MediaTek Inc

TWSE:2454

Earnings Call Transcript 2018-Q4

[Operator]

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

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

[Jessie Wang, executive]

Good afternoon, everyone. Welcome to MediaTek's Fourth Quarter 2018 Conference Call. As a reminder, all content provided on this teleconference is for informational purposes only, not intended for investment advice. Neither the issuer nor any of the independent providers is liable for any action taken in reliance on content contained herein.

MediaTek provides non-TIFRS financial measures as supplemental information. Earnings distribution is made in accordance with financial statements based on TIFRS. Unauthorized recording or redistribution of the video, audio, text and the presentation contents of this teleconference is strictly prohibited. By participating in this teleconference, you agree to accept the foregoing terms and conditions.

Now let's start with the 2018 fourth quarter and the full year financial results. The currency here is in NT dollars.

Revenue for the quarter was $60.9 billion, down 9.2% sequentially and up 0.8% year-over-year. Revenue for the full year totaled $238.1 billion, roughly flat from 2017. Gross margin of the quarter was 38.9%, up 0.4% -- percentage points sequentially and up 1.5 percentage points year-over-year. Gross margin quarter of the year was 38.5%, up 2.9 percentage points from the previous year.

Operating expenses for the quarter were $19.9 billion compared with $19.5 billion in the previous quarter and $21.3 billion in the same period last year. Full year 2018 operating expenses were $75.5 billion, increased 0.6% year-over-year. Operating income for the quarter was $3.9 billion, down 39% sequentially and up 198.5% year-over-year. Operating income for the 2018 full year was $16.2 billion, up 64.8% year-over-year. Operating margin for the quarter was 6.3% compared with 9.4% in the previous quarter and 2.1% in the same period last year. Operating margin of the year was 6.8%, up 2.7 percentage points from 2017.

Net income for the quarter was $3.8 billion compared with $6.9 billion in the previous quarter and $10.2 billion in the year-ago quarter. Net income for the year was $20.8 billion, down 13.7% year-over-year. Net profit margin for the quarter was 6.2% compared with 10.3% in the previous quarter and 16.8% in the year-ago quarter. Net profit margin of the year was 8.7%, down 1.4 percentage points year-over-year.

EPS for the quarter was $2.42 compared with $4.39 in the previous quarter and $6.5 in the same quarter last year. Accumulated EPS for the year was $13.26 compared with $15.56 in 2017. We also provide non-TIFRS financial measures, which include share-based compensation, amortization of acquisition-related assets and tax effect. Please refer to our earnings press release and the presentation for details.

For the first quarter of 2019, we expect revenues to be in the range of $48.7 billion to $53.6 billion, down 12% to 20% sequentially at forecasted exchange rate of TWD 30.9 to USD 1. We are forecasting the gross margin at 39.5%, plus or minus 1.5 percentage points. And the quarterly operating expense ratio to be at 35%, plus or minus 2 percentage points.

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

[David Ku, executive]

Good afternoon, everyone. I think basically for the fourth quarter last year, 2018, the overall performance is actually in line with our earlier guidance for -- especially I think for 2018, for the full year, in general, we see pretty positive improvement in the overall financial performance, I think especially from a gross margin perspective and also from an operating margin dollar perspective. I think our gross margin grew from 35.6% in 2017 to 38.5% in 2018. Also from an operating margin dollar perspective, I think the dollar grew more than 6% overall on top of the flattish revenues in 2018.

For fourth quarter last year, I think for mobile computing, the revenue accounted for 30% to 35% of overall revenue. For the growth sectors, which including the IoT, power management IC and ASIC, which account for around 27% to 32% of our overall revenue. For the hardware sectors, which including the TV, feature phone and other products, which account for 32% to 38% of fourth quarter revenue.

So I think after few years' adjustments, now actually we have a pretty balanced 3 different business segmentations. Again, there's mobile computing growth sector, which includes IoT, PMIC and ASIC, and also the hardware sector, which includes TV, feature phone and a lot of [ Cat 4 ] products.

I think looking to 2019, I think the 2019 is a year full of uncertainty, especially a lot of the global geopolitical issues and uncertain [indiscernible]. But despite all those uncertainty, I think for 2019, we are still looking for another year of probably flattish revenue or maybe even slightly up from a revenue perspective.

