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MediaTek Inc
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Welcome to the MediaTek 2023 Second Quarter Investors Conference Call. Financial results and presentations for today's call are available on the Investors section of the company website at www.mediatek.com. Now I would like to turn the call over to Ms. Jessie Wang, Deputy Director of Investor Relations. Ms. Wang, please go ahead.
Good afternoon, everyone. Joining us today are Dr. Rick Tsai, MediaTek CEO and Mr. David Ku, MediaTek 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 to be materially different from the statements. The presentation materials 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 slides.
In addition, all contents provided in this teleconference are for your reference only, not intended for investment advice. Neither MediaTek nor any of independent providers is responsible for any actions taken in reliance on contents 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.
Thank you, Jessie, and good afternoon, everyone. Now let’s start with the 2023 second quarter financial results. The currency here are all NT dollar. Revenue for the quarter was NT$98.1 billion, up 2.6% sequentially, and down 37% year-over-year. Gross margin for the quarter was 47.5%, down 0.5 percentage point from the previous quarter, and 1.8 percentage points year-over-year.
Operating expenses for the quarter were NT$31.9 billion, compared with NT$31.5 billion in the previous quarter and NT$37.6 billion in the year-ago quarter.
Operating income for the quarter was NT$14.8 billion, up 2.7% sequentially and down 62.4% year-over-year. Non-TIFRS operating income for the quarter was NT$15.4 billion.
Operating margin for the quarter was 15%, the same as the previous quarter and down 10.2 percentage points year-over-year. Non-TIFRS operating margin for the quarter was 15.7%. Net income for the quarter was NT$16 billion, down 5.2% sequentially and 55% year-over-year. Non-TIFRS net income for the quarter was NT$16.6 billion.
Net margin for the quarter was 16.3%, decreased 1.4 percentage points from the previous quarter and 6.6 percentage points year-over-year. Non-TIFRS net profit margin for the quarter was 16.9%. EPS for the quarter was NT$10.07, down from NT$10.64 in the previous quarter and NT$22.39 in the year-ago quarter. Non-TIFRS EPS for the quarter was NT$10.42. A reconciliation table for our TIFRS and Non-TIFRS financial measures is attached in our press release for your information.
And that concludes my comments. Thank you.
Thank you, David. And now I would like to turn the call to our CEO, Dr. Rick Tsai for prepared remarks.
Thank you. Good afternoon, everyone. MediaTek’s second quarter revenue and gross margin both were above the midpoint of our guidance ranges with three revenue groups growing sequentially. In the first half of the year, the semiconductor industry, including MediaTek, was affected by weak global demand which led to a lengthened inventory digestion cycle.
Recently, we observed that customer and channel inventories across major applications have gradually reduced to a relatively normal level. Recent demand from our customers has shown certain level of stabilization. However, our customers are still managing their inventory cautiously as global consumer electronics end market demand remains soft.
For the near-term, we expect our business to gradually improve in the second half of the year, and I will discuss each of our three revenue groups business outlook in a moment. Before that, I’d like to say a few words about some of our recent developments and industry trends that will fuel MediaTek’s mid to long-term growth.
We’re very excited about the recently announced partnership between MediaTek and NVIDIA to develop a full-scale product roadmap for the automotive industry. In MediaTek Dimensity Auto platform, we will integrate NVIDIA’s new GPU chiplet, its AI and graphics IP into our SoC to expand to the premium Smart Cabin segment. This collaboration will enable MediaTek to offer an entire spectrum of Smart Cabin and cockpit functions with cutting-edge graphics, AI, safety and security features.
In addition to the full range of Smart Cabin solutions, our Dimensity Auto platform also include connectivity, auto drive and components. We have recently received heightened interests from automotive customers since the partnership announcement 2 months ago.
We believe our industry-leading low-power processors and 5G, Wi-Fi connectivity solutions, combined with NVIDIA’s strong capability in software and AI cloud, will help us become highly competitive in the future connected software-defined vehicles market and shorten our time to market to accelerate our growth. Given the long design cycle of the automotive industry, we anticipate a more significant revenue contribution from 2026.
Another example of the digital transformation trend is the increasing popularity of Generative AI. Today, the majority of the Generative AI processing is only performed by cloud computing. However, we believe that there will be a trend towards distributing Generative AI inference workloads to edge devices like smartphones and IoTs for better privacy, lower latency, and lower operation cost.
By doing so, edge devices can perform Generative AI on devices for seamless AI capability. They also connect larger Generative AI models in the cloud by prompting more complicated AI functionalities. Therefore, edge device makers will need to adopt high computing, low-power AI processors and faster, more reliable connectivity to enhance computing capabilities and lower connection latency.
