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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to ASUSTeK's online investors conference for the first quarter of 2023. Today's conference will be hosted by our co-CEOs, Mr. S.Y. Hsu and Mr. Samson Hu as well as our CFO, Mr. Nick Wu. This conference will proceed in 2 phases. Phase 1, we'll go over the financial results of the first quarter of 2023 by Mr. Nick Wu, while our co-CEOs will go over our strategies and future outlook. Phase 2 will be the Q&A segment. [Operator Instructions] Now we'll have our CFO go over our financial results.
Thank you. So to our friends, please look to the fifth slide, which discloses our brand profits and losses for the first quarter of 2023. For this quarter, our net revenue was TWD 102.4 billion, a quarter-over-quarter decline of 13% and a 20% decline year-after-year. But looking at data provided by research firms, the PC market as a whole declined by about 30% over this quarter year-over-year, so our revenue trend was actually better than that of the market as a whole. As for our profit, we saw an operating loss of about TWD 3.6 billion for the first quarter for a margin of minus 3.6%. This is in line with our existing targets and forecasts. We saw 2 major sources of pressure from the first quarter. First of all, is our -- from our channels. So you can see that our sales allowances was about minus 16%. And second, as I said previously, the industry is still seeing suppressed revenues and shipments, so as a result, the diseconomies of scale led to relatively high operating expenses of about 11.6%. However, we do see 2 positive signs. First of all, in the first quarter, we saw that the inventory allowance returned to positive at about TWD 900 million or about 0.9% of our revenues. So this shows that our efforts in terms of controlling inventory have now paid off so that our inventory levels are now at a controllable and sustainable level. Second, looking at our past performance over 2022 and the first quarter of this year, we see that we do have growth momentum for the future in terms of our products and the introduction of new products in our portfolio. This will support a level of growth that exceeds that of the market. And so we are optimistic that in the second quarter of this year, our profit will be able to achieve that above of our previous estimates. So these are our 2 major notes that we have for our income statement. Next, let's look to the sixth slide. In terms of our nonoperating items, the major items here include TWD 482 million in interest income and TWD 990 million in exchange gains. So this has allowed TWD 1.7 billion in terms of nonoperating income. Now please look to the seventh slide. Here is our brand balance sheet. You can see that for the first quarter, our inventories declined by quarter-over-quarter and 40% year-over-year to a level of TWD 115 billion. So if we look at the revenues from the -- for the past 4 quarters, we see that average days of inventory is about 128 days, which is an improvement. So as I said previously, we have now returned to a stable level of inventory, and we believe that it is likely that in the second quarter, we will once again see a positive inventory allowance, and this will be a positive driver for us in the future. Next, please look to the next page, the eighth slide. In terms of our product mix in revenues, for the first quarter, PCs accounted for 50% (sic) [ 59% ], components for 40% and phones for 1%. The next slide is our region mix. So reflecting macroeconomic conditions, the share of the Americas and Europe in our revenue has declined due to their macroeconomic challenges. So you can see that the Americas account for 21% and Europe for 30%, while the Asia region accounted for 49% of our revenues. Slide 10 is our business outlook for the second quarter. We will continue to achieve higher growth than the industry as a whole, so we are forecasting 20% quarter-over-quarter growth for PCs for components due to the usual seasonal cycle. We do see a 5% decline quarter-over-quarter, however, this is actually better than the seasonality trend of previous years and also beats research firm projections for the second quarter. So we do foresee that for the second quarter, revenues and profits will beat our previous estimates and targets. And we also, of course, hope that this process can be accelerated so that in the second half of this year, we will be able to return to growth in revenue and profits. Next, we will have our co-CEOs S.Y. and Samson, given overlook of our operating strategy and outlook.
