SIMO - Silicon Motion Technology Corporation

Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Be advised that today's conference is being recorded. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the operations, financial condition and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers, and changes in political, economic, legal and social conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, which apply only as of the date of this conference call. And with that, I'll now hand you over to Mr. Thomas Sepenzis, Senior Director of IR and Strategy. Please go ahead, sir. Thomas Andrew Sepenzis: Thank you, operator. Good morning, everyone, and welcome to Silicon Motion's Third Quarter 2025 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will provide a review of our key business developments, and then Jason will discuss our third quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we begin, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release which was filed on Form 6-K after the close of market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore, chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Chia-Chang Kou: Thank you, Tom. Hello, everyone, and thank you for joining us today. I'm pleased to report that we delivered another strong performance in the third quarter, exceeding our revenue and operational margin guidance, we continue to benefit from the introduction of new controller existing and new markets and drive increased market share across our portfolio. We remain focused on delivering both top and bottom line growth and improving profitability while investing heavily in the next-generation controllers, increasing our engineering resources to support new products and markets and further positioning Silicon Motion for long-term market share expansion. We expect strong revenue growth to continue as we introduced compelling new PCIe client SSD controller, next-generation eMMC and UFS controllers that drive higher share, benefit from strong growth in our automotive business and as our MonTitan enterprise business begins to scale. I'm excited about the foundation for growth that we are building across each of our major markets and believe we are well positioned to see sustained revenue and profitability growth in both the near and long term. Let me start by discussion and broader market environment and then each of our major business in greater detail. AI remains a significant growth vector across memory and storage industry, driving strong demand for NAND and other technology, including DRAM and HDD. The growing AI demand has, for the first time, greater supply shortages in HDD, NAND and DRAM, leading to price increases for the past 3 quarters, a trend we expect will continue at least through 2026. In the early stage of AI development, AI training drove strong demand for high-performance memory and storage using DRAM, HBM and NAND for lower capacity TLC-based compute SSD. As AI evolves, the focus is changing to inference, which relies more on high-performance, high-capacity storage rather than raw computing power. The increasing demand from inference is putting a large strength in HDD supply chain that traditionally serve this market, and is expected to continue well into next year as HDD makers struggle to quickly meet the growing demand. Inference is also increasing NAND demand for high-capacity, high-performance QLC-based SSD and creating a significant trend for the NAND market supply and availability. As AI is still in its infancy, we expect that these demand drivers will continue to impact supply availability across all memory technologies for quite some time as CapEx spend increases to catch up with market demand over the next few years. Growing AI demand is also forcing a more disciplined CapEx spending approach and is driving difficult resource allocation decisions by the memory and storage makers to prioritize engineering resources across multiple technologies, products and markets. Increasingly, we are seeing a greater willingness by the NAND flash makers to rely on Silicon Motion to complete their product portfolio as they shift their internal resources to focus on DRAM, HBM and future customized memory technology for high-performance AI [ in promise ]. We are in active discussion with all NAND makers about expanding our partnership and taking on broader range of project long term to offset growing internal resource shortages. Looking ahead, we see continued NAND flash price increases and shortages given the impact of AI on overall demand, which has been amplified by reduced new capacity investment at the flash maker over the past years. Despite the challenges inherent with the NAND price increases, we believe our business will remain robust. Our module maker customers have been building NAND inventory ahead of anticipated price increases and are well positioned for next year to meet expected market demand. Our direct business with NAND makers continue to be strong, accounting for more than 50% of our revenue, and we expect to gain significant share over the next few years. Additionally, more than 70% of our business with NAND flash maker and module maker customers goes directly to PC, smartphones, servers and other device OEMs that are not significantly impacted by high NAND markets. We are a robust design pipeline in eMMC and UFS, client SSD and enterprise SSD controllers and our Ferri product line should benefit from the increased NAND price trend. Additionally, given increased NAND prices, we expect OEMs to more rapidly adopt QLC technology where we have a significant advantage over our competition. And finally, we are starting to scale our new enterprise products, including, MonTitan, which are less price sensitive than the consumer markets. We expect AI demand to continue to put greater demand on inference than it has. A more large learning model reach maturity, putting more focus on the high-performance, high-capacity storage capability that QLC-based SSD are ideally suited to address. I will now discuss each of our business units in greater detail, starting with eMMC and UFS. We experienced another exceptional quarter of growth in our eMMC/UFS business with strength across the board in smartphone, automotive, industrial and IoT. eMMC and UFS revenue was up over 20% sequentially as we continue to increase our market share and capitalize on new product introduction. Module makers are benefiting as NAND makers have walked away from eMMC and UFS 2 due to lower ASP margin, which have helped module makers gain market share rapidly using our eMMC and UFS controllers. Overall, end market demand in the third quarter was higher than expected and helped us deliver strong sequential growth with our NAND flash partner as well. Smartphone OEM continued to shift to our new UFS controller in mainstream and now value line devices, driving better ASP and margin for our business. Additionally, we continue to have success with our direct OEM engagement with QLC controller. Our first customer is introducing a second smartphone with our chip in the current quarter. We plan to introduce additional model next year. Given the current NAND environment, we expect that other smartphone manufacturers will increasingly look to QLC to deliver high-capacity storage at lower cost, which could lead to further customer engagement. UFS will continue to grow rapidly in the smartphone market as low-end smartphone continue migrating from eMMC to UFS to deliver better performance cost effectively. While smartphones are rapidly shifting away from eMMC to UFS, eMMC remains an important revenue driver for Silicon Motion. As we mentioned, the market for eMMC extended well beyond mobile phones and account for more than 900 million units annually. The market for eMMC include automotive, commercial, industrial, IoT, smart devices, set-top box and streaming devices, robotics and many more, including the rapid growing market for smart glasses championed by Meta, Apple, Google, Amazon, Xiaomi and others. These solutions will likely continue to use eMMC, providing a strong foundation for market growth for years to come. As the NAND flash maker increasingly concentrate on the enterprise market, the opportunity for Silicon Motion eMMC UFS continue to grow. We expect to see further market share expansion as the flash maker outsource more and believe that our share gain in eMMC UFS will remain strong, a strong contributor for our future growth, leading to expanding market opportunity and end market growth. I will now discuss our client SSD business. Our client SSD revenue was up more than 20% sequentially in the September quarter after a slower start in the first half of the year. We are beginning to see greater PC demand driven by sunsetting of Windows 10 this month and the adoption of AI at the edge in commercial and consumer PC, which require higher performance SSD solutions. We are also benefiting from the positive impact of our 8-channel PCIe 5 controller that launched at the end of last year, which with revenue growing 45% sequentially in the third quarter and which now represents more than 15% of our client SSD revenue. This new controller has significantly higher ASP than our PCIe 4 offering and will help drive revenue growth as they scale. As we have discussed, we have 4 of the 6 NAND flash makers and nearly all the module makers using this performance leading controller for their high-end offerings. And we expect to capture significant market share in the top tier for the PC market first time, which represent approximately 10% to 15% of the overall market. We have win with all the top PC OEMs in many of their upcoming high-end models that are expected to ship later this year and scale throughout next year. We are introducing our second 6-nanometer PCIe 5 controller even with 4-channel version by targeting the mass PC market and that we will begin initial shipments this quarter. We have already secured design wins with also 4 NAND flash makers and nearly all the module makers for this controller as well. This new controller targets the largest segment of PC and retail SSD market, and we expect that it will help drive our client SSD market share from approximately 30% today to 40% over the next few years. We expect the, PCIe 5 will become the dominant technology in consumer application over the next few years, and we are in the best position to benefit given our strong customer partnership with both NAND flash makers and module makers. I will now provide an update of our automotive business. We continue to experience significant design win activity in our automotive segment across each of our product units, including eMMC, UFS, PCIe and our Ferri embedded solutions. While the overall market has experienced challenges in 2025, given the broader geopolitical and tariff issues, we continue to grow our product portfolio and market share. We are also benefiting from the super trend of increased vehicle complexity, which is driving the need for additional high-speed, high-performance storage. We recently won significant design wins with a Tier 1 Japanese auto manufacturer in their global model that could contribute to top line growth moving forward. As I mentioned during our last call, we also recently won with a large South Korea customer that has started to sample our eMMC controller-based solution to multiple automotive OEMs, which we expect to drive further growth in our automotive business in 2026 and beyond. We are also on track to extend our lead in ASPICE certification, which we achieved this year with the Level 3 certification for our PCIe 4 controller with plan to take out our next-generation automotive PCIe 5 controller next year. Increased demand for advanced storage solutions in automotive is being driven by AI multiple screen integration, ADAS sensors, cameras, navigation and other applications. We are shipping to many of the leading automotive manufacturers in the world, including Tesla, BYD, Xiaomi, Mercedes, Toyota, Honda and many others. Entering the second half 2025, we experienced greater-than-expected demand from our partner in China as our strong design pipeline has led to market share gains with Beijing car makers like BYD and Geely. Chinese automotive brands are rapidly taking market share worldwide given their leadership in electric low-cost vehicles. As we continue to introduce compelling new automotive controllers and as we expand our customer relationships, we remain confident that automotive will represent at least 10% of our revenue by 2026 and 2027. Finally, I will now provide an update to our enterprise business. The requirement of AI computation, training and inference are rapidly evolving and driving new requirements from storage and memory solutions that deliver performance, capacity, power and affordability. These growing opportunity are expanding the prospect, the prospect for Silicon Motion MonTitan family of enterprise-grade controllers. The need for increased speed and lower latency is driving greater adoption of [indiscernible] in the data center and the industry is increasingly looking to adopt NAND solution in 1 storage, 2 storage and eventually near DPU storage as well. Our MonTitan solution ideally suited to address the increasing requirements of AI workload for both compute SSD using TLC and high-capacity warm storage SSD using QLC. The opportunity for compute SSD represent most of the enterprise SSD market today, while high-capacity SSD are just beginning to ramp, but are expected to be much larger market opportunity [indiscernible] Interest in MonTitan for compute storage TLC SSD application is increasing. This quarter, our customers are beginning qualification with end customer TLC, enterprise and data center with TLC-based high-performance USB using our MonTitan controller, targeting the high-performance requirements of AI in the data center. We expect this qualification to progress into first half of next year and begin to ramp commercially in the second half of next year. For high-performance, high-capacity QLC SSD, our MonTitan-based solution helped deliver significant advantage over HDD for the AI inference for CSP, hyperscaler and enterprise by elevating the speed and power bottleneck inherent in HDD technology for warm storage. The switch to NAND technology for warm storage is being accelerated by the current supply shortage in the major HD manufacturers, making HDD more expensive