MediaTek Inc

TWSE:2454

Earnings Call Transcript 2021-Q4

[Operator]

Welcome, everyone, to the MediaTek 2021 Fourth Quarter Investors Conference Call. Financial results and presentations for today's conference call are available for download on Investors section of company website at www.mediatek.com.

And now, I would like to turn the call over to Ms. Jessie Wang, the Deputy Director of Investor Relations. Ms. Wang, please go ahead.

[Jessie Wang, executive]

Good afternoon, everyone. Joining us today are Dr. Rick Tsai, MediaTek CEO; and Mr. David Ku, MediaTek CFO. Mr. Ku will report our fourth quarter results and then Dr. Tsai will provide our prepared remarks. After that, we will open for Q&A.

As a reminder, today's presentation will provide forward-looking statements based on our current expectations. The statements are subject to various risks and factors which may cause actual results materially different from the statements. The presentation 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 fourth quarter financial results.

[David Ku, executive]

Thank you, Jessie. Good afternoon, everyone. Now let's start with the 2021 fourth quarter financial results. The currency here is in NT dollar. Revenue for the quarter was TWD 128.7 billion, down 1.8% sequentially, and up 33.5% year-over-year. Annual revenue totaled around TWD 493.4 billion, up 53.2% year-over-year.

Gross margin for the quarter was 49.6%, up 2.9 percentage points sequentially, and up 5.1 percentage points year-over-year. Gross margin for the year was 46.9%, up 3 percentage points from the previous year.

Operating expense for the quarter were TWD 34.1 billion, compared with TWD 31.9 billion in the previous quarter and TWD 27.5 billion in the same period last year. Full-year 2021 operating expense were TWD 123.6 billion, compared with TWD 98.3 billion in 2020.

Operating income for the quarter was TWD 29.7 billion, up 1.5% sequentially and up 93.3% year-over-year. Non-TIFRS operating income for the quarter was TWD 30.9 billion. 2021 full-year operating income was TWD 108 billion, up 150% year-over-year. Non-TIFRS operating income for the year was TWD 110.4 billion.

Operating margin for the quarter was 23.1%, increased 0.8 percentage points from the previous quarter and increased 7.2 percentage points from the year-ago quarter. Non-TIFRS operating margin for the quarter was 24%. Operating margin for the year was 21.9%, up 8.5 percentage points from 2020. Non-TIFRS operating margin for the year was 22.4%.

Net income for the quarter was TWD 30.1 billion, up 6.3% sequentially and up 101.6% year-over-year. Non-TIFRS net income for the quarter was TWD 31.2 billion. Net income for the year was TWD 111.9 billion, up 170% year-over-year. Non-TIFRS net income for the year was TWD 113.9 billion.

Net profit margin for the quarter was 23.4%, increased 1.8 percentage points from the prior quarter and increased 7.9 percentage points from the year-ago quarter. Non-TIFRS net profit margin for the quarter was 24.2%. Net profit margin for the year was 22.7%, up 9.8 percentage points year-over-year. Non-TIFRS net profit margin for the year was 23.1%.

EPS for the quarter was TWD 18.99, up from TWD 17.92 in the previous quarter and up from TWD 9.35 in the same quarter last year. Non-TIFRS EPS for the quarter was TWD 19.63. 2021 full-year EPS was TWD 70.56, compared with TWD 26.01 in 2020. Non-TIFRS EPS for the year was TWD 71.81.

In addition, a reconciliation table for our TIFRS and non-TIFRS financial measures is attached in our press release for your information.

That concludes my comments. Thank you.

[Jessie Wang, executive]

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

[Lih Shyng L. Tsai, executive]

Good afternoon, everyone. 2021 was a great year for MediaTek. Following a successful year of 2020, we again set several financial records in 2021. We achieved a record revenue of TWD 493 billion, or $17.6 billion. We more than doubled our earnings per share to TWD 70.56.

In addition, both gross margin and operating margin increased for 4 consecutive years. Gross margin increased more than 11 percentage points from 35.6% in 2017 to 46.9% in 2021. Operating margin increased more than 17 percentage points from 4.1% in 2017 to 21.9% in 2021. These results reflect our successful implementation of strategies to have early readiness in 5G and WiFi 6 to capture the entire product cycle, as well as industry-leading low-power computing technology, supported by disciplined operation. Meanwhile, thanks to our enhanced competitiveness in technologies, we are better able to expand our addressable markets and provide more values to our customers.

With strong business fundamentals, we are confident in sustaining a strong cash flow going forward. We therefore in last April raised our cash dividend payout ratio to 80% to 85% on regular basis, and launched a 4-year special cash dividend program of TWD 16 per share per year. Based on our 2021 EPS of TWD 70.56, we expect our cash dividend payment in 2022 to be in the range of TWD 72 to TWD 76, subject to Board of Directors approval.

On the business side, all revenue groups delivered strong annual growth rates in 2021. Altogether, more than 2 billion electronic devices sold in 2021 were enabled by MediaTek solutions, ranging from smartphones, smart TV to routers, broadband, notebooks, tablets and a large variety of devices. These computing edge play a critical role -- or these billion of smart edge devices are complementary to the fast-growing cloud computing and play a critical role in enriching everyone's cloud experiences.