On the gross margin side for 2019, we are confident we should be able to see continued gross margin improvement, maybe at a much mild scale compared to 2018 versus 2017 but at least on the improving trend.

From an operating expense perspective, given the fact that we're still investing aggressively for new areas, which includes 5G, ASIC business and also PMIC, but OpEx, operating expense to be flat or maybe slightly up. I think overall, we are still trying to manage our business, so we can grow the operating margin dollars and also raise [indiscernible], given this uncertainty for the overall macroeconomic situation.

And more importantly, I think we believe that after few years of adjustment, from a business portfolio objective, next year, we will see for the mobile business and also for the growth sectors, they are pretty much contributing their equal weight of revenue, roughly 33% to 35%. And the hardware sector will continue to contribute. It would be the stabilizing force from a capital and also from an earning contributions' perspective.

I think that pretty much concludes my quick update for fourth quarter and also the 2018 conclusion and also a quick preview for 2019.

[Jessie Wang, executive]

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

[Operator]

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

[Randy Abrams, analyst]

David, I wanted to ask you on the gross margin. In fourth quarter, the margins saw a pretty good improvement, even though I think the mobile was relatively stable versus nonmobile, is in the low season and usually carries a higher margin. So could you go through maybe where you're still getting improvement, if you still have some to go on the cost-down platform? And then for 2019, your view if, I guess, growth products grow in line with mobile, where you're still seeing improvement, whether it's product mix in smartphone, cost reduction or view on the competitive landscape.

[David Ku, executive]

Okay. I think for 2019 -- let me just comment for the 2019 first. I think for 2019, especially from a gross margin perspective, there are some positives and some negatives. I think the positive news will be -- because for the growth sectors, we're still looking for high single-digit or low double-digit growth for the growth sectors. And overall, as long as we can continue to grow with our growth business, which includes IoT, PMIC and ASIC, I think that should be attractive to our whole -- I think that's the positive, number one. I think another positive news, if we only zoom in to a smartphone perspective, we still feel comfortable that we should be able to continue to enhance our gross margin maybe at a much mild pace compared to 2018 because 2018 coming now from a very low base from 2017. But 2018, I think, the base -- the growth volume base on the smartphone side is much higher now. But we still -- we should be able to continue to see some improvement due to the segmentation improvements for the smartphone products. And I think that's sort of the positive news number two.

Another positive news, number three, is really for the -- even for the mature products, especially on the digital TV side. If you recall last year, I think one of the reasons why we see the gross margin pressures on the TV side is due to the embedded memory price. It basically had an embedded memory price hike roughly years ago. But now actually, we're changing the pricing practice. And also we are maybe taking out some of that. So I think we're kind of getting away or getting last impact due to embedding memory. I think that provides some support on the digital TV side as well. So I think all in all, that's actually given us the confident that we should be able to see slightly better gross margins in 2019. That's for the full year. I think you also asked me about for smartphone -- kind of talking about the smartphone, surely there's segmentation improvement and also the continuing improvement on the cost structure side.

[Randy Abrams, analyst]

Okay, great. And maybe to quantify the margin, you're already 38% to 41% on the range. Is the way to think about it maybe a point or 2? Or could you see a few points? I guess, is there kind of a range -- for a long time, 40% was the magic number to try to return to. But is there kind of a range you could be toward later part of this year if those drivers come through?

[David Ku, executive]

I will say maybe just aiming for midpoint of this range. And again, depends on the [indiscernible] based on the final product mix, I would say the midpoint of the guidance range in plus-minus, pretty much that's the best way to go for first quarter. For the full year, I think obviously your rates kind of indicate that. I mean, for the full year, we are looking for the full year, 40%, I think, is our target.

[Randy Abrams, analyst]

Okay, great. And a second question, just on the smartphone, if you could give a view of how you're seeing or going into the year, kind of for year-over-year growth for kind of China smartphone and export? And then relative to that, if you think your market share is stable or you see gains. And then I guess, for mix, how early sign on the P90, if you're seeing signs that could do better than the prior generation and help you gain a bit of better product mix.

