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Alchip Technologies Ltd
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I guess now it's about time to start our second quarter institutional investor conference meeting. [Operator Instructions]
And then for today's meeting, first of all, welcome to our meeting, and today's meeting will be hosted by me, Daniel Wang; and our CEO, Johnny Shen. And as usual, we will start from the second quarter presentation, which includes our second quarter financials, and then the industry view and the future outlook for the second half of this year. And now we would like to welcome our CEO, Johnny Shen, for the opening.
Before that, again, here is the safe harbor disclaimer as usual. And this meeting will be in English. If you need a Chinese slide, please go to the [Foreign Language] to download the Chinese version. And Johnny and me are also good. Actually, Chinese is our mother tongue. So if you have any question you want to ask and being answered in Chinese, please let me know. Don't be hesitate to just use Chinese for your question.
And Johnny, please.
Good afternoon, ladies and gentlemen. This is Johnny Shen, President and CEO for Alchip Technologies. Again, thanks for attending the Q2 investor conference meeting. We appreciate the opportunity to share our Q2 result and also provide guidance for future business. In case you are not too familiar with Alchip, allow me to make a company quick update and identifications.
Our company is founded in 2003, IPO in 2014. Our current head count is 485 people. Majority of our employee are engineer, about 75%. Since we found the company, we've been paid by more than 470 design in leading-edge technology. Last year, our revenue, about USD 240 million, and currently, we are supporting more than 30 design in parallel. Majority of our revenue are coming from AI and HPC area. We are one of the TSMC VCA members.
Quick update for Q2. Overall, we can say we have another good quarter with record-breaking numbers in almost all category, including revenue, net income. EPS -- Q2 EPS, 5.54, slightly lower than the Q1 number due to fractional outstanding share increase and also the extreme weaker NTD exchange rate. All detailed numbers and analysis will be provided by Daniel in a later section.
We had multiple tape-out and design won, mainly the 7-nanometer designs. Leading-edge technology businesses remain very strong, especially in GPU, CPU and AI application.
Quick update on Phytium status. Since the incident happened on April 8, we are working with the customer, U.S. attorney and communicate with our major supplier very closely. Finally, we have achieved a memo from U.S. attorney, clarify the Phytium product are not subject to EAR. So I think that's a very good progress since the incident.
Okay. Daniel, please.
Yes. For the second quarter financials, the second quarter total revenue, I guess, we already announced the revenue. So the total revenue in terms of the U.S. dollar is $97.4 million, which is 3.9% quarter-on-quarter and 77% year-on-year. And for operating income, the operating income for the second quarter is $17.5 million, which is quarter-on-quarter declined 1.2%. But for a year-on-year basis, it's a 101% increase. The net income benefited from a little bit higher nonoperating income. The net income turns out to be higher than the first quarter. The second quarter net income is $13.9 million, which is 1.7% quarter-on-quarter and 117% year-on-year. As Johnny mentioned, that due to the increase of our total outstanding shares because of the realization of option and the strong NT dollar performance, the second quarter EPS is 5.5.
This is the revenue breakdown by application. You can see we are still concentrate in the HPC area. In the second quarter, the HPC account -- the revenue for HPC accounted for 87% of our total revenue. And the other 3, the consumer, networking, niche, combined, accounts for 13% of our total revenue. For this year, the first half, the HPC revenue accounts for 89% of our total sales. So you can see, we are very concentrate in the HPC area.
As you know, I can very proudly say that Alchip should be the process -- should be the leader in terms of the process node. For the leading-edge technology node, especially for the 7-nanometer or even higher, 5-nanometer or 6-nanometer, in the second quarter, combined, this revenue from 7-nanometer or higher account for 74% of our total revenue. And if you combine the 7-nanometer, 16-nanometer and the 28-nanometer, which already accounted for more than 95% of our total revenue in the second quarter this year, and therefore, 2021, the first half, you can see the 7-nanometer account for 67% of our total revenue combined with the 16-nanometer. These advanced technology nodes already accounted for more than 90% of our total revenue.
And for the regional breakdown, in the second quarter, again, China is still our major revenue contributor, which account for 64% of our total revenue in the second quarter. But you can see, the others increased from 5% to 27%, which is contributed by our North American and the Middle East customer. We have a 7-nanometer tapeout for our U.S. customers in the second quarter. I think this trend will continue to the second half or even 2022. The contribution from non-China customer will increase in the future.