and high-capacity QLC SSD is cost effective, better performance option. Longer term, warm storage requirement offer a much bigger market opportunity when compared to the opportunity for compute SSD, and we see increasing interest in our industry-leading MonTitan QLC solution. We are on track to begin end customer qualification for QLC-based high-capacity SSD late this year or early next year. We are increasingly confident in MonTitan, a significant new growth opportunity given our successes and win to date in both the compute and high-capacity warm storage market. We remain confident that MonTitan will deliver 5% to 10% of revenue by the late 2026 or '27 time frame as this new opportunity and customer scale in the near and the midterm. And finally, we continue to collaborate with customers to deliver [ compounding ] enterprise boot drive solution that can work across multiple platforms, engaging directly with the world's leading AI GPU makers as well as hyperscaler and CSP. We began volume shipments of the boot drive to the leading AI GPU makers this quarter for their current DPU product and starting qualification of their next-generation DPU for follow-on products. Working on expanding our relationship with the customer, we are also in the qualification process of our Boot Drive Solutions for a variety of switch products also as well, including [indiscernible] based design as well as Ethernet switch design, both of which are expected to ramp later next year. We expect the Boot Drive Solutions will add an additional long-term sustainable growth driver for Silicon Motion as we expand our storage technology and business partnership with this leading GPU-DPU maker. In conclusion, the third quarter of 2025 delivered significant growth of our business as we execute on our diversification strategy with new products and into new markets. We continue to see the reward of investments that we have made over the past few years. These investments include our market-leading 6-nanometer product, our new UFS and PCIe 5 controller, our new MonTitan and Boot Storage Enterprise cloud solution, our growing automotive portfolio and our new microSD product for multiple locations, including Nintendo Switch 2. We have never been in a better position to expand our market share given our leading product portfolio and the growing need for flash makers to shift their focus from consumer to enterprise applications. Given the growing demand in our legacy business and our new automotive and enterprise products, I'm increasingly confident that we will deliver strong, sustainable top and bottom line growth. And given our current backlog, I'm very confident in our ability to exceed our target annual revenue run rate of more than $1 billion this quarter. Now let me turn the call to Jason to go over our financial performance and outlook. Jason Tsai: Thank you, Wallace, and good morning to everyone joining us today. I will discuss additional details of our third quarter results and then provide our outlook. Please note and my comments today will focus primarily on our non-GAAP results, unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included in the earnings release issued today. The September quarter sales increased 22% to $242 million, coming in well above the high end of our guided ranges. We experienced a strong rebound to mobile demand, strong growth in our PCIe 5 climate. Gross margins was at the higher end of our guidance range and increased again in the quarter to 48.7% as we continue to capitalize on new product introductions and improving mix. Operating expenses increased sequentially to $79.5 million as we continue to invest in new projects and expand our customer engagements to further grow and support our significant pipeline of new opportunities. Operating margin increased sequentially to 15.8%, well above our guided range, resulting from improved gross margins and higher-than-expected revenues during the quarter. Our earnings per ADS was $1. Total stock compensation, which we exclude from non-GAAP results, was $5.5 million in the third quarter, and we had $272.4 million cash, cash equivalents and restricted cash at the end of the third quarter compared to $282.3 million at the end of the second quarter 2025. Cash declined in the third quarter primarily from a combination of dividend payment of $16.7 million and an increase in inventory to support our expected strong business ramp. Our team executed well, and our operational discipline delivered significant outperformance despite continuing investments in new advanced geometry products and our emerging MonTitan platform for their enterprise and AI market. Now I'll discuss our fourth quarter outlook. Revenue is expected to increase 5% to 10% to $254 million to $266 million, above our initial target of $250 million we had set at the start of this year. We expect fourth quarter strength to be driven primarily from our client SSD controllers and SSD solutions. Gross margins are expected to be in the range of 48.5% to 49.5%, and operating margin is expected to be in the range of 15% -- excuse me, 19% to 20%, approaching our historical operating profitability levels as we plan to benefit from higher revenue, higher gross margins and lower operating expenses sequentially. Our effective tax rate is expected to be approximately 18%. Stock-based compensation and dispute-related expenses is expected to be in the range of $18.1 million to $19.1 million. Despite the uncertainty this year given rapid geopolitical changes and tariff impacts, our team has remained focused on execution and building an incredibly strong pipeline for long-term growth. We have successfully scaled new products, engaged with new customers and expanded into new markets that will lead to higher market share and greenfield growth opportunities in enterprise storage, and we're just getting started. We expect to continue to invest to further expand our position as the leading merchant controller maker in the world for eMMC and UFS, client SSDs, automotive applications, high-performance and high-capacity enterprise and data storage -- data center storage. As we look ahead, our pipeline for growth in 2026 and beyond has never been stronger, and we look forward to discussing it in greater detail when we report again in 3 months. This concludes our prepared comments. I'd like to open up for questions now. Operator? Operator: [Operator Instructions] We will take our first question from the line of Neil Young from Needham & Company. Neil Young: Could you dive a little deeper in your comment in the press release about white box AI server makers continuing to leverage mainstream hardware components. I believe your SSD controller sales are typically a PC/other consumer applications. So can you just give us a sense of how much of the SSD controller revenue in this quarter came from the white box AI server makers you referenced? And where you expect that to trend going forward? And then I have a follow-up. Chia-Chang Kou: The mention with the white box is an AI all-in-one server and primarily that come from China and Taiwan from the DeepSeek Volume-1 surveyor [ flybox ] and some in others, bundled with other training model. I think there are 2508 8-channel PCIe 5 controller is well positioned in the market. We cannot comment. We don't know exactly the volume, but there is a growing momentum for all the AI all-in-one server. it is similar like NVIDIA announced MGX, DGX GPU for this kind of a market. Neil Young: Okay. And then looking at the gross margin guide, midpoint coming in at 49%. I was wondering if you could maybe walk through the moving pieces of the gross margin in 4Q. And then if possible, could you share sort of where you expect gross margin to trend next year? If not, at least what the main drivers of the gross margin improvement should be in 2026? Jason Tsai: So certainly, as we continue into the fourth quarter, scaling new products like PCIe 5 new generation products tend to have better gross margins that offset the declining gross margins of older products. We do expect to see, as MonTitan continues to scale to have some incremental benefits, but certainly, that remains a relatively small portion of our business today. We're not guiding for 2026 at this point. We'll talk more about that in 3 months' time. So stay tuned for that. But certainly, we are excited that we're back to kind of the normalized range that we historically have been, historical range has been 48% to 50%, and we're guiding smack in the middle of that. So we're pretty happy that we've been able to recover off of obviously some tough times a couple of years ago, but we're back to where we historically have been. Operator: We will now take the next question from the line of Craig Ellis from B. Riley Securities. Craig Ellis: Team, congratulations on real good execution. I wanted to start with a question that takes off from Jason's comments that the company is just getting started in enterprise storage and ask a question that's fairly broad and has a couple of parts to it. So if we look at what our ambition is over the next year plus with MonTitan and enterprise storage classically defined and think about what's going on currently with boot drive controllers and full solutions already starting to ship and picking up and maybe diversifying our customer base next year. And then -- and this part would be for you, Wallace. As we think about some of the news that's coming out of Korea and other countries about the development of high-bandwidth flash. And while some could be skeptical that, that may just be like storage class memory, which went nowhere for 15 years, but with some leading OEMs behind it, it very likely could. How do we think about the arc of those drivers as we go from '25 to '26 and '27? And what can enterprise broadly defined be for the company longer term? Operator: Thank you for your question. Please remain on the line. Your conference will resume shortly. Thank you. Presenters, you may continue your conference. Craig, you may want to repeat your question? Craig Ellis: Yes. The question is this, if we look at enterprise storage broadly, including MonTitan's traditional enterprise storage but also include the boot drive business with one customer shipping now, but maybe diversifying and think longer term about what's possible from high bandwidth flash, if that were to be an opportunity because certainly that's going to be QLC where you're particularly strong. Can you talk about... Operator: Just a moment, sir. The conference will resume shortly. Just a moment. Ladies and gentlemen, please remain on the line your conference will resume shortly. [Technical Difficulty] We have the speakers back. Thomas Andrew Sepenzis: Hi, there. Sorry about that. We're back. Craig Ellis: Should I give the question a third shot. Thomas Andrew Sepenzis: Yes, one more time Craig. Sorry about that. Craig Ellis: So looking at enterprise storage broadly from MonTitan classic enterprise storage that's starting to ramp with qualifications and then shipments next year, but boot drive controllers and storage getting going now and with the potential for high bandwidth flash to come in as a much-needed AI-based solution a few years down the road, how do we think about the longer-term market storage as we just get started with boot drives this year, pick up MonTitan and then ramp those over the ensuing years. And what could high-bandwidth flash do to the business as a third driver longer term? Chia-Chang Kou: So first of all, I want to clarify the 5% to 10% of total revenue, '26 to '27 does not include our Blue Drive for the current DPU design and also for the additional switch Blue Drive solution. But we do see -- moving to 2026 is the best and challenging year for storage industry. There's so many new opportunity coming, not the conventional compute storage, but also one storage, the high-capacity QLC SSD. And then moving forward, it will be near GPU storage. So there's so many new opportunities for MonTitan controller to fit in. And we're also preparing to work on growing market. We just need more R&D resources to meet the demand. And in parallel, I think this is a great opportunity. We see MonTitan to scale up. our Blue Drive solution also could scale up quickly in 2026 and moving to some CSV design too. Craig Ellis: And Wallace, what's your view on the potential for high bandwidth flash to be a third driver of enterprise broadly defined longer term? Chia-Chang Kou: So high HBF, I think this is a very interesting product. And this is -- as you know, this is all designed for AI inference near GPU. We see there's 3D SoC technology moving to meet certain new GPU leaders requirement. But HBS also very interesting in packing technology is the conventional standard 3D NAND. But this require new controller and packing technology. We will monitor it carefully because we believe initially this belong to all the NAND makers development, and we are also invited to join the business. But I think we are out of a resource. We want to monitor when the market become more mature, more stable and where we'll participate. Craig Ellis: And then the second question is a question regarding the comments from you and Jason around NAND sufficiency and the implications for shipments next year. So you have an advantage, you're levered with all NAND suppliers. What messaging are they giving you with regard to how they're going to prioritize their output and capacity allocations across enterprise versus PC versus smartphone and then consumer applications? And what does that mean for the various growth drivers of the business in 2026? Chia-Chang Kou: I think you asked a very good question. We are facing a never happened before the HDD, DRAM, HBM, NAND, all in severe shortage in 2026. Most of our capacity are sold out. And I think I did talk to many of the major makers but I really cannot comment what kind of allocation policy is going to do. However the leading maker, they will keep a discipline and then we can see the balancing for the industry. They are not just favoring AI and server of AI data center. They will consider certain percent for smart phone, certain percentage for PC and certain percent for automotive, of course, the majority would go to the AI and the AI server. So but balancing is very important so we can keep the whole industry moving forward. Operator: We will now take our next question from the line of Suji