Okay. To our friends in the media and our investors, good morning. Thank you for making time for this investors conference. I am S.Y. Hsu, and me and Samson will give the following presentations. In 2023, our industry is facing an adjustment in demand, and we believe that this will continue for the first half of this year. In the second half, we hope to gradually return to normal. ASUS' management team will stick with our commitment to building a growth enterprise. And thanks to our execution and our commitment to taking the difficult path, we will be able to achieve long-term growth. As Nick said, we have completed inventory adjustments ahead of schedule. In the first and second quarters of this year, we will return to positive in terms of our inventory allowance. This is due to the talent and hard work of our team, and we will continue to strengthen our mind share and market share. We are confident that we will be able to achieve long-term growth. Looking at our long-term strategy, we can divide our business units into 3 major categories. The first is our core businesses including our motherboard business unit, which currently maintains its dominant position in the market. In consumer PCs, we are putting our design thinking into practice, as you can see in our creators and [ old ] LED notebook laptops to drive innovation across different product generations. The second category is our growth businesses. For example, our gaming business unit has continued to meet our target of market-leading growth. In addition, we are working hard to create new target segments, including the ROG Ally gaming handheld that we just announced. The response from the market has been extremely positive, and this is one way to increase our influence on the gaming market. In terms of our graphics card industry, we are continuing to chase higher profits, mind share and market share in our RTX 40 series of products. The third category is our strategic businesses. And we are working to expand our commercial PC segment as well as other new business segments such as AIoT and AIHPC Also, the server sector has reached -- the server ODM business has reached 30% year-over-year growth for the first quarter, and we are expanding into AI GPU server product lines. Although overall, this year we are facing macroeconomic challenges and low market demand, ASUS has continued to achieve 10% better performance than the market as a whole, that you can see from this graph. The top line is our ASUS product sell-through as reflected in end user activation. The second middle line is the PC sell-through for the market as a whole. You can see that year-over-year, the year-over-year growth for ASUS is significantly higher than that of the market. You can also see from this graph that activation rates are relatively low for the end user and channels are being cautious in terms of their orders. So you can see that the sell-in for the market as a whole, it has declined by 30% year-over-year. You can see that it's -- there is a significant difference between sell-in and sell-through, which shows that the market is still working through the inventory in the channels. But this also shows that once the market improves, channels may require higher orders in order to restore their inventory, and when this happens, ASUS will work to seize this opportunity. For the first half of this year, we have completed our inventory adjustments ahead of schedule, and we will continue to work toward positive revenue and profit. Our innovation and brand strengthening and marketing, we believe, will drive growth of 10% over the first quarter. And we believe that year-over-year, it will be flat compared to last year, which are both also outperforming the market as a whole. For the product portfolio of the company as a whole, 50% is in gaming and 40% is in the consumer segment, 10% is in the enterprise segment. Currently, we have 3 major drivers of long-term growth. The first is our brand position and user value. Second is expansion into new businesses. And third is our innovation and product leadership. I think in terms of gaming hardware, including our components, our motherboard and graphics card products, are all market leading. Currently, our gaming product revenue is now over 50% of our overall revenue. So we are now a gaming company. The gaming PC products have been growing double digits every year for -- in recent years for very good performance. We are, of course, also expanding into new solutions including commercial PCs, AIoT, servers and AI supercomputers. In terms of R&D and product innovation, we are an industry-leading player that continually introduces new breakthrough products, such as our handheld ROG Ally and our ASUS Lumina and the ProArt, et cetera. So we talked about our expansion into AI, and let me expand on that a little bit. Currently, ASUS is rapidly expanding into the AI 2.0 and new ecosystems. There are over 200 members in our AIHPC team and we have received the order from the National Center of High-performance Computing for the Taiwania 4 supercomputer. We are also going to launch a ChatGPT-like foundation model, a large language model optimized for traditional Chinese, and a generative AI solution. All of these new AI products will be officially announced in -- on May 17 in our annual AI conference. We are also launching new level 2 and level 3 computational genomic services based on the AIHPC, and we are also receiving government funding to accelerate our development of high fidelity and digital twin fields. All of this will be announced at our annual conference at the ASUS AI Cloud Innovation Center on the 17th of May, so please stay tuned. Of course, ASUS has always been proud of our excellent product design, and we continue to perform well at awards around the world. At Red Dot Awards this year, we received 44 awards, a new record. And in the iF Design Awards, we also received 26 wins, which is in the top 10 among Asian companies. In addition to these design awards, we also achieved another major milestone in terms of recognition, which is that we were named once more as one of the World's Most Admired Companies by Fortune Magazine for the eighth year running. We are 1 of only 2 Taiwanese companies to be recognized as such. Next, let me hand the floor to Samson.