Motivated by the convergence of smart edge devices, we recently made some changes in business organizations to consolidate our resources and invest heavily on the fast-growing computing, connectivity and smart edge platform businesses. We will also align revenue disclosure with these changes starting from 2022 with 3 groups: mobile phone, smart edge platforms and power IC.

Along with this trend and our continuous expansions in addressable market, we foresee our total addressable market to grow to $140 billion in 2024 from $80 billion in 2021. For MediaTek, with such growth prospects, as well as strong and matching technologies, we believe we will enjoy revenue CAGR of mid-teen percent for the next 3 years with all revenue groups growing robustly.

MediaTek possesses all the key technologies and capabilities for the smart edge devices. We offer high-performance, low-power CPU, GPU and APU. Our comprehensive and synergistic portfolio of short-long range wireless-wireline technologies, that is, 5G modem, WiFi 6, WiFi 7, Bluetooth, 10G-PON are industry-leading. In addition, the high-quality camera, video, audio IPs using our superior edge AI techniques provide highly differentiating values to our key customers. All these technologies, IPs and capabilities are integrated into various products, serving multiple and complementary platforms, in a most efficient manner. Power ICs, being broad-based in nature, provide, not only values to MediaTek products, but also steadily growing revenue.

Still, we continue to invest aggressively in technologies for the future growth beyond 3 years. We are extending our core capabilities into higher power computing, high-performance, low-power graphics IPs, 5G modems with low latency, massive distribution applications, next-generation WiFis, security IPs, all of which will be integrated into advanced system architectures for different platforms and ecosystems. Underneath them all are the leading edge process, as well as 3D chiplets technologies in collaboration with our foundry partners.

Lastly but importantly, we collaborate closely with our key customers and ecosystem partners at the early IP-product development stage in order to optimize the system performance and greatly enhance the user experiences. MediaTek strives to be a reliable and trustworthy partner to our customers, as we become more relevant in the industry. The business momentum that we have built in the last couple of years, our broad-based product offering and continuous technology migration within our competitive portfolio will make 2022 a resilient year for MediaTek, despite the potential uncertainties in the end market. We expect, in 2022, our revenue growth to exceed 20% with a gross margin target of 48% to 50%, thanks to better product mix and strong technology migration.

With that, let me comment on 2022 growth drivers for each revenue group, For mobile phone, as the largest smartphone SoC maker, we aim to sustain our leading position in 2022. Our main growth drivers this year will be continuous 5G migration in more regions and expansion into flagship segment. We expect global 5G smartphone penetration rate to grow from high-30% to exceed 50% this year, which represents approximately 700 million units. Although 5G penetration rate in China stays high at 80% where we aim to sustain our leading position, we expect 5G unit growth to mainly come from other regions. We expect our 5G shipments to regions outside of China to double in 2022, due to our strong 5G design-in pipelines with global customers with extensive market position in North America, Europe, India and other emerging regions. In addition to our strong sub-6 gigahertz portfolio, our millimeter wave SoC has also been certified by a global major operator with mass production starting in the second half of 2022 for global market.

We are also every excited about our expansion into flagship. The technical capability and user experience of our first flagship SoC Dimensity 9000 is highly-recognized by the market. Major benchmark data shows that Dimensity 9000 has a powerful CPU with the best power performance. All major China brands have adopted Dimensity 9000 and the first model is scheduled to launch in March. We are also working closely with key customers to market the Dimensity 9000 as a leading 5G SoC brand. With our strong technology investments, we will continue delivering future generations of flagship products.

For smart edge platforms, we are still at the early stage of technology migration in WiFi6, 6E, 5G, Bluetooth 5.0 and we expect multiple-year growth opportunities ahead of us. In addition to technology upgrade on existing platforms which contributes most of the growth for this group this year, I like to point out that our ability in expanding into new platforms and capturing emerging opportunities through leveraging our leading technologies will begin to pay off this year.

First, with our early readiness of 5G modem and WiFi 6E, we have been able to penetrate the notebook market successfully. Our partnership with Intel and AMD help us build a strong design-in pipeline with all major global OEMs. As more notebook models start mass production this year, we expect revenues from this platform to grow meaningfully. Furthermore, we are seeing other revenue generating opportunities starting to bear fruits. One example is customer-premises equipment, or CPE, for global operators where we ship multiple products, including the main chip, 5G modem and WiFi6. Another example is AR gaming device where we provide the critical multi-media SoC. These developments will provide future growth in this area in years to come.

For power IC, the structurally higher demand driven by accelerated technology migration continues into 2022. We offer power IC solutions in diverse industries, including computing, communication, consumer, automotive and industrial. Product sales through MediaTek group platforms such as smartphone and smart edge devices will continue to grow robustly this year and to account for about 30% of our power IC revenue. Non-group associated businesses, including fast-charging adaptor, Type-C and memory-related power IC products will grow even faster. Among which, automotive and industrial applications are showing the highest growth rate and will account for more than 10% of our power revenue this year.

