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Edited Transcript of 2454.TW earnings conference call or presentation 30-Apr-19 9:30am GMT

Q1 2019 MediaTek Inc Earnings Call

Hsin-Chu City May 31, 2019 (Thomson StreetEvents) -- Edited Transcript of MediaTek Inc earnings conference call or presentation Tuesday, April 30, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Ku

MediaTek Inc. - Corporate Executive VP, CFO & Spokesman

* Tienyu Tseng

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Conference Call Participants

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* Brett William Simpson

Arete Research Services LLP - Senior Analyst

* Charlie Chan

Morgan Stanley, Research Division - Technology Analyst

* Gokul Hariharan

JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst

* Randy Abrams

Crédit Suisse AG, Research Division - MD and Head of Taiwan Research in the Equity Research Department

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Presentation

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Operator [1]

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Welcome, ladies and gentlemen, to the MediaTek 2019 First Quarter Investors Conference Call. Your speakers today are David Ku, MediaTek's CFO and Spokesman; and Tienyu Tseng, MediaTek's Senior Manager of the Finance Division. Mr. Tseng will report first quarter results first, and Mr. Ku will provide prepared remarks. And after that, we would open for Q&A.

Now I would like to turn the call over to Mr. Tseng. Please go ahead.

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Tienyu Tseng, [2]

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Good afternoon, everyone. Welcome to the MediaTek First Quarter 2019 Conference Call. As a reminder, all content provided on this said conference is for informational purposes only, not intended for investment advice. Neither the issuer nor any of the independent providers is liable for any actions taken in reliance on content contained herein.

MediaTek provides non-TIFRS financial measures as supplemental information. Earnings distribution is made in accordance with the financial statements based on TIFRS. Unauthorized recording or redistribution of the video, audio, text and presentation contents of this teleconference is strictly prohibited. By participating in this teleconference, you agree to accept the foregoing terms and conditions.

Now let's start with the 2019 first quarter financial results. The currency here is in NT dollars. Revenue for the quarter was $52.7 billion, down 13.4% sequentially and up 6.2% year-over-year. Gross margin of the quarter was 40.7%, up 1.8 percentage points sequentially and up 2.3 percentage points year-over-year.

Operating expenses for the quarter were $18.3 billion compared with $19.9 billion in the previous quarter and $17.2 billion in the same period last year. Operating income for the quarter was $3.2 billion, down 17.7% sequentially and up 64.3% year-over-year.

Operating margin for the quarter was 6% compared with 6.3% in the previous quarter and 3.9% in the same period last year. Net income of the quarter was $3.4 billion compared with $4.1 billion in the previous quarter and $2.5 billion in the year ago quarter. Net profit margin for the quarter was 6.5% compared with 6.7% in the previous quarter and 5.1% in the year ago quarter.

EPS for the quarter was $2.17 compared with $2.63 in the previous quarter and $1.61 in the same quarter last year. We also provide non-TIFRS financial measures, which include share-based compensation, amortization of acquisition-related assets and tax effect. Please refer to our earnings press release and the presentation for details.

For the second quarter of 2019, we expect revenue to be in the range of $59.6 billion to $63.8 billion, up 13% to 21% sequentially, at a forecasted exchange rate of TWD 30.9 to USD 1. We are forecasting the gross margin at 40.5%, plus or minus 1.5 percentage points, and quarterly operating expenses ratio to be at 32%, plus or minus 2 percentage points.

And now I would like to turn the call to CFO, Mr. David Ku, for prepared remarks.

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [3]

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Well, thank you, Tienyu. Good afternoon, everyone. So before the Q&A, let me just give you guys a quick update for our Q1 overall performance and also operational details. First of all, I think the Q1 overall financial performance, our revenues especially, are reaching the original upper end of the guidance and also, I think the gross margin also reaching the mid- to high end of the original guidance.

And on top of that, I think for our 3 major business lines, which is the smartphone, growth sectors and also smarthome sectors, I think, generally, all contributed now equally, around 1/3 of overall revenue. So I think, overall, I guess, we have a much more balanced business portfolio after 2 to 3 years of overall adjustment.

And more importantly, I guess, I mean, earlier this year, our CEO, Rick, was kind of mentioning that 40% gross margins is one of our goals trying to achieve this year, and now, actually, we're happy to report that, for Q1, we already see more improvements in gross margin. That's a quick overall update on the corporate level.

And then the revenue update on the 3 major product line level, I'll start with some mobile computing. I think for mobile computing, which includes smartphone and tablet, overall mobile computing contributed 30% to 35% of Q1 revenue. I think for Q1, in general, due to the seasonality issue, the smart computing is relatively big compared to the other lines of business. But we do see a strong seasonal growth in second quarters for our mobile computing sectors.