As a leader in various edge devices, MediaTek powers approximately 2 billon connected edge devices in the market every year. Our leading product portfolios, investment in advance nodes, as well as next generation connectivity, position MediaTek well to capture this increasing trend as a key enabler and beneficiary of Edge AI.
With that, now let me talk about the recent business of our three revenue groups. Mobile phones accounted for 46% of total revenue in the second quarter and grew 3% quarter-over-quarter. The result was slightly better than our prior expectation as customers’ demand for 5G SoC improved during the quarter. With relatively normal customer and channel inventory levels, we anticipate the growth to continue in the third quarter.
On the product side, we recently announced a mainstream 5G SoC, Dimensity 6100+, which belongs to a new 5G segment with more affordable price points to cater to global 5G demand transitioning from 4G models. Smartphones incorporating Dimensity 6100+ will begin to ramp up starting from the third quarter.
For the flagship segment, we are on track to increase our shipment and revenue this year. Multiple Dimensity 9200+ smartphones have been well-received by the market and contributing robust revenue in the third quarter. Our next generation flagship SoC, to be introduced in the upcoming months, will further advance the overall performance, and integrate our latest APU with the capability to perform Generative AI features on the device. We have been closely working with our customers for design-ins and expect smartphones powered by our next generation flagship SoC to hit the market by the end of the year.
In fact, not only the flagship SoC, but all the 5G smartphone SoCs across all tiers we are shipping today are equipped with MediaTek APU to perform various AI features. The trend of more complex AI instructions is likely to be a catalyst for smartphone replacement demand, which will enhance our product mix and support pricing trend.
Now let me move on to Smart Edge Platforms. This group grew 2% sequentially in the second quarter and accounted for 47% of revenue. Connectivity demand was stable in the second quarter and will improve moderately in the third quarter.
Notably, MediaTek Wi-Fi 7 solutions have been adopted across various platforms. For example, high-end retail routers utilizing our Wi-Fi 7 have been available in the market since the second quarter. Premium notebooks and broadband devices are scheduled for release in the third and the fourth quarter, respectively, with a stronger ramp up in 2024.
For TV, due to customers’ inventory pre-build to take advantage of more favorable panel prices in the first half, the demand in the third quarter has slowed down. As for ASIC, we recently see growing enterprise ASIC business opportunities in AI and datacenter markets.
With our strong IP and SoC integration capabilities, we aim to continue to grow this business in the future. Overall, as most of the consumer electronics demand remains soft, we anticipate Smart Edge Platforms business to remain flattish in the third quarter.
Now moving on to Power IC, which accounted for 7% of total revenue in the second quarter and grew 4% quarter-over-quarter. We expect power IC demand in smartphone to improve in the third quarter. In summary, as we stated in the beginning of the call, we expect our business to gradually improve in the second half of the year.
For the third quarter, we expect revenue to improve in smartphone, connectivity, and PMIC, offsetting the decline in TV and other consumer products. During this demand cycle, we continue to execute our strategy of balancing among market share, revenue, and profitability. With that, we expect our third quarter revenue to be in the range of NT$102.1 billion to NT$108.9 billion, up 4% to 11% sequentially, and down 23% to 28% year-over-year at a forecasted exchange rate of NT$30.7 to US$1.
Gross margin is forecasted at 47%, plus or minus 1.5 percentage points. Quarterly operating expense ratio to be at 32%, plus or minus 2 percentage points. We are on track to reduce the full year total operating expenses by mid single-digit percentages year-over-year, while maintaining the investments in the key technologies and key projects for the mid to long-term growth.
This concludes my prepared comments. Thank you.
Thank you, Rick. Operator, we are now ready for Q&A. May we please have the first question?
Thank you. [Operator Instructions] And our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please.
Yes. Thank you. Yes, I want to ask the first question just with all the attention on AI. Two parts to it. First one, see if you can give an update if you’re seeing potential upside yet? Two would be content per device. From that AI engine both in smartphone and smart edge. And if you could also talk on the ASIC. I think in the prepared remarks, you talked about some opportunity on AI and ASIC. So if you could give a bit more update, if you’re seeing more breakthroughs that could make this a more meaningful contributor. And how you feel your IP around AI [indiscernible] networking suits you to get some of the larger hyperscale targets?
