can you also mention if any offsetting impact? There's been a market concern that your competitors back in the market with more supply. If you see any offsetting impact in some of the mainstream segments from competition, say, less benign a couple of quarters out.

[Lih Shyng L. Tsai, executive]

Okay, Randy, rather than saying the TAM, we -- I think it's better to just say for China market, we believe the market size is about 80 million units to 100 million units next year. Of course, we are at the beginning of our entry to this flagship market. What I can say is our -- with our chip at hand performing very well, I think all our design steps are quite really very exciting and -- to ourselves and to our customers. We have worked quite some time with key customers in China. So we have a good confidence that we will have, I would say, a reasonable, good entry to this, indeed, very challenging segment.

We -- of course, we don't comment on our competitors, but I really believe the -- if you look at all -- of course, when it comes out, for the features or the power consumption, capabilities and the -- to pass -- the industry can get from the major IT suppliers and major foundry supplier, we're doing well, we're doing well. Thank you.

[Randy Abrams, analyst]

Okay. And the second question I wanted to ask, on the outlook for third quarter. Could you discuss, just firstly, the impacts from the Qinyuan, where they had the COVID outbreak, how that affected timing of shipments, whether that pushed some shipments into third quarter? And then for third quarter, how much are you limited on supply constraints? It looks like your balance sheet inventory is in reasonably good shape. But if you could talk about where the constraints are coming through and how much it might be limiting your shipment.

[David Ku, executive]

Randy, I'm assuming when you're talking about the COVID impact, you're mainly referring to, for the Q2, basically the KYC back-end vendors event. But a long story short, I guess the overall impact is minimal. I think you can average that by seeing our strong second quarter Q-on-Q growth, which are in the mid- to high end of our guidance range. So basically, you can consider that's actually been passed already.

And I think the third quarter is a -- I think -- so like the CEO, Dr. Tsai, explained, this is actually another news when we're talking about the full year guidance, which had indicated about the seasonality for the full year is actually very different. So probably the best way to look at the -- check out the momentum this year -- we understand, currently, there's a lot of rumors, one of few small vendors' data point may be just suppress the market confidence.

But probably the best way to look at the sort of market healthiness is by looking at the full year growth. Like we explained earlier, we still see a pretty healthy market demand out there. And if there's no demand constraint, I guess, overall speaking for Q3, in journey, we're looking for either high single digits Q-on-Q or maybe even low double digits...

[Lih Shyng L. Tsai, executive]

Supply constraint.

[David Ku, executive]

Without the supply constraint, right? So now actually the seasonality is actually -- the quarterly seasonality is actually slightly different. But we do really see that actually is the weakness of the end market demand.

[Operator]

Next one to ask questions, Roland Shu from Citigroup.

[Roland Shu, analyst]

Congrats for a very good result. And also, very positive to hear you raise -- further raise your whole year revenue target. For the whole year revenue point of view, it took Mediatek more than 20 years to reach a milestone to achieve annual revenue to above $10 billion last year. So with this on your fast revenue growth, how long do you think that your revenue will break $20 billion level? And what are the growth drivers for you to achieve this revenue milestone going forward?

[Lih Shyng L. Tsai, executive]

Okay, Roland, yes, indeed, we have taken quite a long time to break the $10 billion revenue. I wouldn't call that [indiscernible] by the $10 billion revenue. If you look at our revenue back in 2017, 2018, 2019, actually, we were stagnant at about $8 billion per year. Last year, we did $10.9 billion, almost $11 billion. And this year, if you figure 45% growth and the only exchange rate, we're talking about, about $17 billion of revenue. So -- whereas, of course, it's a [ risk matter ] in -- since 2019, in 2 years, we more than doubled our revenue in 2 years. For $20 billion, we believe it will be within 2 years, within 2 years we will bring that...

[Roland Shu, analyst]

2 years from now, right? So it means that from -- by end of next year, you -- probably we can see this level of the revenue.