In -- on the product front, I think growth for P70 has ramped up pretty well, and also for P90, it ramped up pretty well. I think we should be able to see our customers start ramps with our P90 Insight products beginning of -- in Q2. And we will also foresee the stronger momentum extending to the second half of 2019.

And I think for -- both for P70 and also P90, that the MediaTek team are the leading players in providing enriched AI functions, not just camera, but also other AI functions in a smartphone. And we are probably the first one to put something we call the APU, is on top of the CPU and GPU, is an AI processing unit. APU stands for AI Processing Unit for our customers and also a lot of the app developers to truly leverage the AI to completion function to provide more and better user experience to our end customer. I think that pretty much sums it up, the P70 and P90 fronts.

And also, new for -- on the 5G front as in like what we expressed to the capital market, we already demoed our M70 modems in -- during the MWC earlier this year. And we are also right now promoting our 5G SoC with pretty good feedback from the -- our leading customer in China. And we, right now, feel fairly comfortable. Basically, we should be able to catch up the first half 5G product cycle, and we should be able to see a few customers start to ship our 5G SoC products in the first half next year. And I think for our 5G SoC product, we're starting with the high-end product segment. For next year, I think we will further extend that 5G product portfolio for the high end to mid-range as well. But overall, I think this time around, we feel fairly comfortable both from product timing and also product effectiveness of our 5G products -- for the 5G product sector especially. I think that concludes my update for mobile computing.

I'm now going to move into the next sector, which is the growth sector. And for the reference, I think growth sector, which is including the IoT product, PMIC product, custom ASIC product and some other products. But in general, I think the IoT products account for half of the growth sector revenue and also PMIC and ASIC, probably account for now 45% of the overall revenue on the growth sector.

So for the IoT product, I think we see a strong momentum in Q1, and also, we also foresee a pretty good momentum in Q2. I think for IoT, within IoT, we have a WiFi product, a voice assistant product, machine-to-machine product. But in general, I think, for the IoT product, we see long-term growth mainly due to a very diversified customer portfolio and also a lot of new emerging applications for the IoT product.

And on PMIC and also on the custom ASIC side, I think we also see a pretty strong year-over-year growth for both for PMIC and also custom ASIC. And more importantly, I think, for the current where we are, the major business lines on all business are [the] custom ASIC piece, mainly on the game console front. But starting from few previous years, I think our new segment, the second sector which is the [end product] ASIC, will start to ship manufacturings and I think that will be a very important milestone for our custom ASIC business.

I think that's a big update for the growth sectors. The next one I'll list will be on the smarthome. I think for the smarthome and other products, I think for the first quarter, we see a seasonal [straighter down]. For the smarthome sector, I think Q1 overall revenue accounted for 32% to 37%. We still believe, even though it's actually subject [pertaining to] smarthome, mainly an additional TV, it actually is a mature product. But we do believe, on the other hand, we do believe a Smart TV and also smarthome, [now] still have a mid- to long-term growth opportunity. Like what we demoed during last year -- or rather this year, we are probably the first company out there to incorporate AI with the picture quality. And now actually, we try to employ more AI functions in our smarthome. And all have pretty good response for our [in-house product]. I think we will continue to incorporate our new technology to the TV platform, and we do believe that will further the future growth even for the TV front.

I think that concludes my quick update for the corporate level and also from the 3 major product lines.

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Tienyu Tseng, [4]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) First in line to ask questions, Randy Abrams, Crédit Suisse.

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Randy Abrams, Crédit Suisse AG, Research Division - MD and Head of Taiwan Research in the Equity Research Department [2]

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I wanted to ask the first question on the revenue growth for 13% to 21%, which is pretty decent. But I want to understand how much of that you're seeing in terms of environment, more, just say, kind of like seasonal pick-up both in the smartphone and in the -- in some of the growth products? Or how much are you actually seeing incremental that's from your business drivers? And then a lot of companies are talking about a second half -- or a strong second half. With your guidance for second quarter being fairly healthy, I guess do you have a view of second half kind of relative to most years, if you see certain drivers for that second half maybe coming in better?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [3]

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Okay, well, first of all, I think, for the second quarter, we see a fairly healthy growth across all 3 sectors. We see in the 3 sectors, probably smartphone is the one with the strongest growth, I think, mainly due to the growth in lower base in Q1. But bear in mind, actually, you will always see a pretty strong Q2, as we say, stronger than normal seasonality. You normally, is our -- if you look at our sort of Q2 seasonality, in general, it's 10% to 15% up. But right now, the guidance is at 13% to 21%, so it's actually slightly better than normal seasonality. But when we look at the full year's, again, I guess right now, we're still not changing our full year's view yet. We need to recall that in Q1, I think that the CEO, Rick, kind of had given out the full year's view of top line, especially as now, we will still remain as [part] 2019 versus 2018, that relatively, probably, we're still going to be a relative flattish, maybe slightly up. But we didn't really foresee a stronger year-over-year top line growth.