Good afternoon, everybody. I am Samson Hu. I will next go over our business group results for the first quarter as well as our outlook for the future. My first slide is on our system business group. In this quarter, of course, we are still seeing low end user demand and conservative orders from channels, so of course, our revenues encounter challenges. Revenue declined between 25% and 30% year-over-year. However, in terms of gaming PCs, we did see performance far beyond that of the market as a whole. We outperformed the overall market by 15 percentage points. Also, our share of high-value products has continued to grow. Premium PCs now account for 60% of our revenue. Of course, this includes gaming PCs. But in terms of nongaming PCs, actually 30% of nongaming PCs are also in the premium segment. This has driven ASP growth. And actually, the first quarter ASP for this year has exceeded pre-pandemic levels. Thanks to our growth in market share in gaming PCs, this -- or rather, our gaming PC market share grew by 3% this quarter as well. We have also continued our domination in the OLED and creator PC segments, reaching #1 market share in both segments. For OLEDs, OLED PCs now account for over 25% of our regular PC revenue. And we are still #1 in market share for OLED PCs. Last month, we also launched an innovative new product. The Zenbook S 13, a carbon-neutral computer that is extremely thin and light, only 1 centimeter thin and 1 kilogram. So this is a new milestone in terms of product design and sustainability, and we anticipate contributions by this product in our future revenues and profits. For our open platform business group, for the first quarter of this year, due to the high base from last year in terms of graphics cards, revenue declined by 5% to 10%. However, looking at the different markets, we actually outperformed the market as a whole. And the value of the product is growing, resulting in ASP growth. So this means that for these component products, we are both -- have the highest shipments and the highest value. Our gaming motherboard revenue growth reached 40% year-over-year, and for workstation motherboards, our revenue grew by 55% year-over-year. So overall, this has driven a 5% to 10% growth in the motherboard segment for this quarter. The next slide is an overview of our AIoT business group. For the first quarter, this business group saw a revenue growth of 45% year-over-year. And we have seen a lot of progress both in smart health care and smart manufacturing. In terms of smart health care, our AI endoscopy system has received approval by the Taiwan FDA last year. And actually, it has now been introduced in hospitals around Taiwan. We also have our health care big data platform that has been introduced not only in Taiwan but also overseas as well. It has received a very positive response in the Asian countries, allowing us to step up our market influence. In terms of IoT, we have a complete embedded portfolio, allowing us to introduce our new Tinker V SBC that has both x86 and RISC-V platforms. And this will help us fuel better growth momentum for our AIoT segment. For our gaming product line, this includes many of our business groups, and it is our major priority for us. As S.Y. said, the share of gaming products in our revenue has reached a historic high of 50%. The ROG brand continues to focus on our leading -- our branding leadership, our product innovation and the diversity of our community, our golden triangle of the ROG strategy. Our products have won praise from media and gaming communities around the world, including our RTX 4080 and 4090 gaming laptops, which have reached a leadership position on the market. Market research data shows that we now have over 50% market share in the high-end market, so it is a very dominant position. As for our peripheral products, although market demand has been low post pandemic, our ROG peripherals still saw a 30% growth in revenue, and the average price grew by 8%. So despite market challenges, these products have seen fantastic performance. And as S.Y. said, ASUS is continuing to explore the needs of our gamer customers and leveraging our innovation capabilities. So in addition to our gaming PCs and gaming phones, we have introduced a new product line: our first gaming handheld, the ROG Ally. This is the newest member to our gaming family. So please look at our next slide. This is a detailed overview of the ROG Ally. I'm sure that everybody has already heard of this from our launch event yesterday. So here's a quick go over. This handheld will use an open platform, the Microsoft Windows system. So compared to our competitors, we have the most comprehensive content lineup and the best compatibility with a wide range of games. We also support the various subscription services that gamers take advantage of. The core is the AMD Z1 series APU. This is the highest-performing processor on the market, and it will provide gamers with the highest gaming performance and the best experience on the market. It also weighs only 608 grams, so it is an easily portable device, allowing gamers to enjoy the experience on the go. In the Taiwan market, the ROG Ally is priced at TWD 23,999. It is priced at a similarly competitive level around the world in other product markets. We are very confident in this product, and we hope to become the leader in the gaming handheld segment. We believe that this product will be able to contribute to revenue and profit in the upcoming quarters. So this product was actually first announced on April Fool's Day on the first of April. And it has won a lot of attention from the media. Not just the tech media, but the gaming media as well, as well as gaming-related content creators. There was a