For the first quarter of 2022, we expect revenues coming from higher 5G adoption and flagship Dimensity 9000 shipment to offset lower seasonal demand for certain consumer products. We also expect mix shift towards higher value-added products across all revenue groups and bring benefits to gross margin. We therefore forecast our first quarter revenue to be in the range of TWD 131.2 billion to TWD 141.5 billion, up 2% to 10% sequentially, and up 21% to 31% year-over-year at a forecasted exchange rate of TWD 27.7 to $1. Gross margin is forecasted at 49%, plus or minus 1.5 percentage points. Quarterly operating expense ratio to be at 25%, plus or minus 2 percentage points.

To summarize, we are making very good progress towards 2022. Based upon our 20% plus revenue growth target this year, $20 billion revenue is around the corner and this will be the beginning of a new chapter for MediaTek. With our business realignments to invest heavily in computing, connectivity and smart edge platforms, we believe we are on the right track to capture future growth opportunities, along with healthy smartphone growth. We are confident to achieve our 3-year mid-teens revenue CAGR target and to create shareholder value.

This concludes my prepared comments. I wish everyone stays safe and have a happy Chinese New Year. Thank you.

[Jessie Wang, executive]

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

[Operator]

[Operator Instructions] The first one to ask questions Randy Abrams from Credit Suisse.

[Randy Abrams, analyst]

Congratulations on the result and also looks like a good outlook. First question I wanted to ask on the business segment, a 2-part question. I think, first, just the motivation to combine, it looks like you're combining the compute IoT networking with what used to be the smart home more mature product, which originally had much different growth rates. So wanted to understand the motivation to combine. And then the second part is, if you could give the fourth quarter by segment either the revenue or the growth and also a rough view on the split for 2022 of growth by segment?

[Lih Shyng L. Tsai, executive]

Okay. Randy, I'll take the first part and David will do the second part. The consolidation of our 2 business groups have actually multiple objectives. For example, the most important is to create scale. While these 2 businesses comprise about TWD 6 billion revenue last year, within which there are many synergies where they were kind of artificially separated before, like -- I mean, like TVs, we have strong smart and AI-enhanced display capability, where they will be utilized easily to my vision product lines and also to our OTT, but also there -- and all the WiFi products that we have almost being utilized in TVs and all the other products. So the strong synergy among different product lines and with the consolidation or the R&D resources will be combined also. We will be more productive in our R&D resource utilization and also those R&D resources will be asked to deliver the new business opportunities and that's mainly why, Randy.

[David Ku, executive]

Okay. Randy, for your second question, maybe I'll talk about the growth rate last year for the 3 business group and also talking about the revenue breakdown roughly. I think for last year basically overall all business group grew more than 30% probably strongest from the mobile phone sector. But I think the key point is all group grew more than 30%, that's point number 1.

Point #2, in terms of revenue breakdown for fourth quarter last year for the 3 business group, I feel mobile phone accounted for roughly 52% and power IC accounted for roughly 7% and the rest go to the smart edge platform. And for this year, given the fact, like the CEO talked about earlier, I think this year, we are looking for another strong growth year and more importantly all 3 business group all have a pretty robust growth rate. So, I would say, the revenue or percentage of revenue contribution to be pretty much in line with what we had in the fourth quarter last year. I don't see there's any big movement or change over there.

[Randy Abrams, analyst]

Okay. And to clarify then, all 3 groups probably pretty similar near that 20% average?

[David Ku, executive]

Yes, I think profitability they are also very similar as well.

[Randy Abrams, analyst]

Okay. And actually the second question I wanted to ask on the -- more the profitability side, margins have seen a good expansion. I feel like it's 2 things, it's mix improving competitiveness, but also you've had the industry tight supply environment, which has been a good sellers' market. I'm curious to your view factoring you have the vector of competitiveness, but also if supply environment starts to shift. How you are looking at the base and margin, if this is the new level where we should start looking at 50-plus or just be mindful, it's a good environment could come down? So curious your view on gross margin.

And then for OpEx there has been a lot of talks about hiring and getting more aggressive after keeping headcount pretty stable the last few years after buying MStar. So, if you have a view on OpEx and hiring for this year?

[Lih Shyng L. Tsai, executive]

Okay, Randy. We expect the -- as we said in our opening remarks, our -- we're looking at a 48% to 50% gross margin target. And we are also looking at a resilient year, 2022, despite the -- what we believe there were more uncertain in the macro environment, China, US, et cetera. So in that sense, the supply and demand imbalance which we have seen and -- or the industry has seen last year and a large part of 2020, I think will be a bit more moderate in 2022. But because of our technology migration capability and our mix improvement, we still believe we can improve our margin to what we now forecast. Whether we're going to do better? Well, I mean, I think this year the supply-demand being more moderate, we will have to work with our customers and also with our suppliers to optimize our margin going forward.

The second question?

[David Ku, executive]

[ The OpEx ].

[Randy Abrams, analyst]

Okay. And then just quick on the OpEx outlook and then I'll...

[David Ku, executive]

Yes. I think, Randy, I think for the OpEx ratio, I think, like the guidance we gave, it's around 25% plus, minus 2%. I think, for this year compared to last year, I think our strategy is to still invest heavily and aggressively for the growth for the next 3 years plus. So the growth actually probably trying to maintain probably slightly down little bit. I think last year the OpEx ratio was around 25% to 26%, this year, I think our goal actually is to keep 25% so it will be a similar level. But overall, I guess, given the fact that we can continue to grow the topline and also improve the profitability and mainly actually the gross margin, I think, overall, we should be still looking for another year of operating margin improvement.

