Andes Technology Corp

TWSE:6533

Earnings Call Analysis

Company Faces 15% Revenue Growth Amidst Loss

During the first half of this year, the company experienced a 15% year-over-year revenue growth, totaling TWD 404 million. Despite this, the company reported a consolidated net loss of TWD 191 million, with the earnings per share at a negative TWD 1.91. The royalty revenue saw a significant drop of 18% from the prior year's first half, reflecting a challenging economic environment. The company's performance fell behind its business plan, which had hoped for double-digit year-on-year revenue growth.

Navigating a Challenging Economic Terrain with a Vision for Growth

The first half of the year has proven challenging for Andes, with global economic headwinds reflected in their financial performance. Despite a quarter-on-quarter decrease in revenue by 20% to TWD 179 million in Q2, the company still saw a year-on-year (Y-o-Y) increase of 27%. When looking at the first half of 2023, Andes reported revenues at TWD 404 million, which represents a modest Y-o-Y growth of 15%. This has been partly underpinned by the shipping of over 13 billion customer System on Chips (SoCs). The mixed picture continues in the breakdown of revenue sources where license revenue did not grow, and royalty revenue experienced a decline. Top 10 customer sales, dominated by Taiwanese companies contributing 60%, and American companies with notable AI applications, accounted for 72% of the first half's revenue.

Diversifying Product Reach Amidst Revenue Realignment

The company's revenue streams from licenses and royalties saw divergent trends. Licenses contributed 56% of the first-half revenue, while royalties contributed 24%, and maintenance fees accounted for the remaining 20%. Geographically, Taiwan was the largest contributor with 46%, followed by the U.S. at 34%, China at 15%, and Korea at 4%. Of particular interest is the adoption of RISC-V architecture, which made up 70% of the revenue, indicating a strategic shift to newer technology offerings over the older V3 portfolio. However, licenses saw just under half of the revenue compared to 2022, and the royalties front experienced an even steeper drop, reflecting the broader economic situation and inventory adjustments by customers in North America and China.

Resilient Gross Margins in Face of Operational Expenses Surge

Gross margins maintained strength at 99% and above, a positive indicator of cost efficiency within Andes' operations. However, particular attention is drawn to the substantial increase in operating expenses, primarily due to a large uptick in R&D investments and normalized promotional activities post-pandemic, leading to a 48% increase from the same period last year. This rise in expenses inevitably resulted in a consolidated operating loss of TWD 191 million for the first half of the year, although the global operation still managed a net income of TWD 96 million due to other factors.

Investing in Innovation and Collaboration for Tomorrow's Opportunities

Andes is aggressively investing in its future, as demonstrated by their R&D and design center expansions, both in Taiwan and overseas. This commitment to innovation is underscored by their collaboration with significant players like Meta, for which Andes is providing custom processing solutions for datacenter AI servers. The company also unveiled their ambitious roadmap by announcing the delivery of not just one but four new products, revealing a strategy focused on a more diverse and innovative product offering meant to capture future market demand.

Earnings Call Transcript 2023-Q2

[Charlie Chan, analyst]

So let me introduce myself to the audience. I'm Charlie Chan. I'm the semiconductor analyst from Morgan Stanley. So we're one of the coverage analysts that are very, very honored to help to host this earning webcast for Andes. So today, we will have Chairman and CEO of the company, Mr. Frankwell Lin, to go through the first half results, provide us some business updates. The company already posted their result 2 weeks ago so I think today management will provide more detail. And after 10 to 20 minutes briefing, I will help to moderate the Q&A session. The reason that I want to help here is to ask some common questions to set out a stage. But if you have any questions, please raise your hand or you can use the Q&A text box. It will help to consolidate and ask questions to the management.Without any further ado, Frank, do you want to start the business update and earning review. Thank you.

[Jyh-Ming Lin, executive]

Of course. First, I like to confirm that my slides has been shared. So do you see that?

[Charlie Chan, analyst]

Yes, clear.

