MediaTek Inc

TWSE:2454

Earnings Call Analysis

MediaTek Sees Positive Trajectory for 2024

MediaTek ended 2023 on a high, with a fourth-quarter revenue surge of 17.7% to TWD 129.6 billion, driving yearly earnings despite a full-year decline of 21% to TWD 433.4 billion. This quarter's growth was bolstered by a gross margin improvement to 48.3% and substantial gains in operating income by 37.8% and net income by 38.5%, countering drops of 43.4% and 34.9% annually. The company thrived by capitalizing on robust flagship smartphone demand, shifting resources towards emerging tech like 5G AI SoCs and generative AI - projecting 2024 as the kickoff for new growth, with goals to harness AI demand at the Edge and in the cloud.

Revenue and Profitability Trends

Investors may be drawn towards the company's appreciable quarterly growth, with revenue reaching TWD 129.6 billion, marking an upsurge of 17.7% sequentially and 19.7% year-over-year, despite the annual downturn with a 21% reduction for the full year 2023 compared to 2022. The gross margin showed resilience, marginally improving by 0.9 percentage points to 48.3% for the quarter, while remaining stable compared to the same period last year, although there was a slight decrease on an annual basis. Net income also reflected a robust quarter with a significant rise of 38.5% sequentially to TWD 25.7 billion, coupled with a nearly parallel year-over-year increase, yet the annual picture conveyed a 34.9% decline, mirroring the revenue trend.

Navigating a Challenging Year and Strategy Review

The company has effectively navigated the tumultuous environment of 2023 by implementing proactive steps such as enforcing pricing disciplines, inventory level adjustments, and moderating expenses to foster a resilient business model that capitalized on new growth opportunities and bolstered its global standing by launching cutting-edge 5G AI flagship SoC and Wi-Fi service solutions. The strategic focus has been on capturing increasing demand for better computing and faster data transmission to support pervasive AI, both at the Edge and in the cloud, with advanced AI capabilities in its flagship SoC, Dimensity 9300, being acknowledged as a global leader. This broad-based technological prowess allows the company to aggressively target growth across multiple segments, such as flagship smartphones, connectivity, enterprise ASICs, automotive, and ARM computing, positioning 2024 as a year of burgeoning growth trajectories.

Mobile Business Outlook

The mobile segment accounted for 64% of the company's total revenue in the latest quarter and showcased an impressive 53% quarter-over-quarter growth, attributed to increased 5G and 4G demand and the successful introduction of Dimensity 9300. The flagship revenue notably surged by 70% in 2023, surpassing $1 billion. Looking ahead to 2024, global smartphone shipments are foreseen to rise modestly by a low single-digit percentage to 1.2 billion units with a 5G penetration rate projected to increase to over 60%, up from just under 60% in 2023. This uptick is partly fueled by the growing interest in generative AI features that encourage consumers to seek premium smartphones. Despite this anticipated growth in shipments, a slight sequential decline in mobile revenue is expected in the first quarter of 2024, following a robust stocking demand in the previous quarter.

Smart Edge and Power IV Performance

The Smart Edge platforms group witnessed a 19% sequential decrease in the fourth quarter, yet the company expects moderate demand improvement in 2024 with connectivity and computing as prominent growth contributors. Simultaneously, Power IV, contributing to 6% of the total revenue, showed modest quarter-over-quarter growth of 1%. For the first quarter of 2024, the Smart Edge segment is expected to remain stable, whereas Power IV is projected to face a decline due to seasonal factors and product transitions.

Financial Forecast and Expected Growth Phase

Estimations for the first quarter of 2024 indicate revenue growth year-over-year, with projections set at TWD 121.8 billion to TWD 129.6 billion, whereas a slight dip is expected sequentially. The gross margin is predicted to hold steady at around 47%, with potential fluctuations of plus or minus 1.5 percentage points. For the year, maintaining product and customer mix is believed to be key to sustaining the company's growth margins. These forecasts align with the company's optimism about entering a phase of growth commencing in 2024, poised to exploit the unfolding opportunities in the market space.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the MediaTek 2023 Fourth Quarter Investors Conference Call. Financial results and presentations for today's call are available on Investors section of the company website at www.mediatek.com.And now I would like to turn the call over to Ms. Jessie Wang, the Deputy Director of Investor Relations. Ms. Wang, please proceed.

[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 callNow I would like to turn the call to our CFO, Mr. David Ku, for the fourth quarter financial results.