[David Ku, executive]

I think for smartphone specifically for this year -- let me just take one step back talking about the overall situation on the smartphone. I think globally, our view is that, from a volume perspective, it will still grow maybe low single digit in terms of volume growth. But in terms of dollar growth, given the overall price decline, also the condition, I would say it's pretty much flattish, maybe even coming down from a dollar perspective. And that's our global [indiscernible]. On the China side, overall both from a volume perspective but also maybe even from -- adjust for market perspective in terms of dollars, maybe oil coming down a little bit, I think that's the macro situation or the demand situation, if you like. From our perspective, I guess, what we're trying to do to cope with this overall situation is we're still trying to: a, increase our market share; b, I think more importantly trying to increase our segmentation coverage. So that's why you see from a product portfolio perspective, we didn't really give up or getting soft or easy on the [indiscernible] I think they're still very important segments for us.

But we continue to expand auto and entry level, so starting from last year, P50, later last year, P70, and now actually we're getting to P90. I guess, that's the trend and that's the way or that's the strategy, if you like, of how we actually continue to expand for the segmentation coverages. Likewise, I guess, even on 5G is actually later this year or maybe even third quarter next year, I think 5G will also play a very important role for us to continue expanding into different segmentations. Because we do believe by getting into different segmentations: a, we can enlarge our addressable market; b, they will be positive and accretive to our gross margin. So overall, I guess, for 2019, even though the macro situation is still very challenging, I think our goal is trying to have a flattish revenues on the smartphone side. And hopefully, if we do well, I mean, we can even see some very small growth on the revenues on the smartphone -- for the smartphone segment. I think that's our goal.

[Randy Abrams, analyst]

Okay, great. In a couple of the long-term areas, networking and automotive, should there be much, where it could be even like low single-digit percent of revenue? Or do you think it's like a 2020-plus for both of those areas?

[David Ku, executive]

I think for the new business, if I use these terms, I think revenue this year is still very low. This year, I think China is kind of talking about -- calling for the new business, which includes -- there's no 5G, by the way, but merely ASIC business, I think this year actually recorded a high -- roughly mid-single digit. I think next year, if we qualify it or categorize it as a new business, which includes 5G, ASIC and also automotive, we feel it's a very good chance that we should be able to see the new business will grow more -- will contribute more than 10% of our overall revenue next year. I think that's our view. But that will be for next year. This year, pretty much will still be mid-single digit. And most part of that is still something we call the gaming ASIC.

[Randy Abrams, analyst]

Okay. And last housekeeping, the nonoperating income has been running closer to $800 million to $1 billion a quarter. And I think your guidance on the call was $500 million. But I guess, relative to the last year, was there a factor -- or maybe the last year, like even the last 2 years, there were -- aside from auto chips even, it was kind of at bit of higher level. But is there a factor that, that will be coming in at that or just conservative because there's less visibility there?

[David Ku, executive]

Well, I think -- well, first of all, I think for the full year, for the nonoperating income this year, 2019 versus 2018, I think it will come down for 2 reasons. I mean, first reason is actually we pretty much accumulate or accrue the loss of the auto chip deal back to 2017 and 2019 -- 2018 rather, 2017 and 2018. For 2019, there will be the very last payment, which will be much smaller. And that's point number one. Point number two, I think starting from last year 2018, due to the Taiwan IFRS change, for example, for our shares sold on the Goodix side, we'll not be able to include it as the nonoperating income. That means even though we continue sales of the shares, but that proceed will go directly to shareholder equity rather than being seen or being accrued as the nonoperating income.

So from a cash flow-wise, you will see we have cash flow from sales proceeds from divestment of our investment. But for that part, we will not be able to see as the nonoperating income. So overall, due to that 2 reasons, again: a, auto chip: b, accounting change -- accounting treatment change, I think the nonoperating income is worth much lower compared to last year. And for the full year, again we didn't really provide the guidance. But if you go back to 2016, basically prior to the auto chip deal, in general, I guess, we are looking for every quarter roughly TWD 500 million ballpark range in general for every quarter.

[Randy Abrams, analyst]

Okay. And your tax rate will be relatively stable as well?