Desilva from ROTH Capital. Sujeeva De Silva: Wallace, Jason, congratulations on the progress here. For MonTitan, I know you're going to talk about 2 lead customers initially, now more. I know one of them was an OEM who was, I think, in turn, trying to themselves secure hyperscaler customers. Has that happened with that lead customer? And if so, what's the start of ramp timing for that customer? Chia-Chang Kou: I cannot comment their ramping. I think they're very close to the -- as you know, Tier 1 customers, some will develop their firmware themselves, some with joint development with us together. We cannot comment their ramping but getting very close. But because MonTitan getting tremendous demand from multiple customers from Tier 2, so we are busy to provide solutions for both TLC and QLC. Hopefully, we can start a small ramp in the Q4, and we see the more meaningful ramp in 2026. Sujeeva De Silva: Okay. Well, it's very helpful. And my other question is on the arbitration. I'm wondering if there's any update there. Jason Tsai: Yes. Thanks, Suji. Yes, the arbitration, we had -- the arbitration has begun. The hearing was held as scheduled earlier this month. The tribunal scheduled oral closing arguments to be in March of 2026 and is expected that a decision by the tribunal will be available sometime after that. Operator: We will now take our next question from the line of Tiffany Ye from Morgan Stanley. Hsin Yeh: Congrats on the great results and guidance. So my first question is that it seems your inventory value rose around 62% in the third quarter. May we know the reason behind? Is it due to the inventory preparation for the BT substrate shortage? And I have a follow-up. Jason Tsai: Yes. So inventory did come up. Inventory increase is to support the growing backlog and new business and orders that we have already received. And that's expected to ship over the next few quarters. And the increase in inventories across really all of our product categories, including some low-cost NAND that we have procured earlier as well as controllers for SSD as well as eMMC and UFS. So it's a pretty broad-based demand that we're seeing, and we're preparing ahead of that. Hsin Yeh: Okay. Got it. So it seems that the BT substrate shortage has kept some of our fabless peers upside in first half next year. So do we see any impact from that? Or because as what you just indicated, we're fully loaded now. So not worry about that impact. Chia-Chang Kou: I think the substrate PCB shortage or long lead time in non-power business, we have prepared in advance. But we do need to prepare the production ramp for more controller as well as the Ferri product line. That's why we increased our inventory right now. Hsin Yeh: Got it. Got it. I have one more question. So as we head into 2026, we see both our foundry partner and OSAT partners all initiating price hike to reflect the elevated material costs. So how should we think about the impact to our profitability? And do you think we can further pass through all these elevated costs to our customers? That's all. Chia-Chang Kou: I think what I can say that TSMC will increase the wafer price from 5, 4, 3, 2-nanometer, start from 2025. Our PCIe Gen6 TSMC 4-nanometer won't be production until late '27 or '28. So there's no cost impact, foundry wafer impact for our cost in our controller in the next 2 to 3 years. Jason Tsai: And Tiffany, most of our products are on more trailing edge process geometry. So availability is -- and pricing is certainly better at those trailing edges. The more advanced ones we have today is 6 nano, but a lot of our other products are at 12 and 20 or even higher process geometries. Hsin Yeh: So maybe the impact from foundry is quite nearly limited in 2026, but how about OSATs? Chia-Chang Kou: OSAT, I think because we have a preliminary agreement, so the OSAT cost impact will be very limited to us almost irrelevant. Operator: Next question comes from Gokul Hariharan from JPMorgan. Gokul Hariharan: My first question, given this very rapid increase in NAND flash pricing, and it seems like you're going to be in a reasonably short supply situation all through 2026. What are the business dynamics that you're seeing from your customers? Historically, Silicon Motion used to be a little bit more affected when NAND flash is very tight, given OEMs try to allocate to certain customers. At the same time, QLC NAND is clearly rising. Could you talk a little bit about anything more that you see in terms of either engagement, any reason why you're not kind of getting more bullish about your 5% to 10% kind of enterprise SSD exposure given a lot of the activities happening in QLC NAND right now? Chia-Chang Kou: I think, first of all, more than 50% of our business we engage with the NAND OEM business. So we are really well protected in the NAND maker. Second is most of our module maker, they have prepared the potential NAND price increase and shortage in advance. So they all have at least 8 to 12 months inventory. And I think they also -- although they do have a certain contract with the NAND supplier, but definitely, there will be some impact. But I think most of our customers, when we discussed in the last couple of weeks, they all have confidence they should walk through in 2026. So we do not see impact of our business as the coming quarter or even the first half of 2026. We feel very strong for our backlog and we see we will benefit from the NAND supply shortage and become a stronger player in the industry. Gokul Hariharan: Understood. Any updates on the QLC NAND pipeline -- design pipeline and revenue pipeline, I was thinking maybe you would be sounding a little bit more bullish about enterprise SSD given a lot of the activity on QLD NANDs recently. Chia-Chang Kou: That's exactly true. We are very excited about the high demand for QLC, high-capacity enterprise SSD. We just need to deliver the result. I think the -- as you can see, even it's not just the AI inferences, really require high-capacity enterprise SSD because HDD shortage also trigger higher demand or an urgent demand for the high-capacity SSD. That's why we are very busy. I cannot comment about the potential outcome, but we have to deliver results ASAP. Jason Tsai: Gokul, we're not changing our expectations at this point in spite of the strong demand. We're still targeting 5% to 10% of our revenue in that '26, '27 time frame. Gokul Hariharan: Okay. Are your existing customers because new designs will obviously take time to kind of cascade in. But are your existing customers upsizing meaningfully compared to what you thought maybe 6 months back? Jason Tsai: I mean I think across the board, we're certainly doing better, right? We're coming in ahead of where we were anticipating exiting the year at. So we're going to be above the $1 billion run rate. We are seeing strength in eMMC, UFS as we gain share there. We're seeing strength with our PCIe 5 as we gain share there. So across the board, we are. And so our business today is certainly stronger than what we had anticipated at the start of the year. Gokul Hariharan: Yes, I think this is more to do with enterprise rather than -- I mean consumer is very clear, I think, but this is more to do with enterprise. Jason Tsai: Yes. I mean, look, our target still remains at 5% to 10% in '26, '27. Obviously, if we can get -- do that faster, we certainly will, but we are resource constrained. We are working as fast as we can. Our products are beginning to sample with end customers. So as they get ready to ramp up, we're going to be ready to support them. So there are a number of processes in place that right now, we're working through it. Gokul Hariharan: Got it. Just back to client SSDs. How are you thinking about the next couple of quarters? I think we have probably seen a lot of the benefits of the Windows 10 sunsetting and the demand pull in for PC as a result of that. As we kind of start to lap that in the next couple of quarters, how do you see this pan out? Do you see a little bit of moderation in growth there or the spec migration to PCIe 5 is enough to kind of offset any of that volume growth tail off? Chia-Chang Kou: I think you are correct. We benefit from PCIe 5 market share gain. As we said, our PCIe 5, 8 channel have a 4 NAND maker and nearly all the module maker design win. So when PC OEMs start to ramp late this quarter, I think we benefit from revenue growth as well as market share gain. Our 4-channel mainstream DRAM PCIe 5 also is near production. I think we will start to see initial production by late this quarter and start to ramping up by middle of next year through another combination 4 NAND maker as well as the module maker. So when PCIe 5 become mainstream in the PC market, Silicon Motion will benefit from the market trend because we will move towards 40% global market share. Jason Tsai: And we -- as I said in the comments that we do anticipate our SSD controller business to grow again sequentially in the fourth quarter. Gokul Hariharan: Okay. So just a clarification. So for PCIe Gen5, let's say, for next year, what percentage of the PC OEM market do you expect it to be? Is it like 15%, 20%? Or once you have your 4-channel controller also ready? Or is it even higher than that? Chia-Chang Kou: We cannot comment for PC OEM what they plan to ramp. We just know when they ramp more model, we benefit from market share gain. Operator: [Operator Instructions] our next question comes from Matt Bryson from Wedbush. All right. We are not getting a response from Matt. So I'm not showing any further questions. I'll now turn the conference back to Mr. Wallace Kou for closing comments. Chia-Chang Kou: Thank you, everyone, for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of these events will be posted on the Investor Relationship section of our corporate website, and we look forward to speaking with you at these events. Thank you, everyone, for joining us today. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.

Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's Q2 2025 Earnings Conference Call. [Operator Instructions] This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial condition and business prospects. Although, such statements are based on our own information and information from other sources, we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of -- and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, which apply only as of the date of this conference call. Please be advised that today's call is being recorded. I would now like to hand the conference over to Mr. Tom Sepenzis, Senior Director of IR and Strategy. Thank you. Please go ahead. Thomas Andrew Sepenzis: Good morning, everyone, and welcome to Silicon Motion's Second Quarter 2025 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments and then Jason will discuss our second quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore, chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Chia-Chang Kou: Thank you, Tom. Hello, everyone, and thank you for joining us today. I'm pleased to report that we exceeded our revenue and operation margin guidance for the second quarter that we further benefited from the introduction of new controller that drive higher market share, and our continuing expansion and growth into new markets. As we further scale and shift to high-end UFS PCIe controllers, and grow our automotive and MonTitan products in second half of this year. We expect our revenue growth to remain strong and profitability to further improve. We are excited by the progress and foundation for growth we are building. And based on our backlog diversification strategy, and design win momentum, we are well positioned for a strong second half, and remain confident that we will exit the year with our target $1 billion revenue run rate. Let me start by discussing our view of a broader NAND flash environment, and how it's positively affecting our business today and opening new opportunity longer term as well. The NAND industry experienced improvement in the second quarter, with flash prices increasing as the inventory level in the PC and smartphone market declined further, given a modestly better demand environment. Enterprise storage demand remained strong in the quarter with AI expanding into nearly every industry. NAND flash makers have reduced capital expenditures for big growth and continue to increase prices as enterprise and AI growth are limiting NAND supply. Our module maker partner continue to build inventory ahead of an expected increase in NAND prices in the second half of 2025. We will remain flexible and are very -- and are well positioned with both NAND flash maker and module maker to fulfill their growing requirement. With NAND prices as expected to increase demand for more cost-effective QLC NAND expanding in clients SSD, smartphone and enterprise storage increasing QLC production is a lower cost way to rapidly growing big growth for flash maker, while QLC-based solution deliver high-density storage at a significantly lower cost. We are the only controller company partnered with all flash makers, giving us significant advantage and insight into current and future NAND technologies. We believe this partnership and our unmatched experience in managing QLC NAND will allow us to maintain our industry leadership, and drive long-term sustainable revenue and earnings growth for many years. In addition, the demand for memory and storage solutions expand into new end markets in consumer, commercial, industrial, automotive and enterprise. Memory makers are constrained in where they allocate R&D resources and capital resource between NAND, HBM and DRAM. The demand from each of these markets continue to rise and new generation of NAND evolves, the need for next-generation controller for these different application expanding. Our flash maker partner are turning to Silicon Motion as their primary merchant supplier to help build comprehensive portfolios, expanding our market share and building the foundation for strong multiyear growth with an increasingly diversified range of products and end markets. Now, let me share some updates for each of our business segments, beginning with eMMC and UFS. Our mobile business significantly outperformed our expectation in the second quarter, as we benefited from several positive trends for our eMMC and UFS controllers. We continue to see strong booking momentum from both flash maker