Okay. Randy, why do I talk about edge device at first because your question basically talking about edge device AI and also the ASIC opportunity. So why don't we update in about an edge device? Actually in reality right now, most of our -- all of our smartphone, especially [indiscernible] smartphone, we have actually the GA, Generative AI capability in their already busy, that's the transformer model. And so few functional features already in lending in our previous generation flagship. And for the common third generation flagship [ph] I think we'll just [indiscernible] put on more function that we'll have some demo basically in the coming months. So we're going to update you guys more about that front. But your question specifically asking about the dollar content. So far, it's actually really just [indiscernible] function. I think in terms of the dollars, it's not a huge count of increase yet. But it was actually going forward when more and more distributed AI is being performed on the smartphone. I think the requirements for more computation power on AI will increase. But so far, we probably won't be able to provide us any sort of target content on that. By trend it's definitely positive. So that's definitely one.
Yes, I might add up here, Randy, other than smartphone. Basically the basic OEMs, the customers are really also working very diligently to implement various models to, I would say [indiscernible] the applications in their edge devices, as you build a model or for automotive, the EV. We -- I think we are -- let's say, we have been in some demonstrations by some of our customers, which I think, David, just said [indiscernible] we enable much more -- much higher interest from the end users. I think that's the key.
And then the OE, I think in a virtual cycle that we induced demand and the shortened replacement cycle. As to the ASIC opportunities, what I can -- I cannot be very specific. But what I can say is, that it's quite obvious and quite natural for all the hyperscaler guide data center to accelerate their chip development to -- for the Generative AI enablement. So, we are seeing certainly a heightened activity levels. We are -- we have the order IP portfolio available, for instance, [indiscernible] 224G. We are -- we have obviously a very advanced event node design capability and the packaging capabilities. So, we expect to -- we're in deep discussion with people, and we'll see how it goes hopefully positively in the future.
Good luck on that. And I'll just have one quick follow-up on that part. I think in prepared remarks you mentioned it's an enterprise ASIC, I just wanted to clarify enterprise versus cloud where you're seeing the initial traction.
Andy we hear some background noise. So can you repeat the question again? We cannot hear correctly.
Okay. Yes, the question was the ASIC traction. Is it enterprise or I think that's in the prepared remarks, or are you seeing traction with the cloud providers on their ASIC?
Oh, okay. Then for enterprise we continue because we have certain ASIC products with enterprise customers are mostly in a switching ASIC, but for the new opportunities [indiscernible] mostly rely with the hyperscalers.
Great. The second question, the margin outlook has remained very resilient. And I think that's how you've been trying to guide it balancing [indiscernible] pricing. If you look ahead at the margins, do you think as we go through continued slow environment, some of your competitors have inventory, how do you see margin range? If you think these levels continue to hold from what you can see, and do you see any help coming through from input supply pricing, or is that still inflationary?
Randy, first of all, I think before commenting about the gross margin, maybe we can [indiscernible] the current, the market -- the competitive landscape, or competitive situation is out there. Well, first of all, the long story short, we didn't really see any material change about the competition landscape right now. And on the other hand, as you can see, both from our second quarter gross margin, which is reported already, and also our guidance for 47 plus minus 1.5%. They're all showing a stabilizing, I'll say the balance, a dedicated balance, actually, is that we are aiming for. But [indiscernible] brand new margin and market share.
I think, and also another, I will say the good news for margin perspective, it is both from the channel side, the customer side and on the channel side, and also from the vendor side. I think it's all inventory level incoming down to a pretty heavy, healthy level. So you won't see any players trying to rush out the inventory by taking aggressive pricing. So we started, I guess, the guidance will give off for third quarter, even though we cannot provide accounting for fourth quarter, but most likely, I think there should be a good reference for the fourth quarter's, gross margins headstocks with.
Okay. Any supply side, how's the inflation or deflation?
Inflation deflation is about the financial market or …
Sorry, [indiscernible] like foundry and back end and some other your cost structure.
Well, I think next year is going to foundry costs actually are still in discussion. But overall, given the market situations, we're seeing probably hopefully, it's going to be flat or slightly up. In general, actually, it's manageable situation. So it won't be a fixed room [indiscernible] is over.
Okay, great. Thank you, David. Thank you, Rick.
Thank you. Next one, Brett Simpson from Arete.
Go ahead, please.
Okay. Thanks very much. Like I want to ask more about AI and your APU, I guess -- right. Your voice are all breaking up. We can't really hear you.
[Technical difficulty] can you hear me now. Apologies.
Still can't. You’re still -- and also bringing on board.
Okay. [technical difficulty].
So maybe we'll move on to the next.
Yes, of course. Thank you. Then the next one is from Laura Chen of Citi. Go ahead, please.
