MediaTek Inc

TWSE:2454

Earnings Call Transcript 2020-Q4

[Operator]

Welcome to the MediaTek 2020 Fourth 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.

[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 fourth quarter and the 2020 full year results, and then Mr. 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 those 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 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 financial updates.

[David Ku, executive]

Thank you, Jessie. Now let's start with 2020 fourth quarter financial results. The currency here is all in NT dollar.

Revenue for the quarter was $96.4 billion, down 0.9% sequentially and up 49% year-over-year. In U.S. dollar terms, revenue for the quarter was USD 3.3 billion, up 1.5% sequentially and up 57.9% year-over-year. Annual revenue totaled TWD 322 billion, up 30.8% year-over-year. In U.S. dollar terms, revenue for the year was USD 10.9 billion, up 37.2% year-over-year.

Gross margin for the quarter was 44.5%, up 0.3 percentage points sequentially and up 2 percentage points year-over-year. Gross margin for the year was 43.9%, up 2 percentage points from the previous year.

Operating expense for the quarter were TWD 27.5 billion compared with TWD 28.4 billion in the previous quarter and TWD 21.3 billion in the same period last year. Full year 2020 operating expense was TWD 98.3 billion compared with TWD 80.5 billion in 2019.

Operating income for the quarter was TWD 15.4 billion, up 5.1% sequentially and up 146.9% year-over-year. Non-TIFRS operating income for the quarter was TWD 16.1 billion.

2020 full year operating income was TWD 43.2 billion, up 91.5% year-over-year. Non-TIFRS operating income for the year was TWD 46.1 billion.

Operating margin for the quarter was 15.9%, increased 0.9 percentage point from the previous quarter and increased 6.3 percentage points from the year ago quarter. Non-TIFRS operating margin for the quarter was 16.7%.

Operating margin for the year was 13.4%, up 4.2 percentage points from 2019. Non-TIFRS operating margin for the full year was 14.3%.

Net income for the quarter was TWD 15 billion, up 11.9% sequentially and up 134.3% year-over-year. Non-TIFRS net income for the quarter was TWD 15.6 billion.

Net income for the year was TWD 41.4 billion, up 78.6% year-over-year. Non-TIFRS net income for the year was TWD 43.8 billion.

Net profit margin for the quarter was 15.5%, increased 1.8 percentage points from the previous quarter and increased 5.6 percentage points from the year ago quarter. Non-TIFRS net profit margin for the quarter was 16.1%.

Net profit margin for the year was 12.9%, up 3.5 percentage points year-over-year. Non-TIFRS net profit margin for the year was 13.6%.

EPS for the quarter was TWD 9.35, up from TWD 8.42 in the previous quarter and up from TWD 4.03 in the same quarter last year. Non-TIFRS EPS for the quarter was TWD 9.73.

For 2020 full year, EPS was TWD 26.01 compared with TWD 14.69 in 2019. Non-TIFRS EPS for the full year of 2020 was TWD 27.52.

The detailed reconciliation table for our TIFRS and non-TIFRS financial is attached in our press release for your information. And that concludes my comments. Thank you.

[Jessie Wang, executive]

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

[Lih Shyng L. Tsai, executive]

Thank you. Good afternoon, everyone. I hope first you and your families are all safe and healthy.

Today, I will start with MediaTek 2020 achievements and the 2021 outlook. Then we will walk through highlights in each segment as well as provide our first quarter 2021 guidance.

2020 marked a milestone year for MediaTek, and we believe it is just the beginning of our growth trajectory. We concluded 2020 with good fourth quarter result, both revenue and gross margin coming in at the upper end of our guidance. This brought our full year revenue to a record level of USD 10.9 billion. All the 3 product groups grew at year-over-year double-digit percentage rate in revenue in 2020.

In addition, we delivered very strong year-over-year growth in 2020 across all of our key financials, financials metrics in spite of macroeconomic uncertainties and unfavorable foreign exchange rate. 2020 gross margin increased for the third consecutive year, and operating income nearly doubled from 2019. Quarterly operating income has been growing year-over-year for 12 quarters in a row.

In 2020, we demonstrated technology leadership by gaining meaningful share in 5G and WiFi 6 globally in the first year of the end market take-off. Moreover, our diverse analog, multimedia and computing IP portfolio enabled products such as smartphones, WiFi routers, notebook PCs, Chromebooks, online streaming devices, gaming consoles, digital TVs, et cetera, to meet the surging global dividend. Adding all these up, MediaTek powers your everyday life with 2 billion devices in 2020, a substantial number further strengthens our cross-platform competitive advantages.

These solid performances in the past few years are the results of our investments in key technologies and IP, which lead to a structural change in our business and product portfolio. The structural change has established a strong foundation for MediaTek's growth trajectory and makes us more resilient to potential short-term fluctuations.

For 2021, we believe it is another year of strong revenue growth in spite of a strong NT dollar appreciation. We will be able to outperform the markets with expansion in multiple areas, while we aggressively expand addressable markets and market shares in all major product segments. MediaTek still maintains our gross margin in the current range of 43% to 44%.

