Realtek Semiconductor Corp
TWSE:2379
Realtek Semiconductor Corp
TWSE:2379
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Earnings Call Transcript
Other Earnings Calls
Good afternoon, everyone. Welcome to Realtek 2024 fourth quarter earnings call. This call is chaired by Realtek's spokesperson, Yee-Wei Huang. The presentation will be available on the company website before 6:00 p.m. today.
At the beginning, our spokesperson will report our fourth quarter financial results and give the management's remarks. After that, we will have a Q&A session. [Operator Instructions] During the call, you can browse through the pages of the presentation at any time.
Note that portions of what is presented in this call contain forward-looking statements. Investors are cautioned that forward-looking statements involve risks and uncertainties. Actual results may differ materially from the results forecasted or implied in such statements. Investors should not place undue reliance on such statements.
Now I will pass this call to our spokesperson, Yee-Wei.
Good afternoon, ladies and gentlemen on the line. You are currently participating in the fourth quarter 2024 webcast earnings release hosted by Realtek Semiconductor Corporation. Now first, let us go through the fourth quarter 2024 financial results.
Q4 revenue was TWD 26.35 billion, down 14.3% compared to the last quarter. It represents nonetheless, a 16.6% increase compared to the same period last year. This outcome, by and large, aligns with our expectations and the seasonality. Q4 gross margin stood at 48.3%, margin of 3.1 percentage point decrease quarter-over-quarter. The decline in gross margin from the previous quarter is partly due to product mix change as a significant portion of the pull-ins consisted of entry segment products and also partially attributed to the diminishing impact of the reversal of the slow-moving inventories write off.
Q4 operating expenses were TWD 9.86 billion representing 37.4% of revenue. In the case of 17.1% increase in the OpEx dollar amount and the 1.3 percentage point decrease in the OpEx ratio compared to the previous quarter. This reduction is in line with our expectation of short-term fluctuations in operating expenses. We still anticipate that operating leverage will help lower the OpEx ratio over the mid to long term.
Q4 operating income was TWD 2.88 billion which accounted for 10.9% of revenue. The operating margin shows a decline from the previous quarter at 12.7%, largely attributable to a reduced gross margin. Q4 non-op income was TWD 762 million, a slight uptick from the previous quarter due to increased government subsidies. Q4 net income was TWD 3.4 billion or 12.9% of revenue. Q4 EPS as a result was TWD 6.63 compared to TWD 8.53 in the third quarter 2024 and TWD 4.25 in Q4 2023.
Regarding inventory, Q4 inventory turnover days was 94 days, an increase of 9 days from the 85 days in Q3. This rise was anticipated due to customers informing Realtek of their intention to put orders after the new year, partly driven by the potential tariffs from the Trump administration. Otherwise, inventory levels at Realtek and within the channel remain healthy. This concludes Realtek's fourth quarter 2024 financial results.
Next we will briefly go through Realtek's 2024 full year operational results. 2024, net revenue was TWD 113.39 billion, 19.1% Y-o-Y growth. 2024, gross margin was 50.4% compared to 42.8% in 2023. 2024 operating expense was TWD 43.66 billion or 38% of revenue. The OpEx ratio went up 2.7 percentage points compared to 35.8% in 2023. 2024 operating income was TWD 13.5 billion or 11.9% of revenue compared to 7% in 2023. 2024 non-op income was TWD 2.84 billion compared to TWD 2.89 billion in 2023. 2024 net income was TWD 15.29 billion or 13.5% of revenue compared to TWD 9.15 billion or 9.6% of revenue in 2023.
2024 EPS as a result was TWD 29.82, compared to TWD 17.85 in 2023. We also have the fourth quarter as well as the 2024 full year balance sheet and cash payments for your reference and your convenience. This concludes Realtek's fourth quarter '24 and 2024 full year financial report.
Despite fewer working days in the first quarter of 2025 due to the Lunar New Year holiday, the company's outlook remains positive and stable, driven by increased short-term stocking demands from clients. We believe Realtek will continue its growth in 2025, driven by the solid demand from customers with spec upgrades and expanding end markets. Now, let's review the top product lines at Realtek.