and module maker customers entering the second half of the year. Module maker, in particular are experiencing strong growth in mobile as they are benefiting from the trend towards discrete eMMC and UFS solution, driven by the increasing availability of low-cost mobile DRAM. Flash makers have also adopted our controller as they continue to embrace outsourcing to stay competitive, improve their time to market and prioritize their own internal R&D resources for other technologies and end markets. Our family of UFS controller for smartphone and other mobile and IoT devices grew meaningfully in the quarter as demand from both our flash maker and module maker customers accelerated, driven by strong end market demand. The increasing share of UFS in smartphone is driving stronger demand for our new high ASP UFS controller in mainstream and high-end devices. In addition, our new engagement with handset OEMs for QLC UFS solution are also expanding and diversifying our market penetration. We expect this trend to continue in the second half of this year. For eMMC, our increasing share and robust demand in the quarter also delivered strong sequential growth for our controllers. Demand is accelerating in multiple existing and emerging markets, including IoT, smartwatches, smart TV, set-top box and emerging consumer products such as AI glasses. The market for eMMC accounts for over 800 million units per year and the non-smartphone accounts for much of this market. We believe our eMMC business will remain a strong contributor for many years to come as these additional markets further scale. Now, I would like to move on to our SSD business. The PC market appeared to be bottomed out in the first quarter of 2025 and stabilized in the second quarter. We believe that market will grow in the low single digit in 2025, and we are expecting a stronger second half given typically seasonality, which benefit from the back-to-school and holiday sales. This year, we'll also see further benefit from some setting of Windows 10 in October, and we are beginning to see more widespread adoption of AI as Edge in consumer and commercial PC, which is increasing demand of high-performance solutions, including SSD powered by our PCIe5 controllers. As we have discussed previously, we expect to drive significant market share gains in client SSD over the next few years, especially in the high end, driven by our leading position in PCIe5. Sales of our 8-channel controller launched in December of last year continued to grow quickly in the second quarter, increasing by more than 75% sequentially and already account for more than 10% of our client SSD controller revenue driven by strong share gains and higher ASP. We expect additional momentum with our PCIe5 controllers throughout this year as OEMs increase sales at the high end. Additionally, we will start initial ramp of our 4-channel DRAM-less PCIe5 controllers at the end of this year and have already won design with 4 of 6 flash makers and nearly all the module makers. This new controller will target the broader segment of PC and aftermarket SSD sales, and we believe that this introduction will help us achieve 40% of the SSD market by 2028, up from 30% today. I will now provide an update to our automotive and other business. As I mentioned earlier, we continue to experience tremendous design win activity in our Automotive segment. Vehicle capacity is increasing with a growing demand of high-speed and low latency storage. We support automotive storage needed across nearly all our product lines, including PCIe, eMMC, UFS increasingly. Our Ferri embedded solution, we were the first company to achieve ASPICE Level 3 certification for our PCIe4 solution, and we are on track to tape out our new automotive PCIe5 controller in 2026. Demand of more storage solution is increasing in conventional cars as well as with next-generation electrical vehicle makers. Our controller power increased storage density, speed and reliability for diverse need including smart cockpit, ADAS sensors, cameras, navigation and other application. We are now seeing increased demand for storage solution to support AI and multiscreen integration to help automaker drive differentiation and customer loyalty. We are currently shipping to many of the largest automotive brands in the business, including Mercedes, Tesla, BYD, Xiaomi, Toyota, Honda and many others. As we enter the second half, we are seeing greater-than-expected demand from our partner in China as brands are successfully taking worldwide market share for low-cost automobiles and leading electrical vehicles. Given the strength in China and increasing design win activity globally, we are increasingly confident that automotive will account for at least 10% of our revenue by 2026 to '27. During the second quarter, we also experienced strong growth in our memory card business, due to the highly successful launch of Nintendo Switch 2. We start ramping with the leading South Korea flash maker with direct attach to the Switch 2 games as well as partnering with leading brands like ADATA and Knowles for retail expandable storage with PCIe SSD level performance in a microSD form factor. For the first half of 2025, our memory card revenue more than doubled year-over-year, and we expect to see continued success in the second half of the year as the Switch 2 demand remains robust and as we enter the holiday season. The SM270A delivers a high-density, high-speed required by modern portable gaming devices, and we are pursuing other opportunities with this exceptional controller to drive diversified long-term growth. Finally, I would like to provide highlights on our enterprise business. Both memory and storage needs are evolving rapidly in the AI era and the opportunity for Silicon Motion are expanding. AI application requires access to data more quickly, driving increased adoption of SSD throughout the data center. The current infrastructure comprises high-performance memory, near GPU storage, compute storage, warm storage and cold storage. Our MonTitan platform is ideally suited to manage high-density, high-performance SSD that are both cost-effective and power efficient to serve the warm storage market with our leading controller when paired with QLC NAND. The warm storage market has traditionally been served by HDD, but storage performance requirement have increased due to AI application and the price disparity between HDD and QLC SSD converge. We expect more hyperscalers and CSPs will adopt high-capacity QLC eSSD for warm storage, while near-line HDD move to support the growing cold storage need. Recently, we have been receiving interest from customers to expand beyond warm storage into compute storage market with our MonTitan. The new product will pair MonTitan with up to 16 terabytes of TLC NAND to target the high-performance near CPU market and represent an exciting new opportunity for MonTitan. Longer term, we are also beginning to work with our industry and flash maker partner to support the development of a new JEDEC standard, for near-line flash that will likely come to market in the next 3 to 5 years to further drive adoption of SSD in one storage application, especially as the need to access more data more quickly grow with AI. The near-line flash requirement will allow for more relaxed sophistication for QLC with lower cost driven by higher yield. This should drive even greater adoption of QLC NAND in one storage and by extension should create a bigger market opportunity for MonTitan. At the upcoming FMS conference next week, we will be cohosting a demo with VAST Data to demonstrate how our MonTitan SSD can deliver a compelling solution for the insatiable growth in AI application. The collaboration will showcase the VAST DATA storage class memory, or SCM, for its new Seres V2 platform, Seres V2 leverage NVIDIA BlueField-3 DPU platform for AI storage. The Seres intelligent story platform are used by system integrator and architects and deployed at hundreds of large enterprises around the world, including banks, data centers, retailers, multinational conglomerate and other leading companies that are leveraging or are developing AI application. We invite you to join us at FMS to see how our MonTitan solution will drive the next wave of AI solutions for the next several years. In conclusion, the second quarter of 2025 has delivered a significant rebound in our business, and we are beginning to see return on the investments we have made over the past few years. This includes our leading 6-nanometer product, our new UFS and PCIe5 controller, our new MonTitan eSSD and boost storage solutions. Our market-leading automotive portfolio and our new microSD product for multiple applications, including Nintendo Switch 2. We are in a better position to expand our market share across each of our markets in 2025 than ever before, but we continue to capture additional share with the flash maker across our product portfolio. Given the current customer demand in our legacy business and the growing success with our new product, I'm increasingly confident that we will achieve our goal of exiting 2025 at a $1 billion revenue run rate and grow further in 2026. Now, let me turn the call over to Jason to go over our financial results and outlook. Jason P. Tsai: Thank you, Wallace, and good morning, everyone, for joining us today. I will discuss additional details of our second quarter results and then provide our outlook. Please note that, my comments today will focus primarily on our non-GAAP results unless specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the June quarter, sales increased 19.3% sequentially to $198.7 million, coming in well above the high end of our guided range as we experienced a strong rebound in mobile demand and strong growth in our PCIe5 client SSD business. Gross margin was at the higher end of our guidance range and increased again in the quarter to 47.7% as we continue to capitalize on new product introductions and improving mix. Operating expenses increased sequentially to $69.3 million as we continue to invest in new enterprise storage products and as additional resources to support our significant pipeline of new projects. Higher operating expenses in the second quarter were also impacted by the stronger Taiwan dollar as most of our compensation expenses are paid in Taiwan dollar. Operating margin increased sequentially to 12.8%, well above our guided range, resulting from improved gross margins and higher-than-expected revenues during the quarter. Our earnings per ADS was $0.69. Total stock-based compensation, which we exclude from non-GAAP results, was $0.2 million in the second quarter. We had $282.3 million cash, cash equivalents and restricted cash at the end of the second quarter compared to $331.7 million at the end of the first quarter of 2025. Flash cash declined in the second quarter, primarily from the combination of the dividend payout of $16.7 million and an increase in inventory to support our expected strong business ramp. We did not repurchase any shares in the second quarter. Our team executed well and delivered significant outperformance despite ongoing global macro uncertainty and continuing investments in new advanced geometry products and our MonTitan platform for the enterprise and AI markets. Now, I'll discuss our third quarter outlook. Revenue is expected to increase 10% to 15% to $219 million to $228 million, driven by growth across all segments of our business as newer products continue to ramp in PCIe5, UFS, eMMC and the enterprise. Gross margins are expected to be in the range of 48% to 49% as we continue to transition customers to newer platforms, and we return back to our historical range. Operating margin is expected to be in the range of 12.3% to 14.3% as we benefit from higher revenue and gross margins, partially offset by higher operating expenses from higher R&D development and headcount expense and the continuing strength of the Taiwan dollar. Our effective tax rate is expected to be approximately 18%. Stock-based compensation and dispute-related expenses are expected to be in the range of $6.5 million to $7.5 million. For the full year, PC and smartphone growth targets remain in the low to mid-single-digit range with an above-average second half weighting. We believe that our business will reflect the broader industry with significant growth expected in the second half, driven by the strong ramp of new products and project wins. We continue to target an annual revenue run rate of approximately $1 billion as we exit the year. We expect to continue to improve gross margins as new products scale and our enterprise business begins to ramp in the second half of the year. We remain confident that we can drive gross margins towards the higher end of the historical range of 48% to 50% by the end of this year. Our pipeline of new design wins continues to grow and we are committed to investing in next-generation, advanced geometry products that allow us to enhance our market share and business long term and help us diversify our product portfolio and enter new markets. We will also continue to add additional R&D resources to address the growing range of customer projects that will drive long-term growth. Despite these higher investments, we're confident that we can return to our historical operating margin range of 25% plus in the midterm as the investments we have made over the past 18 months begin to scale and drive stronger revenue growth, better gross profitability and improve our operating profit. Our overall tax rate is expected to be approximately 15% for the full year and stock-based comp and dispute-related expenses will be in the range of $32 million to $34 million. As we enter the second half, our pipeline of new projects continues to build and position us for strong growth for the rest of this year and into 2026 and beyond. The investments we have made in client SSD and eMMC and UFS controllers are beginning to scale, driving better ASPs and higher margins. The momentum behind our enterprise business driven by strong progress in our MonTitan development and expanding opportunities in enterprise boot drives will deliver a new avenue of high-margin growth for the company in longer term. We're confident that our leading controller products paired with our unmatched customer relationships with all the flash makers and virtually every module maker will drive