[Jyh-Ming Lin, executive]

Alright. Let me start with the operation results for first half. Certainly the slides start with this company profile. But I believe most of our guests today are familiar with Andes so let me skip this page. And in business status overview page, Page 6. Only 1 bullet I like to highlight, which is the accumulative customers SoC shipped, which is over 13 billion now. For second quarter revenue analysis, it's TWD 179 million. That is a 20% drop from first quarter, but yet is a 27% Y-o-Y growth from last year. Considering the first half of 2023 revenue, it's TWD 404 million and it is 15% of Y-o-Y growth. This slide we analyze Top 10 customers by revenue for first half of this year. Top 1 is an American company, their application is AI; #2 and #3 from Taiwan doing touch panel application and SSD application; #4 is from U.S. doing AI application; #5 and #6 from Taiwan doing sensing and wireless/IoT application; #7 also from United States doing AI application; #8 from China, which is doing CMOS sensor application; and #9 and #10 are all in Taiwan, it is for Ethernet PHY or touch application.So the common point listed here you could see that from U.S. AI application, Andes has good achievement here. And among Top 10, Taiwanese companies are still most of them sharing 60% of them. So these 10 customers contributed 72% of our first half revenue. Regarding royalty, the second quarter royalty the revenue is TWD 45 million, which is a 9% drop from first quarter and yet a 19% drop from Y-o-Y comparison. If we analyze for first half of this year, the revenue for royalty is TWD 95 million, which is a 18% drop from last year first half. So I like to state the factors we could analyze for our first half revenue. In first half revenue, the economy in North America, in China; both are bad and yet the semiconductors' companies or customers, they are adjusting their inventories. So license revenue has no growth and the royalty revenue also had a drop.In this slide, we analyze Top 10 royalty contributors for our first half revenue. In this slide, we could see that Top 8 are all from Taiwan; #9 and #10 are from China. So touch panel are still the top contributors in terms of application. You can see that for #1, #2, #6; these are all touch panel application. And for wireless/IoT, I would like to categorize that as #2 application. So #3, #5 and #7 and even #9 customers, they are doing wireless/IoT application. While the #10 customers is doing navigation application. These Top 10 royalty customers contributed 89% of our royalties for our first half revenue. In this page, we use pie chart to analyze the contribution from different business model where license fee contributed 56%, for running royalty 24%, for maintenance 20%. If we analyze by region: 46% were from Taiwan, 34% were from U.S.A., 15% were from China and 4% from Korea.The small pie chart in the left side states that RISC-V contributed 70% of revenue for our first half while V3 contributed 30%. The pie chart in the right side is for your reference, but we can clearly see that Top 3 products are N25, NX45 and N8. In this page we analyze the RISC-V versus V3 revenue in terms of their amount and percentage for your reference. In this slide, we analyze the license bar chart and the royalty contribution bar chart for years. So what we can see? In the license part, we can see that the license revenue is not yet half of 2022 and the royalty is even behind that half of 2022. And for 2023 first half, the license revenue for RISC-V share is 89%, 11% of the license fee coming from V3. If we analyze that for royalty, RISC-V is now 5% and V3 still contributed 95% for 2023 first half. The gross margin remains 99% and above.In this slide, we analyze the consolidated operating expense. We could see that second quarter R&D expense is a large growth while due to back to normal promotion so the conference, exhibition and business traveling expense also grew. That come up with the overall operating expense a 15% growth from first quarter and 48% growth from the same quarter last year. If we compare first half expense and last year first half expense, it's a growth over 40% and among them R&D expense has the significant growth. Administration expense due to we have more people, more supporting and more sites than before yet we have a little bit bad debt to collect so the administration expense also had significant growth. Talking about the consolidated operating income or loss. For first half of this year, the loss is TWD 191 million. And if we combine worldwide operation to consolidated net income, the net income for first half became TWD 96 million.So that the consolidated EPS is minus TWD 1.1 (sic) [ TWD 1.91 ]. With that, I'd like to conclude to say that we are under [ the pass ] to grow to another stage due to we had raised a TDR in 2021. We set up a plan in 2021 to grow our R&D design centers in overseas and Taiwan. We had significant team growth for R&D and our supporting teams to these different design centers. That leads to the result. Certainly we could see that the expense grew a lot. In terms of revenue, we know that revenue is not averagely month by month so that your annual income comes from tougher multiple mostly revenue. It's not that way. For last year, we did 35% in first half while 65% came from second half. We believe for 2023, the situation, the scenario could be similar. Another conclusion I'd like to show you is that concerning the customers' application, we now have more listed application here.In this slide, we list mobile MPU, MCU, AIoT, cloud AI space, 5G storage as the examples. And here I like to highlight 1 of them is Facebook or say Meta. In the ISCA Conference this year, they presented their First Generation Silicon Targeting Meta's Recommendation Systems, which is their datacenter AI servers project. In that there are 8x8, which is 64 PE processing element in a chip of the high level architecture of their accelerator and in each PE, as shown here, there are 2 processors. One is Processor A, which is a scalar and another processor is Processor B, which is a vector. So both processors were from Andes and the part number has been named here. However, the business between Andes and this company is combining standard licensing and custom computing, which means customization for processors.So there is 1 number not listed as Andes standout IP numbers. But anyway it's some kind of advanced version, customized version for NX27V. Meta leveraged Andes processors with quite large amount, quite a significant use of our custom extensions' enrollment to design such a complex product. Then in this slide we'd like to show you that since fourth quarter of 2022, we started to show this page. However, in fact half of them were just kept on the shelf by end of