Hello. Hi. Good afternoon. Thank you for taking my question. My first question is also about the AI-related opportunity in the EdTek business. I'm just wondering that other than current consumer related [indiscernible], I think Rick already mentioned that you are progress in the enterprise side. So I'm just wondering that the other than that proprietary IP and also the [indiscernible] design capability. The EdTek also provide a [indiscernible] design service for the AI ASIC project. As we see that actually, for this kind of AI ASIC chip probably the advanced packaging together with a lot of like interface or high bandwidth memories also quite important. That's my first question. Thank you.
Yes, we do. We are in deep discussion with potential customer of course includes the advanced packaging capability, such as full wash and also the audio in to how should I say, into IP interconnect capability. We, as I said earlier, we have a very complete IP portfolio, and we have the event node and eventually everything of course, we're working with our key supplier, okay. So the answer is affirmative to your question
Yes. So, following that, we know that TSMC also provide quite comprehensive like IP pool for that kind of Advanced Packaging. So, for MediaTek's current path potential path will use leverage that kind of open IP or you tend to focus more on your proprietary solution.
We actually we work much closer with TSMC. But also, we will -- we also look at the alternative forces when they are technically competent.
Got It. And any idea like when we will see that probably more mature or these kind of a project to start to their food?
Usually these kind of project kind of project takes at least 1.5 to 2 years.
Okay, got it. Thank you very much. And also my second question is also about the edge AI. We know that for current, our smartphone [indiscernible] solution we already embedded like APU or [indiscernible] and so do we need to see that always provider like Google to really enable the application to see that Edge AI getting more mature or any other trigger your [indiscernible] watch.
Yes, Laura, actually in addition to our own APU, I think right now, especially for the GI or [indiscernible] model. It's very important. We actually [indiscernible] open AI model on our smartphone. I think currently is within [indiscernible]. So for example, May has [indiscernible] to model. Stanford's [indiscernible] model, Berkeley's openAI [indiscernible] and also stable diffusion. I think that [indiscernible] up and running is actually as important as our edge device, I'm sure there will be more models enrolling. So the overall I think the cycle is actually we have the hardware to ability, we make sure the certain appropriate model being can be run properly and smoothly on our device, then we provide that together with our development tool to our customers. So they can develop the features and function they are looking for the Generative AI. Right now actually, again, like I said, for the third generation flagships, we've been in a serious discussion with our customer, trying to have some lendings,[indiscernible] feed on the phone. But before that, we will definitely demo a few possible ideas in I think, October, November timeframe.
Okay, thank you very much. That's very clear. Thank you, Debbie. Thank you. Next one, Gokul Hariharan, JPMorgan. Go ahead, please.
Yes. Hi, good afternoon. Thanks for taking my question. My first question goes back to smartphone. Could you talk a little bit about what is the demand sentiment among your customers? Is there any improvement on China smartphone demand? And do we feel that China smartphone market is likely to remain at these depressed levels when there's not really been any major recovery? Or do we think that next year, we will see a better channel smartphone market? What are you hearing from your customers and what is your own read? And on that also seems like Huawei is kind of like the one brand which is kind of coming back and growing quite nicely in China.
My understanding is that MediaTek currently doesn't have a license to sell to Huawei. Do you think that is something that could change over the near to medium term given, Huawei seems to be gaining a reasonably big share of the high end market in recent quarters. That's my first question. Thank you.
On the demand for the smartphone, we are setting our remarks. Basically we're seeing I would say it's a good improvement in the shipment of the smartphone Well, the inventory lowered, I should say both. Actually have fairly pretty well, you're definitely going down pretty well in the second quarter. We believe that inventory reduction will continue into the third quarter at a fair healthy pace. As such, the reordering of the SOCs as [indiscernible] moved up its page, also, the end market demand, I think the slash still remain cautious.
We also believe that's the case. However, we don't believe the end demand is going to get worse if poverty will grow, but grow at a moderate rate going forward. So that's the how we view the smartphone outlook. As to the impact of the Huawei I want to be very clear, that we do not have a license to ship to Huawei of smartphone SOC or [technical difficulty] to Huawei. And the impact of Huawei in the market, I think the most important part is to look at the sub segments they are playing in.
And most importantly, in the [indiscernible] very high-end, they made and their core. There are two of us to finish very high end you. Yes. And so I think we believe the competition directly against our chips remained fairly far apart. We do not see a major impact from Huawei from that point of view. Thank you.