[David Ku, executive]

Thank you, Jessie. Good afternoon. Now let's start with the 2023 fourth quarter financial results. The currency used here is NT dollar. Revenue for the quarter was TWD 129.6 billion, up 17.7% sequentially and up 19.7% year-over-year. Full year 2023 revenue totaled TWD 433.4 billion, down 21% from 2022. Gross margin for the quarter was 48.3%, up 0.9 percentage points from the previous quarter and the same at the year ago quarter.Gross margin for 2023 was 47.8%, down 1.6 percentage points year-over-year. Operating expense for the quarter were TWD 37.9 billion compared with TWD 34.2 billion in the previous quarter and TWD 34.2 billion in the year ago quarter. Full year 2023 operating expense was TWD 135.6 billion compared with TWD 144.1 billion in 2022. Operating income for the quarter was TWD 24.7 billion, up 37.8% sequentially and up 36.8% year-over-year.Non-TIFRS operating income for the quarter was TWD 25.1 billion. Full year 2023 operating income was TWD 71.8 billion, down 43.4% year-over-year. Non-TIFRS operating income for the year was TWD 74.1 billion. Operating margin for the quarter was 19.1%, up 2.8 percentage points in the previous quarter and up 2.4 percentage points year-over-year. Non-TIFRS operating margin for the quarter was 19.4%. Operating margin for the full year 2023 was 16.6%, down 6.5 percentage points year-over-year. Non-TIFRS operating margin for the year was 17.1%.Net income for the quarter was TWD 25.7 billion, up 38.5% sequentially and up 38.9% year-over-year. Non-TIFRS net income for the quarter was TWD 26 billion. Full year 2023 net income was TWD 77.2 billion, down 34.9% year-over-year. Non-TIFRS net income for the year was TWD 79.2 billion. Net profit for the quarter was 19.8%, increased 2.9 percentage points from the previous quarter and increased 2.7 percentage points year-over-year. Non-TIFRS net profit margin for the quarter was 20.1%.Net profit margin for 2023 full year was 17.8%, down 3.8 percentage points year-over-year. Non-TIFRS net profit margin for the year was 18.3%. EPS for the quarter was TWD 16.15, up from TWD 11.64 in the previous quarter and up from TWD 11.66 in the year ago quarter. Non-TIFRS EPS for the quarter was TWD 16.34. Full year 2023 EPS was TWD 48.51 compared with TWD 74.59 in 2022. Non-TIFRS EPS for the year was TWD 49.74.In addition, a reconciliation table for our TIFRS and non-TIFRS financial measure is attached in our press release for your information. And 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. MediaTek concluded 2023 with a strong fourth quarter. Our revenue exceeded the high end of our guidance, mainly driven by better-than-expected smartphone demand. Gross margin for the fourth quarter reached the high end of our guidance. 2023 was a challenging year for the global semiconductor industry.At MediaTek, we managed our business with several proactive measures, including executing price disciplines, reducing our own inventory level and moderating general operating expenses. All the while, we strategically reallocated more internal resources to pursue new growth opportunities. Thanks to these efforts, we have bolstered our resilience in navigating through the cycle and strengthen our global position by introducing leading products.Now we are a leading player to launch 5G AI flagship SoC and Wi-Fi service solutions. We are also one of very few fabulous companies that can support the road map for multiple applications on the most advanced process nodes, such as 3-nanometer and beyond. We leverage the leading road map and engage with global customers aggressively for new growth opportunities across flagship smartphone SoC, wireless connectivity, enterprise ASICs, automotive, and ARM computing.As we continue to execute these new projects in 2024, we expect several of those new businesses to begin volume production starting from late 2025. With that, we see 2024 as the beginning of MediaTek's next growth trajectory. In particular, we are seeing increasing demand driven by need for better computing and faster data transmission to support ubiquitous AI in the mid-to-long term, both at the Edge and in the cloud.At the Edge, MediaTek is one of the very few companies in the world that has a scalable Edge AI SoC product portfolio for a wide range of devices; including smartphones, computing devices, robots, automotive, et cetera. We foresee fast-growing demand for more computing capabilities at the Edge for users to enjoy the benefit of better privacy, lower latency, and lower costs.In addition, recent rapidly advancing large language models offer extensive understanding of language and context, which enable more accurate, natural, and human like interactions. This has accelerated the development of generative AI features, especially in the field of personal assistant, creativity, and productivity enhancement tools to provide intuitive and effective user experiences.We are working very closely with the generative AI ecosystem partners and provide high performance and power-efficient edge AI SoC solutions for the industry. In the cloud, our strategic 112G and 224G SerDes IPs are essential for high-speed data transmission in datacenters. We also have strong capability in advanced process capability, chiplet architecture design, and advanced packaging.In addition, our Power Management