[Operator]

Next one to ask questions Gokul Hariharan from JPMorgan.

[Gokul Hariharan, analyst]

Congrats on the good results. I just want to focus on the longer-term guidance, the mid-teens long-term growth and expansion of the addressable market opportunity. Could we talk a little bit about as you see the addressable market grow from TWD 80 billion to TWD 140 billion, what is the main driver? Are we addressing new markets in the next 3 years or is it just the addressable market growing at that rate? And also, when we think about mid-teens growth for overall MediaTek in the next 3 years, which are the segments which are growing faster, if you think about mobile, smart edge and power IC, which are the segments which are growing fast -- significantly faster than the mid-teens? And yes, that's my first question.

[Lih Shyng L. Tsai, executive]

Okay. We expect all 3 groups, of course, to grow pretty robustly. For the coming 3 years, I think, a lot of the growth will come from the technology upgrades and the product -- much better product mix we have already put in place now in 2022. However, we see mobile growth rate compared to smart edge platforms growth rate, smart edge platform growth will be higher compared to mobile phone. The power IC also is always very steady and very good. So, for '21 to '24, we'll see our TAM moving from TWD 80 billion to TWD 140 billion. We are not counting any -- very new market -- addressable market, which by the way, with our heavy investment in our R&D will coming after 3 years, I must point out.

[Gokul Hariharan, analyst]

Second question on 5G and mobile. Usually what happens when we reach 60%, 70% penetration in 5G, we start to see prices start to come down a little bit. How do you see this evolve, at least, in 4G that happened, 3G also it happened? Do you see that happening in 5G as well? I think previously you had guided that ASPs for 5G should still be going up this year. But as we look forward, do we see that prices start to come down for 5G beyond this year or do you think that 5G blended ASPs can actually stay around these levels?

[David Ku, executive]

I think, at least for this year, for 2022, like we explained earlier, we still see a flattish to slightly up on the blended 5G. More importantly, if you look at our business ratio, the mix between 4G and 5G continue to improve. So on the blended ASP which including [ that old ] smartphone sector is actually heavily attractive, but even if you only look at the 5G we believe it's still pretty flattish to slightly up, mainly due to the -- like we talked about earlier, the business expansion, which including the smartphone segment expansion and also the global expansion.

I think 1 thing I'm trying to highlight is actually when we say the global expansion, maybe people still have the impression talking about emerging market, but in reality, like we talked about last time, even for US market, last year alone, I think we shipped more than 30 million units of smartphone. And this year I think the number should be continue to grow. From a market share perspective, in US, Android market share last year, we believe our market share is north of 35% and this year will continue to increase. So the global expansion and also segmentation expansion really help at least for this year. For next year, I guess, again maybe a little bit too mature -- too early to talk about that. But overall, we do believe, as long as we can continue to enjoy the technology migration and also expansion of our addressable market, we should be able to cope with the mix change nicely.

[Operator]

Next one we have Roland Shu from Citigroup.

[Roland Shu, analyst]

Congratulations on a very good result. First question is, David, you mentioned about the mix between 4G and the 5G SoC continued to increase. So, may we have the 4G and the 5G SoC revenue breakdown in last year? And also in this year, will you still continue grow 4G SoC revenue in 2022? And also from the gross margin's point of view, how about the 4G and the 5G SoC margins compared to corporate average now?

[David Ku, executive]

Roland, first of all, for 4G-5G breakdown in revenue, we didn't really disclose that externally. But if I can share with you, the 4G -- 5G revenue is more than 50% on overall smartphone already and it continue to grow strongly this year, given the fact like we talked about earlier, the penetration rate will increase from last year 30% to this year globally more than [ 50% ] and we enjoy the global expansion, again, not just in China, global expansion. I think that much we can disclose.

In terms of gross margin, I think right now, pretty much for all product line and also all business segment, they are pretty much in line with the corporate average. Okay? I won't -- there are some difference, but I won't say it's a big difference. Some of the higher [indiscernible] actually all within a nice range.

[Roland Shu, analyst]

Okay. So how about for the 4G absolute -- revenue this year, are you going to continue grow the 4G revenue this year?

[David Ku, executive]

No. I think for the absolute revenue, our view is probably more flattish, maybe even down little bit, because the volume wise it will come down for the good reason, because most -- a lot of 4G will be covering 5G.

[Roland Shu, analyst]

Okay. Second question is, can you comment about for your inventory? So your inventory actually has been going high. Among other product lines, what product carries the highest inventory level and what product is with the lowest inventory level? Are you expecting for any likely inventory correction [ undertaking ]?

[David Ku, executive]

I think, first of all, before I'm commenting about the details of inventory, I'd like to talk about the market inventory or the customer inventory. I think, in general, what we see both on the channel side and also on the customer side, I think, the inventory level, even though compared to last year, there's a slight increase, I guess, mainly due to a lot of customers still trying to strategically build some inventory off slightly higher inventory level to manage the uncertainty for the supply chain. But overall, on absolute level, we do see both on the channel side and as well as on the customer side, the inventory level is healthy and manageable.