And for the second quarter '21 operation review. Again, China HPC chips remain the main growth driver of our total revenue. Production contributions from our major China HPC customer, which formally is faded, now is what we call the second largest customer before. Its 7-nanometer HPC chip shipment is the major reason and a major growth driver for our second quarter performance. The gross margin in the second quarter went up slightly because of higher mass production revenue mix. Our second quarter, the mix between design and production is around 40-something percent to 50-something percent. The design accounts for about the high 40s about our total revenue. And again, our revenue kept on concentrating in leading-edge process node, which is a very obvious trend for our revenue mix.
The operating income for the second quarter came at $17.5 million, which we are very happy that's up 101% year-on-year. I think the promising result was mainly due to, first of all, all the projects went on schedule and as expected. We get very good revenue support from our suppliers, of course, thanks to TSMC's fully support. And the operating expense went down quarter-on-quarter. As I mentioned in our last conference meeting, that for the first quarter, the operating expense, which include some onetime expense such as the GDR expense, such as the other fractional onetime expense. For the second quarter, for those onetime items, we are less than the first quarter. So our operating expense went down slightly quarter-on-quarter. The net income again hit the record high at $13.9 million for our second quarter.
And for the second half outlook, I will roughly talk about this outlook and -- but first of all, I have to say sorry to all the investor that -- because the authority want is that we cannot say some -- give some guidance in a very clear numerical way. So we cannot divulge the numbers anymore. So I would like to try my best to give some directional guidance to you.
First of all, for the industry. The industry-wide demand outlook remains bright. I guess many of you already know that there are massive investments into the semicon industry, especially for IC design, in both China and North America. So the design opportunity keeps on increasing. So for now, winning project is not our -- is not a concern anymore. There are plenty of projects out there waiting for the design resource. The dilemma for Alchip right now is to decide which projects we are going to take. So for the business wise, the industry is very hard.
For HPC-related design, the demand keeps strong for both the computing and the AI applications, which means the CPU, GPU, which is computing and for the AI inference chip, training chip. All across the board, the demand is very strong.
And for the 7-nanometer AI chip shipment, we believe it will become a very important growth driver for our second quarter -- for our second half this year and for 2022, the whole year. We plan to kick off the shipment for our first 7-nanometer AI chip to a very important U.S. service provider customer. And we think the revenue contribution will be starting from, I think, middle of the third quarter. And we have very high expectation on the future revenue contribution because it is a high-volume project.
And our second and the third AI chips to another U.S. important customer would sequentially begin shipment right after the first one. So we believe these 2 chip, the revenue contribution will be -- will become very significant in 2022.
And for the second half, the China HPC customer, which I call it our second largest China customer, is 7-nano shipment tapers because its product cycle near the end in third quarter. And we don't expect very significant shipment for this project starting from the third quarter. But the good news is we expect future demand -- another future demand for the same chip to kick in, in 2022 because this customer has -- want actual orders for the system. So the demand will temporarily ease, but we expect the revenue contribution to grow again from -- for this chip in next year 2022.
And that's the rough guidance for the second half. I know many of you want to know some revenue or profit guidance. In our previous traditional investment meeting, we told that we are aiming on 20% year-on-year growth for this year, which means close to $300 million. And for now, we are becoming more and more optimistic towards the second quarter performance, especially for the third -- towards the second half this year, especially for the third quarter.
In the past, previously, I think many of you already heard about I was worrying about the third quarter performance, which will be a very challenging quarter for Alchip for now because the mixed result of, first of all, the [indiscernible] inflow is very strong. The design inflow is very strong. And some customers are pulling in the production shipment and the many, many other reasons. So for now, the third quarter outlook is much, much better than our previous thoughts.
And for the fourth quarter, again, we don't think fourth quarter will be a weak quarter. Usually, fourth quarter is the high season for our design. I think this pattern will also apply this year sales performance. And another thing is, I guess everybody knows the data. We do believe as long as we can have some breakthrough for the -- for our customer, we may have upside potential for the second half and year 2022.