the first half. For example AX45MPV, this new product has been promoted for half year, but it is first delivered by end of June. What that means? That means with our GDR expanding plan, all the new products were under development for a certain period of time. In the past, Andes used to announce new products every year, but usually we announced 1 or 2 products in a year.In fourth quarter 2022, we announced that we are going to deliver 4 new products namely D23 here, D25F-SE here, AX45MPV here and AX65 here and yet we have another new product which is AI Accelerator I will address later on. What I mean is we are under a stage of pushing all the deliverables to be delivered to the market for new products. So we are experiencing a very exciting stage that promoting new products right now, which will lead to a more beautiful future for Andes. So following I'll briefly introduce these new products. I will not go into depths not a technical presentation. Simply let you know that AX65 out of order application processors just got on the shelf for a beta site. We are having customers evaluating this product. This is a 13-stage 4-way 64-bit out of order processor with RVA22 profile. The cluster can allow it to be 1, 2, 4 or 8 cores. The performance is good in 2.4 GHz at 7 nanometers TSMC process.The specintegers performance is 8.25 per gigahertz and specfp2006 is 10.2 per gigahertz, which are the best spec 2k6 performance we ever know with 2 level caches design. So here I also list the product roadmap for AX60 series. We will deliver AX65 at the beginning. Then along the way; AX66, AX63 and AX67 will be delivered along the way. Another new product, as I mentioned, just got delivered is AX45MPV. This is a multicore cluster also could be delivered as 1, 2, 4 or 8 cores cluster. This is a world-leading RISC-V vector extension RVV 1.0 product, which come with the best vector functions like a bfloat16 and 1024-bit VLEN and DLEN features leading the world. With its delivery in end of June, we already signed up 2 licensees, 1 in China and the other in U.S.A. They licensed our new AX45MPV products and we have quite many potential customers evaluating this new product today.So this product AX45MPV comes with 1024-bit vector lens. So this is world-leading features I mentioned and yet it could be used as deep learning hardware engine and it's got strong features, solutions offered for customers to leverage. One is called ASP, Andes Streaming Port, which caused our competitors try to learn this spec and design the similar feature. The other is it supports high speed vector memory so the memory bandwidth and the multi-bank SRAM's multiple access could be done in AI system design. Another segment Andes is doing namely automotive grade RISC-V cores. We have announced N25F-SE in 2022. It's got licensees doing the application listed here in cabin radar, CMOS sensor, automotive TDDI, automotive grade MCU and automotive storage and so on. Here I like to introduce another page for the roadmap with functional safety products, they are all RISC-V products.Along the way, we will introduce 1 by 1. The first coming up is the D25F-SE, it's got DSP features adding up. N25F-SE, it's already delivered. However, it's in the stage of compliance certification in third parties overseas. So the target is to have it certified in this quarter and still be compliant. Then for mission critical application, we will introduce D45-SE, which is 8-stage dual-issue products coming up very soon, and this will be the first time Andes introduce ASIL-D compliant product with the feature ASIL-D also supported. We plan to have it delivered by end of this year and to get certified by third quarter 2024. And along the way, D23-SE and 60's ASIL-D compliant products will also be delivered later on. So as I mentioned, N25-SE, D25-SE are rather similar to each other. They are ASIL-D full compliant with the DSP features that D25F-SE had.Just introduced this page for N25F-SE certification certificate. There is something you should pay notice, which is the red circle highlighted here. That is stating ISO 26262 with parts 2, 4 partially and 4, part of 5, 8, 9 and 2; they are certified. Believe me that in the market, our competitors may introduce a product which is ISO 26262 and still be ready without these parts certified. So the quality level, the safety level are different from Andes' product to our competitors' product. And along the way, we will introduce D45-SE, which will be a 8-stage dual-issue up to ASIL-D product with RISC-V RV32 GCBP extensions and Andes extensions. D23 will be another compact controller for IoT, for MCU and for ECU. It will be 3-stages limited dual-issue product with extensions RV32 l/E-MAC+B+Zce. Another advanced product for D23 series will be with the features of FPU, DSP, K and CMO features or extensions. So what does that mean?That means D23 will be a good RISC-V processor for customers to go high end, which will beat our competitors namely in the same segment arms so N35. And then D23 series also has its safety enhanced product D23-SE and we will go for automotive grade ASIL-D compliant and ASIL-D supporting certification. So with that, D23 and D23-SE will be a ideal processor for customers to design security products. We will introduce IOPMP for IO protection. There will be multizones protection for Rich Execution Environment and Trusted Execution Environment. Then come to the segment. I'm going to introduce the new products we announced in first quarter of this year and then already delivered in second quarter. Andes AI Runs Everywhere, AndesAIRE; 2 products here. One is AnDLA I350, the other is NN SDK. AnDLA, which is Andes deep learning accelerator, the first product I350. It is a high performance efficient Deep Learning Accelerator for Edge and AIoT devices.And with that, Andes now have better infrastructure for customers' AI product design. Referencing this page, we can see from the bottom that with our processors no matter its [indiscernible] level, A series processor from Andes are the computing acceleration processors like vector processor or DSP processor. Upon them, we add accelerator AnDLA I350 and then AIRE with those. Then it could be hooked to TensorFlow light or TVM and so on open source, open environment for NN in furnishing engines. And with that, we provide NN SDK and NNPilot for customers to develop the overall AI solution. So with Andes processor and accelerators added up, customers will be reaching the application of smart camera, smart sensor, smart home appliance, AIoT/tiny machine learning, robotics, wearable AI devices so that their SoC could have stronger ecosystem to support them with their SoC design and promotion.Okay. So this is what I'd like to introduce to you today and next, we will have Charlie moderating the Q&A.