IV solutions are able to accommodate higher computing and storage requirements in datacenters. Furthermore, our leading wireless and wired connectivity solutions play a crucial role in transmitting data between the Edge and the cloud. Thus, we firmly believe that we are in a great position to capture the growth opportunities in the era of ubiquitous AI.For automotive, besides the generative AI opportunities in cars, our Dimensity Auto platform continues to gain traction in the global markets. We expect our eCockpit, 5G telematics and Power IVs paired with NVIDIA data and software will enable us to be a strong strategic partner for global car makers.With that, now let me talk about the recent business performance and 2024 outlook of our 3 revenue groups. Mobile phone accounted for 64% total revenue in the fourth quarter and grew 53% quarter-over-quarter. The strong sequential growth was attributed by 5G and 4G demand and the successful ramp of our flagship SoC Dimensity 9300.In 2023, our flagship revenue grew strongly at 70%, exceeding $1 billion. Our latest flagship SoC Dimensity 9300 is well received by the market and will continue to gain market share with the innovative industry-leading AI. Of all big 4 architecture, Dimensity 9300 offers the best computing performance in the market.In addition, Dimensity 9300's AI capability is ranked #1 globally by the independent ETH Zurich AI-benchmark. Vivo, OPPO and iQOO's smartphones, powered by Dimensity 9300 are able to offer on-device generative AI features such as text to pictures, article summary and user-friendly voice systems. We also extended generative AI to premium segment with Dimensity 8300 SoCs, providing more hardware platforms for the industry to develop more generative AI features.Today, we are still in the early days of generative AI development, and we believe there will be more exciting features to be added in the future. For 2024, we expect global smartphone shipments to increase by a low single-digit percentage to 1.2 billion units and 5G penetration rate to increase to low 60% from high 50% in 2023. We also observed that generative AI is driving smartphone upgrade demand and creates a bigger market for flagship and high-end smartphones.We see continuous 5G migration and our flagship share expansion will be key drivers for our mobile phone business this year. For the first quarter of 2024, we expect mobile revenue to decline slightly sequentially following a strong restocking demand in the fourth quarter.Now move on to Smart Edge platforms. This group declined 19% sequentially in the fourth quarter and accounted for 30% of revenue. The decline was primarily because TV customers reduced orders after the inventory prebuild in the first half of 2023. For 2023, despite the weak consumer electronics demand, our 5G modem, automotive, and ASIC business continue to grow.For 2024, we expect the overall demand to improve moderately and upgrade demand for connectivity and computing will be important growth drivers. For computing, we start to see generative AI being added to computing devices such as tablets. Several of our tablet consumers -- customers have adopted Dimensity 9300 with generative AI capabilities for their flagship tablet models in the first quarter, and we expect more to come.For connectivity, right after Wi-Fi alliance began, Wi-Fi 7 certification, we announced a complete first wave of Wi-Fi-certified solutions with various customers' products ready at the CES. Our industry-leading Wi-Fi service position has enabled our share gains in high-end retail routers, premium notebook, broadband devices, and more.For the first quarter of 2024, we expect Smart Edge platform to be flattish sequentially as growth in TV, tablets, and broadband connectivity offset seasonal weaker demand in other consumer electronics.Now moving to Power IV, which accounted for 6% of total revenue in the fourth quarter and grew 1% quarter-over-quarter. In the fourth quarter, data center Power IV grew robustly and the broadband consumer electronics revenue was flattish. For 2024 and beyond, we will continue to expand in new areas such as automotive and data center to grow our business.In the first quarter, we expect Power IV to decline due to seasonality and product transitions. Now for the first quarter of 2024, we expect revenue to grow strongly year-over-year to reflect the more normalized inventory situation and to decline slightly sequentially. Corporate gross margin is expected to be stable in the current range.With that, we expect our first quarter revenue to be in the range of TWD 121.8 billion to TWD 129.6 billion, flat to down 6% sequentially and up 27% to 35% year-over-year at a forecasted exchange rate of TWD 31.2 to $1. Gross margin is forecasted at 47% plus or minus 1.5 percentage points. Quarterly operating expense ratio to be at 28% plus or minus 2 percentage points.For 2024, we believe it will be a year of growth, for growth margin with our continued efforts to manage our product and customer mix. We expect our 2024 gross margin to remain at a similar level to our first quarter guidance range.Finally, I'd like to conclude my remarks by reiterating that with all the exciting opportunities ahead of us, we believe 2024 is the beginning of our next growth phase. Thank you. And happy Chinese New Year to you all.