[Lih Shyng L. Tsai, executive]

Well, Roland, I'm not going into that specific, but the 2 years -- within 2 years, shall we say.

[Roland Shu, analyst]

Yes. Then what are the drivers?

[Lih Shyng L. Tsai, executive]

Those drivers -- because you asked about growth driver. If you look at our report last quarter about our current 4 product groups, the TAM is about $70 billion, $70 billion. And I think for $20 billion revenue, we now already have enough upside on our current 4 product groups for -- to achieve that. Thank you.

[Roland Shu, analyst]

Okay. My second question is for the gross margin. You also have very strong gross margin guidance in 3Q, 46% plus minus 1.5%. I compared to your last gross margin peak. It was about 49% back to second quarter of [ 3 ] quarter 2014. Yes. So just would like to ask, what have to be done to resume or recover this gross margin back to your last peak? And when would you expect to achieve the same level of the gross margin as your last peak?

[David Ku, executive]

Roland, it's David here. We probably will not be able to give our guidance to say when are we going to reach 49% because, currently, we can probably only provide a reasonable guidance, say, within a year, within a year. But at least for this year, like the CEO talked about earlier, originally, the guidance we give out was 44% to 46%. Now we feel fairly comfortable we are aiming for the -- basically the better end of this range. I think that's mainly due to a very strong product mix. And more importantly, it's from be -- it mainly depends on very competitive product portfolio.

I think some of you guys, including you, actually asking us about the overall competition situation. I think from our perspective, competition is always out there, but even with competition, we managed to grow our gross margin steadily and -- slowly but steadily. And I think it is our goal to continue to improve it through the product mix and also -- I should say, the [ BG ] mix and the product mix. So that's why we spend so much resource. And also, so far, the overall progress looks very well for us to get into the flagship product.

So I guess give us more time, we should be able to continue to improve that. But unfortunately, we will not be able to give you the guidance about when or how soon we can reach a higher gross margin.

[Roland Shu, analyst]

Understood. Just a follow-up on this gross margin. In your prepared remark presentation, you said your whole year gross margin will be at the high end of this 44% to 46%. However, if you look at your first half gross margin and the 3Q gross margin guidance, does that mean that your 4Q gross margin probably will be declined from 3Q level if you really would like to achieve at least maybe 46% whole year gross margin this year?

[David Ku, executive]

Roland, probably that's not the precise way to explain what we talked about. We say, basically, the better end, it could be over. Doesn't mean 46% the limitation. I think probably that's the better way to interpret what we talk about, yes.

[Operator]

Next on the line for questions is Gokul Hariharan, JPMorgan.

[Gokul Hariharan, analyst]

All right. Congrats on the good result. First of all, could we talk a little bit more on this 5G open resource architecture that you're enabling for the Dimensity chips for some of your bigger customers? And could we talk a little bit more in terms of what level of customization can customers achieve? And could you also highlight how this is helping you in your flagship market share quest because this is obviously differentiated compared to what your competitor is providing?

[David Ku, executive]

I think, basically, the -- what we call the open architecture is truly just a flexible infrastructure and flexible system -- platform, I should say, enable customers to do customer differentiation and features several fronts, for example, the camera function, for the multimedia function and for other function. Because our view is, actually, we can provide a very solid foundation on very good performance on the modems, on multimedia already. But once we get into the flagship product, I think different customer are truly looking for differentiation. So instead of we provide one solution for all, and sometimes probably not enough differentiation, on top of our good performance flagship product and also high-end products where we provide that tool and flexibility, it's actually a development platform enabling our customer to basically do whatever differentiation are [ falling]. We do believe that's probably the best combination about what we call a solid foundation of fundamental performance, plus the differentiation for mid- to high-end smartphone.

Currently, I think the few products out there, customer products out there, adopting that architectures in the market. We do believe once we get into a flagship product, we will see more and more customer differentiation, actually, maybe even customers creativity will be [ landing ] on our platform. I think that's the whole idea about that open resource architecture.