[David Ku, executive]

Yes. Well, I think the guidance we gave out, we'll be roughly speaking 10% to 13% of the effective tax rate -- I'm sorry, 13% to 15%.

[Randy Abrams, analyst]

13% to 15%, okay.

[Operator]

The next up, we have Gokul Hariharan, JPMorgan.

[Gokul Hariharan, analyst]

First of all, could you talk a little bit about 5G, how the evolution has been? What has been the interaction as you launched your M70 product and sampled with some of the customers? And well, David, when you think about 2020, are we primarily targeting China market? Or are we also qualifying for U.S., global markets where we probably need a little bit more of millimeter wave at the end of the board as well?

[David Ku, executive]

Well, first of all, I think for our first batch of 5G products, specifically for the 5G SoC, we are targeting for China as a major market. So that's why we only focus on sub-6 gigahertz product. So again, for our first 5G SoC, there will be sub-6 giga-only product rather than dual mode. Internally, we do have dual-mode technology. But due to the overall -- from a market and also product strategy perspective, we will focus on the sub-6 first. So we believe in China due to the bandwidth issue, due to the cost issue and also due to the user case issue, I think sub-6 is probably the most feasible product for the first batch of the 5G product or beyond the 5G SoC.

For the M70, the first modem, I think this year, I think we will have some product coming out for M70. But given the fact that this year is the first year for the operators started building up the base station. So M70 I think the main goal objective is being served as a pack leader based on what we saw customer and also what we saw with operators to do all kinds of IoT tasks and also being pack leader to make sure when the 5G standards are finalized, so we can jump in the 5G modem into our SoC and take off by second half this year and getting ready for the first half next year's product cycle.

[Gokul Hariharan, analyst]

Okay. So David, if I could, just clarify, M70 supports millimeter wave as well?

[David Ku, executive]

No, M70 is only for sub-6 gigahertz.

[Gokul Hariharan, analyst]

So only for sub-6, okay. So when will you plan to have millimeter wave support? Is that sometime in 2020? Or is it -- you don't think that is going to be a very big priority for your customers also in the near term?

[David Ku, executive]

Well, I think from a technology readiness perspective internally, just like what our CEO, Rick, said during the Chinese call, I think for this year, we're working to have capacity, okay, for the millimeter wave. But in terms of product realization, putting into the product, probably we need to wait until 2021. Because our views for 2020, because the first batch of the 5G in China, sub-6 probably is the best solution for first wave of 5G in China.

[Gokul Hariharan, analyst]

Okay. Second, on the smartphone side in 2019, given the cadence of launch of P90 as well as probably some of the follow-on products after P90, probably focusing on a slightly lower segment of the market and of the price range, could you talk a little bit about how you feel about market share situation in first half versus second half? Is it fair to assume MediaTek market share in second half is going to be a lot stronger than first half just because of the product cadence?

[David Ku, executive]

I think for this year is just pretty much like last year. I think for the last year, we see our market share -- 2018 versus 2017, I think we do see a pretty good market share gains, I think especially for the leading brand, which includes Oppo, Vivo and Xiaomi. And for 2019, I think we are still working hard. Hopefully, we can continue that market share gain. But in terms of first half versus second half, I would say probably we'll be pretty even out as well. We do still see second half will be particularly strong, given the fact because for first half and second half, we all have new product coming out. First half could be P90. I think second half, we will have another new product coming out as well. We will announce it in the right time. But I would say it's going to be pretty even, if you ask me. But in terms -- from a product roadmap perspective and also designing perspective. But in terms of seasonality, I think in general, Q1 is the lowest. Again, right now, it's a little bit too early or too mature to talk about Q2. But in general we should be able to see Q2 as a stronger balanced seasonality, especially from a smartphone perspective.

[Gokul Hariharan, analyst]

Okay, got it. Just another question, David. I think late last year, I think some of the U.S. regulators ruled that Qualcomm was directed to license their IP to competitors obviously such as MediaTek as well. How does -- if that comes through long term, what is the -- is there anything that materially changes in your business in terms of how you design chips, especially when it comes to 5G, et cetera, but given how restrictive it has been in the last cycle, especially during the 4G cycle?