Then come back to the MediaTek side, I think, our inventory again compared to last quarter, Q4 versus Q3, it's actually increased, I think mainly due to -- we need to cope with the current market situation. And to make the long story short, we do believe that around 100 days of inventory is normal and also probably it's better way to manage given the overall situation. What do I mean by the overall situation, if I just detail it out, actually we need to consider our longer lead-time for the advanced node and also the overall foundry and OSAT capacity and pricing consideration and also, of course, we need to take into consideration about the market competition situation and also the last the customer requirement. But overall, I guess, we do believe it's manageable and also it's healthy and actually the preparation for the future revenue growth.

[Operator]

Now, the line is open to Brett Simpson from Arete Research.

[Brett Simpson, analyst]

I wanted to ask on pricing generally, but on mobile -- on the smartphone business, we understand you've made material price increases in 4G and also a price uplift in 5G. Can you maybe just help us understand, is this fully reflected in Q1 guidance or do we see some of the price increases coming in Q2? And more broadly and this goes for the broad portfolio you offer and with pricing going up, reacting to the foundry cost increases, how do you think the consumer -- how do you think price rises impact consumer demand this year or do you think it's relatively inelastic?

[David Ku, executive]

Brett, I think, for the pricing, let me [ reside ] I'm assuming you're talking about 2 elements. One is actually our cost, which is the foundry's pricing, and other part actually is our pricing. I think all start happened in fourth quarter last year already. In first quarter this year, the guidance do including the new pricing on the MediaTek side, which by the way happened in -- starting from last quarter and also the new pricing or new cost element for MediaTek basically started from fourth quarter last year. So for instance, yes, it's including the guidance already.

And the second question will be is, will the new pricing have any impact about overall volatile market demand? I guess, actually for any price increase, certainly, will have some impact, but overall, if we netted out we still feel actually is the overall sort of impact of the demand, may be the better way to talk about that relevance in impact, the demand still looks solid and healthy, that's what we see for the moment, even after the pricing.

[Brett Simpson, analyst]

And maybe just as a second question for Rick, you talked about a sort of slight shift on how you're addressing the smart edge and you mentioned computing is one of the key growth drivers. Can you maybe talk a bit more broadly about the strategy here? Are you going to address Windows 11 with your platforms? And, I guess, on the GPU side, you use a lot of Mali today and Mali doesn't support DirectX and things like ray tracing, which you're going to need if you move into the computing market more broadly. What's -- how do you address or how do you think about graphics? Because, I guess, when you look at the players in computing today, the NVIDIAs, AMDs, the Intels, they have significant resources in graphics, which are very different architectures than what we see in smartphones. So just like to know your strategy here in GPUs.

[Lih Shyng L. Tsai, executive]

Okay. Understand the question. It is indeed -- the computing is indeed an addressable market, a very large one for MediaTek, where we have, I would say, quite small exposure. We have built a quite strong capabilities in computing GPU, APU, but we also understand those are mostly based on the mobile -- flagship mobile applications. We have -- well, we have some way to go both on technology point of view and from the ecosystem point of view. We understand that. That's why I said earlier in one of my response that some of those large addressable markets, if not now, in our 3-year forecast, all addressable markets really maybe a small portion. But -- so you can tell our horizon is beyond 3 years, it's more like 4 years and beyond. And we certainly -- and that's also a big reason why we are investing resources in our R&D and therefore, developing those future addressable markets. They are not easily, we understand, certainly, GPU being a very challenging technology for that kind of market.

We are -- I cannot really disclose our strategy, but the -- we are looking at, not just the certain IP as you just mentioned, we must -- well, we don't exclude any possibilities within the industry. But the important thing is the -- I think I believe with the revenue we have, with the revenue growth, but -- we have going forward, with the margin that we have been improving, we have, well, a pretty good capability from financial point of view for sure and our capability to recruit now much better high caliber people to move forward.

[Brett Simpson, analyst]

And maybe just a follow-up to that, Rick. I guess, there's a lot of hype around metaverse. We're seeing a lot of new product being introduced at some point this year. When would you expect MediaTek to have a platform to address this market?

[Lih Shyng L. Tsai, executive]

We're almost there. Actually, this is a major part of our, again, our addressable market. We have been working with some of our key customers with certain VR or AR-specific applications. We have built I think 1 or -- not 1, but some of our MediaTek's really core competencies low-power technology capability and low latency capability, which was very good performance from a computing point of view, not to mention the -- all the connectivity modems, WiFis, the Bluetooth. So we have all the elements. I'm sure you understand.

And, of course, the metaverse is the -- I don't know whether it's young or not, it's fairly young. We know it's going to be big. We are working with, or shall we say, key system companies to work with them in making our technology into the devices for those applications. There is no doubt in my mind that the MediaTek will be a major player in the metaverse universe, shall we say. There's no doubt in my mind. It's just -- but I'm not so sure that we're having in 1 year or 2 years. It would take a little while. And we -- that's fine with us, because we have -- I think, we have, as I said, a very strong already fundamentals that will give us the competing capability and advantages.

[Operator]

Next one to ask questions, Sunny Lin, UBS.