[Jessie Wang, executive]

Thank you, Rick. We're now ready for QA session. Operator, can we please have the first question, please?

[Operator]

[Operator Instructions] The first one to ask question is Randy Abrams from UBS.

[Randy Abrams, analyst]

I wanted to ask the first one about -- just to add on your comments on the gen AI application and opportunity. How are you seeing or viewing the content uplift factoring the compute engine, the CPU, the GPU, and the AI processor would see some upgrade? I think Qualcomm's talked about a pretty good uplift, but I'm curious for your view on content. And second is, how you're viewing the market, given your market share is higher in the mainstream of the market, how you see the features roll out or if you see opportunity to move it down categories from the flagship category.

[Lih Shyng L. Tsai, executive]

For the first question, Randy, we see, #1, I think our Dimensity 9300 SoC, flagship SoC is in this computing power, CPU, GPU, and AI processing power as good as anybody. There's no question about that for you or me, and I believe in our customers' mind. So -- and with all of those computing capabilities, the generative AI features I just mentioned in my remarks, I think only will improve as the time goes on. It's just at the beginning of our introduction and the -- our customers are working very hard to -- with their ecosystem partners to develop more features. I have no question in my mind that all of those computing power will be utilized and to upgrade the user experiences. And we will -- and I also believe, you know the cadence of our flagship SoC. We really believe going forward in the next -- starting this year and next couple of 3 years, the upgrade cycle because of those generative AI features will certainly materialize for the flagship SoC and the premium SoC.The second question was -- I think probably the answer of it is some -- another content, yes.

[Randy Abrams, analyst]

Or if you could put -- I'm not sure if you have a feel for if each category of the market, you could see -- or at least in the flagship and premium, do you see -- we've moved up quite a bit the last several years where we're about TWD 100. But do you see that upward category can still push higher? Or is the opportunity you grow the category and grow market share in the category?

[Lih Shyng L. Tsai, executive]

Let me put it this way, we see upside in both. I'm not saying we can get the immediate upside in our, for instance, ASP very quickly. But there's also no doubt in my mind that the upgrade cycle is beginning, and the consumers will want to come to buy AI, to buy, I should say, to buy phones and for that matter, computing devices, which will enable AI features. And the features itself up themselves. Some of them, I think, will be very interesting and some of them may be not so interesting, but what we are, I think, what we believe will happen, hopefully are happening, consumer will flock into the cloud and they say, hey, we want these AI devices. And as such, I'm not -- the total shipment of the, for instance, smartphones maybe somewhat, well, say muted. We now talk about, say, low single-digit growth in the units. But we believe upgrade toward the high end, well, which means flagship and premium segment market share is increasing, not will be, is increasing, especially in China domestic market. So we are very confident that we will -- we are doing well, and we will be doing well going forward in this AI-generated upgrade cycle.

[Randy Abrams, analyst]

The second question I wanted to ask, it's inventory. I think from 2 perspectives, you saw a very strong recovery granted from a decline quite a bit the last few quarters. But the 50% rebound, I'm curious where you think you're shipping relative to market demand and how you feel the channel inventory is? And then if you could talk about your own inventory, you've done a great job actually to bring it to very low levels. Are you at the point, you're constrained or you'll run at a bit leaner level now?

[Lih Shyng L. Tsai, executive]

I think our inventory level is right now is very healthy. Maybe at the end of fourth quarter, a bit too healthy. And you're right that we are -- actually, in some cases, we are rushing our manufactured partners for shipments to us. Saying all that, our goal, of course, is to maintain a stable inventory. I think we have learned our lessons, I hope. And we are seeing our channel, which means our customer and their channel inventory level at, I would say, normal level. So I think right now, I think in a stable state, the macroeconomic picture for the 2 largest markets, China and U.S. as I think, as you all know, are somewhat right now, not -- we don't see huge demand increase, but they're not bad leader. So I guess a stable state is a reasonable description of where we are.

[Operator]

Next one, we have Brad Lin from Bank of America.

[Brad Lin, analyst]

So firstly, congrats on the good results and also the guidance. So I have 2 questions. One is on the smartphone pricing. And secondly, is on the Edge AI opportunity. So we learned that the inventory level actually improved at us and also the channel and possibly our competitor as well. So with that regard, we see the market ASP also stabilize. And it will be great if we can elaborate a bit by low-mid high-end segments.And my second question will be on the Edge AI, and we have seen the increase in computing power of the well smartphone and other devices as media testing clients continuously proactively requesting to increase even more AI company powered by the end of the year? And do we see a potential bottleneck there in the near future? That's my 2 questions.