[Gokul Hariharan, analyst]

Just to extend that a little bit more. Do you foresee that you would open it up into a bit more of a ASIC kind of model for some of your flagship customers given every one of your flagship customers also want to try and design their own flagship chips?

[Lih Shyng L. Tsai, executive]

For -- indeed, for the -- for customers with flagship models, they strive for differentiation through oral -- through different routes sometimes. You really have to look at the -- from the whole system architecture of the smartphone plus the ecosystem, third-party ecosystem.

Different customers, I cannot give you the details, but we are working with all our key customers. Based on their requirement, their demand, we are, I would say, quite flexible in working with them depending on their system architecture approach. At MediaTek, we understand fully that for us to have good success in flagship segments, we really need to collaborate with our customers at a very early stage, understand their system requirements and provide our technology platform and business model for them to win and for us to win. Thank you.

[Gokul Hariharan, analyst]

Got it. One other question I had was around what you commented on supply-demand tightness. Could you talk a little bit in detail on how long you think the current supply-demand tightness is likely to -- supply tightness is likely to persist? Are you seeing this extending all the way into next year? What are the measures you're trying to put in place to mitigate some of these issues? And what are the areas where you're seeing the most constraints right now all the way from foundry, to OSAT, to the substrate side?

[David Ku, executive]

I think, overall, we do believe that supply tightness is probably lasting for quite some time, maybe at least for 1 to 2 years. I think if you piece them together, as we've mentioned earlier, the acceleration of digital transformation is expected to create mid- to long-term strong demand. That's on the demand side. But on the supply side, it actually takes time for foundry, OSAT and even other component suppliers to build additional capacity. So if you just manning these 2 together, our view is the supply tightness probably will last at least 1 to 2 years. But in terms of area with the strongest tightness, I would say, currently, probably still be on the foundry side -- or the steel and the foundry side.

[Operator]

Next, we have Charlie Chan from Morgan Stanley to ask questions.

[Charlie Chan, analyst]

Congratulations for great results again. So my first question is about your kind of the market share into second half because your competitor Qualcomm keep saying that they will retake some market share in the second half. So do you see some market share loss in second half? And you said due to the supply constraint issue or you try to avoid pricing war, right? So not meaning your company doesn't do well. I know you gained a lot of market share in first half. But just wanted to understand the trend into second half.

[David Ku, executive]

Charlie, I think, overall, we are seeing -- we're still not just maintaining or also gaining market share, especially for the mid- to high-end segmentation. So overall, we do believe, if you just look at the second half this year, we should be maintaining the market share fairly well. And on the supply situation, I think, overall, we do a pretty good job as well. And just, again, putting in perspective, we grow -- right now, we reached our growth target, say, more than 45% year-over-year based on our [ rec res ] revenue last year, which is close to $11 billion. So if you just do the math, you see we're actually getting a lot of suppliers this year.

And more importantly, I think right now as we are finalizing our capacity plan for next year as well, we -- even though the overall -- the supply tightening situation is still the industry norm, but we do believe we can get additional capacity next year to basically support our growth next year. So overall, I think we feel comfortable about the competition. And from a result perspective, we do believe we do a fairly reasonable good job on that.

[Charlie Chan, analyst]

My next question is about the market demand for low-priced 5G phone, for example, those CNY 1,500 or CNY 1,000 smartphones. So does the company think that the smartphone market -- emerging market needs that low-priced 5G phone to come back again? And if that's the case -- and when is the best timing for company to release those kind of low-end 5G SoC?

And since David keep mentioning about your full year targets, upper 45% year-on-year, so we did some back-envelope calculation. If we plug in 2% or 3% Q-on-Q growth for 3Q, that implies the fourth quarter revenue to be down 18% quarter-on-quarter. Is that the right interpretation? Because the company keeps saying that the demand is healthy but down 18% Q-on-Q in 4Q since a big drop.