First, we observed that PC versus non-PC revenue is approximately [indiscernible] in the fourth quarter. Now on Ethernet, orders have slowed down in the fourth quarter following 3 strong quarters in 2024. However, we expect a rebound in the first quarter of 2025. Regarding the different generations of specifications, demand for 2.5 gigabit Ethernet and 5 gigabit Ethernet is increasing for PC peripherals and telco markets, gradually replacing the gigabit Ethernet. Furthermore, we anticipate a rise in 10-gigabit Ethernet demand by the end of this year or early next year, as many switches, Wi-Fi 7 routers and 10GPON become more prevalent.
On switch, after a sluggish 2023, the switch market has steadily recovered throughout 2024, including the fourth quarter. Some companies put in their orders to stay ahead of potential tariff increases by Trump's administration. The trend likely to persist into the first quarter of 2025.
Independent of geopolitical factors, the market is experiencing a system upgrade in specifications towards multi-gig switches. For instance, 2.5-gig and managed switches are increasingly becoming the preferred choice to Wi-Fi 7 routers when necessary. As for managed switch, we have seen plenty of headroom for growth in the campus switch market in the near and midterm as well as the data center market over the long term.
Now on Wi-Fi, despite a seasonal slowdown in Q4, Realtek Wi-Fi concluded 2024 with robust growth. Among the major application segments, Realtek Wi-Fi experienced the most significant growth in the telco, broadband and network sectors, both in the fourth quarter and throughout the entire year.
Looking ahead to 2025, we anticipate that telco, broadband and network applications will continue to spearhead Wi-Fi growth. By various market report, Wi-Fi 7 penetration reached over 4% in 2024 and is projected to increase over 10% in 2025. Such estimation aligns with our observation of Wi-Fi 7 adoption in PC and router market. Consequently, all the Wi-Fi specifications are expected to maintain their dominance in the market in 2025, playing a crucial role in driving the growth of Realtek Wi-Fi business alongside with the advancement of Wi-Fi 7.
On Audio Codec, according to the International Data Corporation, IDC, a total of 262.7 million PCs were shipped in 2024, a mere 1% increase from 2023. I think IDC projects that the total PC market to expand by 4.3% in 2025, primarily driven by a commercial refresh cycle due to the end of Windows 10 product support. Realtek PC Audio Codec business roughly mirrors the overall market performance with significant order pull-ins anticipated in Q1, driven by geopolitical uncertainties. For Consumer Electronics Audio Codec, growth potential is foreseen in 2025, particularly in the Chromebook and gaming sectors.
On TV, TrendForce projects the 2024 full year TV shipments at 196.7 million units, a meager 0.6% annual increase, but ending of a 5-year streak for TV shipment declines. In the fourth quarter, we saw a notable seasonal drop in TV orders despite a subsidy on TVs and consumer electronic goods in China. On January 8, 2025, the Chinese government extended its subsidy program's scope and coverage. Concurrently, TV panel prices appear to be stabilizing. These developments are likely to boost TV sales in the first quarter of 2025. While the full year 2025 TV sales outlook remains uncertain, it is expected that Realtek will increase its market share in 2025.
Now on automotive Ethernet, Realtek has successfully completed the fifth full year of mass production shipment in the automotive Ethernet sector. The shipment growth in the fourth quarter and throughout 2024 significantly outpaced the corporate growth despite the global car market growing at a slow pace of 1.7% to 88.1 million cars in 2024, as reported by ING Research in December 2024. This restrained growth trend is projected persist with sales expected to rise by only 1.6% to 89.5 million vehicles in 2025.
Despite the sluggish growth in the global automotive market, we anticipate that Realtek's Automotive Ethernet business will continue to outperform both the car industry and Realtek's overall corporate growth. This robust expansion is driven by 2 main factors. First, the increasing electrification of vehicles, which facilitates the integration of Ethernet as a network platform. And second, the more advanced use of Ethernet in automotive resulting in greater quantity and higher specification of Ethernet solutions.
[Operator Instructions]
The first question is from Brad Lin, Bank of America. Compared to last quarter, is Realtek more optimistic or less optimistic on each application?
The outlook undoubtedly is more optimistic. In the fourth quarter, the surge in orders is clear driven by clients increasing their short-term stock level. Despite the prevailing market uncertainties, the long-term trend remains clear and consistent. The recent buzz surrounding the release of DeepSeek underscores the market's focus on AI, particularly the pursuit of achieving AI capabilities with fewer resources.