significant long-term revenue and profitability growth for the company. This concludes our prepared remarks. We'll now open the call to questions from the investment community. Operator, please go ahead with the first question. Operator: [Operator Instructions] Our first question come from Craig Ellis from B. Riley Securities. Craig Andrew Ellis: Congratulations on a very strong quarter of execution and the momentum you have here at midyear. I wanted to just start with a clarification question on some of your operating expense comments, Jason. So, we've all seen that there's been exchange rate fluctuations at unusual degrees as we've gone through the last 3 months and before we stand here early in the third quarter. I'm wondering, if you can quantify what the new Taiwan dollar exchange impact was to 2Q and 3Q expenses versus the impact of some of the growth-related R&D expenses that you also talked about, just to help us calibrate the currency dynamic in the middle of the income statement. Jason P. Tsai: Yes. The NT dollar strengthened meaningfully and quickly in the second quarter, and it was up by over 10% sequentially. So, while our revenue, cost of goods sold and most of our development costs are all denominated in U.S. dollars, our compensation is primarily denominated in Taiwan dollars given that the majority of our employees are based here in Taiwan. And the Taiwan dollar and the U.S. dollar exchange rate stayed stable, assuming kind of we state similar exchange rates to what we saw in Q1, our operating margin in the second quarter and for our outlook would have been about 1-plus percentage points higher than what we had reported for the second quarter and what we're guiding to in the third quarter. Craig Andrew Ellis: Yes, absolutely. The second question is for Wallace. Wallace, you're clearly seeing robust engagement on the enterprise side of the business. And I'm hoping what you can do is talk about this year's exit momentum along 3 parameters with respect to Enterprise One, what's happening with the initial customer ramps with MonTitan 2? Can you update us on the status of the NVIDIA BlueField DPU program and what you'd expect there exiting the fourth quarter? And then we've just seen great engagement from the supply chain pulling in your PCIe Gen 5 controllers into lower end, more efficient AI-related scale-up, scale-out configurations. Just help us understand what you see there and what all that means as we look to 2026. Chia-Chang Kou: Okay. Let me address the MonTitan status. I think the MonTitan's design momentum is very strong. Now, we believe we're going to start to initial ramp in the fourth quarter and will be more meaningful than strong momentum in 2026. So, we have four 2 Tier 1 customers for other designs. Actually, we have more coming, but we just don't have enough resource to supply. The most important is known number of customers because each of customers need some custom-made tailored firmware to feed certain category and workload. So, we are focused on delivering the robust finalized firmware and expect production in late this year. So, I think the momentum is coming, but also with both QLC high-capacity enterprise SSD, as well as the TLC base for compute storage. Now, let me address to the NVIDIA BlueField. See, NVIDIA qualification is in the final stage. We believe we will enter production in the Q4. Actually, frankly, the solution we are controller and firmware we had been with NVIDIA in the past 2 years with other NAND maker, which is we cannot say. So, this is a transition naturally we're winning with our own solution with different NAND type to supply for the long term. But we believe this is helping us to grow in 2026 and '27. In addition, they also open the door for us to engage with NVIDIA in other BU and other product line. So, this is very great for us to be in NVIDIA supply chain. And hopefully, that will expand much more opportunity in the future. Operator: [Operator Instructions] Allow me to move on to the next question from Mehdi Hosseini from SIG. Mehdi Hosseini: The first one for Wallace. Congrats on increasing the annual revenue run rate. I see there's about a $55 million of incremental revenue increase from Q4 '24 to Q4 '25. And I'm assuming the majority of this is driven by the new PCIe projects. As I look into next year, let's say, Q4 of '26, this is where I think BlueField is going to kick in and add incremental revenue. So, you have a baseline of Q4 '24 and then you overlay $55 million of the new products, especially driven by storage and then the BlueField would drive or sustain that growth into Q4 of '26. Am I thinking about this transition the right way and feel free to modify, then improve that thought process? Jason P. Tsai: Yes. I think -- Mehdi, it's Jason here. In terms of your comparison between Q4 '24 and Q4 '25, that incremental revenue that we're talking about here is a result of really strength across the board, increasing share and new products in eMMC and UFS, increasing share in new products in PCI, especially in PCIe5 for SSDs and then the initial ramp of the MonTitan products as well as the initial ramp of BlueField. Now, we haven't guided into 2026. So, you have to bear with us for a little bit. So, I'm not going to comment on kind of how this goes into 2026. But certainly, we still expect to be achieving that 5% to 10% revenue run rate with MonTitan in that 2026, '27 time frame. Nothing's changed there. And certainly, the strength that we're building, the designs we've won, the pipeline that we have to support growth longer term continues to get stronger and stronger each day. Chia-Chang Kou: So, I think, let me add a comment. We have a very strong backlog in the second half of 2025. That's why we have confidence to reach our financial goal. Mehdi Hosseini: Okay. And then moving on to OpEx, there's a significant step-up in '25, as Jason highlighted, investment for future. Should I expect OpEx intensity to decline into '26 as the new product ramp and this is going to give you some OpEx leverage? Jason P. Tsai: We certainly expect to see operating margin leverage as our gross margins improve and our revenue scales. We do continue -- we will continue to invest. As Wallace pointed out, we have a number of new projects that we actually don't even have enough resources today to support that we have to turn away. So, we will continue to invest. We'll continue to hire. We have a number of new projects that we're going to be taping out next year, especially in the enterprise and some of the more advanced geometry. So, these are things that we'll continue to invest in longer term. But we believe you'll see operating margin leverage. A lot of the investments that we have made over the last 2 years are now just starting to come to market, and they haven't scaled yet. That should drive the significant amount of operating margin leverage going into action as well. Operator: Our next question comes from Suji Desilva from ROTH Capital. Suji Desilva: Curious with the trends you have in the revenues, whether the gross margin would continue to potentially expand maybe above the target range given the auto coming in, enterprise, some of these other areas or whether we should think about there being offsets to that keeping it in the range intermediate term? Chia-Chang Kou: Yes. I think it really depends on product mix and depends on which quarter for certain products because it's a high volume is -- I think the margin is a little below our corporate average. For some high-end product, definitely margin is better. So -- but I think we cannot -- just I cannot comment right now, we were above the upside of our guidance margin, but definitely will meet our gross margin. And I think we should have a better result in 2026. Suji Desilva: Okay. That's helpful. And then on the MonTitan firmware efforts and the customer efforts and the R&D you're investing, Jason, is there a point in time where you think you get on top of that? Or is that going to be a persistent challenge of sort of having to turn away programs? Or is there some kind of leverage after you do a few of these that you can kind of pull that forward? Jason P. Tsai: Look, I think after we do a few -- to your point, once we do a few of these, once we get a bunch of -- a few of our customers up and running, we'll have a wide range of firmware capabilities that we can bring to market, right? Some folks are going to want SDKs, hardware only where they're building their own firmware, and that's pretty easy to support. But some folks that require full turnkey will require more resources, et cetera. Operator: Our next question comes from Gokul Hariharan from JPMorgan. Gokul Hariharan: Wallace, the first question is you seem to be sounding a lot more optimistic about the automotive engagements compared to maybe 2 quarters back. Could you talk a little bit about what is the incremental margin profile when it comes to automotive, both for gross margins as well as operating margins, given a lot of the R&D is fairly similar to what you do for client SSD controllers or client eMMC controllers, right? So, is there a meaningful operating leverage that we should expect as automotive starts to scale given it kind of just expands the scope of your revenue base on similar R&D? Second question is on enterprise. Could you talk a little bit more about the road map for MonTitan? I think what are we thinking about for future engagement, like the next generation of MonTitan? What are you planning in terms of the road map? Chia-Chang Kou: All right. Let me try to address automotive business. We feel more positive about our automotive business from second quarter and moving to second half of 2025 because through our design win pipeline, and we also had a significant breakthrough in China automotive market, as you know very well, China automotive is very bloody and price very competitive. I think, we find a very special way to position our value proposition to the leading customers like BYD and Xiaomi and several others. That's why we built a tremendous new pipeline and moving into production from late '25 to 2026. And our major program in Toyota global model also start to ramp by late 2025. That's why we have a very, very strong momentum in automotive business. We are confident we will be above 10% of our total revenue from '26 to '27. Now, let me comment about enterprise and regarding the plan and road map. Our MonTitan today is 16 channel, the PGI Gen5 controller with performance shaping technology. We also tape out a 6 -- an 8-channel MonTitan is called 8388, and the product will be available by end of this year. And as you -- I don't know whether you know very well, the U.S. have demand high capacity of enterprise SSD from 128 terabyte and some even asked for 256 terabyte. But China also started a new momentum asking for 64 terabyte from late this year to 2026. So our 8-channel lower-cost MonTitan, which perfectly fit in the demand and provide decent performance as well as high capacity up to 128 terabyte. And we also will develop our PCIe Gen 6 MonTitan family with TSMC 4-nanometer will tape out next year, and this will engage with at least 2 NAND makers in this program. So, this is very, very exciting. We're very busy. We build a design pipeline. We believe MonTitan will continue around and driving much bigger momentum beyond '26, '27. Gokul Hariharan: Got it. Maybe one follow-up, Wallace there. I think you talked about potentially seeing some demand for the cold storage market as well for some of the AI data centers. Is there anything that you need to really change in your portfolio or the controller itself to address this market? Or is it kind of like an adjacency that you can address without too much change in the product? Chia-Chang Kou: No, the -- the data storage today, primarily really one storage and some of the compute storage conventional server. I think for cold storage really is a conventional near-line HDD. But I think the Samsung has added association with the near-line flash and propose to share as a standard, that's very, very interesting to drive a lower cost QLC-based enterprise SSD to expand one data storage for SSD. I think we definitely willing to see that, and we absolutely will put a good effort to engage with that trend because that's a huge potential for the NAND maker and the data center for enterprise SSD opportunity. Gokul Hariharan: Do you have any timing on when this could open up? Is it in the next couple of years that you think it will open up or will take longer than that? Chia-Chang Kou: I think all NAND makers are working together and looking for how to define the right specs and definitely the purpose is the performance has to be a little better than near-line HDD. And so, they can relax the spec and make sure the performance meet the AI application in the one data storage. But time frame, as I said, about 3 to 5 years range. Operator: Our next question comes from Matt Bryson from Wedbush. Matthew Stevens Bryson: I just have one. So if I look at your target of 25% plus operating margins and I work off kind of current OpEx levels, even if I assume gross margins move up into the 50%, 51% range, so at historical a little bit revenue run rate of $300 million, and that goes higher if OpEx continues to increase, which I think you're suggesting it will because [Technical Difficulty] Chia-Chang Kou: Matt, you're breaking up. We can't hear you. Matthew Stevens Bryson: Let me -- is this better? Chia-Chang Kou: No. Matthew Stevens Bryson: I will jump out and try dialing in again. Chia-Chang Kou: Okay. Let me answer your previous first question. I think definitely, we have a higher operation expense because we increased R&D and also we have a 6-nanometer tape-out. Next year, we also have a 4-nanometer tape-out with the 6-nanometer tape-out. So operating expense probably will increase slightly. But when we grow strongly in the top line of our revenue, that will help much faster for our operation margin. And so we're definitely looking forward to move back to 20%, 25% margin in late '26, and you will see even better margin moving to '27. Operator: Our next question comes from the line of Nick Doyle from Needham & Co. Nicolas Emilio Doyle: Just trying to think about the mobile strength and figuring out how sustainable that is. You mentioned it's coming -- the strength is coming from units and share gains. Is the bulk of that related to this