lot of discussion. And after -- the media was able to try it out. It is generally agreed to be the strongest gaming handheld on the market. After the global launch event yesterday after the pricing and availability were announced, the level of discussion once again reached a new high, which has made us more confident about its sales momentum. The next slide is on ESG. ESG and sustainability are major focuses for us, and we have always used data and technology to help us achieve sustainability. We leverage our core competencies in the following fields, including circular economy, climate action, responsible manufacturing and value creation. This is our long-term sustainability strategy. For example, we have introduced ecofriendly materials. We have increased the energy efficiency of our projects. We have established a system of recycling our products. So -- and these measures are now seeing results. In the future, we will continue to focus on our mission of sustaining an incredible future in all of our operations and our marketing so that our investments and efforts in the ESG field can fuel business performance and profits as well as help us establish our brand value. Please look to the next slide. To give an example, in the last conference, we mentioned our carbon-neutral business laptop, the ExpertBook. Last month, we introduced a new Zenbook S 13, which is a carbon-neutral consumer laptop. The design leverages circular economy thinking to minimize carbon emissions throughout its manufacturing, and for the remaining emissions, we have purchased high-quality carbon credits so that the product is carbon neutral as a whole. Our commitments to sustainable development will continue to inform our products and help us -- and also contribute to our business performance. So our sustainability efforts have also been recognized over the past year. This year, we were recognized as one of the Clean200 companies around the world, and we were also selected as one of the climate leaders of the Asia Pacific in 2022, and we were a member of the Sustainability Yearbook by S&P Global in 2022. So this shows our commitment to sustainability. Finally, I would like to say that despite the short-term macroeconomic challenges and industry adjustments, we will continue to remember our brand mission and our responsibility to our shareholders even as we meet our short-term challenges. We will continue to work to improve our competitiveness as well as our operational resilience. This will help us prepare for future opportunities as conditions return to more positive levels. Thank you.
[Operator Instructions] Our first question is from JPMorgan and KGI. So the question is, how has the competition in the PC market changed or improved? Do you see a return in demand of the PC market regionally, for example, in the Asia Pacific, U.S., Europe market, how has the demand been changing as well as the inventory in the channels?
Okay, this is Samson. Let me answer this question. As S.Y. and I said, the overall PC market, if you look at the inventory, it has returned to a relatively healthy level. From the data that we have, I can actually say that the end-to-end inventory in the industry as a whole is actually lower than pre-pandemic levels. So inventory is not a key issue for our industry. The key issue here is demand, which, of course, you've also asked about. So to say the truth, it's now the second quarter, but demand is still at a relatively low level. And as S.Y. said, our customers in the channels have not increased their orders. So the sell-in is still at a fairly low level, and this is all due to macroeconomic conditions and inflation. So demand is still undergoing adjustment, although the Fed has increased interest rates by only 0.25 percentage point and it seems that in the short term, interest rate prices will stop after this. So inflation may be under control. But looking at consumer product markets and corporate spending, I think that it's still to be seen when the recovery will happen. So the regional markets, whether the U.S. or the European market, we are still seeing relatively conservative and cautious mindset. As for the Asia Pacific market, our experience has been that it lags the EU and U.S. market by about 1 quarter. In other words, after the U.S. and European markets began to flag, about 1 quarter later, the Asian markets began to decline as well. So now what we are seeing is that the Asian markets are also at a relatively low level, and it's still in a period of adjustments. As for the Chinese market, the industry, including ASUS, our original hope was that at the end of last year, due to the end of lockdowns, the Chinese market will begin to recover. But what we're seeing right now, actually, I visited Mainland China 2 weeks ago and I talked to the players in that market, and what we're seeing is that channel demand in China has not recovered yet. So our next key point to observe will be the June 18 major shopping day. We may see some growth at that point, but right now, what we're seeing is that there may be some seasonal growth over the first quarter, but we still need to approach it with caution. As for the second half of the year, we do believe that due to seasonality, the various regions will see some market recovery. But the overall momentum is still unclear, so we'll still need to observe and cautiously respond to the trends that we see. Thank you.
Okay. The second question is from JPMorgan. So if ASUS is forecasting a 5% quarter-over-quarter decline in components for the second quarter, is this because of relatively low seasonal demand? And is there a difference for motherboards and graphic card products? Will the new platform for graphics cards still contribute to growth?