But on the other hand, I guess the way we're trying to manage and drive the business is that we understand from the overall demand perspective across our sectors, we didn't really see any -- some good fundamental trend, if you ask me, because for 4G, right now, it obviously is quite clear that people are getting ready to transition from 4G to 5G. So obviously, you would not be able to see a very strong 4G growth this year. But hopefully, that will lead to a much stronger 5G growth.

For our other line of business, actually, is what we see is pretty much in line with the global semiconductor growth rate, which is low single digit. So I think, so again, to answer your question, let me just summarize that, first of all, for Q2, we do see a pretty healthy growth across all 3 sectors. Even among the 3 sectors, smarthome has the strongest growth rate, with a one good reason, which is they have risk-weighted in Q1. But that doesn't constitute we're going to change our views. If we are ready for the full year, we're still kind of conservative right now, if you like, and to be precise, I guess we're still looking for maybe another 5-ish, just like up here, on the top line.

But we do foresee we should be able to continue to improve the gross margin and capture the operating expense and to see another good year of upper margin dollar growth. Bear in mind, last year, I think, 2018 versus 2017, the gross margin dollars grossed more than 40%. I mean this year, we kind of probably would not be able reach 40% with another full year percent growth. At least, we're looking for a double-digit growth, if not 20%, if not higher especially for [our] margin dollar growth this year.

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Randy Abrams, Crédit Suisse AG, Research Division - MD and Head of Taiwan Research in the Equity Research Department [4]

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Okay. Great. If I could ask a follow-up then on the gross margin. I think at the Mandarin call, you mentioned smartphone now at corporate average. If you could take a, maybe a view on margin by segment, if you now think mobile should be, you think, more in line with corporate is something here to -- looks more sustainable, and then if you're thinking on 5G, the initial stage, how should we think of the profitability in the early stage? Does it start out high-margin, or it's high development cost that takes time for the profitability?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [5]

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I think for the 5G right now, it actually is maybe a little bit premature to give out on the guidance even on 5G, but let me answer your question from a slightly different perspective. I think our view is from the ASP perspective, I think 5G is definitely a very good product. I think compared to our current 4G blended ASP, I think 5G will be much more [the highest]. But on the other hand, actually, the 5G is, right now, we're going to put in more technology on the chipset and the cost will be much higher as well.

But the final thing, I guess it all depends on what's the final pricing we can charge to our customer. Currently, based on the pricing for full year, or as you know, more of the gross margin should be coming through 4G, it should able to sustain. But again, the pricing is always a moving target, and by the end of this year, you never know how the landscape will become on the 5G side. I think for 5G, probably, the better way is actually when we're going to report to everyone about view maybe later this year. But so far, based on the currently available information, I would say 5G probably will be constituting a similar gross margin, maybe slightly better, it just depends on the final ASP profile for 5G.

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Randy Abrams, Crédit Suisse AG, Research Division - MD and Head of Taiwan Research in the Equity Research Department [6]

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Okay. And do you think that margin from mobile overall, it's now -- I mean, do you still think of the non-mobile as incremental gross margin driver if that grows faster? Or it should probably stay pretty balanced between the 2 now?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [7]

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I'll say it's related firstly to stay pretty balanced around the 2.

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Randy Abrams, Crédit Suisse AG, Research Division - MD and Head of Taiwan Research in the Equity Research Department [8]

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Okay. The last question I had, just it seems like you made a bit of change where it used to be you put everything in the mature product that wasn't growing as much. Now it seems like the emphasis more to call it digit like smarthome. Is -- has there been -- and I'm curious, has there been a reclass of products where now certain things are moving where it's no longer just some mature bucket or if you have some of the Wi-Fi that goes into the home or set-top box like other products going in there? And have you changed kind of your view on is it still a mature bucket? Or now, you want to see that as a growth category as well?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [9]

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First of all, we didn't really do any reclassify. So basically, it's a -- there's a comfort to say it, whether -- but we do change the dynamic for a good reason, just like I said earlier. Even for additional TV or smarthome, we do believe going forward we still have new growth opportunity, especially we -- right now, we're seeing lots of emerging technology go in -- going into the smarthome platform. So that's why we're kind of changing name from mature product to smart. These are full mature but we don't think that's the right way to describe this line of business. But in terms of the content or categories, they actually remain the same. There's really just building smarthome plus the feature phone and plus a little bit actually other products.