Okay. That's very clear. Thank you. My second question. Could you talk a little bit more detail on the NVIDIA partnership in auto? What will be the structure of this partnership? Is it going to be like a JV structure or you would be selling the chips but you will be paying some kind of IP or royalty fee to NVIDIA for the IP and chiplets at us from NVIDIA. Also, NVIDIA already has their own standalone auto business with a fair number of autonomous drive and from a gas related design wins. So in those areas, how does MediaTek enter like, does it mean that MediaTek doesn't really participate in that it has autonomous drive market or is that that structure also going to change for NVIDIA as well that they will kind of partner with you for many of their future autonomous drive and ADAS-related assignments also.
Okay. There's no joint venture structure, I want to say that clearly. It is a partnership structure. By that we mean at first from a technology point of view. As you just said, we integrate the IPs, the key IP such as GPO such as their AI capability and their software technology into our SoC. We provide the other computing capabilities and the multimedia functions or the interconnects. And the chips made this way will be marketed and by MediaTek. We know -- NVIDIA has already their product portfolio and their customer base already. So we work basically in a partnership manner to go to the customers because in that way together we can provide the full spec from automotive, Inc., kind of a solutions, from the very high end to the mid entry and for our customers -- potential customer base.
Of course, new addition, we provide the other connectivity capabilities such as 5G, Wi-Fi, and some other components capabilities for full portfolio. ADAS, I think that's one area we will work together on. But right now, the first thing is to have a very successful, very competitive in Kevin solutions for the market as soon as he possibly can. Thank you.
Okay, thank you very much. Thanks a lot.
Thank you. Next one, Charlie Chan of Morgan Stanley. Go ahead, please.
Thank you. Good afternoon, gentlemen and JC. So my first question is also about the AI on the phone. So first of all, do you envision that the AI Generative AI can be a killer app on a phone? Or is just nice to have a feature? Can I get some insights from fund management?
Charlie [indiscernible] actually right now still in the early stage of GDI. But we already see how powerful is it. But long story short, we do believe that will be -- I won't use the word [indiscernible], I think there'll be really nice features, which could either increase the dollar content of the conductor, or to the minimum short and the replacement cycle that goes to actually. So there's lots of useful functions out there. But I think the key word here is not really TI only on a smartphone is something we call the distributed AI, those certain functions, for example, right now, so stable, efficient, you can do some Photoshop on your phone with the natural language on the edge. So sometimes due to privacy issue, you don't really want to send all your pictures, which you want to do some Photoshop alikes [indiscernible] to the cloud, and so on processing. Processing, finish it and come back. So that's actually one example.
Another example is actually we'll be talking to our phone customer, they're talking about [indiscernible] phone assistant to help you navigate through different applications. And batteries are not as powerful as [indiscernible] are not even in a [indiscernible], both become very handy personal assistant. So the key was really going for is the distributed AI model. So the phone later and also we actually provide a tool, we will figure out what's the right functionality, which will be performed on the edge and for certain functionality will be performed on the cloud and it will be seamlessly connected. And with that, we do believe actually [indiscernible] there is key driver to either increase or semiconductor confidence or to the minimum [indiscernible] new features are shown in the replacement cycle. Thanks, David. So you mentioned -- sorry, [indiscernible] please go ahead.
[Indiscernible] been thinking about that? Not meaning I'm working on that myself. I have talked to quite a few people. The feeling is the Generative AI to cloud and the edge devices with a smartphone or PC or automotive and then provide another platform, Not the same, but the nature being kind of a similar to the 4G to the 4G era, which I mean, which provide this platform and enable and excite, a lot of the developers and the entrepreneurs to come up with new applications and new business models.
Of course, I think, well if you think about 4G, 4G was launched back in about 2011 timeframe. And then we [indiscernible] one obvious example being [indiscernible] just came out of nowhere and it became a huge success. I cannot say there will be TikTok but the actually GI provides such a powerful capability that many entrepreneurs will take advantage of that and commerce applications. That's just my thoughts. Thank you.
Thank you very, very helpful. So, I believe the media [indiscernible] formalities are before the 4G era. Remember, you're going to enable those emerging markets, a lot of interesting features. So based on the comments, you just made, Regan and in the TV, so to release a question, first of all, for the emerging markets, especially China markets, do you think the policy control is kind of a restriction to your future, a package and developments? And also to David's point, I really appreciate that distributed AI computing, but who should be this kind of a location of computing? You said, MediaTek the performer to decide what kind of computing will be done by cloud? What should be done by phone? Or it should be AI developers? Or OEM makers? Can you give us some color? Thank you?
Yes, totally, I think most likely will be a combination of all those parties you mentioned. For example, when we talk about a stable diffusions songs or phone calls, I'm not talking about some function provided by phone OEM. Or the in that case, they probably don't need to walk with a Cloud guy. [Indiscernible]. And for some internet later, of course, they have the cloud capability, or they're also talking about whether or not they can offload some of the computation on the phone.