Moreover, we expect our operating profit dollar and operating margin to increase strongly again in 2021. Most importantly, we will continue to invest aggressively in R&D this year, with a USD 3 billion budget in order to build more technology assets and solidify the foundation for our next phase of growth.

We are confident that the synergizing of our strong IP portfolios and diverse product platforms will give us unique competitive advantages in expanding multiple serviceable markets. Let me give you a couple of examples. M70 modem, [indiscernible] is giving us a good head start in the 5G smartphone ramp cycle, covering complete market segments as well as global footprint. We'll also enable MediaTek accesses to global operators through a synergized portfolio, including WiFi 6, ARM and setup boxes.

Our industry-competitive ARM-based CPU and multimedia IP have not only empowered the high-end mobile application processors but also created major opportunities in the computing, conferencing and surveillance applications. These multiple growth engines and others, we believe, will drive our strong mid- to long-term profitable and sustainable growth.

Now I'd like to go through fourth quarter business highlights for each segment and then talk about the first quarter guidance.

First of all, growth areas, which mainly consists of IoT, PMIC and ASIC, accounted for 29% to 33% of fourth quarter revenue. This segment performed better than company average in the fourth quarter and grew more than 40% compared to a year ago. Several products, including WiFi and Power IC, achieved all-time high quarterly revenues.

For IoT, WiFi expansion is driving the business. We are seeing increasing WiFi 6 demand in high-end routers, broadband and TV. Furthermore, MediaTek WiFi 6 solutions have been adopted by multiple global notebook and Chromebook brand. The first project for high-end WiFi 6 gaming notebook will hit the market in the first quarter with more to come.

On the technology side, we are selected to be on the test bed for WiFi 6E and have already started WiFi 7 investments for continued expansion.

For Power IC, we announced to acquire Intel's Enpirion power business in the fourth quarter. This would provide a strategic product portfolio and enable more high-end enterprise business in the future. We are seeing strong demand in Power IC and distribute power components across various product applications.

For ASIC, several new enterprise ASIC projects are scheduled to commence volume production this year. Hot-selling new game consoles would also continue to contribute revenue throughout their product cycles. Meanwhile, we are working on new projects, both for enterprise and consumer products, to expand our revenue in the following years.

Next, Smart Home and others, primarily TV and other traditional consumer electronics, accounted for 21% to 26% of revenue in the fourth quarter. Revenue momentum was somewhat constrained by capacity in the fourth quarter. TV market by unit is relatively stable, but we continue to see customer traction on better picture quality and faster wireless connection to accommodate the online streaming trend. Our pioneering AI integration and connectivity perfectly fit the demand. In 2021, we are confident to maintain our global leading position to power global TV in all segments with further share gains.

Now on to mobile computing, which includes smartphone, tablets and Chromebooks, accounted for 45% to 50% of the fourth quarter revenue. Mobile computing revenue again grew very strongly with more than 80% year-over-year increase, driven by higher 5G adoption in mass market.

For 5G, MediaTek launched a complete product portfolio and engaged with all global major Android smartphone brands in 2020. Our 5G market share has already exceeded 40% in markets we serve in 2020. We aim to further increase share this year.

2021 will be the second year for the phenomenal 5G migration. We forecast global 5G smartphone shipment this year to be more than 500 million units, 2.5x of last year's shipment. MediaTek's complete product portfolio is fully ready to capture the migration opportunity.

For high-end, we have design-in activities with multiple customers using Dimensity 1200. And devices are expected to launch in late first quarter. In mid-range and mass market, Dimensity 800 and 700 units will continue to ramp strongly. Furthermore, MediaTek closely worked with global operators and customers. Our 5G solutions will have higher presence in regions, including U.S., Japan and European countries this year.

On the SIM modem side, notebook with MediaTek 5G SIM modem inside are scheduled to launch in the second quarter. We expect to see more models and new application, such as CPE, with global operators in the second half of the year. Development of millimeter wave SIM modem and SoC is on track with [ cost of assemble ] this year, for revenue starting 2022.

For 4G, we will introduce new product for better user experience this year. 4G remains a sizable market, and we believe we will continue to be the market leader.

Another driver is the fast-growing Chromebook market. We forecast Chromebook unit to increase approximately 60% year-over-year this year. As a leading player in ARM-based Chromebook CPU, we are confident to acquire new market share in the midterm.

Now turning to first quarter guidance. We see above seasonal demand in the first quarter, partially offset by the ongoing supply constraint. Mobile computing revenue in the first quarter are expected to increase significantly quarter-over-quarter and more than double on a year-over-year basis, driven by 5G smartphone ramp as well as share gains in both 4G smartphone and Chromebook. Growth area is also expected to grow strongly year-over-year, thanks to healthy demand across the board.