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Operator [10]

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Next in queue for question, JPMorgan, Gokul Hariharan.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [11]

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First of all, on the gross margin, great development in the margins. Could we talk a little bit about what is our next gross margin milestone? And what are -- is 40 -- is around about 40% the best that we can do? I'm just asking that because you mentioned earlier to Randy's question that now the product portfolio margins are fairly similar across different segments, especially growth segments of the smartphone, and you're also anticipating that 5G is probably going to come in at similar margins compared to -- or slightly better margins compared to your current smartphone portfolio. So what are -- what should we be doing to see further margin upside -- gross margin upside from the current 40% levels in, let's say, a couple of years kind of trajectory?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [12]

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Well, I think our view is actually that the interim, the interim defined may be just 1 to 2 years. I think the goal will be trying to maintain the gross margins, we think, basically above 40%. To be precise, maybe it's actually I think the low 40% range. And -- but in the same time, by building a new business portfolio, which including but not limited to 5G data switch ASIC automotive and custom ASIC. And we do believe actually, for the near term, without a sizable new business getting in, probably for the near term, the best we can do, just gradually increase to, I'll just say, 40%, 43%. Hopefully, it is on the high end of this range, but probably it depends on different quarter and different customer mix, different [BG] mix. All we think is how it is just categorized is like low 40% range. Probably we still need -- give us some more time, say, 1-plus year, hopefully 2 years' time, we can see a more structural change really through a new product portfolio, which carries a better gross margin. I think that's our view.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [13]

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Okay. That's very clear. Secondly, on the operating expenses and R&D especially, how should we think about R&D for this year? I think, previously, you had said, we'll try to keep R&D pretty much flattish for our overall OpEx, pretty much flattish for this year. Is it still the goal, given that it feels like you are accelerating your 5G SoC pipeline a little bit? I think, previously, you're expecting SoC shipments going probably later in 2020. But it looks like you're now more confident of hitting your first half 2020 goal. So does that mean that R&D and OpEx should be higher this year or this is still going to be in the same [neighborhood]?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [14]

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Well, I think the guidance remains similar. Basically, if you look at the 2 numbers, one is the absolute dollar terms on the operating expense line. Again, on a year-over-year basis, we're looking for 0 to 5% growth. I think that's actually in line with what we provide about the view earlier, this year's. But in terms of ratio, it depends on the revenue range. So I would suggest, for modeling perspective, maybe more focus on absolute dollar terms. Again, year-over-year, we try to manage that from 0 to 5% range. So the goal is actually trying to see the profit growth outpace the operating expense growth. So far, I think, for most of the 5G investment, what we did actually, we do lots of internal reallocations, we reallocate lots of resource from 4G to 5G. In its entirety, actually, we also reallocate some of the basically smartphone people to non-smartphone business. And the overall headcount increased, operating expense increase, is going to be manageable and mild.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [15]

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Okay. Okay. Understood. Just wanted to have some color on what do you expect, I think, market share situation to be like? I think, if I remember last year, especially in the middle of the year and then second half, I mean, it did have some meaningful market share gains, especially in the mid- to low-end category with some of your lower-end Helio products like P32, A22, and I think, it seems like you carried some of that momentum through -- in this year first half as well. Could we talk a little bit about what you feel the market share momentum is looking like when you talk to customers in second half of this year? Are we still going to see some slow market share gains? Or is it basically very balanced situation between MediaTek and Qualcomm in the second half?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [16]

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I would say, last year is slightly different because last year, as we come -- we're starting from a relatively lower market share due to product portfolio [usual] impact in 2017. So 2018, actually, we see a pretty strong market share regain. So 2019, I think, we still see some market share gain, but in terms of the pace and skill, it's much mild. It's much mild. But more importantly, actually, not just on market share gains, whereas your market share by the way is the 2 that I mentioned about the market share, one is on the volume perspective, another is on revenue perspective.

I think on a [long] perspective, just like I said is actually be mild. But I think, more importantly, is really just the relative market share because if you look at our product portfolio, we obviously start to view the portfolio for all the way from 2016 to 2017. Now [it's 2019] and also during the earlier Chinese conference call, I think, Rick's answering quite clearly about our 5G product portfolio, we're even getting into the higher segment. So I think, instead of only focus on the absolutely market share gains, I think more importantly right now is actually, especially what's in the 5G, I think we're trying to get into all segments [real and only] focus on mainstream at the low segments, like smartphone would be in 4G.

I think, if you guys recall, we tried and explain about the change of strategies, I won't say change of strategies, actually, overall strategies. The reason [I think we had the] slowdown on [the past series] on the 4G is not -- doesn't mean that shouldn't been seen as [a signal of] how we get it. Out of the high-end segment, it's truly just we understand for 4G, I think we were late again and it's been uphill battles of -- all from our ROI perspective probably is not the most efficient way to still try to get into 4G high-end. What we should do -- back 2 years ago, was actually we made sure we catch the first wave of 5G and start from the higher end. I think that's what we did.