[Charlie Chan, analyst]

Thanks, Frank, for your very thorough introduction. So for audience, if you have any question, please raise your hand or you can send your question in the Q&A box, I will try to moderate. So first of all, maybe let me ask some financial related questions. So first of all, Frank, year-to-date do you feel this is tracking below your expectations when compared to the initial target you are setting at the beginning of this year revenue to grow double-digit Y-o-Y? Do you still have this confidence?

[Jyh-Ming Lin, executive]

Okay. The first half result is behind our business plan I said that first quarter last year. In every year we plan our second year work plan and business plan. Definitely this result of the first half is not satisfied. We are ordering all the divisions to catch up with customers design win. The environment -- I mean the world situation also was not that good in first half. The semiconductors are adjusting inventories so the royalty income could not grow and there is a drop. The economy in U.S. and in China were not good. Some customers failed to raise their capital thus canceled their project. Even the large companies in North America, they kept layoff their employees in the first half, also adjusted their project. But we see some turning to a positive, to stop cutting people, stop cutting project after first half is gone.Now we see some positive sign with them. Our customers are coming back to life from meeting rooms. I try to speak a joke. In meeting room, they discuss how to lay off people; but in net, they design chip. Then also another very significant turning point for Andes is that we started to deliver new products by second quarter this year especially AX45MPV was delivered in June. AX65 beta side design also got delivered by beginning of July so that we will have more realistic solution to persuade, to show customers and for them to evaluate that will lead the business negotiation even faster. So go back to what you ask, we have no right, we have no privilege to be pessimistic. We are trying to catchup. The catchup plan for each business unit has been discussed and deployed. So we hope we can report good achievement in the coming months.