[David Ku, executive]

Charlie, I think, again, if you apply, let's just say, the midpoint guidance, we say 0% to 5% quarter-over-quarter growth, and again, as you say, a 4% to 5% plus. But if you're only using 4% to 5%, I think that's what you get. But if you're using a 4% to 5% plus, I think you will see a reasonable 4Q seasonality [indiscernible] described. I think that's the discrepancy over here.

[Lih Shyng L. Tsai, executive]

To the low-priced segment you asked earlier, yes, we do believe 5G volume, just like 4G before we will move down to, shall we say, RMB 1,000 shipment. The timing of which we manage to be seen, but we have talked to, especially, actually, operators, such needs. And as you know, MediaTek has always done very strongly in such segments. We are, of course, preparing for that solution. Thank you.

[Operator]

Next one to ask questions, Brett Simpson from Arete Research.

[Brett Simpson, analyst]

Rick, I wanted to just ask about the flagship momentum. I guess when we look at Qualcomm, they must be selling their Snapdragon 888 at about $100 per chip, excluding RF. Is that the pricing window that you see being achievable for your flagship chips coming out towards the end of this year? And can you talk about how many devices you've got designed into? Because you must know now, given the lead times to launch, what sort of win rates you're getting. And then just finally, is the chip Release 16 compliant for 5G?

[Lih Shyng L. Tsai, executive]

I cannot give you the number of design-in we have. I can say with confidence that we have design-in with major customers, the price of which -- well, this is a flagship market segment. So this is a flagship segment. I'm not sure -- and the price you mentioned in your statement, indeed, is something our flagship product, I think, should and will achieve. I don't know whether you have a third question or not. I don't know if that answered your questions.

[Brett Simpson, analyst]

Yes. That's very helpful, Rick. I guess it was just whether the platform supported Release 16 as we head into that next phase of 5G, yes.

[David Ku, executive]

Release 16.

[Lih Shyng L. Tsai, executive]

Yes, yes. Yes. It was.

[Brett Simpson, analyst]

Okay. Great. And then maybe just a follow-up on millimeter wave. I think you recently announced a breakthrough on millimeter wave with Ericsson. And you talked about shipping commercially like second half of 2022. Can you talk about how you're addressing the RF in that platform? I think you've talked about an AIP module. But is that full internalization? Are you doing everything within that module internally? Or are you using partners as well here?

[Lih Shyng L. Tsai, executive]

Okay. First of all, the first SoC with the millimeter wave modem is doing well. It's doing well. We continue -- we will continue to say that the second half of next year is the time for our product launch. We do have our in-house AIP modules for millimeter wave. But the -- as you know, we do not ask our customers to have exclusive use of our front-end component. Thank you.

[Operator]

Next one, we have Bruce Lu from Goldman Sachs with questions.

[Zheng Lu, analyst]

Okay. I want to go back to the profitability. So we have seen TSMC state currently that 50% gross margin, 20% ROE. And I think on the other hand, the bulk of the [ semi ] company will raise their gross margin whenever they can. So what is the preferred gross margin profitability to [ imply ] MediaTek innovation and technology in the long term? What should expect -- what should we expect? I mean, which can do you stay for your profitability? And what is the comparable operating margin at the same time?

[David Ku, executive]

Bruce, I think for this year, for the full year, we are looking for, again, 20% plus. But when I say that, I got a few questions earlier, I just highlighted 20% plus, doesn't mean 20%. It's actually 20% plus.

I think, overall, this year, we're looking for 20% plus. And that's a combination of gross margin improvement and also the operating leverage. I think given we kind of explained about the growth momentum will continue into next year, we do expect we can actually continue on both fronts, on both ends, which means to continue improve the gross margin, in the meantime, to improve through the operating leverage. So hopefully, we can just continue to improve on OP margins for next year as well.