So again, to make a long story short, this year, I think on the absolutely market share gain, both from [share] and revenue perspective, what we do see is continued market share gain but at a much smaller pace and scale compared to 2018. But more importantly right now is actually we get into the all different segments, all the way from entry level to mid to high-end. Hopefully, with 5G, we can even get into the premium segment.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [17]

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Okay. So just an add-on question to that, David. Could you give us a bit more qualitative color on what your clients are giving you feedback on P90 and AI features? And what should we expect when it comes to I think -- I know that P90 is not going to be the highest volume product given the price range it’s targeting, but what should we expect as we go through the year in terms of product pipeline, which is more like derivative of P90? Do we actually have a lot of products coming towards the second half of this year that kind of fill that gap in a more lower end or more affordable kind of price range?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [18]

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Well, just like you say, P90 is more the high end of specialty premium range. So absolutely, shipment volumes, I think, will be much smaller compared to the other line of mainstream product and also range level. We only focus on quarter-over-quarter P90 revenue contributions. We should be able to see second part Q2, the P90 -- they increased their revenue contribution of overall smartphone revenue and, hopefully, that will help provide some positive influence on the gross margin as well because, after all, P90 carries a higher ASP and also that actually helped our gross margin.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [19]

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Okay. How should we think about -- I think you guys have been ahead of the pack in terms of launching some of the AI functionality. How quickly does that migrate down to more mainstream segments as we get into second half of the year?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [20]

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Actually, right now, all our segments -- again, from the entry level to mid-range to high end, all have AI functions. But we probably realize those AI function with different implementations. For the high-end product right now, obviously, so like P90, which also is called APU, which stands for AI Processing Unit, the general idea is mainly trying to understand that, that's actually in the past we have CPU and also GPU.

Now we actually have a new sort of processing core, if you like, embedded processing core, we call it APU. So for all AI functions, mainly it would be performed by the APU and -- but if we need more horsepower, we can also dynamically code both for GPU and CPU, of course. But in general, say, maybe 80% or even 90% of the AI calculation will be carried or performed by the APU. They'll be much more efficient, both from performance perspective and also from power consumption perspective.

For the mainstream product, we also have the APU, but that's going to be the last powerful APU core. But for the entry product, I think we don't have a dedicated APU yet. We're barely using CPU and GPU to perform the AI functions plus the DSP. But going forward, I think when time is right, we will also consider to include certain APU cores even in entry level, as well.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [21]

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Okay. One question on the ASIC side. Could you talk a little bit about -- I think in the Chinese call, I think Rick mentioned there are multiple new programs that you're ramping up on the ASIC side, especially non-consumer ASICs. Could we have some color in terms of what kind of categories these are? And also, when we talk about ASIC and 5G together accounting for 10% of revenues next year -- or 10% or more, the ASIC is including consumer ASICs or is it primarily looking at the new ASIC projects, which are mostly non-consumer?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [22]

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First of all, when Rick gave out the guidance earlier, so this year is when he talked about 10%, it's not just ASICs. Actually, it's the new business, which included 5G, automotive and also customer ASIC. So I want to clarify that. It's not just ASIC. And also for the ASIC, which included everything, basically existing business and also the new business as well. So includes the ASIC business, 5G business and automotive business. I guess we are hoping our and targeting we're going to have -- see more in terms of revenue having now found this new business.

Again, so the general idea is actually we have new -- more new revenue from new business. Hopefully, that will provide the support both from the revenue gross perspective and also from the gross margin's full perspective. So that's point #1.

Point #2, to answer your detailed question. I think when we talk about the custom ASICs, I think the second field there or second segment we talked about was just that enterprise ASIC. And I think Rick tried to explain actually for the enterprise ASIC, maybe most people are only referring to something called the data switch. But you realize that this scope is actually beyond only data switch. Data switch is definitely is one of the largest sectors right now because it's [interesting] and also due to the data center and also the whole data phenomenon nowadays actually is (inaudible) using smartphones, PCs, even wearables, sometimes IoT. They all generate data at an unbelievable pace and that all needs to be processed.

So I think that sector or subsector #1, called the enterprise ASIC, is definitely data switch, and I think we also mentioned a study from Q3. Our first product on the disk which actually started to ship already in Q3, and [relative these years and] we will be assuming it is very small, but it actually is a very meaningful milestone for us because that's our B2B, the customer to customer, and also the customer is a global Tier 1 customer with a really high requirement both from performance, quality and also technology's perspective.

But on top of data switch sectors, I think that there is another new sector which is called [bundled] service sector, also AI self-service sector, just one of the examples, not the only example. Because nowadays, actually, there's a lot of the AI's functions you can perform both on the etch side and also on the server side. I think different people have different approach for the server AI arrangement. Some people using GPU, some people using different process units. And all those process units will have requirements of something we call the high-speed service. It may be a different core and that will be -- has been transmitted in between different core that will all require high-speed service within our chipset and also within a different system. So I think that actually is [not as] an opportunity.