Okay. Let me take this question. So traditionally, the second quarter is a low season for motherboards and graphics cards. Historically, for the second quarter, we usually see a decline of around 10% quarter-over-quarter. So our current forecast a 5% decline is actually slightly better than historical trends. You also mentioned the new VGA platforms. Of course, we know that NVIDIA just introduced the RTX 40 platform. And so this is a transitional period for a graphics card. Of course, the RTX 40 series is priced higher than the previous generation products. So there may -- it may take a little time for the demand to warm up. However, we do see that end users are -- they have a very good response to the performance improvements of this new platform. So we do believe that demand will increase once people have more discretionary spending. But now what we see is that the U.S. economy is probably going to see a soft landing, so we just need to wait a bit for the demand to go back up.
Okay. Our next question is that the presentation mentioned the new gaming handheld, the ROG Ally. So which business group is responsible for this product? And of course, gaming handhelds will require gaming content. So is ASUS planning to invest in or develop more gaming content?
So currently, our gaming handheld is developed by our gaming PC business group, not the mobile phone group. And as I said, our strategy for this gaming handheld is to use an open platform that is Microsoft Windows. So because of this open platform strategy, this product will be compatible with the widest possible range of gaming content. As for collaboration with gaming title developers, well, this will be a strategic step to take. And of course, whether these developers are willing to collaborate with us is another question because gaming title developers obviously want their products to be compatible with the widest possible range of products, whether handhelds or laptops. So there are strategic considerations for these developers, and it's not something that ASUS will be able to do by ourselves. But we do believe that if we realize our ambitions for our gaming handheld and we achieved a market-leading position in this segment, then we definitely believe that it will become easier to discuss collaborations with gaming content developers.
Okay. The next question is from several investors and media groups. So gaming now accounts for over 50% of ASUS' revenues. So looking to the future, will gaming continue this share? Or will it continue to grow? Will the ROG Ally handheld contribute to the company's revenues and products for the coming year?
Okay. I see that there is a lot of attention on this new product. Of course, we do have very high expectations for the ROG Ally. We do forecast that with the introduction of this product, first of all, the in-house share of revenue for gaming products will be stable at above 50% or even higher in the future, I believe this can be easily predicted. Second, the introduction of the ROG Ally product line, we do expect an additional TWD 5 billion to TWD 10 billion contribution to revenue for each upcoming quarter. Of course, we also have internal targets for profits brought by this product, and initially, our expectation is for the profit margin to be similar to that of our other gaming products. But of course, this will depend on our -- the market response. That is our target.
The next question is from Merrill Lynch. In the future, will ASUS control parts prices in order to improve profit margins? Currently, is there -- are there any observations to share in terms of trends in the prices for parts?
Let me answer this question. So in terms of controls, of part prices and costs, this is a part of the daily job of our procurement departments. So our procurement department will collaborate with our upstream suppliers based on the needs of our business groups in order for them to provide more competitive prices to ASUS. Of course, for some key parts, we are seeing very volatile market prices, such as memory -- for memory, for panels, for flash. So these are parts that are very important to our product and their prices are very volatile. So for these parts, we have dedicated teams watching the trends in the industry. And these teams will make regular monthly reports to the management team and assess future pricing trends. In addition to obtaining data from upstream suppliers, we also collect data from research firms as well as users of these key parts in other industries. This all helps us to assess the price trends. And after that, we can decide whether to make strategic procurements or to make -- or to control the amount of parts we have on hand. Of course, for us, we define this as opportunity profits because sometimes, when prices are volatile in memory or panels, the price difference can be quite significant. So it could have a pretty big effect on our operating profit. However, we do not expect that this kind of price control will contribute greatly to our profits. What we are looking for is stable and predictable prices for our business units so that they can set their prices at a more stable level, and our pricing decisions can be more precise. But of course, if we're able to make additional profit, that is a good thing as well. But that is what our procurement departments do. To give an example, a while back, Samsung announced that it was cutting production for its memory products. And after that happened, our procurement team began to evaluate the effect on the memory market, whether memory prices may increase and when it might happen and what we could do and when we could do it, for example, if we need to make some strategic procurements, and if so, how much? So all of this depends on collaboration between the business units and procurement.
The next question is asked by both Morgan Stanley and Credit Suisse. The company is now forecasting an improvement in the second quarter that beats its existing targets. So does this mean a return to profit?