Chinese domestic market dynamic you've discussed and you mentioned it again. Just how should we be thinking about that growth into next year and if it's sustainable? Chia-Chang Kou: Okay. I think it's a very good question. We have a very specific strategy to grow our mobile controller for both eMMC and UFS. So, of course, the China market and because of the affordable low-cost mobile DRAM available, that's why most of the smartphone maker, they like to adopt discrete eMMC or UFS that help the module maker customer to expand quickly. And that's why when they expand quickly, I think that also will impact some NAND maker for the value line. So, NAND maker -- for NAND maker also turn to Silicon Motion controller because they do not want to develop in-house, that will utilize our solution quickly to the market and you can either sell the wafer to module maker or make a lower-cost solution to come in the market. That's why we grow very quickly for the value line and the mainstream for both eMMC and UFS. In addition, we see the NAND maker also looking for next generation, for example, UFS 4.1 is in high end, but UFS 5.0 will move to the high end by late '26 and '27. So, the 4.1 become mainstream. So, the NAND makers, they don't have enough resource to develop a new firmware going to the new NAND. So, they come to outsource to third party and SMI in the right position to capture the outsourcing opportunity. So, all this pipeline together continue. You see so many opportunities. Actually, we have so many projects in hand. We don't have a resource to take. This is what we see the momentum. And we definitely see we're growing the market share in the mobile and hopefully, we can reach 30% within 2 years. Nicolas Emilio Doyle: And if I understand correctly, it sounds a bit like this transition to the 4.1 in the mainstream could help the sustainability into next year. Maybe also asking a bit of a different way, I mean, you talked about the module maker inventory and how they're pulling in orders in almost fear of price hikes later in the year, I mean, how do their inventories compare to historical? Does that make you nervous at all in terms of the future mobile business? Chia-Chang Kou: We really don't see -- I think our customer in early Q2, some worry about the tariff. But later, it's stabilized. Really, we don't see many customers pulling the demand. As you know, and a customer, if they don't buy that many NAND, they won't buy controller for inventory, right? So really, they will see the balance. Most of them really plan ahead and make sure they also can prepare the NAND price increase. And I think that's why we see the very stable pipeline because we can see 6 months backlog right now. That's why we're very confident about what we can achieve the $1 billion run rate by year-end. Operator: [Operator Instructions] At this time, we appear to have no more further questions. I'd like to hand the call back to the management for closing. Thomas Andrew Sepenzis: Thank you, everyone, for joining today and for your continued interest in Silicon Motion. We will be attending FMS conference in Santa Clara next week, as well as several investor conferences over the next few months. The schedule of this event will be posted in our Investor Relationship section of our corporate website, and we look forward to speaking with you at the event. Thank you, everyone, for joining us today. Operator: That does conclude today's conference call. Thank you for your participations. You may now disconnect your lines.

Operator: Good day, and thank you for standing by. Welcome to Silicon Motion Technology Corporation's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial conditions and business prospects. Although such statements are based on our own information and information from other sources, we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time-to-time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements, which apply only as of the date of this conference call. Please be advised that today’s conference is being recorded. It is now my pleasure to hand you over to Mr. Tom Sepenzis, Senior Director of IR and Strategy. Please go ahead, sir. Tom Sepenzis: Good morning, everyone, and welcome to Silicon Motion's first quarter 2024 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our first quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our Safe Harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the US Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Wallace Kou: Thank you, Tom. Hello, everyone, and thank you for joining us today. I'm pleased that we delivered revenue at the high end of our range of our first quarter, but the market of PC and smartphone began to rebound. Additionally, we delivered another quarter of gross margin expansion through the successful introduction of a new product and the mix shift toward higher end PCIe and UFS products. We continue to invest in the next-generation technologies that we expect will drive long-term sustainable top and bottom-line growth of our company. We are also benefiting from the increased controller outsourcing by our NAND flash maker customer, a trend that should continue as the controller capacity increase and the design cost continue to rise. Flash makers remain focused on profitability, while managing their investment to serve the increasingly diverse end market memory requirements. Despite the macro uncertainties, we are excited by the progress we are making securing strong design win momentum and share gain across all our end markets as we launch several new products including exciting new win with NVIDIA's BlueField-3 DPU platform, that I will discuss in greater detail in a moment, as well as new solutions for the PC, smartphone, enterprise and automotive markets. I would like to spend a moment discussing the current business environment. The current global economy picture is increasingly difficult to navigate and they change day-to-day due to ongoing tariff and geopolitical challenges. Regarding current climate, we believe the impact to our business should be limited given that the US only accounts for 10% of the global smartphone market, about 25% of the PC market. For smartphones, the US market is dominated by Apple and Samsung accounting for nearly 85% market where we have historically had little to no share. Our overall exposure to US consumer electronic sales is significantly lower than many other semiconductor companies in the PC and smartphone bootcamp. While the escalating tariff environment creates uncertainty in demand in the near term, we are going to remain focused on what we can control, delivering market-leading products win, superior performance, expanding our market share with the flash makers that are increasingly resource constrained, supporting multiple memory technology and diversifying our business through the expansion into new and growing market including enterprise and AI storage, automotive, industrial and more. I would now like to discuss the broader NAND flash environment. The NAND industry experienced improvements throughout the first quarter as inventory level in consumer markets including smartphone and PC appear to have bottomed out and enterprise storage demand remains strong. NAND flash maker have begun to raise prices recently given scale back flash production and reduced inventory levels. We will continue to focus our resources on our flash maker partners as they will be the customer with the greatest asset to NAND in 2025 if prices continue to rise. Our business with module makers remain steady as they are starting to build inventory ahead of increasing NAND prices and restocking low channel inventory for aftermarket SSD. One area where we are benefiting from both increasing NAND costs and the potentially negative pricing impact of tariffs is a rapidly growing interest in QLC NAND. QLC allows server and device makers the ability to significantly increasing memory density in a cost-effective manner given OEM's opportunity to deliver higher density storage solutions at a more reasonable price. As we have discussed during the past few investor calls, we believe we are the best position to benefit from the increased adoption of QLC given that we have more experience managing QLCs than any other controller maker. We are experiencing significant inbound interest for developing QLC products across the enterprise market like iTunes [ph] and the consumer market for both SSD and smartphones. And we expect to deliver multiple new products in the coming months that will capitalize on this interest and help us deliver long-term sustainable revenue and earning growth for many years to come. Now let me share some update for each of our business segments, beginning with client SSD controllers. While there has been much discussion around the 2025 outlook for PC given the current geopolitical uncertainties, as of today we believe the market is still expecting PC to grow in the low to mid single digit range. We have seen some motivation by customers to purchase ahead of the NAND price increases and any potential economic effect of tariff and potential supply disruption, but we believe inventory level remain healthy based on our current customer forecast and continued share gain in the mid-range and high-end PC market. We are increasingly confident in our client SSD business for this year and our pipeline of new program for next year to deliver long-term growth. We are seeing stronger than expected demand for our new PCIe 5 8-channel controller. As we have mentioned previously, this controller is the first 6 nanometer PCIe 5 chip in the world and we have design wins at four of six NAND flash makers and nearly all module makers, given its superior performance and lower power requirement. Introduced in December quarter, this controller already accounts for over 5% of client SSD business, and we expect they will continue to grow rapidly over the next several quarters as PC OEM, NAND flash maker and module maker customers ramp up their high-end PCIe 5 project to full scale. In addition to the success we are experiencing with our 8-channel controller, we have already secured four flash maker wins with our upcoming PCIe 5 4-channel DRAM-less controller, targeting the mainstream market. This 4-channel controller was tape-out in Q3 last year and expected to begin shipments later this year. We are also actively engaged with virtually every module maker for this new controller, and we anticipate that they will help us continue to drive share growth in the client SSD in 2026 and beyond. In the first quarter, we began to see demand for our new PCIe 5 8-channel controller increase as our flash maker partner secured additional PC OEM wins, and our module maker customer saw significant demand from the consumer aftermarket. Additionally, there is a new market developing for the controller as the white box server market, build a lower-cost hardware platform for AI inference that can leverage more mainstream components. Given the early strength in our 8-channel PCIe 5 controllers in addition to the multiple wins with our upcoming 4-channel DRAM-less controller, and our strong competitive position in the mid-range PC market, we believe we are increasingly well-positioned for unit and revenue growth in client SSD over the next several years, barring significant headwind from the broader economic environment. Now I would like to move on to our eMMC and UFS business. Like the PC market, the smartphone market showed signs of a bottoming and recovery in the March quarter. This was driven in part by increased smartphone subsidy in China post the Chinese New Year holiday and from the increased inventory restocking ahead of any disruption from geopolitical actions. While it is difficult to know how tariffs will impact smartphone sales in 2025, we have had a promising start of the year. During the March quarter, we experienced strong booking momentum from both flash maker and module maker customers for UFS 3.1 and UFS 2.2 controller as well as for our eMMC controllers. As we mentioned during our last conference call, the market is shifting away from eMMC and UMCP solution in the smartphone market, which have historically been dominated by flash makers. With the introduction of less expensive mobile DRAM solution, module makers are gaining share using our controller and selling UFS eMMC solution to smartphone OEMs. It is also leading to the adoption of 30-party controller -- third-party controller solution by the flash maker to compete in value line market to reduce development cost. With our new high-end eMMC 5.1 controller and our broad-based eMMC product portfolio, we are well-positioned with both flash makers and module makers to serve the automotive, IoT, smart TV, set-top box and other markets that account for more than 800 million units a year. Overall, we are delighted by the long-term opportunity we are seeing in the eMMC and UFS to further grow our share in the embedded smartphone memory market, as well as make a significant inroad into automotive, IoT and other high-volume markets. I will now provide an update to our MonTitan business. MonTitan is one of the most exciting opportunity for Silicon Motion given the large addressable multibillion-dollar market for enterprise class controllers. As we have discussed, this is a new opportunity for our company, and we continue to expand our product portfolio, customer engagement and technology as we enter the market for the data center, enterprise storage and AI solutions. Interest in MonTitan is driven in part by emerging demand for QLC NAND solutions. With AI, given its ability to deliver high density at lower cost, we have more experience with any others and support more QLC NAND than anyone else in the industry. MonTitan also offer greater flexibility than competing solution given our wide range of firmware capability with which we can meet the unique needs of different customers' applications and use cases. Our flexibility is opening opportunity across multiple fronts in the enterprise and AI storage solution business. Many of our early customers are focused on delivering solution for storage system architectures, but we are now expanding our addressable market for MonTitan. We have been working with the NVIDIA team for over a year to qualify our new MonTitan server boot storage solution for use with the BlueField-3 data processing unit, or DPU