Thirdly, I think, which including but not limited to, because we do have a pretty positive view about the potential 5G rollout and the order for 5G rollout is also some base station opportunities for 5G as well. Again, within the 5G base station, there are also high-speed service needs and also high-speed I/O needs. And we've actually got (inaudible) out of potential opportunities. So again, it doesn't mean we've got business yet, which we'll just say -- I think on Rick's perspective, he shall explain that the better way to think about that is through enterprise ASIC, which including, not limited to, data switch. I think that's the key point.

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Gokul Hariharan, JP Morgan Chase & Co, Research Division - Head of Taiwan Equity Research and Senior Tech Analyst [23]

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Okay, got it. Last question from me, David. I think you talked about growth segments starting to accelerate in Q2. Could we have some -- now that we are already in end of April, could we have some idea about what you're expecting growth segments to grow this year? Is it going to achieve double-digit growth? Or is it going to be slightly falling short of that?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [24]

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Well, I think, the growth sector, in general, actually, we do believe we should still see a double-digit growth year-over-year.

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Operator [25]

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Next one, we are taking Brett Simpson, Arete Research.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [26]

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David, I just wanted to get your perspective on the Qualcomm-Apple settlement. I mean, obviously, it's a big event for the industry. And also, the subsequent exit of Intel in the modem business. Any thoughts just in terms of how that might impact MediaTek sort of in a medium to long term? Just be interested in your thoughts there.

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [27]

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For the near term, obviously, actually, we don't really see any material impact both for 4G and potential 5G business. Because right now, the -- a little bit more color on 5G. I think the -- I think all players basically serve -- not only is our competitors and also serve MediaTek. I've been super aggressive in promoting 5G solution, SLg solution to China customer. And so far, we feel that this is actually the pretty positive feedbacks out there and we feel fairly comfortable in terms of market share and also in terms of the timing. And so we talk without a settlement. So far, we didn't really see any material change from the customer side or in the marketplace.

For the mid to long term, maybe that's something we still need to observe. But so far, the new settlement case, if you like, then we will change our view about what's our business plan and also what's the feedback we got from the customer on the 5G side so far.

For 4G, I think this is little to no impact at all.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [28]

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Okay, super. And maybe just switching gears a little bit to 5G and comparing the opportunity that you see in front of you versus 4G. I mean, just be interested in your perspective, like, we've obviously seen Huawei go more captive. It looks they're going to go more captive in 5G. They're a big customer for you in 4G. So when you look out at that sort of 5G opportunity from a market share perspective, do you still think MediaTek's position could be -- or do you think MediaTek's market position in 5G could be larger in terms of market share than 4G? Are you focusing on a small handful of customers? Because it seems like there's a lot of consolidation in the China handset market, Oppo, Vivo, Xiaomi, but maybe there's not a lot of big opportunities outside of that. I just be interested in your perspective on how you sort of look at that 5G market share opportunity for MediaTek in the years ahead.

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [29]

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Well, obviously, 5G addressable market should be bigger than 4G, mainly due to a much higher ASP. I guess what we were talking about earlier is actually that internalizations or captive solutions. But bear in mind, 5G, at least for the first year or 2, most started from a 5G in mid- to high-end product. Probably, you're not going to see like a $1,000 5G. But for most of the mid- to high-end products for -- like if you're going for Huawei, they're pretty much at parity as we speak right now. It's a pretty high percentage of solution there that use internal solution anyway. So you can consider those targets actually as not in the markets already. 5G getting in is going to be similar, unless you believe that going forward, even for the entry level, we're going to use internal solution. Otherwise, I would say for the near term that's a no. For the volume perspective, the impact should be mild, okay, if there is any. But on the other hand, don't forget actually, right now with 5G ASP what's important multiple times higher compared to the 4G blended ASP. So if I do the math, I'll assume the 5G market should be much higher, unless people believe they're going to see more [interrelated] solution. Because right now, the people who are having internal solution, maybe just Huawei and also Samsung, but unless you believe that there's going to be new people coming out and provide -- become internal solutions. Otherwise, the overview is mainly due to the much higher ASP and also from MediaTek perspective because we -- right now, we're getting into something called the second patent extension, our addressable market become bigger as well. So overall, I guess we still feel positive about that.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [30]

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Okay, super. And then just maybe a bit more near term, just on the P70 and P90. Looking at 2019, do you think the scope -- because I think you were sort of suggesting this year that maybe some modest market share gains or maybe you'd rather post flat market share. Is that still the case? Or do you think with some of the advances and your guidance in Q2, you think there is scope for more share gains this year for MediaTek in smartphones?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [31]

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I think overall, it's a flattish to slightly up market share, yes. Flattish to slightly up in terms of market share.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [32]

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Okay, got it, got it. And then also maybe just switching gears to the ASIC business. I mean, there's not many guys doing advanced ASICs today, maybe Broadcom is one of the sort of dominant guys and obviously their margin structure is significantly higher than your gross margin structure. But normally when you get into this ASIC business, you have very large backlogs. You can see multiple years ahead of you and is not so much -- this is obviously building up for MediaTek. But can you maybe just talk a little bit about the backlog you have today, the pipeline of business you see today and where you really see the biggest opportunities for ASIC? And to what extent you can build Tier 1 relationships, particularly in networking and autos with your ASIC capability?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [33]