[David Ku, executive]

Well, I think the major difference, really the timing of our products. If you recall for the 4G cycle, right, arguably we are probably a shy more than a year's behind. But for 5G, I think like Rick, the CEO, talked several times, we will make sure we will be among the first batch. So that's why we say the M70, the modem will be ready. Actually, we did demo that's in [indiscernible] that will the end of March -- by February. And also the SoC will be ready before end of this year. So I think this time around compared to 4G, in terms of release -- the timing of the release of our product is actually very different.

[Gokul Hariharan, analyst]

Okay. Maybe if I can ask a little bit about the 5G product. What do you feel about 5G pricing? I mean, we've heard different commentary on 5G pricing from some of the market players, given that the pricing is likely to be significantly higher than where 4G came in at the early stage of ramp-up. Could you talk a little bit about how you feel? I think it's probably too early to fixate on a specific band of pricing. But could you talk a little bit about how pricing is going to shape up when it comes to 5G next year?

[David Ku, executive]

I probably won't be able to comment exactly about the pricing in terms of range. But I think if we're talking about trends, I think 5G pricing has got to be higher than 4G because given the fact 5G is much more complicated in terms of communications standard, so you can assume either from the cost-wise, the cost of 5G is actually much higher than 4G. So if we don't have a higher ASP, actually [indiscernible]. I mean, if the industry don't have a high ASP, it just doesn't work out. The math just doesn't work out. So I think in general, the 5G ASP got to be higher. But in terms of how much higher, I guess, it depends on again the timing of the product, so the segmentation of the product.

But if you talk to the people who are familiar with this industry, especially for 2019, given the very small volume [indiscernible], I think the pricing is actually much, much higher compared to 4G. But I think that overall, the volume is too small. So pricing, I will say, is not a good reference, if you ask me. But if we fast-forward out for 2020, next year, our view actually is the volume will be much more meaningful. But even with much more meaningful volume, I guess, the ASP is still going to be higher compared to 4G's ASP because again, like I say, if [indiscernible] that, you should need much more die area to accommodate and to perform all of new features and functions on 5G side. So the ASP is most likely will be higher, much higher.

[Gokul Hariharan, analyst]

Okay, that's great. Last question from my side, David. I think you guys have talked about potential M&A and batting for some diversification through M&A, et cetera. Obviously, valuation has been a sticking point now with the semiconductor industry valuations have come down. Could you refresh us in terms of what are you looking for from an M&A perspective in terms of maybe size, like diversification objectives in terms of end markets, teams, et cetera?

[David Ku, executive]

Well, first of all, I think this actually is -- probably, we will not be able to be too specific about M&A. So let me try to be a little bit general here. In general, I think if you look at the history of MediaTek, I think we've been quite open and to a certain extent, aggressive about adopting M&A strategy. I think overall, in the last few years, we've spent billions of dollars doing M&A. And in general, I think they've all been quite successful. When you think about the acquisition of MStar, the acquisition about Richtek and the acquisition about Ralink, I mean, generally, it's all been pretty synergistic. Especially after a few years of integration is after we can truly realize the synergies. So I think like you say, for 2019, given all of the uncertain [indiscernible]. But just from an M&A perspective, maybe I could choose good timing from a valuation perspective. So we will continue to be active, if you like.

But in terms of area, I guess, probably we will be more focused on the new area, for example, like automotive, like maybe even for an enterprise ASIC and also on payment side. Because when we look at our business portfolio, on the mobile side, we believe actually that we can pretty much grow the pace of our organic growth through the M&A route. For the growth sector, which includes IoT, PMIC and also the automotive and ASIC, I think that will be the area because we do believe actually that's an area we still have a lot of opportunities. And we can definitely leverage M&A to sort of speed up or jump-start the business. So I think that will be both our focus if you're asking me from a target perspective.

[Operator]

Next in line, Brett Simpson, Arete.

[Brett Simpson, analyst]

David, I just wanted to ask about inventory levels that you're seeing in your customers. I guess, right now, the industry is at elevated levels of inventories, particularly in China. And so I was just keen to get your perspective. You used to go through what you see in smartphones, what you see in areas like TVs and some of the bigger areas of the growth division. What do you see in terms of inventory levels versus normal? And when do you think we'll see a burn-off of these inventory levels and we get back to normal trends in semiconductors?