For the first quarter revenue analysis, there are 2 factors I would like to inform you. The first is unfavorable foreign exchange rate. The recent FX fluctuation has a 3% impact on our revenue in NT dollar compared to the last quarter. The other factor is a full quarter revenue exclusion from ILITEK, which affects 2% to 3% of revenue in U.S. dollar.

With that, at a forecasted exchange rate of TWD 27.9 to USD 1, we expect our first quarter revenue to be in the range of [ TWD 96.0 billion ] to TWD 104.1 billion, flat to grow 8% sequentially and up 58% to 71% year-over-year.

In U.S. dollar terms and excluding the above-mentioned divestment, our first revenue were to increase 6% to 14% sequentially. First quarter gross margin is forecasted at 43.5%, plus or minus 1.5 percentage points. Quarterly operating expense ratio to be at 26.5%, plus or minus 2 percentage points.

That concludes my prepared remarks. Thank you.

[Jessie Wang, executive]

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

[Operator]

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

[Gokul Hariharan, analyst]

And congratulations on a great results. My first question is on 5G. Now that we are getting to reasonably high penetration in China for 5G, could we talk a little bit about how the other markets, it will evolve based on your conversations with customers? Do we start to see rapid 5G adoption happening in some of the other markets? We have been working with some of the operators, et cetera. So could you talk a little bit about how the non-China 5G markets will be evolving, as we -- especially as we go through the rest of this year? I think first half probably is still going to be very strong in China. But as we get to a higher degree of penetration, could we talk a little bit about 5G in non-China markets?

And also, on 5G chips, do you see any supply tightness at this point given a lot of the capacity tightness at the foundry level? And I had a follow-up question for David as well.

[David Ku, executive]

Okay. I'll probably first answer about the 5G non-China market. I think to start with that, I think last year, we're kind of talking about -- even last year was the first year of our 5G product cycle. We actually already launched a few products in the U.S. market already. And also, not just on the smartphone side but also on the [ single-chip ] side, we put this year, I think Intel, with our thin modems, will start to launch [indiscernible].

So overall, I guess, not just this year, I think starting from last year, we see the global market, not just the China market, as our addressable market. But in terms of market size or our revenue contribution even from this year, I think that the majority of the revenue contribution, especially for the first quarter we talked about earlier, it's going to still be mainly on the China side. We kind of forecast for the non-China 5G contribution this year for the first quarter probably will still be a minor -- going to be minor.

[Lih Shyng L. Tsai, executive]

I think for the global 5G smartphone demand, China probably will still [ up ] for 2021. As we said in the remarks, we expect to see 500 million or more units to be shipped. I think among which, at least 60% will be in China and the rest, about 40%, from non-China area.

You have a question on...

[Jessie Wang, executive]

Supply tightness.

[Lih Shyng L. Tsai, executive]

Supply tightness on 5G?

[Jessie Wang, executive]

Yes, on 5G.

[Lih Shyng L. Tsai, executive]

I think we -- there's still supply tightness overall. I think that's not really a news to everyone. We are -- I think we at MediaTek is able to basically get, I think, sufficient capacity from our supplier partners.

I believe this tightness will continue at least throughout the next couple of quarters. We -- despite that, we -- as we said in the prepared remarks, we still expect MediaTek to gain market share in 5G smartphone shipments, SoC shipments, but we are confident we can achieve that.

[Gokul Hariharan, analyst]

Got it. Just one follow-up question on the operating expense. I think if I try to back out employee bonus from last year, looks like OpEx grew about 15% to 20% last year. David, could you give us some indication in terms of how you're budgeting for OpEx growth this year, given growth is really strong from a top line perspective as well?

[David Ku, executive]

I think for the OpEx full year this year, as the CEO, Rick, talked about, this year, we increased our overall investment more aggressively, to be precise, in our R&D. So I think for the first quarter, probably the best way to [ factoring ] in for operating expense, excluding profit share, is roughly 2 -- TWD 20 billion to TWD 21 billion roughly for the first quarter.

For the full year, probably the better way to think about that is from a ratio perspective. I think from the total OpEx ratio, we do kind of forecast given overall the revenue coming up, given the operating expense down or increase a bit, our view is actually, the OpEx ratio should be coming down. I think the first quarter's ratio could be a good reference for the full year.

[Operator]

Next, we're having Sebastian Hou, CLSA.

[Sebastian Hou, analyst]

The first question is I'd like to ask about the gross margin and overall profit margin outlook, given the supply constraints across many products of the company and also your peers and also the industries. So I'm curious about how do you see this will affect the pricing and also the margin outlook for the company this year, which may potentially be more positive.

[David Ku, executive]

Okay. Sebastian, I think when we talk about the gross margin, there are several factors actually we need to balance now. I mean supply situation is one thing we kind of mentioned. But from our perspective, I think like the CEO talked about earlier, this year, I think overall strategy for us is trying to aggressively expand the market share across all 3 major business line. And more importantly, we're also trying to branch it now into different product [ penetrations ].