But in terms of goal, I think for this year -- because right now, it's still only in July. I think this year, like we -- what we talked about earlier this year, we kind of -- in the beginning of the year, we gave out the full year guidance. I think for next year guidance, we will give out a new goal earlier next year. But at least for this year, the goal is 46% on the higher end, maybe even over than that. OP margin is actually 20% plus, OP margin.

[Zheng Lu, analyst]

I'm sorry, when you answer the -- your answer is kind of breaking down. But my key question is that, which can do the MediaTek stay? Do you prefer to have a very stable gross margin? Or will you prefer to raise your gross margin target whenever you can to reflect more of your innovation and technology?

[David Ku, executive]

Okay. I think your question is more about from our perspective, it's really about the pricing. I think it's like we said last time, last quarters, I think MediaTek, we are not taking the optimistic pricing. So maybe some of the vendors or customers out there just taking this opportunity to increase the price substantially.

From our perspective, we believe actually is -- first of all, I guess, we do firming up our pricing to reflect our value and our capacity support to our customer. But you have to understand, bear in mind that the pricing principle for us is very strategic. And we need to balance them on the supply timing situation, mid- to long-term customer growth and overall value to our customer. So I guess to answer your question, I guess we were not taking opportunistic pricing, but we're still firming up our pricing to reflect our...

[Zheng Lu, analyst]

I see. Understand. Understand. So my next question is, again, for the flagship model for 2022. But you might know that for the flagship shipment, actually, in 2019 is highly, highly concentrated in the top 3 brands. I mean top 3 brand maybe accounts for 90% plus of the total flagship shipments. So it really doesn't matter how many design win you got. You have got the most important design win. And the problem for your customers are that how -- I should rephrase the question. It's like, how long do you think your customer needs to bring up their brand image to allow the typical consumer to buy the expensive flagship model for their brand? I think that's a key for -- to enhance our confidence for your flagship shipment in 2022 or onwards.

[Lih Shyng L. Tsai, executive]

Yes. I think our customers, they understand where we are. They also understand their market fairly well. We -- I think it's important to understand this market, indeed, is a very challenging market. But on the other hand, this is a market we believe we must win. We view this as a long-term investment, mid- to long-term investment. We are not speaking short term, well, a disruptive increase. We think of that, we still need with the combination of the -- and collaboration, combination of design-in and collaboration with our customers, our shipment will be more than adequate. That -- and I also believe that you will see the customers' products next year. They will also continue improving their product brands, their capability and along with their market share. Thank you.

[Operator]

Next one to ask question, Laura Chen, KGI.

[Laura Chen, analyst]

I'd like to know MediaTek view around the capacity allocation, in particular that we just mentioned the capacity constraints mainly on the foundry side. So given the limited supply and particularly in -- at the foundry side, like in advanced node, will MediaTek more prioritize or put more resource on higher ASP or reserve more for that kind of high-end products?

And then similarly, on the mature node, we know there's a lot of shortage on the 4G LTE SoC. Since then you have the 4G SoC also based on 16 or 12 process, but it may share the same process with a 5G RF transceiver. So how would we plan ahead or prioritize our resource? And I think that also linked to your product mix strategy into second half or next year.

[David Ku, executive]

Yes. I think, first of all, for the mature nodes versus the leading nodes -- leading edge nodes, bear in mind, actually, even for our 5G product, we need both. We need the leading nodes, also we need the mature node as well. So when we're doing the internal capacity allocation, it's truly just a complicated process. But to make a long story short, I guess we will not just gearing up to the maximal benefit for the revenue because we also need to consider about the balance about the customer segmentation requirement and also mid- to long-term growth. So again, like what I explained about the pricing strategy, it's going to be a balance among the MediaTek interest and also the market growth, the customer growth, and overall, it's the supply situation. So it's really a balanced process.

I guess the result for this year is basically just the allocation decision. Again, we do believe with more than 45% year-over-year growth on top of $11 billion revenue plus continued improvement on the profitability and also taking care about the mid- to long-term growth on the customer side, so far, we find that actually is a good balance. We will continue that practice for next year as well.