In alignment with this trend, Realtek is dedicated to mass enabling the widespread adoption of AI by offering IC solutions that facilitate similar connections between devices as well as between devices and humans through natural audio and video interfaces.
For many years, Realtek has been at the forefront of providing such solutions for PC communications network, consumer electronics and automotive applications. In time, we will also be expanding our expertise into wellness industry and sector and service sectors.
The next question is from Aaron Jeng, Nomura. Related to 2025 growth drivers, which segment or product line could bring highest revenue Y-o-Y growth in 2025?
Based on what we can see today, the communications network and automotive solutions are anticipated to lead a year-over-year revenue growth in 2025. Within the communications network segment, growth is being driven by the ongoing expansion of connected world and advanced advancement in LAN, wireless LAN and broadband connectivity specifications. In the automotive industry, the increased use of Ethernet for more subsystems as well as the in-vehicle network backbone is still in the growth of automotive Ethernet.
The next question is from Rick Hsu, Daiwa, regarding seasonality in 2025. Recently, there have been customers pulling in orders early due to tariff concerns. Has Realtek experienced this phenomenon? If so, do you expect this to make first quarter 2025 perform better than usual seasonality and could it potentially affect second quarter 2025 performance?
Well, first, of course, yes, we are expecting a stronger than usual performance for first quarter 2025, mainly attributable to the stocking demand from clients and order pull-in prompted by tariff concerns. The pull-ins could potentially affect the performance of the second quarter.
The next question is from Sunny Lin, UBS, about foundry strategy. With U.S. trade restrictions targeting Chinese mature foundries, does this impact your foundry partnership strategy, which is China versus non-China?
Well, Realtek's foundry policy ensures Realtek business continuity by diversifying our fab locations. This approach allows us to remain flexible and meet customer preferences even in case when certain locations are preferred or embargoed by specific clients. Realtek foundry partners follows the proverbial 80-20 principle with over 80% of the wafer being sold for TSMC and UMC with the coverage strategy to develop high value-added solutions and leverage advanced technology nodes. This arrangement is projected to continue unaltered in the foreseeable future.
The next question is from Sunny Lin, UBS, related to China Stimulus policy. Are you seeing any upside from China's continued stimulus policy on the consumer electronics products into first half 2025? How is the China consumer demand overall?
Well, China's 2024 economic stimulus package was unveiled on September 24, 2024, introducing comprehensive measures across monetary, property and capital markets aimed at stabilizing the economy and fostering investor confidence. From Realtek's perspective, the impact of the stimulus becomes evident only around November. Absent the stimulus, consumer demand in China has remained subdued.
On January 8, 2025, the Chinese government announced an expansion of its subsidy program's scope and coverage. Based on previous experience, we anticipate a delay before the effect of 2025 stimulus programs are observable in the market. We will monitor the impact of the 2025 stimulus closely.
The next question is from Wei Lun Yang, JPMorgan. What are the main gross margin impacting factors for this year in terms of ASP, foundry cost, inventory, et cetera, which impact the most this year and which may provide upside or downside to 2025 gross margin?
Now the gross margin is generally influenced by 3 primary factors. Average sales cost, ASC; average selling price, ASP; and product mix. In 2023 and 2024, Realtek's gross margin was additionally impacted by aged inventory write-off and the subsequent reversals. However, this influence is no longer a significant factor for 2025.
This year, the primary determinant of the gross margin will be the ongoing dynamics between ASC and ASP, a challenge Realtek has historically managed well. We are confident in our ability to manage these variables effectively this year. Moreover, the evolving product mix, which trend towards higher specification and increased AI features is expected to prop up the gross margin over time.
The next question is from Kevin Wang, Mizuho, related to OpEx. What is plan of operating expense in 2025?
We anticipate a slight reduction in the OpEx ratio in 2025 compared to 2024, driven by expected operating leverage through healthy revenue growth. In the long term, our strategy remains focused on further reducing the OpEx ratio through enhanced operating leverage.
Next question is from Sunny Lin, UBS. What is the current inventory level at Realtek and its channel? What is the management's inventory investment strategy, especially with the strong demand pull-ins happening recently?