And that's the -- I guess that's pretty much all the content in the presentation for today's conference meeting, and now we are entering the Q&A session. [Operator Instructions]
Okay. [ Jay Lo, iPhone 11 ], please.
Yes, this is Jeff of Macquarie. I know Johnny mentioned that the Phytium products are not subject to EAR. What does that mean? And what do you have to do beyond that to start shipping again?
Okay. Regarding the Phytium status, we can only say that we currently have positive results from the lawyer, which is a U.S. attorney, that those projects are not subject to EAR. The result we are receiving is positive right now, and we are processing the BIS classification right now. Other than that, in order to serve the best interest of our customers and the suppliers, we are unable to further say more or comment more on Phytium. Please understand our stance.
Okay. Great. Second last question and then I'll get back in line. For your second largest customer, which I guess became your first largest customer in second quarter, what percent the sales? And can you talk a little bit about what exactly project it is that they're doing? Just a little more specifics on their product or end product.
Okay. The end product is for HPC application. The contribution percentage, I don't have a number. I don't have an exact number in my mind, and I don't have the Excel right now. But let's say, the second largest customer maybe account for about 30-something percent of our total revenue in second quarter.
Chi Ho, please.
Two questions from my side. The first one, regarding the U.S. customers first, 7-nano chip shipment. How long would that last in terms of the volume production?
Okay. If you are referring to the first chip, the service provider in U.S. customer, we don't -- so far, we don't know when the product will end its life cycle, but at least it will contribute full year next year.
Okay. Great. And then any chance you can talk about any 5-nano NRE project we are working on now?
Actually, in previous meeting, I already told that we have 1 format, 5-nanometer format project from [indiscernible] customer, which is an AI application. And now we are in the design phase. And hopefully, the tapeout will be in the early next year.
[indiscernible]
Okay. I see. And in the same time, we are currently engaging many talks with customer for the 5-nanometer or 6-nanometer projects right now.
I see. All right. Sounds great. And also in terms of the capacity booking, I mean for foundry, how comfortable are we getting enough support next year?
I was -- maybe Johnny can comment later. So far, not comfortable. The supply chain is a risk to our revenue performance next year for sure because the leading edge technology node, the capacity, the labor capacity is still tight, and the substrate capacity is still tight. But for the first half this year, we did get good support from our suppliers. We will keep on working. But at the current stage, nobody can guarantee how much we can get or how much they can give us.
Okay. Chi Ho, let me try to add to that. I agree with Daniel at this moment. It's not appropriate to comment on the capacity commitment from supplier, not only from wafer, but also from substrate. I think information is quite sensitive. But based on the track record and based on the history, we should get more than most people. I think for the first half, like Daniel mentioned before, I give full credit to our supplier. Basically, our demand is almost all filled. Yes. So looking forward for the next year, next year will be very challenged, but we are working with customer and supplier very closely. Sometimes, if necessary, we can do the prepay. We can do something in order to secure the capacity. Yes, right now, I think the most challenging one is not only in the production side, I think the resource is also quite challenged, especially in China region.
Okay. Charlie, please.
So my question is about your 7-nanometer NRE. Does that include any contribution from Phytium in second quarter or third quarter?
Okay. For the second quarter, because the Phytium incidents happened in April 8, we think there were very minor revenue contribution from Phytium in the second quarter. But for the second half third quarter, we will see. As mentioned regarding the Phytium status, we cannot talk into detail for single customer too much. But if there are any chance, we will fully support Phytium full year design.
Okay. But how about those NRE? I mean do you continue those designs for 7-nanometer? I mean it's a kind of the future revenue stream, right? I mean 7-nanometer projects.
Okay. Yes. Let me try to answer this. Yes, the Phytium design, I think, is ongoing or we never put on hold. But the tapeout, I think, is -- we are working with a major supplier, whether they agree to proceed the prototyping or not, but design stage, we never stop. So that's why we have -- we still have a certain revenue -- milestone revenue recognized based on the design milestone. Yes, unfortunately, the -- so they are still a few months away from their original tapeout target, and hopefully, everything goes through. We can tape out on schedule. But right now, we are recognized coding based on the contract without any problem.