Bear in mind, every AI calculation on the cloud, the cloud guys or internet, I need to pay for [indiscernible]. But if they can somehow dispute part of that, for then there'll be 'free from the service provider perspective. So there are also some incentives, even from the cloud service or Generative AI cloud service. So again, it's your question directly, it will be a combination of all those parties you mentioned.
And would you consider …
It depends on, I'm sorry, but also it really depends on the edge. What do we call edge device, I think here is the spectrum of edge devices, not just smartphones, mobile actually being the smallest form factor one. Despite the power the smartphone has -- smartphone does has its limitation in form factor. And along with some limitation in the memory size. The phone can carry. But there you feel move to [indiscernible], The memory size, for instance, can go up quite drastically, and the five of the model that can be implemented in that kind of device. Much different from the [indiscernible] 7 billion kind of model.
So again, this thing is so new. Remember, ChatGPT came up in November last year. And it's already amazing that how much work has been already done both as a call and the edge devices. I think people are working to try to find that balance or equilibrium from different devices. Also, my thoughts. Your question on government, okay. That's, of course out of our league. We cannot come and really directly, hopefully, the government will also good successes. You mentioned China, so U.S China, the successes that China had with their internet economy provides a good guidance for them and the -- and the GI will prosper all over in the world.
Got it. Thanks, Rick. So let me switch gear to [indiscernible] if that’s okay.
So it's about the smartphone replacement cycle because the [indiscernible] just introduced your mainstream in 5G SOC. Do you think that can bring down the price points of smartphone to sweet spots? And do you think that replacement cycle will restart anytime soon? Because their replacement has been sale right for almost 2 years. And therefore it is really about the second hand markets, right. Do you think the new phones on your [indiscernible] 5G SOC can compete with a secondhand phone in terms of pricing points. Thank you.
Charlie, actually, I think earlier this year, as we kind of provide our view for the global smartphone shipments, it's actually coming down from the past roughly 1.4 billion to 1.2 billion. I think part of the reason obviously, a big part of the reason is actually the refreshment for. So what we're talking about 1.2, it's already been taken into consideration, Offered replacement for, especially for the maybe the iOS system. For the Android sides, actually, we didn't really see a big impact on the refurbished phone on that -- at that point. But on their replacement on the replacement cycles of the foreign on the other hand, in general in the past graph is 18 months. But this actually is the cycle [indiscernible] extend to almost 2 years.
We do believe actually the standard over time, people still want to get a new phone. So people are still going to get a new phone. So most likely next year where we feel in terms of replacement cycle, you should be on the [indiscernible] actually assessed you. Keep wait [indiscernible].
Got it. Thank you very much. Thanks for taking my questions. Thank you.
Thank you. Next one, Sunny Lin, UBS. Go ahead, please.
Thank you. Good afternoon. So my first question is on long-term outlook. It's been a while, since the last time the company provided the [indiscernible] by segments. So I wonder if now's a good time that the management could provide your latest expectations on the long-term addressable market by mobile, ASIC, automotive, and the others.
Sunny, actually we would probably normally provide the long-term SOC in the year-end. So maybe we [indiscernible] our questions to the fourth quarter. Normally in a year and so what we do in the annual planning, or take a look about the long-term victories addressable market, so why don't we delay that to the next quarters conference?
Got it. No problem. Well, so perhaps, if I may, given lots of investor interest in your collaboration with NVIDIA, and automotive does have a lot of potential in terms of the market opportunities. You mentioned, revenue will become more significant from 2026. So I think you will have any visibility at this point that maybe in 4 to 5 year time frame. How meaningful could automotive account for your total revenue?
I think total revenue this year of automotive, we are looking for NT$200 million to NT$300 million or my range depends on how it goes in the end of this year. We're [indiscernible] I can absolutely scale. I think it's still Facebook. On the relative scale it's still small. Currently, we don't have actually -- we didn't really provide actually the forecast guidance. Another way we can come to talk about for the design pipeline. Design pipeline revenue right now is over a NT$1 billion.
Got it. And that will start to be realized after 2026.
Yes, it will be [indiscernible] yes, normally this is also the SOP cycle will be probably two plus year.
Got it. Thank you. That's very helpful. My second question is on platform. How should we think about the para mix over the next maybe 12 to 18 months? I think on one hand, [indiscernible] could start to see a bit of improvement on the volume side. But to drive that volume. I think some people wonder if that could be coming from lower end. I think on the other hand, if we look at the new product launch by smartphone makers in China. I think there's increasing focus on high-end as they pursue better profitability. And so based on your engagement with China's smartphone makers, how should we think about your 5G [indiscernible] maybe in the second half of this year and into 2024.