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Unfortunately, we would not be able to talk about the backlog situation. But I think just like you say, when we get into the enterprise ASIC, in general, it's a longer-term stable business once we get in. So that's why we say, I think more importantly probably is just to understand, starting about third quarter this year, our first product start to ship on customer site after, I think, maybe around almost more -- 5 more years of designing and design win process and also manufacturing process. And also on top of that right now is we're just winning more projects from the new customer and also from -- from existing customers and also from new customers as well. But in terms of backlog, we probably will not be providing information right now.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [34]

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Okay. And just building on that then, David. I guess, I mean, we've always known MediaTek is more a consumer semiconductor play. This is a very different business. In terms of the product cycles for ASIC, I mean, typically, when you win some of these enterprise ASIC businesses or other things that you're doing around SerDes, how long are these engagements? Are they sort of 2, 3 years in nature and you have that sort of locked in and you can see the forecast quite clearly? I mean, just give us a sense for some of the deals you're signing? How long they spread for -- stretch for?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [35]

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Well, I think, the general idea is actually trial designing and design win to first-time revenue, we're talking about maybe 12 to 18 months' time, in general. Okay depend on different projects. Sometimes, maybe it's quicker; sometimes, maybe even longer. But in general, our average, I'll say, 12 to 18 months' time from designing, design win to first-time revenue, okay? And -- but the good news is, once you see the first-time revenue, in general, it's actually what -- on the other hand, it also depends on how the end customer products' shipment is going. But in general, that should be pretty long-tilt to the growth or demands that's out there.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [36]

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Okay. And can you provide any sort of number of design wins you have in ASICs, just to get a sense for how many engagements we're talking about here?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [37]

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I think for this year, like I say, from a shipment perspective, we have one project shipped. But from designing perspective, I'll say, probably, 4 to 5 projects ongoing.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [38]

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Okay, super. That's very helpful. And then just maybe on -- switching gears on WiFi because this is, obviously, the largest part of your growth segment today, and we have a transition to 802.11ax or WiFi 6. Where is MediaTek with that product, both in the sort of the router space but also in the device side, TV side or whatever client side? And anything -- when do you start shipping 802.11ax? How does the pipeline look for this and the ASP opportunity look for this for MediaTek?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [39]

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I think the ASP, taking out this year, the customer started shipping with our product maybe earlier this year, first quarter next year. So this year, we don't really foresee any -- we aren't really including any [ax] revenues on the WiFi side. But we, for the longer term, we do foresee actually there's going to be pretty strong [demand for routers] for the ax. Again, from our perspective, that's another example of our segmentation expansion because in the past, traditionally, we are not in that sector. But now with ax, actually we're getting to the high-end sectors.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [40]

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Okay, super. And is WiFi, a $1 billion business for MediaTek today. Excluding smartphones, just looking at the WiFi I/O, the growth division.

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [41]

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We will not give a -- we generally disclose WiFi only, but for the IoT, it's 15% of our -- out of our $8 billion revenue. So it's close to $1 billion for the whole IoT, which including, but not limited to WiFi.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [42]

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Okay, super, super. And then maybe just the last question on the balance sheet. I mean, you have one of the more healthy balance sheets in semis, healthy net cash position. Any thoughts or any recent thoughts or changes in thinking at management level in terms of how to either change the way you return cash to shareholders or whether there's -- whether you think there's more appetite to look at maybe M&A, for example, to help boost the non-smartphone side? Any thoughts there on use of cash?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [43]

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I think with the use of cash is a -- on top of that is really just cash dividend. I think it means being -- I mean, in terms of the cash dividend policy for the last 10 years, in general, we'd be in the range of 60% to 70% of our free cash flow/EPS back to our shareholders. I think we will -- for this year, I think we will continue to guide that as well. On top of that, the remaining cash, if you take a look about the cash flow in the last few years, we do spend quite a bit around M&A as well. So going forward, M&A is going to be one of our important strategy, including our (inaudible) investment portfolio. When you look at our business portfolio, again, even the smarthome, the growth sector which I/O (inaudible) and also ASIC also the smarthome, actually, the big portion of that actually is due to the [range] of M&A.

So going forward, we do -- we'll continue to largely use M&A as a tool to be much more balanced and diversified and also importantly, stable and profitable business portfolio. I think that's something we'll continue to do. And on top of that, actually, is if we continue to improve our operations and also if we continue to improve our profitability, I think, when the time is right, I think the Board will consider about a different policy on the cash dividend [with all], which including, but not limited to cash dividend and also basically have the return to shareholder policy.