Okay. And my second question is about the AI contribution. It seems like your second largest U.S. customer, the contribution get a little bit pushed out according to my impression. So can you kind of refresh the guidance, the AI revenue contribution by the end of 2021? And what do you think that is going to be in 2022?
For the AI contribution, I don't have a numerical numbers -- exact numbers for you right now. I will check with my Excel sheet to get back to you later. But as mentioned, we have very high expectation for the revenue contribution starting from the third quarter this year and especially for next year, because this 7-nanometer AI chip is considered very meaningful for our customers. And our customer will use their own chip to gradually replace their current solution. So the shipment volume, we do expect -- we do have very high expectation.
And therefore, you say, according to your memory, there is delay for our second AI -- important AI customer, U.S. customer. I think the schedule is not off a lot, but there are always some design problems maybe happens caused by our customer or caused by us. But overall, the schedule is not delayed a lot. And as I mentioned, sequentially, we will see tapeouts for our second largest customer in the second half this year. And we do think the fusion for these 2 7-nanometer [indiscernible] will contribute us in a quite significant manner next year.
And [ Hans Lee ], please.
Basically, I have 2 questions. So first one is that I know that it's still a bit far, but if you look at next year, sales contribution from U.S. and China, are we safe to say that the growth from the U.S. side will be stronger than China due to the current feasibility that we have?
Okay. [ Hans Lee ], let me try to repeat your question. You mentioned about the rate between U.S. and China next year. You consider the -- you're thinking about the China percentage from U.S. will increase, right? Is that your question?
The rate as well as the sales growth from U.S. as compared to China.
Sorry, [ Hans Lee ]. Your voice is not very clear. I can hear -- I cannot hear you very clearly. So are you saying...
Could you tell me, is it better?
Are you saying deposit terms?
I was saying, the sales growth from the U.S. side as compared to China if you go into next year.
Okay. Sales growth.
Yes.
Okay. Daniel, do you want to comment?
Sure. In terms of the percentage, the Y-o-Y increase, of course, U.S. growth rate, from the current point of view, should be higher than the growth rate of China, but the base is different. Our China revenue base is high. So -- and there is also another -- we see there is another swing factor, which is patent. So I cannot give you a firm answer right now. But according to our pipeline and our future outlook, I think from the growing pace, North American market is -- we have high expectation.
Okay. And Bill, Bill Huang, I guess you are from Morgan -- Merrill Lynch.
Yes. Just like to follow up the question that the gentleman just had. Could you talk about in terms of the revenue contribution maybe in the second half or even 2022 between the China and also U.S.? Because I look at the China number in the second quarter, it seems like the number is still growing quite nicely despite the Phytium being minimal. So I just like to get a sense as to what we'll be looking at into the second half of 2022. That's my first question.
Okay. For the second half, I think -- again, if you look at the 2021 overall, China will still be our most important revenue source. But for the second half, as I mentioned, our 7-nano HPC project to our China customer is tapering off. And coupled with the increase, the kickoff of the first AI -- 7-nanometer AI project to the service provider in North America. So I think for the second half, the contribution from North America will increase in terms of the percentage.
I see.
Yes. So Bill, let me try to add to that. Daniel also mentioned, there is a manufacture dependency for the overall revenue, our capacity allocation, whether we can get enough capacity, and also the swing factor from Phytium. If everything goes smoothly, we expect a lot of larger production from China as well. And also from U.S., if we just look at this separately compared to itself, I think the U.S. growth rate in the second half and the future year will be quite substantial.
My second question will be on your R&D capacity because you have been mentioning about you have to choose the project basically. Like just getting update as to what is the R&D capacity right now, how many R&D that you have. And also, are you looking to expand into this year and also next year?
Okay. So right now, it could be straight. Our capacity is almost -- is 100% full. But we do reserve -- other than the R&D people taking a project, we do reserve a certain percentage, like 20% for the future technology developing. And we are doing the hiring very aggressively. Like I mentioned before, our current head count is 485. Ideally, by the end of this year, we can be in the 550 range. That will increase the capacity quite a bit starting from maybe later next year.
I see. Can I have a follow-up on the R&D expansion part? Because I believe most of your R&D will be in China. And you think -- when you expand, will you be still focusing in China? Or would you be expanding elsewhere?