So probably the better way to think about is 4G smartphone as a total, which include in 4G and 5G? We actually ran out promoted and pretty heavily for transforms or convert from 4G to 5G entry smartphone. So that's what actually earlier so I think the other analysts are asking about the new entry level 5G. So on a blended basis actually the way you think about the product portfolio segmentation as a whole 4G in the bottom. You actually see 4G being converted properly into 5G NG, I think that's [indiscernible] getting better if we only looking at 5G, Okay, I think normally separated flagship high-end, and mentoring.
I think for high end probably will stay over there. Okay, so right now we are making good progress on the flagship. Currently is out for this year. I think our market share on the session. We focus will be 20% plus, and that one actually with our new portfolio and also getting more and more market traction. We believe that is the market share. Our own contribution for the session should be increasing, On a high-end right now. It's actually received that been stabilizing so I think for the segmentation perspective, I would say it's actually it's a pretty -- lack of stabilizing and 4G conversion to 5G entry. And that should be positive to the overall [indiscernible]
That thinking very much.
Got it. Thank you very much.
Thank you. Next one, Brad Lin, BoA Merrill Lynch. Go ahead, please.
Thank you for taking my question. I have two questions. One is on AI. Another is on the automotive. So while we learn the upcoming on the AI proliferation beyond [indiscernible] AI, also by some many other supply chain partners, like [indiscernible] Intel. So for near-term, would you please share the current contribution and for the key offering -- offerings? And how fast do you expect it to grow for MediaTek maybe in the next 2 years? And should we expect the ASIC to come earlier than smartphone AI? Thank you.
Sorry, can you -- again sorry, there were some background noise. Can you just repeat your first question again? You were talking smartphone AI or you asking something else?
Yes, so basically for the near-term, I just want to ask that what are the current contributions on the overall AI for MediaTek. And what are the current offering right now? And how fast do you expect AI to grow for MediaTek? So would that be -- well, smartphone AI or ASIC? Thank you.
Okay. Like we split earlier, so far for the smartphone AI it's really just a part of this model. We deal with a separate AI chip. It's part of a [indiscernible] part of the function. We do believe actually, the going for the contribution of [indiscernible] which is equivalent to the semiconductor content should be increasing. So we didn't really have a separate contribution or knowledge of our AI conclusion. The only way we can separate out will be our ASIC business is to offer the ASIC business, is the end customers AI, we can somehow categorize the AI revenue.
Like we explained earlier, right now there are several projects that are ongoing. It take no meeting one to one for 5 years [indiscernible]. So far, there's no revenue, no direct revenue from it. We only have indirect revenue from AI.
Got it. Thank you very much. So do you have a well, SMA [indiscernible] edge AI will kick off?
We don't have the fixed plan, but probably the better way to think about that is actually all product right now have the AI function up there. And even though we only taken a smartphone, for example, we talked about we've been [indiscernible] lot of the open AI model on a smartphone because actually we are doing something similar on other platforms. So I think probably the better way to figure that out because after all we are not just on the cloud trail insights. So if you think about in a separate dedicated sheet only for AI, probably not the best way to take a look about our revenue or our revenue contribution [indiscernible] AI. The AI issue is the driver for demand and driver for more computations for AP in general. So probably there's a better way to look at that.
Thank you very much. So my second question will be on automotive. So I was glad enough to be able to attend MediaTek and Media's press conference during the Computex are pretty -- was pretty encouraged to learn the partnership. So may we follow-up on the progress of the development. And also, I remember, the firm's say that the partnership will target every single chip in automotive and provide a one stop shopping platform for clients. So would you please share with the target markets, how the target market will expand? Shall we also expand our power management IC also penetrate into some of the automotive as well in the next few years too. And well, maybe a [indiscernible] I know we are not going to build a JV. So -- and then that will be marketed by MediaTek. So well, how would the [indiscernible] rework with media. Thank you.
Okay. Well, first of all, actually, like it was planned during the Computex, the first project is cooperation between MediaTek and NVIDIA is ongoing as well. To be precise, I think that product will be carry MediaTek [indiscernible] and MediaTek will sell their product. And within that product, we are getting GPU chiplet from NVIDIA, but the whole thing will be MediaTek revenue. I think we are talking to have the first time revenue somewhere toward the end of the 2025, WSS [ph] product. And there'll be few more product right now is under planning and kicking off. So, well, I guess for the revenue through this [indiscernible] partnership probably will start to ramp in 2025. I think there's a point on one, mainly on the cabin side -- mainly on the cabin side.