By the end of 2024, Realtek has an inventory turnover day of 94 days. Additionally, there could be roughly an extra 1 month worth of Realtek ICs distributed across various customer channels. Realtek's inventory strategy is a careful balance between customer's demand forecast, actual delivery history and managerial judgment in response to market dynamics. Notably, the 94-day inventory level was within expectations due to customers indicating their intention to increase orders after the new year in light of potential tariffs from the Trump administration.
The next question is from Brad Lin, Bank of America regarding PC. How is the company's view on overall PC shipment in 2025 with the launches of AI PCs, Windows 10 retirement and new products at CES? Could you please share your view on the AI PC penetration in 2025 and 2026? When does Realtek expect Windows 11 to contribute meaningfully?
Well, various market reports and customer feedback seem to share the view that the PC market is set for modest growth in 2025. For instance, IDC projects a 4.3% expansion for the PC market, while [ Canalyst ] forecasts 5.8% increase in PC shipments for the year. This growth is anticipated to be driven by these 3 factors. One, the emergence of AI PCs, which generally refers to premium PC products showcased at the 2025 CES. These devices feature state-of-the-art computing architecture that integrates various processing units, including CPU, GPU and MPU to optimize performance and efficiency for AI tasks such as AI chatbot, AI office productivity and AI image enhancement and generation.
It is worth noting that Intel defines an AI PC as one equipped with the Core Ultra platform featuring integrated MPU capabilities. While Microsoft characterizes an AI PC as a device with a new CPU, GPU, MPU on board Copilot software and a dedicated Copilot key. Realtek offers a different perspective on AI PCs. Regardless of the central computing architecture, an AI PC from Realtek's vantage point could be distinguished by its premium peripherals with AI edge computing capabilities that enhance the PC's awareness of its surroundings and user behavior, thereby delivering an optimal user experience.
As today's premium technology becomes tomorrow's mainstream, it is conceivable that AI PC, as we know them today, may achieve mainstream status within a year or two. Now second, another factor driving PC growth is the retirement of Windows 10 in October this year, which is expected to trigger a refresh cycle, particularly among commercial buyers.
Three, additionally, many PCs that were bulk purchased during the COVID pandemic are now aging and due for replacement in 2025. Regarding Windows on ARM, while it offers potential advantages such as power efficiency and connectivity, it faces significant challenges in software compatibility, performance and developer ecosystem support compared to x86. Above all, Microsoft is unlikely to abandon its x86 support entirely. Its ambition to support multiple architectures to maximize these market opportunities is understandable, but has yet to gain significant traction.
Realtek solutions can be found in [ WOA ] today. We are closely monitoring its progress.
Another question on PC from Wei Lun Yang, JPMorgan. As there is expected to be PC semi order pull-in, in first quarter 2025, do we think this demand momentum could sustain into second quarter 2025 or further?
Well, in the market, other than telco tender projects, we are witnessing many order pull-ins including those for PCs in the first quarter '25. Generally speaking, order pull-ins might provide temporary relief for the effect of tariffs or other uncertainties. They do not represent a sustainable business strategy. It is prudent to wait until the later part of the second quarter to accurately assess the underlying market demand.
The next is the question related to Wi-Fi from Wei Lun Yang, JPMorgan. How can we think of the Wi-Fi spec migration this year? Do you see a smoother upgrade to Wi-Fi 6 and 7?
It is important to note that 2025 will only be the second year for Wi-Fi certified 7 and the seventh year for Wi-Fi certified 6. But our best estimate, the market share distribution maybe approximately 31% for Wi-Fi 4, 31% for Wi-Fi 5, 33% for Wi-fi 6E and 5% for Wi-Fi 7. While these numbers are estimates and may not reflect the exact market share, they do indicate that Wi-Fi 6 and Wi-Fi 7 are yet to reach their full market potential. In real-world applications, each generation of Wi-Fi has its own place in today's marketplace. It is quite possible that different versions of Wi-Fi will continue to coexist for some time.