That will be too tight for the design. Physical design, yes, mainly in China, but for the packaging type of design, including COAs, including circuit design, COT, I think Taiwan will be the area we are growing the resource.
Okay. Charlie, please.
Yes. So this question is kind of more industry-wise, maybe not just Alchip. My question is about you have seen lots of China system companies, internal companies, even module house, right, like SANICO, et cetera, announced they want to do their own ASIC. So I'm wondering whether these potential customers really have the kind of capability to do ASIC design. And do -- how do you think those ASIC design can be fulfilled?
Okay. That's a very good question because right now, selecting the right customer is one of our #1 priority. We're doing -- we have a meeting internally talking about the -- we so-called -- internally, we call beauty contest in order to choose the right customer. Yes, some of the system house, they decide to do ASIC. In fact, most of the system house right now, they have a plan. But we have our selecting criteria. And basically, when we approach this customer, we're doing the 2-way interview. They interviewing our design capability. We were interviewing their front-end design experience and also the selling channel, et cetera, and also funding situation. So I think that will be a very complicated process. By the end, we can say we do select few of the system house making the ASIC. But right now, majority of our customer we select, still the ASSP, GPU, CPU maker, where we consider they have more experience than most of system house. I hope that answered your question.
Yes. I think that's very, very helpful. Just want to get a sense whether you notify any kind of dynamic in terms of competing landscape, right? Your industry peers, EDA tool companies, whether they also see the similar demand. And also, given such a big demand, whether -- or how you are going to retain your talents for a company with those talents.
Exactly.
Okay. Yes. And just a follow-up. I think a follow-up, the 5-nanometer question from a previous speaker. So I remember you have more than just 1 5-nanometer projects. So how do you define those 5-nanometer project in the pipeline? If we want to have a more aggressive assumption, for example, how many 5-nanometer are you engaging? And for 2022, how many 5-nanometer project probably you can win? And any thought about revenue contribution from 5-nanometer for 2022?
Okay. Let me try to answer this, and Daniel, you can comment if you have later. Right now, at least this stage, if we do have multiple 5-nanometer design won. But to be straight, Charlie, right now, we are -- when we're selecting the customer, design technology is not our #1 priority. We're choosing the right technology, which has a potential volume. That will be our #1 selecting criteria. Number one, for sure, all our existing customer will go to 5-nanometer sooner or later. They are doing 7. They have tons of funding. They have to go for 5. So whether we show pushing them to go to 5 or not, I think is not -- it really depends on -- as you know, 5-nanometer in terms of ROI, in terms of PPA and this is a bigger trade-off between 5 and 7 and 6. Choosing the right project potentially will produce -- the bigger volume will be our #1 priority. So what I can say, we do have multiple 5-nanometer design, but based on the revenue forecast next year, majority of the contribution will be coming from 7 or 6 designs.
Okay. Understood. Yes.
One more thing. For the 5-nanometer place, kind of complicated. Because as mentioned, currently, our design resource is very precious. So it really depends on the customer's technology. Usually, we want -- usually, based on our experience, a start-up company. Now you -- I guess you know many start-up company has very strong ambitions to go directly to the most leading technology node. But for such kind of customer, we may worry about the [indiscernible] long time would be prolonged or delayed because of some technology issue, because the customer is not less familiar with the technology. So I think the 5-nanometer plan, another dependency is how we view the potential customer, how we view their technology is ready. So I think demand is never a question for now.
Okay. [ Hans Lee ], please.
Okay. Is my voice clear enough right now?
Much better.
Yes. Yes. Much, much better.
All right. Okay. So I have a follow-up question with regard to the second largest China clients. Previously, you mentioned that entering the quarter, some of your project will start to see some tapering. But moving into next year, how should we see the contributions as compared to this year from this client?
Okay. For this customer, I mentioned in previous meetings that for this year, we have 2 projects in production. The first one, the production period starting from last year's December until July this year. So we may see the contribution from this project to taper off in third quarter. But in the same time, we have a second project, but the shipment volume is not comparable to the first one. So we expect the contribution from this customer to decrease in the second half.
But for next year, as I mentioned, the good news is, for the first project, what I meant -- what I said, the first project, there will be another demand from our customer's company. So in the same time, we also received other design project from this customer, and we are realizing the milestone right now. And the [indiscernible] design will probably tape out in the second half or the first half next year. So this customer is a repeating customer, and their project will keep on contribute our sales, for sure.