[Charlie Chan, analyst]

Okay. Because we already got maybe around 10 questions in queue so can you answer those questions quickly? If it's just a simple yes, no, or a very quick question.

[Jyh-Ming Lin, executive]

I mean I read the question and I answer or you read the question?

[Charlie Chan, analyst]

I will try to combine them. But a simple follow-up on that full year target. So based on the current business status, do you think this year revenue can grow more than 10% Y-on-Y? And two, do you think that this year you can turn profitable or it will be a loss-making year?

[Jyh-Ming Lin, executive]

Okay. These 2 questions are very hard to answer. As of the result shown for first half, both are no. But like I said, we have no privilege to be pessimistic so we will try to catch up. If the execution and the customers' decision-making could fit our catchup plan, certainly we could go back to a faster growth track, but there's no 100% yes or no answer for this.

[Charlie Chan, analyst]

Okay. So try your best to achieve 10% growth. Is that the message? Okay. So there are a couple of question about the OpEx. So what's the OpEx trend going forward? Another question is about subsidiary R&D. Can you update the employees number in 2023 and 2024?

[Jyh-Ming Lin, executive]

Today we have design centers in Hsinchu, Taipei and 4 sites in North America. So the R&D expansion plan will be limited to these 4 overseas design centers and the expansion will come to a stage by end of 2024. The reason is that in October 2021, if you go back to check our website, we already made a PR stating that from October 2021 in the coming 3 to 5 years we will try to recruit 200 R&D talents worldwide and we are under such [ pass ]. Although when we say 200 R&D talents, perhaps another 40, 50 now R&D colleagues must be recruited to support them, but that's what we have in mind. With the slow semiconductor season starting 2022 second half, we have better opportunity to recruit talents and that leads to the phenomena that our recruiting went very well in 2023, which is this year. So this year we had significant growth. But as the management executive of the company, I will order to follow what we said in that PR just get to that as a stage conclusion.So you could make a estimation that we might grow to overall more than 500 total headcount worldwide, could be 550 or less, and that would be by end of 2024. I will review whether the outcome of the design center expansion makes sense. The achievement, the performance of each design team and certainly the ROI, how much could we earn from the investment with our expansion, what is the deliverables, the new products could they help Andes to make money and so on. So I would say by end of 2024, I will do an overall review for the achievement for ROI. Certainly we keep thinking if we are manufacturing company like TSMC or foundry company, their expansion they could amortize the investment to 20, 30 years, but we don't have that luxury. We are a design company so our expansion are the talents, their brainpower is our asset, which we need...

[Charlie Chan, analyst]

Frank, maybe we keep it brief. My role here is really to make sure question can be answered. Is that okay? Let's keep it brief. So the question is about you mentioned Meta AI, right? So investors want to know when does this licensing fee contribute to your revenue and when would be the royalty fee from this Meta projects? And investors ask whether you're working with other big hyperscaler customers in the U.S. for AI chip? Can you answer this one?

[Jyh-Ming Lin, executive]

Okay. There are 3 question marks. So the first, yes, we already recognized the first batch of royalty revenue in third quarter 2022, but it's according to the agreement which we cannot state clearly. I would not encourage you to think the royalty will be rocket high because royalty is a percentage of ASP multiple the quantity and how many design centers chips could you reach in a company. So it's not that much. Then second, I would say yes, of course if you read our report clearly, you would notice that the #1 customer contributing from U.S. for AI for 3 years now and yes, that's mostly license revenue and customization revenue. Number three, the answer is yes, but I cannot tell you the name. We have a couple large U.S. tech firms for AI, for switch, for wireless connectivity and they are all world leading companies.

[Charlie Chan, analyst]

Perfect. So maybe another follow-up question on AI is about the revenue contribution today and revenue contribution 3 to 5 years later, AI revenue contribution?