[Lih Shyng L. Tsai, executive]

Well, first of all, probably, I commented a little bit about pricing. I think overall, we see a relatively, first of all, the competition is always out there. But we see basically just a normal competition situation out there. So pricing is having some pressure but in general, I think it's still manageable. And that's why, as you can see, for Q1 when we guided the Q1 gross margin guidance, it's actually from a guidance range perspective, it's been flattening out, which is based on 47%, plus/minus 1.5%. So pricing-wise, we see actually that it's manageable.To the Edge AI question, we are very excited I think Dimensity 9300 is just the first you are seeing with, I would say, really tremendous Edge AI for the smartphone platform. But we are not stopping here. In addition to continuous improvement in our Edge AI capability computing, especially capability with the smartphone platform. We are investing aggressively in building computing capability into SoC or chiplet like platforms to be used in other higher power computing devices such as the computing devices, automotive, et cetera. So we are seeing this Edge AI, I think it's kind of a perfect pervasive. You will -- it is, I believe, if you look at now the -- one of the most -- the hardest subject is AIPC. These are all at the beginning of the cycle. MediaTek is very excited, and we are well prepared. We are determined to be one of the top providers for the Edge AI capability for multiple verticals.

[Operator]

And right now we have Gokul Hariharan from JP Morgan.

[Gokul Hariharan, analyst]

My first question is about 2024 growth. I think, Rick, you mentioned it will be a growth year. Could we get a little bit more clarity in terms of how much growth you're expecting, given that we're coming off a inventory correction here? Usually, the first year after inventory correction is pretty strong growth. So are we thinking about 15%, 20% kind of growth is possible this year. I just wanted to understand, given your end market assumptions are still a little bit cautious, but you have some specific drivers in here.

[Lih Shyng L. Tsai, executive]

I think the growth picture remains still a little uncertain. First quarter, obviously, we know well and we are having, I would say, a strong year-over-year growth. And we all know, one of the major driver was the restocking. However, also, I would say, our SoS, the flagship SoC for the mobile applications is also contributing a great deal to our growth. My expectation is for our flagship SoC's growth to continue into the year the restocking momentum remains to be seen somewhat.We understand everybody is talking about restocking maybe it's kind of a, shall we say, moderating. Well, sure, we tend to agree with that. But I think what we're doing both in flagship and for the entry level and the medium level associates, we are holding up quite well, quite well. And for the flagship -- no, I'm sorry, for the Smart Edge platforms, I think we are seeing -- we're starting to see certain also inventory really not only stabilized, but also, I think we're seeing some, for instance, broadband bidding starting to come back, for instance, in China, which they basically have stopped for almost at least more than half a year.We believe the Smart Edge platform's inventory situation is gradually improving, but it's gradually improving because we're not seeing a strong momentum as we did with smartphone, but we remain certainly at least hopeful. But I must say also this discontinuing geopolitical things across the world, it is a major uncertainty. And with that, you always -- actually, if you ask me, probably, unfortunately, every year, people will have this concern. And as such, that's why we kind of reframe from making a full year forecast we will -- as time goes on, I'm sure the picture will get more clear, and we will give you not only our forecast, but hopefully try to give you more our takeaway indications.

[Gokul Hariharan, analyst]

Second question, you did talk about replacement cycle in smartphones, especially in the mid- to high-end and flagship segment. Could you talk a little bit about what are you seeing in this replacement cycle, given your overall unit forecast is still not that great, but -- and it's been a long time since you've seen a smartphone replacement cycle, especially in China. So could you talk a little bit about what you're observing in terms of this replacement cycle, how it is panning out? And I think there has been some concern about Huawei's resurgence, especially in the flagship segment having some impact on other brands. And now we are probably 6 months into that. What are you seeing on that front as well?

[David Ku, executive]

Okay. So maybe the better way to talk about that is actually a separate smartphone on the flagship segment and auto segments. I think for the flagship segment, overall, we are doing very strongly, especially from gaining market share. So on that front, we are enjoying, I would say, not just the restocking cycle but also market share gain and plus due to the AI and all those new features coming in a shorter replacement cycle. I think that's actually all positive on the flagship. And I think that's why I think the CEO explained, even for this year, full year, we feel fairly comfortable to see the flagship continue to grow strong, very strong, that's on the flagship. The segment for non-flagships, I think obviously for -- starting from fourth quarter and first quarter this year, restocking probably is the major driver. But for the premium sector, especially due to AI and also other new features, we do feel maybe there's opportunity to see short-term replacement cycle, even though it's not a strong signal yet, but with actually the market feedback, we see some positive momentum or the early signals out there. For the entry level, probably, so by and large is restocking and also -- but another good news is actually is I think because we monitor both for China as a more important goal, honestly everyone looking for China for the [ BCI ] numbers, is not so exciting. But when we look at the global numbers, it's actually getting stabilizing and improving. I think that's actually constantly why we feel comfortable for this year will be a year of growth on the smartphones.

[Gokul Hariharan, analyst]

Any more clarity, David, in terms of flagship, I think you grew 70% last year. Should we expect something similar to that this year?

[David Ku, executive]

Yes. I would say something similar to that. It's very strong double-digit growth in terms of revenue. Yes.

[Operator]

Next online to our question, Laura Chen from Citi.