architecture. And we have been designed into the platform. BlueField-3 is a network accelerating solution that help deliver peak AI workload effectively, end-to-end security and high-performance cloud networking use NVMe over fibers. Our boot storage solution will be used to power BlueField-3 DPU beginning later this year, adding a significant new revenue and unit growth opportunity for Silicon Motion. Additionally, each BlueField-3 DPU will be paired with multiple high-density enterprise class QLC SSD through PCIe switches. Currently, Solidigm is the only company shipping a high-density 122-terabyte QLC enterprise SSD in the market. And we expect to be the second providing a 128-terabyte QLC MonTitan SSD turnkey solution to our customers later this year. We are thrilled to be growing part of NVIDIA storage ecosystem, providing enterprise boot storage and high-density 128-terabyte MonTitan enterprise data storage solution for AI. These solutions deliver ASP that are significantly above our current corporate average with accretive gross margins. As our MonTitan product portfolio evolves, we look forward to engaging with new customers to expand our addressable market in other areas as we are currently doing with BlueField. To that end, we are currently focused on delivering a more complete family of MonTitan products, including controller for SATA and PCIe server boost drive, higher density and performance 8-channel and 16-channel controller for AI storage application. With MonTitan supporting the upcoming 2 terabit monolithic die QLC NAND, we will be able to deliver high-density, high-performance 128 terabyte SSD with a best-in-class brand reach of 3.5 million IOPS, putting us in a great position to rapidly expand our market share in the large and growing market for AI storage solution. And finally, we are also engaged with multiple partners with next-generation PCIe 6-controller targeting the NVIDIA Rubin GPU platform that is expected to begin ramping in 2027. We are confident that MonTitan will begin to ramp in the second half of this year and more meaningfully in 2026 as multiple customers enter production. Finally, I would like to provide highlights on our automotive and other business. Our automotive market position continued to improve as we add new products to our growing portfolio, we continue to support automotive across all our product category, including SATA, PCIe SSD, eMMC, UFS and our ferrite embedded solutions across a wide variety of use cases. We are the first company to receive ASPICE Level 3 certification in PCIe 4-controller, and we are on track to deliver a PCIe 5-controller for automotive later this year. Vehicle capacity continued to increase along with the need for faster, more dense storage solution given the increase in processing capability, ADAS, sensors, cameras and other advanced systems. We continue to expand our presence in the automotive market and are increasing our market share with existing and new customers alike, including Samsung, which we have added recently. We are currently shipping to many of the biggest names in the business, including Mercedes, Tesla, GM, BYD, Xiaomi, Toyota, Honda and many others and are well on our way to achieving our large target of 10% revenue contribution from automotive by 2026 to '27. Additionally, we recently introduced our 2708 microSD Express controller and have already secured a major design win with a leading South Korea flash manufacturer, supporting one of the most anticipated next-generation handset gaming platform announced this year, the Nintendo Switch 2, by delivering PCIe SSD-like level performance in microSD form factor. The SM2708 is designed to meet high-density, high-speed needed for modern portable gaming and other demanding applications. In conclusion, the start of 2025 has been challenging given the geopolitical headwinds driven by the tariff crisis. Silicon Motion is well-positioned to expand its position across the market in 2025 as we continue to gain share with the flash makers. These partnership and partners increasingly look to outsource controller given their need for operation expense discipline, while managing significant investment in other technology, including DRAM and HBM memory. Our position is also improving through the introduction of new products, including our PCIe 5 client SSD controller, which is experiencing strong demand. In addition to our new UFS and eMMC product as we progress through the year, we will also benefit from the introduction of our UFS 4.1 controller in the smartphone market as well as ramp of MonTitan for storage system solution and the boot storage in BlueField-3 DPU in the second half of the year. Additionally, we are well-positioned for continued share growth in each of our other markets, including automotive. Longer term, as our MonTitan automotive business continue to scale for the next several years and our broad portfolio of solutions for IoT, industrial, commercial and smart devices applications continue to gain share, I'm confident that our strategy to diversify beyond the maturing PC and smartphone market will be successful and continue to believe that we could generate more than 20% of our business in 2027 from these new opportunities. I look forward to sharing more about our successes with these products and new markets throughout this year. Now let me turn the call over to Jason to go over our financial results and outlook. Jason Tsai: Thank you, Wallace, and good morning to everyone joining us today. I will discuss additional details of our first quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the March quarter, sales decreased 12.9% sequentially to $166.5 million, coming at the high-end of our guided range despite the weak end-user demand for PC and smartphones at the start of the quarter. Gross margins increased again in the quarter to 47.1% as we continue to benefit from improved product mix as we shift customers to newer products. Operating expenses increased sequentially to $63.6 million as we continue to invest in new enterprise storage products and given the timing of new product tape-outs. Operating margin increased sequentially to -- excuse me, operating margin decreased sequentially to 8.9%, but was within our guided range. We had a one-time tax benefit due to the reversal of a risk accrual -- of a tax accrual that we had in the previous year, which resulted in a tax benefit of $2.5 million in the quarter. Earnings per ADS was $0.60. Total stock compensation, which excluded -- which we exclude from non-GAAP results, was $4.8 million in 1Q '25. We had $31 million -- $331.7 million in cash, cash equivalents and restricted cash at the end of the first quarter compared to $334.3 million at the end of the fourth quarter of 2024. Cash declined slightly in the first quarter, primarily from the combination of dividend payment of $17 million and $24.3 million in stock repurchases. In the first quarter, we repurchased $24.3 million of the $50 million six-month repurchase program the Board authorized on February 6 with an average price of $56.96 per share. First quarter is challenging given the geopolitical impact of the US election and its effect on global trade. While market uncertainty remains high, our team executed well and delivered revenue at the high-end and operating margin within the upper half of the guidance range while investing heavily in advanced geometry products and our emerging MonTitan platform for enterprise and AI markets. We continue to build upon our strong foundation for long-term growth. Now I will discuss our second quarter outlook. Revenue is expected to increase 5% to 10% to $175 million to $183 million, driven by the success of our PCIe Gen5 as well as continuing strong demand for our UFS 3.1 and 2.2 controllers. Gross margin is expected to expand to the range of 47% to 48% as we continue to transition customers to newer platforms. Operating margin is expected to be in the range of 8.9% to 10.9% as we benefit from higher revenue and gross margins. Our effective tax rate is expected to be approximately 16% to 17%. Stock-based compensation and dispute-related expenses are expected to be in the range of $3.1 million to $4.1 million. For the full year, PC and smartphone growth targets remain in the low to mid single digit range with an above average second half weighting. We believe that our business will reflect the broader industry with significant growth expected in the second half, barring an overly negative impact from tariffs impacting end-user demand. As such, we are not changing our annual outlook currently and target revenue growth that is in line with our achieving a run rate of approximately $1 billion as we exit the year. Additionally, we expect to continue to improve our gross margins as we transition customer new products and enter the enterprise market in the second half of the year. We remain confident that we can drive gross margins towards the higher end of our historical range of 48% to 50% by the end of this year. We'll continue to invest in advanced geometry products that will allow us to grow our market share across our businesses long-term and help us diversify our product portfolio into new markets. Despite these higher investments, we are confident that we can return to our historical operating margin range of 25%-plus in the midterm as investments we have made over the past 18 months begin to scale and deliver stronger revenue growth, better gross profitability and improve our operating profitability. Overall tax rate for this year is expected to be approximately 15%. Stock-based compensation and dispute-related expenses for this year is expected to be in the range of $27 million to $29 million. As we enter the second quarter, we are experiencing increased design win activity and improved outlook from our customers. We see strong demand for our new PCIe Gen5 products, including 8-channel that's currently shipping as well as for our UFS 3.1 and our new UFS 2.2 and eMMC 5.1 controllers in the smartphone and automotive markets. For our upcoming 4-channel PCIe 5 controller and our UFS 4.1 controllers, our teams have been actively securing new wins and growing our backlog meaningfully as these advanced platforms expand into mainstream PC and smartphone markets next year. Lastly, the momentum behind our one-time family of enterprise controllers continues to grow as enterprises and CSPs around the world continue to invest in next-generation data centers that require high performance, low-cost QLC storage solutions in our -- that we are uniquely positioned to provide. While we are seeing a small degree of pull-ins ahead of NAND price increases, we do not expect this to impact our ability to grow sequentially throughout the year. Our teams continue to execute well, are growing our product portfolio, winning new projects and customers and expanding our addressable markets, positioning Silicon Motion for sustainable long-term revenue and profitability growth. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead with the first question. Operator: Thank you. [Operator Instructions] We will now take our first question from the line of Craig Ellis from B. Riley Securities. Please go ahead, Craig. Craig Ellis: Yeah. Thanks for taking the question. I wanted to start with an inquiry on the enterprise SSD MonTitan program. So, first of all, Wallace, congratulations on breaking into NVIDIA. That seems like a very significant intermediate and long-term development. The question is more longer term with that business line. It sounds like the business is strongly on track with the six customer wins you talked about last quarter to begin ramping up later this year. The question is, as we look out to 2026, if we've got six customers engaged now, where would you expect the business to exit '26 in terms of customer engagements? And how many of those might be in production? Not looking for specific guidance, but just color on the degree to which the pipeline is building out, especially as you get blue chip customers into the mix. Wallace Kou: Okay. Craig, thank you for the question. Let me answer your question. First of all, our previous six major customer engagement, they are not related to current NVIDIA BlueField DPU platform engagement. So, this is six customers we are on track. They're going to ramp from second half of 2025 gradually and 2026 will reach the more meaningful revenue growth. I think '27, you will see much more significant. We are on track to achieve 5% to 10% from '26, '27 our total revenue, doesn't change. But NVIDIA BlueField DPU design win gave us a better picture into the BlueField module for boot storage. In addition, because the BlueField module with the PCIe switches, which connect to many up to 30 PCIe enterprise SSD solution. So, each of the storage server going to comply to maximum to 30 SSD. So, this is a portion will be -- majority portion will be 128 terabyte high density. So, gave a new opportunity. So, we need to leverage the opportunity with the NVIDIA ecosystem provider such as VAST DDN, such as Dell, NetApp and also their end customer, right? And so, this gave them more opportunity to win in and qualify this ecosystem and not only grow our boost storage on NVIDIA platform, but also grow with NVIDIA ecosystem for storage. So, this is -- we work with many of our module maker and partner to deliver the high density 128 terabyte QLC SSD by end of this year. This gave additional momentum to grow our revenue in MonTitan family. Craig Ellis: That's really helpful, Wallace. Thank you. For my follow-up question, I wanted to turn one to Jason. So, Jason, it's clear the trailing 18 months as the company has invested in 6-nanometer tape-outs. On the other side of that, the company has done extremely well, getting new design wins with NAND makers and module makers across the full range of products that the company offers. The question is this, where are we in the journey of upgrading the portfolio to 6-nanometer from a mass set cost standpoint? How much of that is now behind us looking through the current 2Q? How much of that is ahead? And beyond 6-nanometer, can you talk about when we would see the next node transition for the company as we think about operating expense intensity over the next couple of years? Thank you. Wallace Kou: So, in the near term -- let me answer you. In the near term, we're going to have two more 6-nanometer tape-out in the