WiFi 4 caters to 2.5 GHz single band and basic dual-band applications such as IoT. WiFi 5 supports CE mainstream dual-band applications serving devices like TVs. Wi-Fi 6 is designed for high throughput dual-band applications. Wi-Fi 7 presumably has extremely high throughput tri-band applications. Turning our attention to 2 important applications for Realtek WiFi, routers and PCs. We anticipate Wi-Fi 6 market penetration to ramp by another 10 percentage points, reaching before 80% and 90% this year.
Concurrently, WiFi 7 could approach or see 10% market share by 2025. At Realtek, our Wi-Fi 6 shipments have already surpassed both of Wi-Fi 5 in 2025. We foresee continuing growth for our Wi-Fi 6 and Wi-Fi 7 solutions, further expanding their market presence in 2025.
Another question on Wi-Fi from Daniel Yen, Morgan Stanley. On Wi-Fi business, do we see any pricing pressure in terms of Chinese competition? How is customers' feedback on our new Wi-Fi 7 products?
Well, Realtek embraces international standard in our solutions. Pricing pressures is all in the day's work for almost all Realtek products, including Wi-Fi and in all regions, including China. In the Chinese market, local companies predominantly offer Wi-Fi 4 and basic one-by-one Wi-Fi 6 solutions, which Realtek avoids competing solely on price.
Instead, our solutions always come with extra features that attract users. For Wi-Fi 7, Realtek has garnered positive feedback from our customers. Our Wi-Fi 7 solutions for PCs introduced a new power saving architecture that excels particularly in standby mode outperforming our competitors.
Additionally, our Wi-Fi 7 architecture for routers is exceptionally flexible making it ideal choice for Realtek market with multiple configuration options. It is especially suitable for mesh routers where it strikes a perfect balance between cost and coverage. Riding on positive feedback and new design successes, Realtek's Wi-Fi 7 business is poised for continued healthy growth in 2025.
The next question is from Brad Lin, Bank of America, regarding tender projects. For tender market, can management provide the update on both China and overseas tender orders for 2025?
Okay. Here, Realtek estimates that the global [ PON TAM ] reached approximately 148 million units in 2024 with China accounting for 94 million or 63% of these units. Projections indicate that TAM could reach 160 million units in 2025 with China contributing 96 million or 60%. Some tender projects in China operate on a 2-year cycle with 2025 marking the second year. Deployment for these projects will continue as per the 2024 awards.
Furthermore, the 2 key operators in China are anticipated to initiate new tender projects in 2025. Emerging trends in China's PON tender projects include an increasing demand for faster PON technology and a decline in router tender projects due to the deployment of FTTR, fiber to the room. While Realtek continues to cater to the China PON market, particularly for 10G PON, there is a growing recognition of substantial opportunities beyond China, also predominantly in the 10G PON segment. Realtek anticipates sustained healthy growth in its PON business in 2025, both in shipment volumes and revenue.
Next question is from [indiscernible], related to networking market. How's the demand and spec migration for networking market in 2025, especially for China and India markets?
Now the demand and specification upgrades in the communications network market remains robust. However, we anticipate that demand growth could be more pronounced outside China, particularly in India, Vietnam and Southeast Asia. As noted in our answer to the previous question, the transition to 10G PON is evident both in China and globally.
To the best of our knowledge, over 50% of new PON installations in China have already been upgraded to 10G PON. In 2024, Realtek began supplying 25G PON to mobile network operators in the U.S., providing an economical upgrade from 10G and integrate seamlessly with the existing infrastructure. We foresee that other regions, including China may continue to upgrade their PONs to higher specification in coming years.
The next question is from Lucas Liu, KGI, related to XPON outlook. Given the delay in the GPON to XG-PON upgrade in 2024, what is the company's outlook for the XG-PON upgrade in the U.S., Europe, China and other regions in 2025? Are there any drivers for market share gains in these regions?
Well, actually, we are not aware of specific information pointing to a delay in GPON to XG-PON upgrade in 2024 in any part of the world. On the contrary, the deployment of 10G PON technology is expanding momentum worldwide as previously reported with considerable advancements in China. The PON market is currently serviced by a limited number of players, including some from China and the U.S. However, geopolitical tensions have imposed market access limitations for solutions originating from both countries in various regions. This scenario presents additional opportunities for Realtek to expand its market presence.