So consider everything and also consider more importantly and the one other factor is competition. But we're trying to balancing everything now. I think our overall strategy this year is trying to take advantage of our very strong 5G position and try to expand into 5G and also expand addressable market and market share for other products as well. In the meantime, maintain our gross margin for this year roughly in the range of 43% and 44%, basically stabilizing it. But I think what we're looking for this year will be just another year of very strong gross operating margin, both from a dollar perspective and also from a ratio perspective expansion. I think that's our overall strategy for this year.

[Sebastian Hou, analyst]

Right. David, just one follow-up on the OP margin expansion that you just commented, that in the last year, I think the -- from 2019 to 2020, your OP margin increased by 4 percentage point, and you mentioned that it's another strong year. So can we expect a similar 4 percentage point or even more magnitude of the increased OP margin for this year?

[David Ku, executive]

In terms of magnitude, unfortunately, due to regulation, we probably will not be able to comment. But probably, the better way to think about it, from the dollar, operating margin dollar perspective and revenue from a ratio perspective. So from the operating margin dollars, I think we feel fairly comfortable will increase strongly. So the [indiscernible] will increase as well. But every year, the ratios will be different given the fact that size right now is very different.

[Sebastian Hou, analyst]

Okay. My second question is that Dr. Tsai has mentioned that there are several ASIC projects that will enter commercial production this year. I think last year, I think the -- you have shared with us about the cloud AI and game console, this ASIC. So I'm curious whether you could elaborate more with us about what kind of the projects, in which applications that we may potentially see reaching production this year. And how would that be -- if it's possible to give a little bit quantitative numbers about how -- in terms of the incremental revenue contribution from this new ASIC, would it be as meaningful as those ASIC projects contribution last year or even more?

[Lih Shyng L. Tsai, executive]

The ones you mentioned, the ASIC projects in the data centers and the game consoles, of course, are now in production in 2021. We are aiming continuously at hyperscale data center as a market. And also, we're aiming at the 5G infrastructure segment, not to -- of course, we continue to spend time and the resources on the consumer part, which we are a leading player.

The incremental revenue, I think, David, do you want to comment?

[David Ku, executive]

Yes. For the full year incremental revenue, I think on the -- given the fact last year, we are close to TWD 11 billion. This year actually, revenue is solid. I think for the incremental, on a relative scale, it will be small. Probably on the Y-o-Y growth, I think we're still looking for very strong double-digit growth.

[Sebastian Hou, analyst]

Okay, okay. Last question from me is that we -- I think we do hear some of your customers have had overbooking behaviors at both you and your competitors. So I'm just curious about how we -- you probably definitely see that as well. But just curious how the company managed the customers, this kind of the overbooking forecast versus -- and how do you -- going to fulfill the demand. And also, there is also supply constraints as another factor. So just curious if you could share with us how do you mitigate the potential inventory risk, but at the same time, also fulfill customers' demand.

[David Ku, executive]

I think, overall, when we're getting the customer demand, we're also looking at the channels, the inventory situation, both from the customer channel side and also from the retail channel side. So normally, what we will do, we will balance it out [indiscernible] our own judgment on that.

So far, especially based on the channel inventory and also from the customer inventory perspective, even though given the fact that right now that sort of the capacity shortage is a global phenomenon, so you can rest ensure the customer will come in with some overbookings situation over there. But once we balance it out with the kind of inventory situation and also the customer inventory situation, we still feel right now, overall, it's comfortable, okay? We don't really see any strong overbooking, especially on the inventory side. Maybe on the demand side, people trying to asking for more. But the actual -- the products we can deliver or the whole industry can deliver. And especially when you consider about the channel inventory and the customer inventory, we believe right now is still healthy and stable.

[Operator]

Now the line is open to Bruce from Goldman Sachs.

[Zheng Lu, analyst]

Very, very good result. I think I'm very happy to hear that management talking about like the long-term growth driver. I've been asking this question for multiple quarters. But can you give us a little bit more color in terms of like what is the size for all these new addressable markets such as by ARM-based CPU? What kind of target addressable market? What kind of size? Because MediaTek already achieved like $10 billion of revenue, and we need like sizable addressable market to fuel the growth.

In addition, management does not -- can we have more color in terms of your smartphone revenue growth in multi-years? TSMC suggested that their smartphone revenue will grow similar with the corporate average, with 10% to 15% for the next 5 years. Can we assume that MediaTek's smartphone revenue will grow even stronger than that, as we believe MediaTek will continue to benefit from the market share gain?

[Lih Shyng L. Tsai, executive]

Bruce, the SAM, we are looking at also quite a complex situation because we cover such a complex portfolio. But what I can say is, we are seeing, for instance, as just like -- put an example, growth area, in a rough way, we are seeing the SAM about, say, $15 billion to $16 billion for our growth area, which means we have a long way to go.

We are doing well, quite well. That business grew year-over-year, more than 20% last year. But the market share we have there is still definitely below 25%, that kind of a range. So we are confident that -- just to give you an example of the growth area. So we have a pretty large headroom for the growth.