[Laura Chen, analyst]

I have 2 questions regarding MediaTek's progress on the AI. So we know that actually, the Dimensity high-end series are getting quite good momentum. But for many of the large language model like Gemini or LLaMA-2 for current smartphone AI functions, we know that actually provided by the cloud service provider. So from that angle, I'm just curious what MediaTek can help your customer to differentiate their AI function on device. Do you need to do more like customized design to help your customers do like AI or machine learning on device and thus can help them to provide some different features such as the instant translation or enhanced personnel assistance, something on that. Yes, that's my first question.

[Lih Shyng L. Tsai, executive]

Okay. Laura, first of all, of course, we work very closely with the key generative AI ecosystem partners, such as Meta Llama 2, Google under Gemini, Nano in China, Baidu, Meituan et cetera. All those, I'm sure you were stable decision. As to how -- what we have been doing actually over the years, is not so well known. As we have a very, very powerful and also friendly AI software toolkit for our AI processing computing unit. We call that NeuroPilot SDK, which affords our customers, the OEMs to design their features very effectively and efficiently.But saying all that, we also work for a lot of the AI application go through, for instance, camera or multimedia kind of applications. We're also a gaming for that matter, especially in China. The other thing we have been doing over the several years. We have a very strong relationship with, for instance, gaming developers in China. And they have -- they also use this NeuroPilot SDK to develop their game, which can run well with much better power efficiency and quality user experience on our -- on the phones made with our chips. So I fully expect this model, this collaboration model to continue and prosper going forward for the more applications with respect to generative AI. Again, the ones we are seeing and the ones we are talking, we just said, it's just the tip of the iceberg.

[Laura Chen, analyst]

Thank you, Rick, for the very clear picture here. I'm just wondering that with this kind of NeuroPilot, the SDK provided by MediaTek, would that also imply probably better like profitability or since the client stickiness probably will also be higher. Will that what we can expect?

[Lih Shyng L. Tsai, executive]

Well, we do not charge for our customers to use NeuroPilot SDK and maybe we should, but the -- but certainly, I think for us, we -- and for our customers, very importantly, MediaTek provides this capability so that they can prosper and we will prosper. And hopefully, not much hopefully. And you will again, ignite the upgrade and the replacement cycle. And I think that's the main approach, we are employing for our growth, which in this vertical mobile phone, but also other verticals also.

[Laura Chen, analyst]

And also, my second question is also about the AI and the cloud side. I think, Rick, you just mentioned that your service IP and also the progress at enterprise customers. I think you also mentioned about like late 2025, we can see some contribution. I'm not sure, if I heard this correctly. Can you elaborate more than the current progress and what's the project you are engaged right now?

[Lih Shyng L. Tsai, executive]

Yes. First, you heard me right. We did say that soft -- well, I guess, quite a few of our new opportunities will start volume production in late 2025, which means that we will start seeing the fruits of our investment. We do have -- we have growth in our pipeline for instance, in the enterprise ASIC. We continue to pursue this with multiple opportunities. But internally, we are laser focused in executing our current project, which is very significant. We will deliver that project. And I'm very confident that the MediaTek will execute, and we will have more good opportunities ahead of us.

[Laura Chen, analyst]

Yes, if I may ask, what kind of the revenue or the profitability you can share with us at this moment, the potential?

[Lih Shyng L. Tsai, executive]

Yes. Laura, unfortunately, we probably won't be able to share anything due to the commerciality. So I think we update the market when it's possible.

[Operator]

Next, we have Charlie Chan from Morgan Stanley.

[Charlie Chan, analyst]

Hello, Rick, David, Jessie; Happy New Year. So my first question is about -- you mentioned the HPC opportunity. So Rick mentioned that you can use a chiplet technology and to get the HPC device with some AI computing power. So I'm curious if that refers to some notebook PC or AIPC opportunity. And I think you also mentioned that some ARM-based SoC opportunity. I'm not sure if you refer to the same thing. And I think a year ago, you talk about Windows on ARM, and you mentioned that there are some serious partners in those projects. So can you give us some update when you will see this kind of opportunity to turn to real revenue to MediaTek? That is my first question.

[David Ku, executive]

Charlie, first of all, I think what we've mentioned along the lines, which also we call the enterprise assets, okay, which is actually leveraged our service technology, our high-end processing technology and also more importantly, the packaging technology. And even if any, I think digital AI trend, obviously, for the enterprise side, there's a new demand as well and which feed into our expertise. I think that's actually what we talked about on the enterprise side. On the PC side, we precise, I think the area we're getting is something called ARM computing because we already been one of the leaders on the tablet side and also on the Chromebook. And with the AI trend, we do believe actually the AI will get into this area as well. So I think that will be the area we will continue to push and grow.