Next year, the contribution -- since we have -- since there is another system, we have to ship certain amount of the chip to fulfill our customer's needs. And if we assume the supply shortage is not an issue, we don't expect -- I don't expect the contribution will be lower compared to next year and this year.
Okay. Is there any question? And again, we welcome questions in Mandarin. So if you have questions you want to ask in Mandarin, Johnny and I will be very happy to answer.
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[Foreign Language] Is there any question to ask? [ Tae-Hee Oh ], please.
Johnny, can you hear me okay?
Yes.
Great. I just had, I guess, a bigger picture or a longer-term question to ask. I saw an article about how Google had used AI to design a Tencent processing unit. And I'm just kind of curious -- I'll send the link to the article in the chat box. But I'm just kind of curious whether this is something you had heard about and whether you think this could represent a future disruptive threat to you or the IC design industry overall. Yes, wondering whether you had any thoughts on Google using AI to design AI chips more quickly and [indiscernible]? Yes. I'll just -- I'll include the link to the article here.
Okay. I can make a quick comment on this. I think that's a similar question I've been asked many times. To be honest, I don't worry about the AI to doing the design, especially on the future technology, because we are doing the AI chip inference or training. The reason the AI is so useful and so powerful, because they have enough data. They even inference each other in order to find out the best solution. If you have enough data, yes, I believe AI can put -- among all the data, they can choose the best path. But for leading-edge technology, so-called 5 and 3, they don't have any data, then how can they do any inference?
So I think it's -- AI is very good to pick the right answer among all the datas. But first of all, you need to accumulate all the datas. You know what I mean? So if we focus on more mainstream technology, yes, eventually, the desired resource will be decreased. That already happened. It's not future. It's already happened. When we do the 28-nanometer design 5 years ago, we need 40 people. Now when we're doing a 28-nanometer design, maybe we only need 10 people. Why? Because machine, they're taking care most of result. They are -- they can save a lot of unnecessary design effort.
But leading-edge technology, when we're doing a 5-nanometer, we need 40 people, we need 50 people. It's very difficult to reduce the head count. Unless the design reference become big, data become big. And we can say -- I can easily tell, 10 years later when you're doing a 5-nanometer design, you may only need 5 people. That's highly possible for -- currently, if you stick on the leading-edge technology, AI is very difficult to replace the actual design resource.
And [ Tina ] from HSBC, please.
Can you hear me?
Yes.
Okay. Just a question on your human resources. I think earlier you mentioned, you're going to -- you're trying to add -- increase head count to about 550 by end of this year. I looked past 2 years, I think the increase of the employee count, the head count is actually quite small. I think the year before, about 20 people a year or 20, 25 people a year. But last year, 426 all the way up to 550, that's like 120 people. So can I say you're doing this one just based on your project in hand, that's why you want to increase your capacity by so much?
Okay. Let me answer you first. Actually, we have done aggressive hiring for a long time. But in China -- since our operation is mainly in China, in China, all the engineering -- actually, every company is fighting for engineering to increase the design resource. Honestly, it's very challenging right now. The good thing is we have advantage in recruiting fresh graduate students from campus because they know if they work in Alchip, their value will increase very fast. So that's the reason why Johnny said we are shooting for 540, 550 by the end of this year. That's because there is another wave of new fresh engineers is going to come in our company. But for the experienced engineers, actually, the salary is hiking very fast, and almost everywhere is fighting for hiring those engineers. So we are -- we have tried our best, but the situation, the environment is very challenging. And Johnny, you want to add some more?
Okay. Based on the history, our head count increase is not so drastically. That's a reality. For this year, we make more aggressively offer. And to the -- just like Daniel mentioned before, it's 2 new college grad. And also, we established a subsidiary in the more remote area. I think those area, competition is much easier compared to Shanghai and major cities. So hopefully, hiring is easy to keep the employee reduce the turnover. I think that's some area we need to pay more attention. The 550 still might go for this year.
When you say low cost, you mean China? Or China, India as well or Eastern Europe, other country you have in mind?