For the smartphone 5G, last year, this year, I think we're talking about really very -- a very strong growth kind of a number. The SAM we're talking about now is about, say, [ TWD 13 billion ] just by 5G smartphone alone. Of course, we certainly -- our market share over there is higher. But still, I think we're still below 30% or 35% in market share. So I cannot tell you exactly the CAGR for the next 5 years. But I can tell you, the growth rate last year, this year and next year will be substantially higher than the number you just mentioned. Thank you.

[Zheng Lu, analyst]

Okay. Another question for me is that, can we talk about that 5G smartphone chip ASP erosion year-on-year? So what is the blended base ASP erosion when we -- within the 4G area during the [ year 2 ]? As we move into the 2021, what is the ASP erosion for 5G this year?

[David Ku, executive]

Bruce, we probably won't be able to comment specifically for 5G ASP erosion. Instead, I think probably the better way to think about smartphone as a whole, so the blended smartphone ASP due to the 4G, 5G transition, and we believe actually this year is going to be another year to the question from a blended ASP perspective. Because when you look into global market perspective, the overall -- I think last year, the overall shipments compared to 2019 is coming down a bit. But this year, we believe the global shipment should be close to 1.2 billion to 1.3 billion units globally, back to 2019 level. But more importantly, I think the dollar content, basically the ASP on a blended basis, it's actually -- it's going to be much higher. So probably that's the best way to look at that.

Because, again, if you only look at 5G ASP -- because right now, we're trying to expand into the different sectors with different time frame. For example, earlier this year, probably, we have a new product, for example, Dimensity 1000, 1200 coming out on the high end. Probably in the middle of this year, we're going to march into the mainstream. So it's varied quarter-by-quarter. So it's not going to be a good indicator. Probably the better way to think about that is on a full year blended ASP perspective.

[Zheng Lu, analyst]

Okay. So what is the revenue split in 4G and 5G in the fourth quarter? When will 5G revenue be served as 4G?

[David Ku, executive]

Well, can you say it again? Because I think your voice actually is not -- it's weak.

[Zheng Lu, analyst]

What is your revenue split in -- between 4G and 5G in the fourth quarter? And when the 5G revenue will serve as 4G?

[David Ku, executive]

We didn't really disclose that number. I can give you -- from a directional perspective, last year, on a quarterly basis, I think 4G revenue is going still greater in 5G. But starting from first quarter this year, we see the switching -- that the [ tipping point ] coming out. I mean starting from Q1 this year, the 5G revenue were greater than 4G, starting from Q1. And I think that trend will continue for the full year.

[Zheng Lu, analyst]

I see. Okay. Last question from me is that I heard that management suggests that the long-term gross margin will be stable at the current level. I'm a bit surprised to hear that because as you -- as management mentioned, you have a lot of like enterprise chip is ramping up, which supposed to be higher gross margin. Budget smartphones are supposed to be higher gross margin. You also have a lot of growth segment which has not greater product mix. So we are very surprised to see that the gross margin was -- be under current levels. Can you provide a bit more color on that?

[David Ku, executive]

Well, first of all, I think the CEO, Dr. Tsai, was talking about for 2020, not for the longer term. I think because every year, the strategy in 2021, so it's actually different. So I think I agree with you, we have a lot of growth opportunity. But for 2021, we have some strategic goal we're trying to reach. So that will be our goal in [ building ] our strategic target to maintain that 43% to 44%. It doesn't mean that's a long-term cap. I think that's not what he talked about earlier.

[Operator]

Next, we have Roland Shu from Citigroup for questions.

[Roland Shu, analyst]

Very good result. I think first question are also just follow-up for the gross margin. For your Dimensity 1200 is made by TSMC, so a 6-nanometer process. I think, definitely, it's better in performance. And how does its cost and overall effectiveness compared to previous Dimensity 1000 by 7-nanometer? Is this going to be a product with a better margin or with the lower cost and better margin than Dimensity 1000?

[David Ku, executive]

Roland, we normally -- it's our policy, we don't really disclose the specific product's gross margin.

[Roland Shu, analyst]

Yes. But how about the product [indiscernible] definitely [indiscernible] your new technology. What is the effectiveness for you to migrate from 7-nanometer to 6-nanometer?

[David Ku, executive]

Well, I think, definitely, the 1200 is going to be better pricing compared to Dimensity 1000 because actually, right now, we're heading into even a higher rate of that. I think probably that's another way of answering your question indirectly.

[Roland Shu, analyst]

Okay. Understood. So with that, this is a better pricing, so is this a 43% to 44% gross margin this year a conservative number? Yes. So this is my question.

[David Ku, executive]

Yes. Well, I won't say it's conservative. Again, you need to consider a lot of other sectors. In addition to the smartphone, we also have other line of business as well. And also, like we explained earlier, even for the 5G specifically, we're also going to have a high-end. And also in the meantime, we're talking about the volume with [indiscernible]. So you can assume that the huge volume will not only come out from the mid to high-end, will coming out from the entry level as well. So I think that's the contribution of the -- all product segments and also more importantly, different business online.