[Sunny Lin, analyst]

So my first question is on the supply chain tightness. I want to get your thoughts on how long the foundry supply constraint may sustain? And would you anticipate further margin impact from the foundry cost increase for next couple of quarters?

[David Ku, executive]

Well, I think for the supply chain situation, just like the CEO talked about earlier, compared to last year, I think it's actually some of the -- is up a little bit, but it doesn't mean actually there is ample supply is out there. I think, probably the best way to think about that actually is still tight, but manageable. And given our overall operating and also given -- especially given the size we have, I think relatively speaking is actually we got ample support for what we need for this year.

In terms of pricing, I think, I'm talking about the supply chain pricing, I think, overall, given the market uncertainty and also given the overall demand situation, I guess, our views are probably is actually it's not a good time from the supply chain's perspective to think about increase of price, that's our view.

[Sunny Lin, analyst]

Second question on the same market size that you mentioned. So for TWD 80 billion going into TWD 140 billion, would you be able to provide the breakdown by key markets?

[David Ku, executive]

Yes, certainly. I think for the TWD 80 billion in 2021, roughly TWD 40 billion is on smart edge platform and TWD 10 billion in power IC and the rest go to mobile phone. And by 2024, our view is actually on the smart edge will grow from TWD 40 billion to roughly TWD 80 billion, power IC will growth from TWD 10 billion to TWD 14 billion to TWD 15 billion, mobile phone will grow to TWD 50 billion. I think that's our view.

[Sunny Lin, analyst]

So a few years ago, you mentioned that your plan for automotive. Is that still ongoing? Is that part of the smart edge for your business?

[Lih Shyng L. Tsai, executive]

Yes, it is. Actually, we have built a pretty good and competitive product in the infotainment applications, smart cockpit and, of course, the modem -- 5G modem modules. But we have won some, I would say, critical win with the OEM. We have not made a big noise out of it, because the revenue so far is not huge. And the automotive business is a very time-consuming go-to-market kind of a business. MediaTek certainly is in this very important segment. And as we move on, we will -- I mean, there are some -- like some new, but very significant EV startup that we will work with to develop product for them in the future.

[Operator]

Next we have Bruce from Goldman Sachs.

[Zheng Lu, analyst]

Congrats on a great result, and thanks for the detailed update for the additional market. I try to ask a question about the profitability and the sustainability. We understand that the foundry raised the wafer price and you guys did a very good job in terms of pass-through the cost, which delivered good margins in the first quarter. So what's your customers feedback and how does that look for the margin profile throughout the year? I mean, I do remember that Rick was mentioning that the first quarter is a new chapter of your profitability. And do we expect the margin will continue to trend up throughout the year?

[David Ku, executive]

Yes. Bruce, I think during the opening remarks by our CEO, Dr. Rick Tsai, I think we talked about from a year-over-year perspective, I think we do basically address all. I think if you recall earlier last year, the guidance for the full-year we gave out was 44% to 46%, and we end up actually probably slightly on the higher end, actually, it fits the high end of our guidance.

And this year, I think the overall guidance is 48% to 50% and, of course, as you can assume, we are working toward the mid to high end, if not, exceeding this a little bit. I think that's the goal. But given the fact, actually there's still a lot of uncertainty and also now we're only talking about like not even end of January yet.

So we probably won't be able to provide more detail, but overall, I think if I'm looking at the fourth quarter gross margin and also if I'm looking at the guidance we gave out for the first quarter, which is the 49%, plus-minus 1.5%, to answer your question directly, I think both from of the profitability and also from sustainability perspective, we do have certain level of content.

I think mainly due to, again, 2 factors: the continued migration for technologies and also the expansion, not just on the flagship side, but also on the global expansion. I think that 2 factors together do give us a certain level of confidence to continue improve the profitability as we indicated earlier.

[Zheng Lu, analyst]

So my next question is more for your M&A strategy. I mean, I saw a very different denominator between MediaTek versus global peers like Qualcomm or NVIDIA, who are usually trying to acquire a big company trying to use M&A to expand their product portfolio. But from a MediaTek perspective, the company acquired [ edtech ] and sell it out the SigmaStar, Airoha, all these companies when you try -- when you invest in them, I didn't think you sell them and make a very good money out of it, but you don't really include them into your product portfolio to enlarge your product offering. So why is that there is a big difference between MediaTek strategy versus the global other fabless companies?

[David Ku, executive]

Bruce, I think what you talked about probably is only the partial picture [ versus ] the full picture. For example, for the most of the sort of the target or company we acquire, actually we keep this in-housing growth nicely. Just to near a few for example for MStar, right now, it's actually 1 of the foundations or key pillar for the smart edge like business and also for Richtek, right now actually last year we talked about the revenue growth, by the time we acquired, the revenue topped about TWD 500 million, but now we grow the revenue last year to be more than TWD 1 billion. And more importantly, and we also talked about for PMIC IC more than 10% revenue come from [indiscernible] and also from industrial.

Well, another example is actually Ralink, actually maybe too long, people forget about that and we acquired Ralink and right now more than TWD 2 billion to TWD 3 billion revenue is actually coming out from the Ralink [indiscernible] or the connectivity. So we do actually have a pretty solid M&A track record. So what you talk about is the audience -- from the [indiscernible] or from the revenue side, it's actually is much smaller. But we can actually probably, given your question, the short answer is MediaTek is actually also consider about M&A in the past and also going forward, I think that will be one of our growth strategies.