In addition to that, like our CEO explained, we will also leverage in partnership [indiscernible] NVIDIA existing business portfolio. For example, they have ADAS, they have a high-end cabin, and all those solution or platform will have MediaTek socket opportunity. For example, it could be 5G telematics, it could be connectivity, it could be gimmick, it could be something else, for example, even for display related. So we will also try to realize those synergies as well. So all [indiscernible] during the Computex I think this partnership is very synergetic and complementary and boast from technology and product portfolio. So [indiscernible] of the cabin is one product, but for other part we will not be joint product portfolio or joint product development. But we'll be joint go-to-market and joint business platform. I think that's probably the better way to think about that.
Thank you very much. That's very clear. Just one [indiscernible]. Shall we expect some potential collaboration opportunity beyond automotive with media, say AI in a well, long run. Thank you.
Why not. We're focusing on getting this in cabin chip out and selling. We have also -- we are also working on [indiscernible] complete portfolio roadmap. So I cannot say we don't collaborate further. But yes, right now we just want to make sure is automotive part work. We need that success.
Thank you. We definitely looking forward to that. Thank you very much for the color.
Thank you.
Thank you. Ladies and gentlemen, we are going to take the last question. And the last one is from Brett Simpson, Arete. Go ahead, please.
Yes, thanks for squeezing me in. Can you hear me this time?
Yes, perfect.
Okay, great. Rick, I wanted to just come back on the AI side, the smartphone AI strategy. Can you talk about what size a model MediaTek can support with their APU next year? And I guess when I sit back and look at this whole strategy for MediaTek, developers that can offload AI workloads onto the phone, they save a lot of money, not having to run their application in the cloud. So how does MediaTek get paid for enabling these models to run locally on your APU, on your software stack? Is this something you can monetize beyond selling a chip? Thank you.
The models actually, I think David brought it up earlier. [Indiscernible]6 billion, 7 billion parameters models such as Meta, Lama-2 [indiscernible] stable diffusion, etcetera, etcetera for the smartphone. And as I said, I believe the larger models, larger size model will be implemented into PC and the automotive. Right now, tell the truth, Brett, again, this is very new and we are all working very hard [indiscernible] able to generate AI to work well with the edge devices [indiscernible] which I think is very, very shaky. So I must say we haven't -- we -- what we believe at least first order is, once people, once the users and some of the [indiscernible] whether if you call KOLs, once they find out how to use Generative AI for new applications [indiscernible] appeal to the general public. I think the most important replacement cycle being shortened. And the trend will get back to a more, a better growth pattern. That's what [indiscernible] thinking that we have. I hope I'm answering your question.
Yes. Yes, that's -- that helps a lot. And I guess maybe just to follow on from that, can you give us your perspective on how APUs drive up silicon content in phones? I guess, it's difficult for us to understand the extent to which this drives up your ASPs and smartphones, but I mean, are we talking about this going up, 50%, 100%, 10%, any sense as to how you think AI contributes to your ASP expansion over the next 1 to 3 years? Thank you.
That’s a very good question. And, again, Brett, you have to bear in mind any of the smartphone chip that we're discussing here today, for this year and for next year, I don't [indiscernible]. This year, we have silicon out already and next year is well, very much in design. And it was planned just about a year ago when Generative AI was not very prominent in people's mind at all. So anything that you hear right now, it's because we already putting quite powerful APUs in the SOC. And we certainly are still working with our customers trying to implement Generative AI with these already defined, I should say, APUs. I think my feeling is for the generation, maybe 2025, phone chips, there will be more another hierarchy of the processors architecture. You see there's a CPU, GPU and the APUs and the proportion of which should be implemented in to optimize the GI applications I think need some work. We have to make that work so that both we have the capability computing power for the GI applications. Why we do not unnecessarily increase the cost by too much. Any of those silicon space picks money. So distribution of the silicon area among CPU, GPU and APU is very difficult subject. That's what we're working on now. But one thing quite sure, APUs [indiscernible] size of the silicon increased by, like quite a bit.
Yes. That's very helpful. Thank you. Thank you, Rick.
Thank you. And ladies and gentlemen, we thank you for all your questions. I'll hand it over to Ms. Jessie Wang for closing comment. Ms. Wang, please go ahead.
Ladies and gentlemen, this concludes MediaTek 2023 second quarter conference call. And an audio replay will be available in 1 hour after the call at the Investor session of MediaTek website. We would like to thank you for your participation, and you may now disconnect.
Thank you. We thank you for your participation in today's conference.