Let me answer this question. Of course, there is still some instability in the industry, including low end-user demand as well as continued inventory adjustments in our channels. But on the other hand, we are also seeing some positive signs. For example, our inventory management has now borne fruits that our inventory is now at a stable level. Also, thanks to our value-added efforts, we have continued to achieve industry-leading growth. As for our new product, products like the ROG Ally will also allow us to make incremental growth. So our outlook for the second quarter is more optimistic than it was previously. We have a relatively high probability of achieving breakeven ahead of schedule.
Okay. So the next question is from the media. So with the introduction of the new ROG Ally handheld, might the audience overlap with the ROG Phone products? Also, what are the shipment targets for the phone segment for the coming year?
Okay. Let me answer this question. As Samson said, the ROG Ally, it runs Windows software because we use the Windows OS. So all the games that it runs are PC games, regular PC games. Of course, there are some Xbox games offered through the Game Pass service. But of course, the Xbox architecture is also based on the x86 ecosystem, so most Xbox games are also compatible -- are also offered on the PC as well. So most PC games are designed for bigger screens. So the titles available for the ROG Ally will be different from those available on the small screen for phones. So my opinion is that there will be no direct effect on our phone business. Of course, some gamers may choose to emulate mobile games on their PCs for a variety of reasons. For example, they may want to level up more on their PC hardware. But people still make their decisions based on whether the games they want to play is on the PC or on mobile, so I do not see a significant overlap in the audience. Our phone department is still working on the ROG and ZenFone products, and for 2023, we have set a shipment target of about TWD 600,000. That is similar to our shipments last year. Last year, in addition to our gaming-focused ROG Phones, our smaller ZenFone was actually very well regarded by the market. One media source recognized it as the best small phone on the market, and our direct customer feedback also agrees. So we will continue to work on the ZenFone product line because we do believe that the ZenFones are addressing a need in the market because for other companies, they are putting their flagship CPUs on bigger phones. So the relatively small ZenFone is targeting a customer segment that wants good performance on a relatively small screen. And this kind of customer is present in fairly significant numbers in both the U.S. and Europe, which is why the ZenFone has been quite positively reviewed by both the media and by consumers. And we hope that we will continue to achieve good performance on the phone market in the future.
The next question is from KGI. What is ASUS' shipment target -- shipment outlook for gaming PCs and what targets have been set?
So the gaming PC segment is seeing relatively good growth momentum compared to the PC industry as a whole. However, it is still affected by macroeconomic conditions. So from what we can see and from what we forecast, the gaming PC industry will see a decline of either high single digits or low double digits this year, so a decline of about 10%. As for ASUS, not counting the new gaming handhelds, our existing gaming PC business is targeting a performance of flat growth compared to last year. That is our target, flat performance compared to last year. And again, this will outperform the market as a whole by about 10 percentage points.
The next question is from Morgan Stanley and KGI. So in the server, where is the new recognized? Which business group? And what is the share? How much revenue is it making? And what is the future growth target?
Let me answer this question. ASUS has invested a lot into the server segment. Actually, just a while back, we have recruited a very experienced manager who has worked at ASUS for a long time previously and thanks to their return, we do believe that we will be able to see an improvement in our server business. Currently, the share of the server business is not very high. It's only in the single digits. However, we have set a very aggressive internal target. Specifically, within 5 years, we are targeting a growth of several times, actually 10x. We are seeing -- we are setting this internal target of tenfold growth over the next 5 years. And of course, we are expanding into several strategic sectors: channel servers, white box servers and data center servers. And these are all capabilities that ASUS currently has. We will continue to strengthen our portfolio and provide solutions. For example, the Taiwania 4 supercomputer will be provided by ASUS. And this is a fantastic opportunity for us to demonstrate our capabilities. I'm sure that after the success of Taiwania 4, we'll be able to persuade more customers to use ASUS products.
The next question is from Crédit Suisse. Will ASUS continue to see declining inventory in the second quarter? And what does ASUS as a reasonable inventory level?