[David Ku, executive]

Brett, I'm assuming you're talking about the inventory, the general inventory, right, not MediaTek inventory or both?

[Brett Simpson, analyst]

Yes, general inventories, yes, absolutely.

[David Ku, executive]

General inventories. I think for the -- I prefer to use the term channel inventory because it is what we check on a quarterly basis. I think for the channel inventory, especially in the fourth quarter, we do see it certainly building up a little bit. It's actually higher than the normal level, if you ask me. But I won't say actually it's reaching to something we call the risky level, and -- but somehow, that lead to a relatively soft demand in Q1. So that's why you see -- I would say, in general, Q1 is a normal seasonality. But actually, I think the higher inventory levels of building out in Q4, that's actually part of the reason. And we do see the inventory being digested and being churning out smoothly in Q1.

So far, actually, end of January, I think the overall sell-in, in terms of sell-through numbers, we feel, is actually getting better. It's getting better. But again, especially in China and also in other countries, I think, in general, February is going to be the Chinese New Year. That actually provides some holiday shopping [indiscernible]. Hopefully, actually, that will help to digest the channel inventory. In general, based on the current visibility, even though we haven't finalized in Q2 even, in general, based on the past seasonality and also based on the current sell-through numbers, we've always -- actually, Q2 should be better, okay, compared to Q1. But again, as I said, it's too early to talk about sort of the guidance, our view for Q2. Just you can see that actually is based on the currently available information and also kind of a guesstimation of what's our view on that.

[Brett Simpson, analyst]

Yes, I just wanted to pick up on that as well, David. I mean, I guess, a lot of chipmakers have been guiding for the year. And generally, the theme has been a very soft Q1 but a very strong or a stronger -- much stronger than seasonal second half. Can you maybe just -- I mean, you've talked about a flat year or a flattish year for MediaTek for sales in 2019. And you're starting from a low base in Q1, much like last year. As you look at the order book and how you see the year progressing, do you see a very similar pattern to 2018, where it started slow but really picked up into the second half of the year? Or how do you think the momentum builds in your business as you go through 2019?

[David Ku, executive]

Honestly, I don't have the full year -- clearest full year view based on a quarterly base yet. But if you ask me, at least for Q1, I would say it's very similar pattern compared to last year's. So when we're talking about the full year, it can be flattish, maybe sliding up, pretty much based on assumption, actually. If you see the Q1 this year versus Q1 last year, we see the flattish and then seasonal growth a little bit. And in Q2 currently, again we see a similar pattern. So if you ask me, again my best guesstimation, if you like, will be the similar pattern compared to last year.

[Brett Simpson, analyst]

Okay. That's very helpful. And I wanted to just comment a bit on the growth division, David. Can you maybe just go into a bit more detail about 2019? I'd love to know areas that you think are going to be particularly strong for MediaTek and perhaps areas that will be weak, where you're most excited about from this division. Because I think we all can see that you're allocating a lot more R&D resources to build up this growth division and the momentum should be coming through over the next few years. So anything more you can sort of share with us and some of the highlights in growth that we should expect?

[David Ku, executive]

I think for the growth sectors, I think we kind of talked about that in the past. Usually diversified. But if to help out people to understand that, we kind of like categorized that into 3 major categories, if you like. The first one is really IoT. Again, the growth sectors last year, fourth quarter last year, is 27% to 32%. For this year, I think for the full year, roughly speaking, we're looking for maybe 33%, 35%. So within that growth sectors, I think half of that is something we call IoT. Again, we use the term loosely, which includes Wi-Fi, Bluetooth, [indiscernible], NB-IoT. But generally, it's all IoT. I think we see IoT will have pretty good growth this year. That's the first one, again half of our growth sector.

The second largest chunk of our growth sector is something we call the power management IC. So for power management IC for fourth quarter last year, which would account for roughly 20% to 25%, basically 1/4 of the growth sector, I think for this year, it will probably contribute a similar pattern. So again, when you're thinking about growth sector, think about half of that is IoT, 1/4 of that is actually PMIC, the power management IC. Basically, that's our acquired business from Richtek. I think this year, we'll see -- last year, it was pretty much double-digit growth. This year, I believe, that PMIC will have the strongest growth as well, will be the double-digit growth as well. So that's the second largest chunk of business.