[Jyh-Ming Lin, executive]

Okay. I'm sorry we didn't make a very specific analysis for that. I can only tell what in my mind. In my mind, my sense is 35% revenue for license fee coming from AI.

[Charlie Chan, analyst]

Okay. Maybe switch gear to another major potential growth opportunity, AX60 series seems to be for smartphone AP and when do you think that will start to contribute revenue?

[Jyh-Ming Lin, executive]

I believe AX60 will start to contribute to revenue this year. But the question stated here asking whether AX60 could be used as smartphone as an application processor? Yes and no. My answer is that with today's design, no; but with the design we will insert along the way, yes. Why is that? Because the interaction between RISC-V community and Google was started 2 years ago and it is a long-time cooperation relationship. It's not that easy to make that available. So I would say yes, we will get into Android application sooner or later. We will have hardware and software get available for our customers to design chips and anytime in 3 to 5 years we may introduce that revenue. However, it might be enjoyed by another smartphone. We know Android application spreads quite wide from smartphone to Android TV to wearable devices to automotive, there is a lot, even home appliance. So that's my answer.

[Charlie Chan, analyst]

Okay. So my own question on this Android opportunities. Definitely you're working with Google Android closely, right? But do you have any anchor chip customer there already confirm will license from you or it's more like you develop the products and 3 years later see who want to license?

[Jyh-Ming Lin, executive]

It's not that easy. There are customers interested, but before solution is available it's hard to say.

[Charlie Chan, analyst]

Okay. So it's kind of you need to continue to invest and develop and continue to see if customers really want to license.

[Jyh-Ming Lin, executive]

That's right.

[Charlie Chan, analyst]

Okay. Interesting. And so a question related to AI as well. Any chance Andes can take on the Edge AI meaning for example AI on PC and phone? That's kind of Edge AI opportunity. I guess the question is because now you since have a very good position in the datacenter AI already, question is about chance in Edge AI?

[Jyh-Ming Lin, executive]

I will say that answer is yes, but it may spending quite much time to imagining what is Edge AI client, which might be wearable or some devices or some gadget you could use in your house, in your home or in the society. So yes, we have quite many customers design win in Edge AI. But I will say in another 2 to 3 years, you will see in the market there are quite many new and interesting toys or gadgets you will purchase not just the smartphone, not just so-called AI client.

[Charlie Chan, analyst]

So another question from media is passed by your IR team. I guess you already talked about the second half outlook, right? Your first half, second half ratio should be 35% to 65% so I think people can calculate. But his question or her question is more about which are regions or [indiscernible] are driving the momentum in the second half? Can you elaborate?

[Jyh-Ming Lin, executive]

Quite many. Currently especially for royalty, the #1 is touch panel related, TDDI drivers' integration. The #2 is wireless connectivity such as WiFi, Bluetooth and now we also see GPS related application, IoT, MCU, these are quite common and AI datacenter storage. Also we have quite many customers. They range from Taiwan to China and the U.S. doing SSD for consumer grade or datacenter grade, enterprise grade SSD applications. So I would say there are quite many application segments. Besides for 5G smart stations, we also have customers doing that. I could name even more, but just like to focus on these.

[Charlie Chan, analyst]

Okay. Are they mainly coming from China or U.S. or evenly from both regions?

[Jyh-Ming Lin, executive]

Both.

[Charlie Chan, analyst]

Okay. Another question is from myself, right? Recently there is industry news talking about Qualcomm [ designing ] NSP. I think people read their news, right? They want to set out JV developed RISC-V and according to the recent management's comments, it seems like they are also interesting to become the IP licensing source, right, for Europe or U.S. chip customers. So do you think this is an opportunity for you or actually competition for your future business?

[Jyh-Ming Lin, executive]

Okay. We see that as potentially customers, but if they decide to design their own CPU, then it will take them a few years before they could enter the market. However, I would like to say among these 5 companies or enterprises, at least 4 of them we see them as potential customers and even we had engagement with 3 of them with at least 1 is already our customers. So I would say we will try to knock their door asking whether they are doing chip design or they are doing processor design or what else. So we have to define and conquer whether they are friend or competitor.