So inventory has been one of our most important issues over the past few years. We are working very closely with our frontline sales personnel, our channel customers and using our data management in regards to end user activation. So all this work is to help us better understand the status of our inventory. So looking at the second quarter, first of all, we are still going to control our inventory levels, but we also will need to meet the seasonal demand growth in the third quarter. There will be some seasonal growth in demand compared to the first half, and of course for our new handheld product line, we will also need to hold some inventory in reserve as well. So our overall inventory level for the end of the second quarter will likely be similar to that at the end of the first quarter. So in other words, at the end of the second quarter, our inventory will be relatively flat compared to the first quarter. There will not be a significant decline. As for the third and fourth quarters, as I said, we will watch the market very closely and be flexible in our planning for our inventory levels.
Okay. The next question is from UBS. ASUS has set a forecast of 20% quarter-over-quarter growth in PC shipments. So what segment will this growth come from? Will it be consumer, gaming or commercial? Some other companies are seeing a return in demand for the commercial PC segment. So what is ASUS' view on commercial and consumer PCs? We also have another question, which is that the second quarter outlook seems to be beating previous estimates. How about the third quarter? Will shipments still grow by over double digits? What is ASUS' view on this?
Let me answer this question. So in terms of the commercial, consumer and gaming segments, well, currently, ASUS still has a relatively low share in the commercial market segment. Our brand is not quite as strong in the commercial segment among commercial customers. So our growth momentum will primarily come from consumer and gaming. And as Samson said, due to our product quality and our ability to execute, we are able to outperform the market as a whole. So this segment, consumer and gaming segments, will be the main contributor of growth for the second quarter. As for the third quarter, we do believe that we could continue to see double-digit growth because looking at this year, we do believe that Q1 was the bottom, and we will see a gradual return to normal across the second, third and fourth quarters. And we will continue to work hard so that we can seize on any opportunities for growth in the notebook -- in the laptop business.
Okay. The next question is asked by both JPMorgan and UBS. ASUS has 2 major strategic -- new strategic fields, handheld and server. So how much is being invested in R&D for these 2 strategic priorities? And will this result in the growth of operating expenses? The second question is, we see that ASUS continually targets higher growth than the market as a whole, and sometimes this results in risk when it comes -- when markets are volatile. For example, higher inventory levels. So in the future, will ASUS have a better strategy to avoid this kind of risk?
Let me answer this question. So currently, our R&D into the gaming handheld and servers are already part of the existing plans for their respective business units, so it has not resulted in any significant increase in operating expenses. Of course, for the server products, it will take a little bit -- it will take some time to recoup the R&D spending. But for the gaming handheld, it is -- the R&D is being conducted by the gaming business unit, and we foresee that some recoupment will take place this year. As for the issue of our targets and the resulting challenges in terms of inventory, we reflected upon this issue over the past year. So in the future, of course, we need to set better targets, and we've been discussing this internally, for example, how to better handle research data and how our business units and our sales departments can better respond to market trends. Also, how we can make better deals with our key part vendors. All of these top issues were extensively discussed internally, and of course, our ultimate goal is more flexibility as we face volatility in the market. Of course, there's a lot of detail that I can't go into, but I can say that the past year has offered many valuable lessons for our teams. And although we took a fall, we believe that we can stand tall again with the lessons learned. So over the past year, the inventory issue has been quite stressful for us, but we still have seen good performance in terms of our market share that we believe can contribute to future momentum. And so in the future, our internal operations will need to learn from the experiences of the past year and help us improve our business unit operations. And I believe that has been happening.
Okay. I do believe that we have answered most of the important questions. If you have any further questions, please contact our Investor Relations team. So now let me invite our 2 co-CEOs to give some final comments.
Okay. Again, thank you to everybody for your support of ASUS. We know of your expectations for ASUS in the future, for example, how we can better improve our operations and continue to optimize our inventory and our parts. As I said, we do believe that the first quarter will be the bottom in terms of our performance this year, and we do hope and look forward to improvement over the future quarters. Once again, thank you to the investors and our friends in the media for your support to ASUS. The past few years have been very challenging, but even as we respond to these challenges, we must be proactive in our mindset. So today, we talked about how we have optimized our inventory adjustment in our response to market conditions. So we do believe that we have improved our internal processes. Under -- in the face of these challenging conditions, we will continue to leverage our design thinking and invest in new opportunities in the market as you can see in our new gaming handheld and our carbon-neutral consumer laptop. We believe that regardless of whether we're talking about this year's challenges or a better market in the years to come, we believe that these new products will contribute to ASUS' growth in the future. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]