[Lih Shyng L. Tsai, executive]

Roland, and I guess to everyone also, this year continued to be, as we said -- as you asked, a supply-constrained year. And you all know that the -- all the suppliers, front end and the back end, are increasing their price. We are doing, of course, everything we can to pass some of those cost increase out to our customers. But this is not a one shot type of a thing that we can achieve. It takes time and the -- so the situation is quite dynamic. But we're talking about easily a 0.5 point to 1 point type of a difference just because of that.

So with that in mind, I hope you can also keep that in mind. We have this supply side cost issue. And I think actually, if anything, we are getting relatively a good price from our suppliers compared to others -- many other companies. But still, the impact on gross margin cannot be just brushed away. Thank you.

[Roland Shu, analyst]

So a follow-up, you said about the cost increase because of -- for this supply constraint, so can you pass through the cost to your customers? And also, for this supply tightness, do you think this is -- favor you or against you in terms of the competition point of view?

[David Ku, executive]

Well, I think for the cost first, I think like the CEO explained earlier, I think we will definitely try to pass some of that to our customer. But in some time -- we have some time delay. And also, we also need to continue about the overall competitive situation because don't forget, actually, that we have several competitors out there. All of them have been quite aggressive about fortifying their market share. I think that's the key, that's the key.

[Roland Shu, analyst]

Okay. So how do you see the overall competition across the board?

[David Ku, executive]

Well, you mean the [ price ] competition or just the overall competition?

[Roland Shu, analyst]

Yes, price competition or product competition from your competitors.

[David Ku, executive]

As we can see for -- starting from last year, even though that's the first year of our 5G rollout, we actually get a very good market share. I think that actually is a surprise to everyone, which -- including our competitors. So [ they try to ensure ] they're trying everything, they're trying to come back and try to get more market share back. So I would say we've been dealing with that situation, actually, it's not just for last year, for the last few years. So we feel comfortable with our product portfolio, more importantly with our investment technology. We can actually compete effectively. So competition situation now, I would say, normal state, same. But overall, I guess our capability to compete effectively is getting better and better. That's our view.

[Roland Shu, analyst]

Okay. Understood. My last question for your 4G SoC shipment, how do we compare with last year? Is the 4G SoC shipment to increase this year?

[David Ku, executive]

I think for 4G, overall, from a shipment perspective, consider 4G globally is coming down. Our market share probably flat to up a little bit. I think overall 4G, we're looking for -- shipment-wise, it's another year of flattish.

[Roland Shu, analyst]

Flattish. How about the ASP, the price and margin for the 4G?

[David Ku, executive]

I think the ASP probably will flattish, coming down a little bit because every year is actually is a -- I think there was some pricing pressure on the 4G side. So it will be flattish to slightly down.

[Operator]

And right now, we're having Randy Abrams from Crédit Suisse.

[Randy Abrams, analyst]

Okay, yes, and good result. I wanted to follow up a question on the share gains you were discussing in mobile. Could you talk just the 2 areas: I think, one, the high end, how you're seeing your market share trend if you see continued gains; and then also the share gain as some market moved down into the mainstream? And if you could talk to your recent 1100 and 1200 Dimensity that just launched. How you see it stacking up, if it's up to the level of Qualcomm's Snapdragon 800 tier, and you're starting to get more design wins into that flagship segment?

[Lih Shyng L. Tsai, executive]

Okay. Randy, Dimensity 1200 is our current, or I should say, best-performing SoC. The comparison to our competitor's chips, I think, actually, it's quite available probably in all the different website. We are confident that we are very competitive to the ones that is with a similar or comparable price range, 800 series SoC. We have also a good confidence that the -- there will be good design-ins, good sockets for the Dimensity 1200 in this year. And of course, I think the revenue will start maybe first quarter?

[David Ku, executive]

First quarter.

[Lih Shyng L. Tsai, executive]

First quarter of this year and, of course, continue into throughout the year and beyond. We are -- actually, we're quite comfortable with the progress we're making in this segment, the -- with our continued investment in our higher-end SoC, all the IPs and leading-edge process technology. We will continue to produce a better and better, higher-end SoCs in the coming quarters.

[Randy Abrams, analyst]

Okay. And a follow-up to that, and then I'll ask a second question. For the process where you're on 6-nanometer, how aggressive your plan to get an upgrade moving to 5 if some of your mobile product lines may start moving later this year, or you may make a big push next year? That's kind of follow-up to that question.

[Lih Shyng L. Tsai, executive]

We are -- the 5-nanometer design is near -- is nearing take-off, the 5-nanometer design, the TSMC 5-nanometer design. So we are pushing full speed.