The third one is something we call the ASIC business. ASIC business accounts for 10% to 15% of overall growth sector. Again, let me just repeat that, a little bit because I think that's important. For the growth sectors, they account this year roughly 33% or 35% of our overall revenue, 1/3 of the revenue. Within the growth sectors, half of that is IoT, 1/4 of that is actually PMIC, 10% to 15% of that is ASIC, is [ smaller ] of others. But that 3 starts with a business account for a good, like, 90% of the overall growth sector already. So for the ASIC business, because the base is relatively low, in terms of growth rate, I think it's probably has been a little higher as a growth rate. So that's the detail about the growth sector. But in general, to make the long story short, I think we see all 3 sectors, IoT, PMIC and also ASIC, have pretty decent growth this year.

[Brett Simpson, analyst]

Great. And just lastly, David, I'm going to ask you a hypothetical question. There's been a lot of talk about the licensing situation in the smartphone sector, particularly in light of this recent court case between the FTC and Qualcomm. But in the event that Qualcomm is forced to license chipmakers rather than handset vendors, I think that would mean the rest of the industry has to follow because, otherwise, it's discriminatory to Qualcomm. But what's your perspective on this? I mean, how would you absorb taking responsibility for your customers' licensing as well as developing the modems that you do today? I mean, wouldn't that mean your margins would structurally decline? And it just seems like a huge burden for someone like MediaTek to take this responsibility. So I was just keen to get your perspective on what this all means from a MediaTek side of things.

[David Ku, executive]

Well, Brett, I probably would not be able to answer your question because that actually is a question which has lots of different assumptions. But I hear you. I guess, your concern is that, if it does happen, well, I guess, especially if it does happen, whether or not there will be a negative or positive impact to our business. Again, that really depends on what's the final ruling for the licensing deal. Because again this is probably not a MediaTek view, it's actually -- if you check out on the market, some people are also talking about maybe one possibility actually is -- even though [indiscernible] from the chipset vendors. But overall, the [indiscernible] is maybe lower compared to current level. And my view is actually transfer that to the customer. Because overall the customer is still paying less. Again, I don't think I will be able to answer this question because that's really based on what's your [indiscernible] and also what's the final ruling. So really, just keep that question.

[Operator]

[Operator Instructions] Now we're having Sunny Lin, UBS, for questions.

[Sunny Lin, analyst]

So I just have 2 quick ones. My first question is regarding the 4G feature phone. Just wondering if you can give us a bit more clue in terms of how to quantify the shipment for this year. And also that management says smartphone business will be growing slightly in 2019. Does that already include the 4G feature phone?

[David Ku, executive]

That's including the 4G feature phone as well.

[Sunny Lin, analyst]

Right. So in terms of the shipment for 4G feature phone, do you think how big that can achieve for this year?

[David Ku, executive]

In general, we don't disclose the particular product segments. But in general, I guess, the 4G feature phone in our assumption, we don't really see that as a huge contribution in 2019.

[Sunny Lin, analyst]

I see, sure. That's very helpful. And my second question is on the 5G SoC. Just want to make sure if it's a one-chip solution from the beginning or it's actually a 2-chip solution to start.

[David Ku, executive]

It's a one-chip solution. So when we say SoC, actually that means one-chip solution. So that means in 3 years, we're going to have 2 products for 5G. The first product actually is the M70, which was announced last year in a demo, that you will end up seeing next month. So that's one product, that's a single -- modem-only product. For the SoC, we talk about second half next year, there will be a integrated product, which means the SoC, which includes modems, application processors, GPU and also something we call the APU, the AI processing unit as well.

[Sunny Lin, analyst]

I see. But for the SoC products, the module -- the modem will be actually from M70, the same one?

[David Ku, executive]

The core of our M70, definitely we'll -- I think we'll do some modification enhancement on that.

[Operator]

Ladies and gentlemen, we thank you for your questions. Now I'll hand it over to Ms. Jessie Wang for closing comments. Ms. Wang, please proceed.

[Jessie Wang, executive]

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

[Operator]

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