[Charlie Chan, analyst]

Okay. So I'm not sure if you are also aware, but 1 of your current customers Renesas also said publicly that they have an internal team to design RISC-V as well. Do you think this is going to jeopardize your future business at Renesas?

[Jyh-Ming Lin, executive]

No, it's not that way. I cannot tell what I know, but we are confident that relationship in business between 2 companies will keep growing.

[Charlie Chan, analyst]

Okay. Interesting. So what would people misunderstood then because they said particularly there will be some product road map, right, for the RISC-V IP?

[Jyh-Ming Lin, executive]

Well, even though the company is a startup in Silicon Valley, they may announce they are doing high end RISC-V processors, but their design somehow for some of them, you can see design from Andes -- design win from Andes. Yes, we do design win. It's not -- we call it zero sum. It's not 0 or 1, it might be in between.

[Charlie Chan, analyst]

I see. That makes lot of sense. So 1 kind of basic question. What's the percentage of customers will convert from license into royalty?

[Jyh-Ming Lin, executive]

Okay. I can only tell my experience. My personal experience, 40% only.

[Charlie Chan, analyst]

40%, okay. And that is kind of a very strategic question, right. Would that -- we call it hit ratio or whatever is how you select or consider a project or how you select your project to work on?

[Jyh-Ming Lin, executive]

That's a challenge to corporation from year to year especially when doing promotion design win conference, this customer approaching you, how do you answer and how much you like them? Usually we like them, right? Customer is always right. But later on when approaching DD stage; customer do DD, we also do DD. We will do DD for their finance, for their technology, for their product history and their power in the market. With that, we will answer this question.

[Charlie Chan, analyst]

Okay. I mean maybe last one, we are already past 1 hour. Maybe last question from myself is really the RISC-V adoption in China and also the competition, right? We mostly [indiscernible] survey over the past month such as the interest of China to adapt RISC-V is surprisingly high, right? So I'm wondering are those customers using the licensing or they tend to develop internally? And second question is how do you see the competition in China?

[Jyh-Ming Lin, executive]

Well, if we analyze a market with normal distribution, the normal distribution graph for customers in China, it spreads very wide, which means there are extremely good customers and there is extremely bad customers. Those extremely bad customers; they might be a startup, they might owe you bad debt, not paying the license fee or whatever they owe you. But there is excellent customers in China as well; they do good design, they have shipment, they started to pay royalty; and we hope that these customers could be more in China. If China likes to establish a healthy economy, then being honest paying everything they should pay is extremely important. That's how we categorize them. So we know RISC-V is very hot in China and enterprises that govern today think RISC-V is a reliable, controllable solution and it is open-source ISA so they could come down. They are not controlled by anyone. I think there are many, many significant advantages for RISC-V for China, the whole system. So this will keep that for maybe a decade that's what I think.

[Charlie Chan, analyst]

So for a Chinese customer when they choose between Taiwan, the U.S. and China IP vendors; do they have any preference?

[Jyh-Ming Lin, executive]

Very hard to say. It's also a distribution question. I think there are distribution percentage that they like Andes very much. And quite many of them, I mean a high percentage, might only choose whoever charge the least. I mean the cheapest solution they would choose. With that, the government sponsorship to IP vendors will make sense for them and [indiscernible] in this. You see what I mean.

[Charlie Chan, analyst]

Okay. So we're running out of time. So before we let you go, Frank. So when you did the TDDI, you set a target to grow revenue of USD 100 million. When do you think that could be achieved?

[Jyh-Ming Lin, executive]

We hope that in 5 years we can do that.

[Charlie Chan, analyst]

Counting from 2021 or from this year because it's a very, very different implication.

[Jyh-Ming Lin, executive]

Yes. Yet I cannot answer to that.

[Charlie Chan, analyst]

Okay. So anyway, I think thanks for your time and hope this session answered most of the questions from the audience. We look forward to your next quarter performance. So we keep each other posted. Thank you.

[Jyh-Ming Lin, executive]

Thank you, Charlie, and thanks to our audience.

[Charlie Chan, analyst]

Okay. I think we can conclude here.

[Jyh-Ming Lin, executive]

Okay. Thank you. Bye bye.

[Charlie Chan, analyst]

Thank you, everyone. Bye.