[Randy Abrams, analyst]

Okay. Great. If I could ask on the seasonality, first quarter being a bit of a growth quarter. If -- can you clarify that across all 3 segments where you're seeing sequential growth? And then as you look at the full year profile, some of the non-mobile is -- some of it you could say is more stay-at-home related on some of those product lines. How you're seeing the profile? Because you talked about share gains, if you still expect off of this kind of strong first quarter still good kind of seasonal ramp through the year on more of the mature and growth product areas.

[David Ku, executive]

Randy, I think for first quarter, the guidance we've basically 0% to 8% growth, just -- we just -- seasonal strong. If we dive into the 3 major product lines, I think the mobile product is the one with the strongest growth, I think, mainly due to the Chromebook and also due to the 5G product cycle.

For the growth area, I would say it's also strong as well, but relatively speaking, it's not as strong as the mobile device. But for the Smart Home basically, it's a -- basically [indiscernible] are the normal seasonal pattern. I think that's sort of the situation for the 3 major business lines.

[Randy Abrams, analyst]

Okay. And maybe if you can say the high base, your expectation. Like seasonally, usually off of first quarter, it's -- you're growing into second quarter. But do you expect any different pattern? Or given the demand strength in share, it still looks like a pretty good, even off the higher level?

[David Ku, executive]

I think for Q2, again, it's maybe a little bit too early for about Q2. But overall, I think like the CEO, Dr. Tsai, talking about for the full year, we're looking -- still looking for a solid growth year. So for Q2, even based on a high level on Q1, again, I don't think the guidance -- it's still too early to give our guidance, but we still see -- there's a pretty good chance we'll still see another quarter of growth for Q2.

[Randy Abrams, analyst]

Okay. Great. And the last question I had just on the -- circling back to the inventory and supply constraints. Your own inventory is still a bit below target level. How are you seeing ability to build back up? Or do you expect to kind of stay in these lower levels? And you talked about there is supply constraint. Is there a way to think about how much it's limiting shipment or ability to deliver to orders? Like if there's a magnitude kind of you're falling short of meeting the demand at this stage.

[Lih Shyng L. Tsai, executive]

I think David said, I think, very well earlier that, well, we -- during this very constrained time, customer certainly will do booking from different -- their suppliers. That's quite understandable, and we are prepared for that.

On the other hand, the constraint also limited our ability to meet customers "demand" fully also. So this question -- the question is really, our shipments will build a big inventory in a very short time in customer channels or not. As David said earlier that certainly, in the [ first quarter ], we don't see that. That all depends on the sell-through, of course. So we watch this every -- actually just for every week of customer sell-through. Look, we feel, right now, that the lower level of the inventory probably will last for another quarter, we believe. Beyond that, the visibility, of course, is not high, not high. But the supply-constrained situation, we believe, will continue.

[Operator]

Next in line, Laura Chen, KGI.

[Laura Chen, analyst]

Can you hear me?

[Operator]

Okay, we can hear you now.

[Laura Chen, analyst]

Yes. So also on the supply constraint issue, I'm just wondering that, how would you prioritize your product pipeline given the tight supply in the upstream side? Would that give us more like a prioritize on higher ASP product, thus, we may have better margin looking forward? That's my first question.

[Lih Shyng L. Tsai, executive]

Laura, it's a complex question. We have several considerations. But I'm sure I will not be able to answer your question directly, but several considerations. One is the strategic market position. As we said earlier, both David and I, that this year, we are definitely aiming for expanding our SAM and expanding our market share in the -- in our target strategic area. That's definitely a major consideration. Second consideration certainly to optimize the revenue and the profitability. A third consideration, of course, will still be our customer relations. So I cannot give you a simple answer but the -- this is what we do just for every 2 weeks. Thank you.

[Laura Chen, analyst]

Okay. Yes. I think another question is regarding your recent M&A. I know that you got a few M&A case last year. Can you elaborate more than MediaTek strategy in the networking space? How that impacts our business in the longer term? And maybe any growth target in this field?

[Lih Shyng L. Tsai, executive]

With the Intel Enpirion acquisition, it's basically a -- it's a Power IC, fitting the high-end FPGA application, especially in the hyperscale data center area. This is an area that our current Power IC business does not have. It really fits our current profile. It complements our current profile almost perfectly. So we went aggressively for it. And we have high expectation, of course, after -- or after the closure of the transaction, we have high expectation that the -- this business and the talent will fit well into our current strongly growing Power IC business. So we're -- as I said, we're at cycles.

[Laura Chen, analyst]

Okay. Will it meant also like a group into our growth business? And how would that impact our maybe potential ASIC business or other application in the networking space?

[David Ku, executive]

Laura, I think there should be no impact. It's really just a -- it's a different line of business. If there's any, I think that's a complementary because some of the PMIC, especially the high-end PMIC we talked about, are through this acquisition. They're going to get into the data centers, the cloud, the infrastructures. And we also have a long lines of ASIC basically working on the same space, but it basically provides different product line. But right now, actually, we have some synergy and also complementary for this line of business, for basically the terminal customer. But in terms of product, it's really just no impact. No net impact to be precise. It should be more synergized.