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Operator [44]

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(Operator Instructions) Next, we are having Charlie Chan, Morgan Stanley.

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Charlie Chan, Morgan Stanley, Research Division - Technology Analyst [45]

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So you kind of reiterate your full year revenue guidance, right, even with the first quarter at the high end of the revenue guidance. 2Q revenue guidance is also very strong, right? So do you see any kind of risks in the second half? Because if we look at it, it implies that second half, half-on-half, of course, could be relatively mild. And do you have comments on that part?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [46]

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We don't have a clear view for second half yet, Charlie. But based on the first quarter and second quarter, I have to say, it's actually somewhat slightly better than our originals declaration for the full year 2019, okay? But currently, we changed our view for the second half year because I think different business lines have different implications and considerations like taking smartphone, for example. Even though we see a pretty strong quarter growth in Q2, but we're still kind of expecting and getting ready for the 4G to 5G transition. But in terms of how fast or how sizable the way the transition will impact the second half of smartphones, especially for 4G smartphone demand, that's something, I guess, we need to monitor closely. I think that's point #1.

Point #2 is actually when we look at from the macro perspective, even though our business is actually pretty diversified, just from a macro perspective, I think, recently, you guys can see both from Intel or TI's earning announcement, we -- I think we shared a similar view. We don't normally see any sector have a stronger -- very strong year-over-year growth. It's actually you're holding out well basically for the whole semiconductor or just maybe year-over-year growth like low single digits like 2% to 3%. I guess that's why our view especially for the full year this year -- because from our perspective view, we see are the new products to gain and contribute sizable revenue yet. That would be to wait for next year, but this year is pretty much the existing -- that the best thing we can do is actually is to improve the profitability.

So that's why when we gave out the full year view, certainly on the top line side, we're kind of still sort of in the conservative stage, on the flattish to slightly up. But I'll go along with the answer to earlier question is we don't have a solid view for the second half, but if you do the math, it does mean that second half may be softening a little bit, if we're trying to work out the math. But we don't know (inaudible) view so we don't know yet actually. So we still need to see more data point coming in when time is approaching.

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Charlie Chan, Morgan Stanley, Research Division - Technology Analyst [47]

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Yes, that's fair enough, I think. Yes, so we're also kind of concerned about where the strength is coming from. For example, second quarter, your smartphone business still grow quite rapidly, right? But I think according to the market research, there seems to be only one OEM, which is Huawei, gaining share. So in terms of your customer, where do you see the growth, except for that single customer? So can you give us some color, maybe domestic versus overseas markets and also how those other OEM customers are doing in second quarter?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [48]

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Well, Charlie, we probably would not be commenting [what our] ambition is, but let me try to answer your question from a slightly different perspective. Again, from the Oppo demand perspective our view is actually, for China this year on the smartphones I'm talking about, actually is year-over-year probably down 10% to 15% from a volume perspective. And from the overseas market, especially with the emerging markets, it's still growing. And on a global scale, obviously actually for smartphone will still grow very low single digit. And if we use that number, in fact, our smartphone view -- or smartphone revenue is flat. I think for the full year our view of the smartphone year-over-year is going to be flattish to maybe slightly up. So we really foresee or forecast a strong smartphone growth this year, okay? And likewise for the full year on the whole company, I think we shared a similar view.

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Charlie Chan, Morgan Stanley, Research Division - Technology Analyst [49]

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Okay. Okay. And lastly, maybe on the blended ASP. I know you no longer disclose smartphone shipments and ASP. But for 1Q and 2Q, what's the trend of the blended ASP? And what is it going to be in the second half?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [50]

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I think for Q1, Q-over-Q is trending up a little bit. For Q2, we foresee it's going to be trending up a little bit as well, maybe due to the product segmentation migrations into the higher end, mainly P90.

For the second half, I guess, we still need to see what's the final -- actually the product mix looks like. At least for Q1 and Q2, we'll see slightly trending up on the ASP side.

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Charlie Chan, Morgan Stanley, Research Division - Technology Analyst [51]

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Okay, okay. And lastly, maybe some preliminary assumption for your kind of 5G chipset ASP versus 4G, do you have that number?

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David Ku, MediaTek Inc. - Corporate Executive VP, CFO & Spokesman [52]

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Unfortunately, I don't have the numbers today. But again, it is still a moving target right now because all major players are in discussions with our customer. Customer have different view plus their competitive dynamic. But in general, I guess, we're still looking for marketable types of highers of 4G SoC blended ASP.

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Operator [53]

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(Operator Instructions) There appears to be no further questions at this point. I'm going to hand it over to Mr. Tseng for closing comment.

Mr. Tseng, please go ahead.

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Tienyu Tseng, [54]

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Ladies and gentlemen, this concludes MediaTek 2019 First Quarter Conference Call.

We'd like to thank you for your participation, and you may now disconnect.

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Operator [55]

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