[Zheng Lu, analyst]

Well, I do understand the Ralink, Richtek, but that was like more than 5 years ago. What I'm trying to say is that, in the last 3, 4 years, the industry is in the series consolidation. But for the last 3, 4 years, we just don't see that coming from MediaTek. Is there any particular reason behind that or...

[David Ku, executive]

Bruce, some of our M&A take 2 parties to make a deal. And it's actually is -- so it's not like we want to do a deal, the deal will happen. I think the only thing I can say is actually we see this as a one of a possible option and we've done that so many times and whether or not it's the right time, or right target come out, it's actually sometimes out of our control. It's out of our control.

[Lih Shyng L. Tsai, executive]

Well, it is definitely in our picture. If you look at MediaTek during the last 4, 5 years, we -- actually we would -- we just had to basically turnaround our business first and invest in technology, without which, I mean, there is really no good base to make any major M&A and successful M&A. And I think MediaTek is now in a much stronger foundation that we can be more aggressive. However, David, said that well, too, it takes 2 to make a deal, and -- but we are going to -- we are looking at all options.

[David Ku, executive]

If I may, maybe I can add 1 thing. I mean, since all analysts is on the line, actually it's another issue it's actually on the Taiwan accounting system, I think doing M&A, most of the US company can reporting for GAAP and people focused on non-GAAP. So, when you look at our financial announcement, we actually disclose, in Taiwan, what we call non-TIFRS. Unfortunately, I think most of industry analyst basically people on the line, probably only focus on the GAAP. I think that's actually is another issue somehow a limited Taiwanese company to go out and buy a sizable company. Because once you go out buy a sizable company, you will incur sizable depreciation. So we need to focus on non-GAAP. I think it's a good time for me to also bring this up as well, that's why we started to disclose the non-GAAP, which is the non-IFRS number 3 years ago. But when I look the recent report, to be honest, not too many people [indiscernible], so maybe that's a good point, Bruce. Maybe you can help us...

[Zheng Lu, analyst]

I mean -- well, definitely, you guys did a big acquisition I would definitely start to learn more about the non-GAAP report to investors, as well as analysts maybe need to be educated a bit more. I don't disagree. But the reason I asked this question is that, MediaTek is a highly, highly consumer-centric business nature with higher exposure in China. So if you want to get a faster track to get into the enterprise business, non-China business, M&A might be a fast track from a lot of investor perspective and we are just trying to see if the management is aggressive in terms of doing that, because that's the underlying rationale for me to ask the questions.

[David Ku, executive]

Bruce, I'll probably just make a final closing and then we move on to next question. Well, first of all, like the CEO said, M&A is our strategy. And the second point when you talk about MediaTek, a lot of revenue coming from China, I would say, that's again it's a growing pressure. When you compare the revenue contribution from China between MediaTek, Qualcomm and Intel, I think we are on the same level. So that's 1 -- just 1 clarification on that. Okay?

[Operator]

Okay. Ladies and gentlemen, with the interest of time, we are going to take the last 2 callers for questions. And the first one is Charlie Chan from Morgan Stanley.

[Charlie Chan, analyst]

A Happy Chinese New Year ahead. So my first question is easier is about the Windows opportunity. You said that in your TWD 140 billion in TAM opportunity and for WOA or the PC CPU market, what is the TAM that you are looking at and the starting point of the revenue contribution? That's my first question on WOA.

[Lih Shyng L. Tsai, executive]

I think I answered that question earlier, it is not TWD 140 billion addressable market.

[Charlie Chan, analyst]

Sorry about that, yes.

[Lih Shyng L. Tsai, executive]

Yes, it is not. We -- I mean, it doesn't mean we're not pursuing that, it's just going to be 4 years and beyond, we need some time.

[Charlie Chan, analyst]

Okay. Any reason that it takes longer time because, I mean, in terms of how we are design, you already have a big success in the Chromebook processor, whereas your major competitor Qualcomm seems to overcome the ecosystem easier. So I'm just a little bit surprised why it takes much longer for MediaTek.

[Lih Shyng L. Tsai, executive]

Well, Chromebook, yes, we have been doing well. And we certainly will continue to invest in that segment for sure. That segment actually has a very high synergy with our current investment in the flagship chips. I guess, what I am talking about is really sort of much larger addressable market, including Chromebook, which takes higher power computing capability ecosystem synergy.

If you look at our competitor, the time being -- the years they have taken to be whoever they are, of course, I don't know really well how much their revenue is. So it is a market that we recognized to be very large, but also with different kinds of barriers. And we must address those barriers in a very robust manner. I think again, we are in a good position that we don't have to rush, that's quite important. I want to do the right things. I want to set the right strategy and execute them well.

[Charlie Chan, analyst]

So I think sometimes it's a good strategy is to bide your time, patient, but I also noticed that you are kind of ahead about no matter WiFi 7, which for a market I think should be 2 years later and even your 6G Vision White Paper, right? I think that is a great paper, but in the paper you mentioned that the timeline should be 2030, right? So what would company want to kind of take a lead of the kind of a very leading edge kind of from thinking about future technology? And do you think MediaTek can really kind of lead the world, especially MediaTek was very successful in China or emerging market futures and now 6G seem to be kind of the leader for the world. So can you expand kind of the rationale behind why you want to do this so early?