The next question is related to automotive Ethernet from Bruce Lu, Goldman Sachs. Regarding automotive Ethernet, Realtek previously mentioned, it will continue to outpace the company's corporate average growth rate in coming years. What specific technological advancements or market trends do you foresee driving this growth? And how is Realtek positioning itself to capitalize on the opportunity? Do we have updated views on the TAM for this segment?
Well, overall, the automotive industry is navigating a complex landscape of technological innovation, regulatory changes and economic challenges while seeking growth opportunities in emerging markets and through new technologies, like EVs and autonomous vehicles. Over the past decade, the rapid development of ADAS and smart cockpit has significantly enhanced in-vehicle Ethernet connectivity, raising the speed to over 100 mbps.
Today, automotive Ethernet reaches up to multi-gigs, serving as high speed communication platform for central computing units, zonal ECUs, LiDAR and radar systems. The next evolution of automotive Ethernet will target 10 megabit low-speed connections focusing on sensing and controlling at the end load level.
In alignment with this trend, Realtek has introduced a [ 10BASE-T1S ] integrated PHY with multi-drop feature, which reduces the number of transceivers in the electronic, electrical architecture and enhanced software integration through a complete Ethernet protocol. This advancement positions Ethernet to effectively replace [indiscernible] system within vehicles, contributing to a new dimension of Ethernet content growth in the car.
With a comprehensive automotive product portfolio ranging from 10-megabit per second to multi-gig, Realtek is well positioned to capitalize on the ongoing expansion of the automotive Ethernet TAM.
Another auto question raised by [indiscernible] about auto business. Can you give us more details on market share, spec migration and content growth as Chinese EV brands keep growing, how Realtek's market share on those Chinese EV brands?
We have previously discussed the migration of specifications and content growth of automotive Ethernet. With an unwavering focus on excellence, superior quality and a strong shipment record, coupled with a comprehensive product portfolio and unmatched services, Realtek stands out in the highly competitive automotive Ethernet market, maintaining a well-balanced customer mix across regions.
We are confident that Realtek automotive Ethernet solutions will ultimately outperform and outlast marquee competitors like Broadcom, Marvell and NXP. Realtek automotive Ethernet customers are globally distributed, including significant representation in China. An increasing number of new energy vehicles in China are now integrating Realtek automotive Ethernet solutions.
The next question is from Daniel Yen, Morgan Stanley. How's business outlook of your bluetooth product? What would be major growth drivers of this product line?
The outlook Realtek bluetooth is exciting. Realtek bluetooth solutions are integrated into various applications such as wearables, remote controls, ear phones and electronic shelf labels, ESLs, all of which are expanding exemplified as follows. After smart watches and wearable AI memory capsules, Realtek bluetooth wearable solutions along with our low power IoT camera are advancing to AI glasses. These glasses function as an audiovisual interface to the cloud chatbot with lead customers planning further launches later this year.
For remote controls, Realtek bluetooth solutions are expanding from TV controls to a wide range of home appliance controls, many of which are expected to enter the market in the second half of 2025. Realtek holds a strong position in gaming ear phones, which complement gaming mines that use Realtek bluetooth controllers. Additionally, Realtek bluetooth hearing-aid solutions feature advanced AI noise-reduction technology and ultra low processing delays, ensuring that amplified and processed sound from the hearing aid is crystal clear and almost perfectly synchronized with the natural sound entering the ear canal.
Last but not the least, the customers using Realtek ESL solutions commenced production shipments in the later half of 2024 with a steady expansion anticipated.
The next question is from Sunny Lin, UBS about TV. What's your forecast on TV shipment in 2025, especially after last year's base is already high due to demand driven by major sporting events? Are there opportunities for growth this year?
Well, as previously noted, the forecast for TV sales for the full year of '25 remains uncertain. However, there's a clear expectation of robust first quarter attributed to the stabilization of TV panel prices. As mentioned in our last earnings call, televisions are progressively evolving into platform-based applications. The most successful TV solutions will be those developed on leading TV OS platforms with extensive support from content providers and advertising channels.
Realtek TV SoC are well positioned on a couple of major TV OS platforms. We are confident in our ability to continue increasing market share this year.
Next is a question raised by [indiscernible], related to server or data center products. Which kind of products do you plan to release? When will it start to contribute the revenue for Realtek?