Yes, we do other -- at this moment, because for the sake of training and China -- because we have a majority of employee engineer in China, expanding in China will be most efficient. But to be straight, yes, we are also thinking about other country, like India or others.
Okay. I think you don't really want to talk too much about the DoJ stuff or the commerce stuff. Can I say, is there any implication about the segregation of the Chinese employee or engineer resources and the non-Chinese engineer resources when coming to the design required by the U.S. authorities? That's why you need to increase the head count?
I think when we do -- I would say, when we do the hiring, we mainly pay majority attention to our resource availability. But for the geopolitical issue, of course, we are trying -- we have planned to, I would say, separate or increase some resource overseas. But we don't feel direct pressure from authorities to ask us doing so.
Got you, got you. My last question is regarding the leading nodes on the 7, 6 and 5s. Can you talk about what's the proportion of the COA's design now your customer ask you to implement? And how is this going to impact your kind of margin going forward?
Actually, the design resource is to the operating expense item. So for the gross margin, I don't think it has strong relations between human resource and the gross margin.
I'm talking about COA -- the package design COA for your...
COA?
Yes. So what's our proportion now being incorporate into the project for the 7 and the -- those 6 and the 5? And what will be the impact on your margins for those project coming to the volume productions?
Okay. Let me comment on the number of COA design. The -- in China or in U.S., the major CPU maker or the AI training maker, I think they have to use the COAs. We have a -- in terms of percentage, I'm not -- I don't have a number on top of my head, but we have many, many COA's design. In fact, people consider using 5-nanometer or most of 7. I think COAs occupy at least 50%.
In terms of margin, COA's capacity is another challenge. Other than the wafer capacity, COA's capacity from the major supplier, I think even tighter. But margin-wise, I don't think there's a big impact based on our current quotation. I don't think the COA's design will produce less margin. It's not the case.
Okay. [ Henry Anderson ], please.
Two, hopefully, quite quick questions. I understand this is a sensitive topic, but I just wanted a little bit of clarity around, is it all Phytium products that you expect to not be subject to EAR? Or is there any certain areas such as maybe PC rather than server?
I would say, for now, the result we'll receive from the U.S. lawyer, the result for all the projects are positive. But we -- for this case, we cannot do any expectation because it's not controlled by us. So that's what we can say at current stage.
Okay. That's helpful. And my second question is just around maybe the longer term, your aspirations, your targets for growth. Do you have any kind of targets or guidance for growth in 2023? Or maybe kind of a 3- to 5-year kind of growth estimate?
Okay. First of all, we are not releasing a guidance. I will just say, in a normal year, usually, what the company ask our sales, our engineer, our usual, unusual normal year, we want at least a 20% growth rate. But in the next 2 to 3 years, we still believe the whole ASIC market and the [indiscernible] design market is very good and seeing a very good shape. So usually, we will adjust our sales target according to the industry status. For 2023, 2024, I'm sorry that I don't have the numbers of sales growth for you.
And [ Hans Lee ], your raise hand button is still there. So are you having questions?
No. I was -- lower down my head.
And [ Tina, Tina Chen ], do you have questions? Your raise hand button is there. Okay. So is there any questions? We take one more question because we are running out of time. So last question. Or if you don't have question, we will close today's conference meeting. Okay. I guess that's all for -- [ Tina ], are you...
Sir, I'll just take the last opportunities.
Yes, yes. Sorry. I'm so sorry.
That's fine. For the -- I just wanted to check with you because TSMC is COA. They actually have the different type of COAs. I remember they got COA's -- maybe were some other COAs. So you'll be able to provide all types of COAs now, given you not only engage in HPC, but also the AI inference or this type of chips?
Good question. Yes, we can provide all kind of service for the TSMC available, the COA's solution, yes.
Okay. Okay. Do you have any test chip or any design now is within the 3D categories?
Yes, we do. We have one in 7, and we have one in 5. And 5 -- and 7 is already out there. And 5 will be come out very soon, within a month. Yes.
Is this within the 3 U.S. chips you're talking about? Or was it in addition...
No, this is on our own test chip.
Okay. Your own test chip. Okay.
And I guess last hand. Thank you. Thank you all for joining us today, and have a good weekend. Thank you.
Right. Thank you very much. Thank you for supporting us. Thank you. Thank you. Good weekend.