[Lih Shyng L. Tsai, executive]

I'm just trying to make sure I'm answering the question -- your questions. First, I think, WiFi 7 or 6G, I'm very proud that we have made tremendous progress. If you look at where we were 4 years ago with WiFi6, for instance, our market position vis-a-vis our major large US competitors. Now, we are -- now we were behind. Now, we are kind of -- at least shoulder-to-shoulder.

6G we have done a tremendous job with 5G modem, and the -- it's a -- we have invested in high-caliber people so that we have 6G blueprint. These are the things that -- which are very difficult, very challenging, but on the other hand MediaTek does have a handle. Computing market is, I mean, it's an existing market for a long, long, long time. However, it's not a big existing market for MediaTek, at least yet. So the pace from our end, it's not whether we want to invest or not, we do and we are putting resources. I just don't want to put in undue expectations. And I want to make sure that for the next 3 years, we can keep our forecast of mid-teens percent growth based on what we know, what we are doing and are we working on the 3- to 5- year horizon that we can also deliver a good growth target for that. So it's not that we are not being aggressive, we are, but I don't want to put in undue expectations.

[David Ku, executive]

Rick, if I may, actually, Charlie, I think one thing I like to clear is by -- listening to your question I think maybe there's some miscommunication. I think from an investment perspective on WOA, I think what Rick talking about, we've actually been aggressive, okay? So for investment, we've been aggressive. Just about the expectation management and also about the mid-teens growth, we didn't really factor in a huge number, I think that's the clarification on that. But it doesn't mean we won't invest until [ free state ] actually, we talk about want to invest right now for 3 years latest market, I think during the opening remark by CEO, Rick.

[Charlie Chan, analyst]

Okay. Yes. So look forward to seeing you in person maybe after pandemic come down and we can have some discussion regarding your kind of long-term vision.

[Operator]

Next one to ask questions, Frank Lee from HSBC.

[Frank Lee, analyst]

I just wanted to have, I guess, a follow-up question on this long-term growth of mid-teens. I think the last year or 2, we've seen the tightness in semiconductor leading to price increases. As you look forward as part of your long-term growth, is there any assumption of ASP improvements going forward as part of this long-term growth target?

[David Ku, executive]

Well, I think, the answer is probably yes and no. Yes means, it's actually through the product mix and also getting to the higher end, we do expect to grow the ASP will continue to improve. The no part is actually is currently we didn't really factor in sort of the price -- simple price adjustment for mid-teens growth.

[Frank Lee, analyst]

Okay. So basically what you're saying is that, ASP increase is really the function of content growth going forward...

[David Ku, executive]

In technology and content, yes.

[Frank Lee, analyst]

Okay. And then just -- and sort of like a [ confidence ] because I know you gave a good breakdown in your TWD 80 billion target in 2021 getting to TWD 140 billion and the different areas are growing. The smart edge looks like it's growing the strong increase from TWD 40 billion to TWD 80 billion, but others also growing. Is it safe to assume, if we could -- I know it's difficult, but is there a way you can just give us an idea of from a content growth perspective, the percentage increases, should we expect the biggest to come from the smart edge? Or is it more about the...

[David Ku, executive]

It's actually from all 3 business segment. For example, for mobile phone, like we talked about 4G to 5G and also into the flagship that actually [ won ] by content growth. For the smart edge, which including WiFi 6, WiFi 6E, WiFi 7, that's actually another example of content growth. Another example is actually, for example, for the wireline communication, the G-PON, 10G-PON. So I think really just on the whole segment for PMIC, power IC, for example, we get into that industrial, get into multi -- actually that's also performance of content growth. So it's actually happened in all 3 sectors. And -- but if I want to add anymore, it's actually on the smart edge platform due to the variety of products over there, we also have an element of volume growth as well.

[Frank Lee, analyst]

And then, I guess, my last question is on the auto, I know you guys addressed this a bit as well, but I guess, as far as -- because it seems to be a major growth area for a lot of people in the industry. Is there any more specifics you can share as far as like from a product point of view within auto that you were targeting more to breakthrough? I know you talked about entertainment, but is there any other areas in auto that you think would be the biggest opportunity for MediaTek in the next couple of years?

[Lih Shyng L. Tsai, executive]

I think the -- with automotive, we also -- we look at our competencies. Our competence line in computing in activity. And the new products that we will be developing certainly probably will be with our major competences and then maybe expand some. But we certainly have the power IC capability. Whether we will go to a point of very high voltage power IC, that remains to be seen.

[Operator]

Thank you, ladies and gentlemen, for all your questions. Now, I will hand it over to Ms. Jessie Wang for closing comments. Ms. Wang, please proceed.

[Jessie Wang, executive]

Ladies and gentlemen, this concludes MediaTek 2021 fourth quarter conference call. I'd like to thank you for your participation, and we may now disconnect. Thank you.

[Operator]

Yes. Thank you. Jessie. And ladies and gentlemen, we thank you for your participation in today's conference.