Well leveraging our extensive expertise in SoC design and high-speed network connectivity, we have plans to develop IC solutions for edge server distinct from traditional cloud servers or data centers is making steady progress. We have plans to launch 100G optical PHY products this year and is actively developing PAM4 DSP chip that support cutting edge 400 gig and 800 gig modules comprehensively targeting future data center applications. At this stage, however, it remains premature to offer any revenue projection. For the year 2025, the company's growth will continue to rely on our current range of products and key applications we currently serve.
Next question is from Kevin Wang, Mizuho. Any update for your ARM-based processor project?
Realtek is [indiscernible] design service partner in Taiwan within ARM total design. We are committed to provide comprehensive ASIC services including the design and integration of Neoverse [ CSS ]. To achieve this, Realtek is advancing design flows for cutting-edge process nodes, specifically in 5-nano and 4-nano as well as developing tech and pertinent IPs for the targeted SoCs. These initiatives aligns with our strategic plan to penetrate the edge server market. Updates will be provided in due course.
Next question is from Sunny Lin, UBS. Can you talk about the company progress or road map in USB 4 and PCIe 5.0. Presumably, your focus is on the device end?
It has been approximately 5.5 years since USB 4 specification was introduced in 2019. Despite this, the overall market for USB 4 devices, including PC motherboards, notebooks, desk tops, game consoles and peripheral devices remains relatively sparse as of early 2025. When a device does come with U4, the new number of available ports is often limited, 1 in many cases, marking USB 4 hub an essential peripheral for many users.
Notably, Realtek has recently achieved a significant milestone by becoming the first in the world to have a multiport USB 4 hub controller, fully passed USB-IF certification. The need for a retimer to be physically close to each USB 4 port is frequently highlighted, suggesting a significant TAM for new U4 timers according to many market reports. However, the exact number of devices currently using U4 timers remains speculative.
Realtek is a strong proponent of U4, yet maintains a realistic perspective on its current market presence. We offer what is likely the most comprehensive U4 product portfolio available today, which includes U4 controllers, U4 hubs, U4 video hubs, U4 redrivers and U4 retimers. These products are at various stages of customer design yields and design wins. Additionally, we are developing U4 version 2 products, and Realtek's PCIe 5.0 IP has been ready since fourth quarter '23, with the service running at 32 gigabits per second LAN.
The PAM4 service running at 64 gigabit per second per LAN is planned to be ready for PCIe 6.0 in 2025.
Next question raised by Daniel from Morgan Stanley, concerns the potential impact for the tariff increase on imported chips imposed by the Trump administration. What is Realtek's level of exposure to U.S. market?
Well, this question now is too vague to answer. Realtek products are primarily shipped to module makers or ODMs, the majority of which are based outside the U.S. From there, a product incorporating Realtek solutions are purchased by brand customer world wide including though in the U.S. Only a small fraction of Realtek chips is directly shipped to the U.S. We will conduct thorough assessment if and when tariffs are actually imposed on semiconductor shipped from Taiwan to U.S.
[indiscernible] has a question regarding opportunities in the humanoid robot market. Could the management elaborate on the market potential and Realtek's growth in this space?
Micro controllers, AI processors, motors, power management controllers and batteries are often identified as essential components in humanoid robots. Its is crucial to recognize that these elements must be interconnected and operated in synchrony. Additionally, robust AI edge computing capabilities are necessary to facilitate seamless human interaction through audio and video interfaces.
To this end, Realtek connectivity solution plays an integral role in connecting devices as well as connecting humans and devices. We are actively monitoring and participating in this emerging sector and will provide upgrade as developments unfold.
The last question is raised by Rick Hsu, Daiwa. How do you see DeepSeek impact your business?
Well, I briefly mentioned before, DeepSeek is really telling the world that AI can be found, in some cases, with fewer results, making it easier to implement in many different devices. So to this end, we believe the revelation of what DeepSeek can do will help the AI -- or the widespread AI development and that will benefit Realtek.
Thank you, Yee-Wei. Due to the time constraints, we will conclude the meeting now. Thanks for your participation today. Please feel free to contact our IR team if you have further questions after the meeting. The replay will be available on the IR page of the company website before 6:00 p.m. today. Thank you, and have a good afternoon.