[Operator]

Ladies and gentlemen, unfortunately, we are lacking time, so we are going to take the next -- the last caller. The last one to ask question is Brett Simpson from Arete.

[Brett Simpson, analyst]

Rick, I had a question about MediaTek's computing strategy. We're seeing ARM CPU starting to make headway in consumer compute, so Apple with the Mac going on, and I think Qualcomm recently has acquired NUVIA. And you're making headway, encouraging headway in Chromebook. So I just wanted to ask, how do you see MediaTek's position evolving here over the medium term? And do you plan to fully support Windows? We hear a lot about China Linux launches this year, very similar to specs with Chromebook that would pour on to your platform. So I'm just wondering how you see this, particularly in China. Is there scope to build partnerships around -- in China around consumer compute based on ARM? And how should we think medium term about the overall strategy?

[Lih Shyng L. Tsai, executive]

We are -- we have invested over the years heavily in the ARM-based CPU capability. And as you said, we have also made inroads in the different segments. We are -- it is our intention, actually more than intention is really our -- one of our objective is to expand our penetration into the -- into all the SAM, which is the available for the ARM-based CPUs, Chromebook just being a good example. Whether -- Windows-based, I think that is probably not something we will engage anytime soon simply because of the huge investment required for the Windows. But we also believe strongly that the ARM-based CPU has a really bright future in the computing arena. And the MediaTek certainly will play an important and, I hope, a very profitable role in that area.

[Brett Simpson, analyst]

Great. And maybe just a question for David. David, can you clarify how much of the OpEx in Q4 went to cash staff bonus? And also, can you maybe just lay out the dividend policy? Now that your EPS is climbing quite sharply, are you going to stick with the same dividend policy? I think it's about 70% of EPS. Is that still the plan going forward?

[David Ku, executive]

Okay. I think for Q4 last year, the overall -- the profit cash bonus is roughly TWD 38 billion -- no, TWD 3.7 billion.

[Brett Simpson, analyst]

Okay. And on the dividend?

[David Ku, executive]

I'm sorry, and what?

[Lih Shyng L. Tsai, executive]

Dividend.

[Brett Simpson, analyst]

Sorry. You said TWD 3.7 billion OpEx. Okay.

[David Ku, executive]

Yes, with [indiscernible] and the cash bonus, yes.

[Brett Simpson, analyst]

For the quarter? Okay. Super. And then dividend, how should we think about dividend policy going forward?

[David Ku, executive]

So I think dividend policy is we haven't actually finalized with our Board yet. And normally, we won't finalize that until maybe some time in late March or early April. But generally, if you look at our dividend policy in the last few years, I think the payout ratio is roughly in the range of 70%. This year, I think in general, we will be maintaining this a little, maintaining this. But in terms of final numbers, please bear with us until we actually have the final word with our Board.

[Brett Simpson, analyst]

Okay. And maybe just one final one for Rick. You mentioned in your prepared remarks, millimeter wave is something that MediaTek is going to be supporting. I think you talked about commercializing in 2022. I'd just love to get your perspective on how you see the millimeter wave support. Do you think this is going to be a mainstream technology over the next couple of years and something that we may see in China in due course?

[Lih Shyng L. Tsai, executive]

Okay. Millimeter wave technology, I think it all really depends on your definition of mainstream, but it doesn't really matter because MediaTek is committed to delivering -- to deliver millimeter wave technology and SoC, 2021 and 2022 for revenues. We believe this is one area that, yes, we will be just -- we will not be absent.

As to China's market, it's still -- I think, it's pretty cloudy. We cannot tell clearly whether the Chinese will launch a major millimeter wave applications anytime soon, but that does not really change our core from that point of view.

[Brett Simpson, analyst]

Great. And maybe one final one for David on gross margins. There have been a lot of questions about the gross margin and the business. But I wanted to home in on the mobile computing division because we've seen, obviously, a lot of change with the transition from 4G to 5G. There's more tablet and compute this year. And I just wanted to understand how the gross margin is progressing in this specific area. Are we seeing progress in gross margin in 2021 in mobile specifically? And how close are we to corporate average gross margin in mobile?

[David Ku, executive]

Well, I think you can assume right now is that even with the gap, I think the gap is growing -- is mild, very small, because otherwise, you wouldn't be supposed -- when we see this huge revenue ramp on the smartphone side, even with a big gap between the corporate average versus the smartphone gross margin average, you should see a gross margin actually coming down substantially. But right now, actually, while we're expanding our revenue contribution from smartphone and spending aggressively on all different addressable market, we're still maintaining that. So you can assume actually the gap actually is pretty minimal.

[Operator]

Okay. Ladies and gentlemen, we thank you for all your questions. Now I'm handing it over to Ms. Jessie Wang for closing comment. Ms. Wang, please proceed.

[Jessie Wang, executive]

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

[Operator]

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