[Lih Shyng L. Tsai, executive]

I think I might add one word. Well, one important thing is we are working on -- and I think I know we are also marketing our automotive chip based on our chiplet architecture with very powerful G-AI capability. That is -- I would say that that will be in the way for -- for us also in the more generic computing world. That's a comment I'd like to add.

[Charlie Chan, analyst]

Yes. So I believe you secure a very strong partner, and I think their partner will also depend on you. So very, very low down. And my second part of the question also goes back to Edge AI. So a couple technical, kind of small questions. So bear with me, just as some clarification. Number one is the Gemini Nano. I remember it's a kind of Google's service, right? So with that Gemini Nano can really deploy to the China smartphone is the first small question. And I'm very impressed by your compression technology. Does that mean that you don't have to increase [indiscernible] contents and then you can run the [ LOM ]? And last part of this topic, you said when will you deploy your APU to the mainstream smartphone chips? So just some taking more questions to clarify.

[Lih Shyng L. Tsai, executive]

Okay. Charlie, I think that's a very good question. And we certainly are doing 7 billion perimeter model -- Llama 2 model. And we can certainly also do TWD 13 billion perimeter model we saw flagship SoC. And the one thing that we are doing certainly we’re kind of pushing down the capability first to 8,300 is a premium segment SoC. Our APU capability actually is prevalent across the portfolio of our SoC offering. And I think for the more kind of mainstream end of the devices right now, we're also not the focus of our customers, everybody has limited R&D resources. So certainly, our customers are focusing their resources on the high end as they should. We fully agree. So -- but I think as time goes on, when we go to the next year or 2, the computing power will continue to improve. So the 7 billion parameter capability that we have now on flagship will migrate down to more mainstream chips. But you're right, Charlie is certainly the DRAM, especially the bandwidth of the DDR DRAM is something the industry is the industry-wide issue -- industry needs to address from the system architecture point of view. You're right on that.

[Charlie Chan, analyst]

Gemini Nano, can you deploy that to the China smartphone, that's the part of the question.

[David Ku, executive]

I think, Charlie, the real question that the Gemini Nano is actually an open source and everyone can use it. But whether or not for certain regions, if you can give that service in the platform where the service is something different. I mean, you can still use the open source and develop your own service. But if you want to use Google service, maybe you need to follow Google's rules and restrictions for the area you can use. But for the platform or say, OEM model itself, is actually available.

[Operator]

Next one, we have Brett Simpson from Arete.

[Brett Simpson, analyst]

Rick, I had a question about the flagship market. I think congrats on reaching the $1 billion revenue in 2023. Can you maybe just share with us what do you think the TAM is for MediaTek in flagship? Or how many flagship units do you think ship within the Android ecosystem that you could address? And in terms of the competitive dynamic in flagship, we're obviously seeing Exynos coming back in. We're seeing Huawei ramping as well. And Qualcomm has a new platform following our Nuvia acquisition coming at the end of the year. How do you think that these ingredients sort of play into your expectations for share gains over the medium term?

[Lih Shyng L. Tsai, executive]

Okay. I think our current term, the outlook for current term is probably TWD 4 billion of -- well, my CFO wanted to correct me -- but -- well, I guess what I'm saying is the -- in my mind, I understand David's number. But in my mind, right now, the number I just said something that we have high confidence in continuing grabbing shares. There are more, obviously, 10 that is -- to be honest, it has higher barrier for us, you mentioned for instance the Exynos, although that in my mind, that's not our concern too much. The Huawei casing -- actually, it's -- Huawei s always very, very powerful player. Well, certainly, we all know they have the other limitations. But we -- again, what I believe is the capability we have built for our flagship SoC will enable us to continue to grow. I mean, David just mentioned the growth he gave some strong indication for this year. And this momentum will -- I cannot say every year, the same percentage for the year. We have no doubt. Number one, our capability, our competence will enable us to grow while the generative AI features will also enlarge the 10. So I'm trying to give you as much transparency as I can, right? That's where we are. And we -- I am really very confident and comfortable, very appreciative of our team in making the things happen.

[Brett Simpson, analyst]

And maybe just a follow-on there. We have seen over the years, certain Chinese smartphone vendors try to build their own silicon. I think we saw Xiaomi and Oppo try to build silicon. And I guess, if I look at what ARM is trying to do, they're talking about a turnkey application processor that's relatively low barriers to entry for potentially a handset vendor to build AP going forward. Do you think that the risk that customers build their own silicon, do you think that's largely behind us? Or do you think these types of initiatives that ARM as trying to build out could be a threat long term for your TAM?