[Laura Chen, analyst]

Okay. And also just a follow-up, since we've just mentioned that about 80 million to 100 million flagship model market size in Chinese smartphone market, if we translate into the Street price, can you give us an idea what's your view on that flagship model? It will be like CNY 5,000 above? Or what kind of the pricing range are you aiming for?

[David Ku, executive]

Well, I think, in general, we're talking about RMB 4,000 and above we all consider as a flagship.

[Operator]

Next one to ask question, Nicolas Gaudois from UBS.

[Nicolas Gaudois, analyst]

Yes. Nicolas from UBS standing for Sunny Lin. First question, just going back to the shift to a higher-end portion of the smartphone SoC and system solution market. Although it's early days, is there any way you could try to frame for us a little bit what it would mean for overall market share for you next year, not in this segment specifically but overall, and also blended ASPs in terms of potential market share gains and ASP accretion as well? And I have a second question after.

[David Ku, executive]

Maybe to answer your second question first. We do believe we saw initiative fitting to the flagship product and also consider about the overall product migrations. The product mix should provide a very good support for the blended ASP, which means we are seeing ASP being supported and maybe even increase next year. I think that's the second question first.

The first question, I guess, like our CEO explained, we probably will -- so far, we can only disclose about the design-in and design win situation because the feedback we got in design-in, we've done actually very well. And the first customer manufacturing day will be actually earlier next year. We probably will disclose more quantitative information later this year, not in this quarter.

[Nicolas Gaudois, analyst]

That's great. Just a clarification. When you talked about the TAM for high-end smartphones, that was Chinese smartphone OEMs or China domestic market?

[David Ku, executive]

China smartphone here, not just in the domestic market. Some of it actually is exporting as well.

[Operator]

[Operator Instructions] The last one to ask question is Gokul Hariharan from JPMorgan.

[Gokul Hariharan, analyst]

Last question from my side. There has been some market concerns about the 5G cycle peaking out by next year in terms of growth. Could you -- especially since a lot of the last stage of revenue growth will come from more sensitive -- more price-sensitive segments. Could you talk a little bit about what does MediaTek's view on this? How do you think about the 5G revenue opportunity as we look at the next couple of years? Do you still see 5G revenues growing into 2023, 2024 when you think about scoping out the market, especially since you sounded quite confident on reaching $20 billion in response to Roland's question within the next couple of years?

[Lih Shyng L. Tsai, executive]

Yes. We are still confident to see 5G revenue continue growing next year and for the following reason: First of all, we didn't really see the 5G picking out yet, especially when you think about the global 5G penetration, we do believe next year penetration rate will continue to increase. And likewise, including you and all the analysts are kind of talking about the 5G not just continue to increase. While the [indiscernible] actually coming out with just replacement of 4G, 5G is getting into the edge level. So that mean the volume will continue to grow.

And also, bear in mind, we keep talking about, with next year, we are making a really good inroad for the flagship product. That's from our perspective, that's a new addressable market. It's a sizable addressable market. And based on the current design-in situation, we feel fairly comfortable we gain certain market share on that. So if you combine all those together, we do believe next year, we're still seeing another year of growth, not just for the whole company but also for the 5G product.

[Gokul Hariharan, analyst]

Got it. So should we think that next year is still a healthy double-digit kind of growth year? Because there is concern about peaking out of the growth after a very strong year this year.

[Lih Shyng L. Tsai, executive]

For 5G.

[David Ku, executive]

Yes. For 5G, it's a yes, yes. For the full company, I guess let's just probably disclose more information later this year.

[Operator]

Thank you, ladies and gentlemen, for all your questions, and I'll -- now I would like to hand it over to Ms. Jessie Wang for closing comment. Ms. Wang, please go ahead.

[Jessie Wang, executive]

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

[Operator]

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