[Lih Shyng L. Tsai, executive]

Well, Bret, the best ways to make your competitor into your partner or your customers or, of course, easier said than done. But I think we're in the process of doing that. So I'm not saying we are attacking our customers. Don't get me wrong, don't get me wrong. While customers like Xiaomi, it's known that building their own AP. And we work with them on with our modem, but we build our partnership with them. And I cannot say whether they will succeed or not for Xiaomi, but we do know OPPO met difficulties for sure. And -- but in many ways, I think that makes OPPO now even a stronger partner with us and vice versa. Still for ARM, we understand ARM is a business objectives and the business model and the -- and but if you look around the industry, MediaTek is one of the very, very few to AP really advanced AP supplier with track record. And I think it's important, maybe even imperative that we work together as an ecosystem partner in the market share together.

[Brett Simpson, analyst]

If I can maybe ask one final question, Rick, just on Wi-Fi 7. I mean I think this is the start of the transition towards this next standard. And I just wanted to understand what this means for MediaTek. Is there a meaningful content story as Wi-Fi 7 ramps up for MediaTek? If there's any perspective you can share about your market share and the adoption rates for Wi-Fi 7, what it might mean for your business? That would be very helpful.

[Lih Shyng L. Tsai, executive]

First, Wi-Fi is a very important business unit for MediaTek. We have actually experienced very strong growth during the last couple of 3 years. Our last year was not good as many of our other products. But we are seeing the momentum turning back to a growth mode. And Wi-Fi the technology upgrades every -- around every 4, 5 years continues. And Wi-Fi, as far as we can see, for instance, starting from the mobile phone customers, the broadband operators. All the major broadband operators now only accept Wi-Fi 7 for their bidding for their device bidding already. So we see Wi-Fi 7 continuing just like the previous generation. That is good because we have caught up with our competitors in our technology capability. Our goal is to not only to get to the market share that we have at Wi-Fi 6 or 5 for the matter, but also we like to go in early as we can so that we don't miss the front part of the cycle.

[Operator]

Ladies and gentlemen, as we are running out of time, we are going to take the last one for questions. And the last one will be Bruce Liu from Goldman Sachs. Ladies and gentlemen, as Bruce just got disconnected, so shall we take the last one?

[Lih Shyng L. Tsai, executive]

Yes, yes.

[Operator]

Okay. The last one will be Nicolas Baratte from Macquarie.

[Nicolas Guy Gabriel Baratte, analyst]

Yes. Hello. If I can go back to a question about volume production starting late 2025 for the ongoing development project. Would you specify this -- consider this as inventory new product category and entirely new revenue stream, meaning both product and customers or a continuation of existing established businesses?

[David Ku, executive]

Sorry, I think that your voice actually breaking out a little bit. Can you just repeat your question again slowly because I actually had a hard time hear your question clearly.

[Nicolas Guy Gabriel Baratte, analyst]

I'm sorry. Is it better now?

[David Ku, executive]

Yes, it's better now, it's better now. Yes.

[Nicolas Guy Gabriel Baratte, analyst]

All right. Sorry, sorry. And when Rick mentioned late 2025 volume production for ongoing projects, would you classify this, categorize this as entirely new revenue stream, new product, new customers or the continuation of the established businesses that we know today?

[David Ku, executive]

Well, I think, first of all, I think what you are talking about is far too -- having the first-time revenue in late 2025. So by definition, the overall revenue contribution in 2025, probably will be mild, will be small given actually what stock trend towards the end of the year. For most side, we're going to see more revenue coming in after the start of revenue.

[Nicolas Guy Gabriel Baratte, analyst]

Understood, David, for products that you've done before or never done before?

[David Ku, executive]

Well, that's a new product. That's a new product.

[Nicolas Guy Gabriel Baratte, analyst]

Did I hear correctly that you would roll out those increased AI capabilities into Dimensity 8003 later this year? And if that's the case, do you see the need to roll out into lower categories of Dimensity later on?

[David Ku, executive]

Well, I think for this year, one of the major point is still going to be flat, given the potential revenue opportunity and also the market acceptance of the flagship product. For the premium, we do see actually the opportunity to basically trickle down the AI capability because that will be one of the logical next extension trickle down from the selection to the premium. So we will see, how is the premium go for the second half of this year, but we do have the plan to roll out the premium product later this year.

[Operator]

Okay. Thank you, ladies and gentlemen, for all your questions. And I'm going to hand it over to Ms. Jessie Wang for closing comments. Ms. Wang, please go ahead.

[Jessie Wang, executive]

Ladies and gentlemen, this concludes the MediaTek 2023 Fourth Quarter Conference Call. And an audio replay will be available in 1 hour after the call at the Investor section of MediaTek's website. We would like to thank you for your participation, and you may now disconnect.

[Operator]

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