next three quarters and one 5-nanometer tape-out, which will be a cost reduction for mobile controller. And next year, in probably around middle of next year, we're going to have a 4-nanometer tape-out for PCIe Gen6 enterprise SSD because we have a customer waiting urgently, and we do not want to miss the schedule and deliver the results. Frankly speaking, we are really in the full design pipeline, and we have many, many customers, and then we don't have enough R&D resources to support many, many new designs. And we are very confident in our growth momentum in client SSD, mobile controller as well as enterprise SSD. Jason Tsai: I would also point out, Craig, that we do not anticipate moving beyond 6-nanometer for the foreseeable future for client applications, client PCs or clients -- or smartphone applications. The 4-nanometer product that Wallace is pointing towards is for PCIe 6 for the enterprise. So, I think -- and historically, with the exception of very rare cases, we really don't retape-out an old controller into a new process geometry. We look at new designs supporting whether new generation of flash or new generation interfaces for new tape-outs. And so, to Wallace's point, we've got two 6-nanometer tape-outs coming up here throughout this year, which is pretty flat compared to last year. But we're also looking at utilizing other foundry partners as well potentially to see if we can certainly get better pricing longer term. Craig Ellis: That's really helpful color guys. Thank you. Operator: Thank you. We will now take our next question from the line of Suji Desilva from Roth Capital. Please ask your question, Suji. Suji Desilva: Hi, Wallace. Hi, Jason. So, maybe following up on Craig's question about the NVIDIA product here. I appreciate the MonTitan guidance of 5% to 10% of revenues. How should we think about sizing the NVIDIA partnership with the ecosystem in terms of addressable market? Any framework or metrics there would be helpful. Jason Tsai: Yeah. So, look, I think, obviously, the opportunity for BlueField, we're very excited about. I think there are a number of factors regarding that kind of affect the TAM. We expect the BlueField-3 product to begin ramping late this year, and we see a meaningful ramp in '26 and beyond. With every successive win at MonTitan, it makes more -- it gives us more confidence around achieving our goals for 5% to 10% of revenue in '26. And the TAM really depends on several factors, the growth in the enterprise storage market, the global demand, tariff impacts, et cetera. We do anticipate this to be a meaningful part of our MonTitan business longer term. Wallace Kou: So, let me add a comment is we're very happy to see NVIDIA start to focus on storage. During the GTC 2025, they mentioned the storage next. So, they really put a new spec and performance requirement to build the storage, especially there's compute storage and data storage. The BlueField DP3, the third generation is really for data storage, but much bigger density storage system. We're very happy to see the momentum and for the design win. And I think we cannot comment the total unit, but we're going to start to ramp from second half of this year, and there's a minimum quarterly revenue, and we do see the momentum moving to many, many storage systems integrator. And in addition, I think many, many hyperscaler CSP, they are also looking for high density QLC SSD. In the past, many, many CSP and service provider, they only need an 8 or 16 terabyte. Now they really changed their mind and moving -- and we -- I think as you can see from last financial release, several players announced the major design win in the CSP. So that gave you the indication about the trend. So, I think we're exciting for our technology MonTitan, not just for NVIDIA BlueField-3 DPU design. And also, they're going to go many, many and for AI cloud service and storage -- server storage requirement. Suji Desilva: Okay. That's very helpful color, Wallace. Thank you. And then maybe switching over to the notebook market. Understanding the mix here, where is your traction in the premium notebooks? And what's your outlook for the 8 versus 4-channel product here as the year progresses? Wallace Kou: Okay. If you take a look for the PC OEM this year, they're going to ramp up the 8-channel PCIe 5 from July timeframe. I think all the PC OEM top five will align at the same time. And we're going to see 5% of the second half, 5% of total PC shipment. And the 4-channel DRAM-less controller designed for 2027, mean 2026 production. So, I think we have a design win from four of six NAND makers and nearly all module makers for both 8-channel and the 4-channel DRAM controller. That's why we believe our 8-channel will have a minimum 30% market share through with the PC OEM. And for 4-channel, we're going to have a minimum 50% market share when PCIe 5 move to mainstream in full scale production. That's why we believe we're going to continue to gain market share in client SSD, and we're going to grow from 30%, 33% today and moving towards 40% in the next few years. Suji Desilva: Okay. Very helpful, Wallace. Thanks guys. Operator: Thank you. Our next question comes from the line of Gokul Hariharan from J.P. Morgan. Please go ahead, Gokul. Gokul Hariharan: Yeah. Hi. Thanks, Wallace and Jason. So, first of all, on this BlueField-3 DPU engagement, can you talk a little bit about how this business engagement and product sale will work? So, you are already qualified by NVIDIA. And then customers such as DDN or Wadata or Dell will basically embed your controller into their storage solutions. Is that typically how that's going to work? And secondly, how many vendors have been qualified? I think you mentioned only Solidigm has been qualified so far. You're kind of the second vendor. How long do you think you can kind of keep this kind of only two kind of vendor status in this? And maybe lastly, I think how do you size this market compared to the regular kind of enterprise and data center controller market in the enterprise that you've been targeting with the original MonTitan target market? Wallace Kou: So, let me expand maybe basically about business model and certain thing we cannot share with you. I think we start to engage with NVIDIA about a year ago. So, in the beginning, we don't fully understand what's really the purpose for the application after three months query and everything. And I think -- and we understand this for NVIDIA BlueField-3 DPU platform. And in the past, the BlueField-3 used for really is a pass-through transfer the data between GPU to GPU and CPU to GPU. I think this is selling for networking and really designed for the storage system. And I think the design win give us a great opportunity to fully understand NVIDIA, their plan for the storage application and give opportunity to approach it beyond through the ecosystem and go to the end system integrator one by one. And I think NVIDIA did not own the system storage product, but selling the BlueField-3 module to their system integrator and storage enabler. So, this is a business model. And so, we need to be qualified by NVIDIA. I think there's only two suppliers to support the boot storage. We are one of them, and it's in the final stage qualification because they're going to ramp in the second half of this year. So, nearing the final stage. And we are in the process to qualify our high density QLC SSD through the ecosystem. So, this is in process. We believe by end of the year, the customer will move into mass production. So, this is just in the beginning range about the storage system growing momentum for AI storage. And we see there is more beyond this. And when -- this is a mature variable, we can share more data with our investors. Jason Tsai: And I would also point out, Gokul, that on the BlueField, when we talk about the opportunity there, and Solidigm isn't in the BlueField opportunity -- isn't in the boot drive opportunity there. Solidigm is on the high density 122 terabyte side that our high density QLC data storage opportunity is. So, it's different than the boot drive opportunity that we're talking here specifically with NVIDIA on the BlueField-3. Gokul Hariharan: Got it. So, for the boot drive opportunity, according to what you know, you are currently the only one qualified. Is that fair? Or are you only…? Wallace Kou: There's only two supplier. We are one of the two supplier. Gokul Hariharan: Understood. Understood. Yeah. That's very clear. Second question, maybe for you, Jason, and also for Wallace. How should we think about -- I think you're still maintaining the exit rate of $1 billion by Q4 of this year, which is a pretty meaningful step-up from what your Q2 guidance is roughly a 30% or 40% kind of step-up from the Q2 guidance. And historically, we have never seen that kind of seasonality, at least in the last five or six years. Maybe in 2019, we saw that. I think beyond that, we've never seen that kind of step-up in revenues into Q4. So, I just wanted to understand like, are there some specific kind of project wins, customer ramps that you're really kind of penciling in, which gives you the confidence to kind of still stick to that guidance, especially given the macro environment has changed? Wallace Kou: I think we will see Q4 momentum building the $1 billion run rate, we did not count on the enterprise business of BlueField design revenue. It's really based on last year, our major design win from mobile phone, mobile controller as well as PC, PCIe Gen5. So, because this design win pipeline will create enough momentum for us to bring to $1 billion run rate in Q4. Jason Tsai: And I would also point out that we do have a number of new programs that are scaling, right? The 8-channel PCIe 5, we expect the PC OEM channel to scale more meaningfully in the back half of the year as PC OEMs start ramping for the holiday season, ramping for enterprise replacement cycle, ramping for the Windows 10 replacement cycle. All those things are kicking-in in the back half of the year. And that's still the current expectation. Obviously, the geopolitical is uncertain, but the numbers that we've seen, the forecast that we've seen today are still indicating a very back half-centric growth profile for PCs and for smartphones for this year as well. So, we've got the new PCIe 8-channel ramping. We've got beginning late ramp of UFS 4.1. We've got, to Wallace's point, some of the MonTitan boot drives as well as the high density 128 terabyte SSD controllers ramping. So, we do have a number of new programs that would be supplementing the expected market strength that we're seeing. Gokul Hariharan: Got it. Yeah. That's very clear. Thank you. Operator: Thank you. We will now take our next question from the line of Matt Bryson from Wedbush. Please go ahead, Matt. Matthew Bryson: Thanks for taking my question. I guess, first off, when I look at what was happening with some of your customers and peers in Q1, it seems like February and March picked up relatively significantly and that momentum is carrying into Q2. Obviously, you came in ahead of your guidance range, but didn't quite see the same magnitude of momentum. And if I look at Q2 seasonality or Q2 guidance, it looks relatively seasonal. I guess, my question is -- first question is why are we seeing a bit more of a guide that's reflective of the pickup that seems to be happening across the industry? Wallace Kou: Because the tariff is really created many uncertainty. I think we can -- based on where we are, although I believe we have almost no impact on tariff at the moment. We try to be cautious, but our design win pipeline is rock solid and we're gaining market share continually. And it's really -- as we said, we have enough design win pipeline and ramping in the second half of this year. That will bring the $2 billion run rate in Q4 timeframe, and we are very confident to achieve it. And we have many, many new projects ramping, including Toyota global model for ADAS and IVI. So, this is many new design wins and really bring a very broad range of product mix. And I think the NVIDIA and 128 terabyte enterprise MonTitan, that will bring more momentum in 2026 and beyond. But '25 Q4, I think the full year, current pipeline and design win is sufficient to carry our sales revenue growth. But we don't want to have a more aggressive guidance, because I think so far we try to be cautious and make sure we meet all the investor expectation. Matthew Bryson: Great. So, it sounds like you're just trying to embed some conservatism in your current outlook. And I guess, the second question is kind of following up on Gokul's last question. In terms of how we should think about the ramp in Q3, Q4. It sounds like it's very project based. I tend to think about new PC designs, them starting to get built in June, July, new handset designs, particularly Chinese handset designs being more of a late Q3, Q4 timeframe type opportunity. And it sounds like a lot of the enterprise designs come in, in Q4. Is that kind of how we should think about those new programs layering into your revenue stream to get to that $250 million goal by Q4? Jason Tsai: Yeah. That's right, Matt. And just again, a little bit more commentary around Q1, Q2. Just given the broader economic environment and the potential impacts of the changing tariff policies, we believe it's prudent to err on the side of caution, right? While we're seeing -- as we said, some mild customer pull-ins, the amount is not material enough to change our near term outlook. And we're experiencing increased interest in all the new products that we talked about, right, PCIe 5, US+4, et cetera. And our guide for the June quarter is pretty consistent with our peers and in line with really more importantly, with our customer forecast. And so those are kind of the key foundation of kind of what we see in the market today in the first half of this year. And then certainly, to your point, we do have some program specific, market specific things affecting growth in Q3, Q4 that are going to be pretty meaningful. Matthew Bryson: Thanks. Operator: Thank you. [Operator Instructions] We will now take our next question from the line of Nick Doyle from Needham. Please go ahead, Nick. Nick Doyle: Hi. Thanks for taking my questions. Asking about the Switch 2 opportunity, can you help size that at all what your market share attach rate is there? And maybe what kind of ASPs are those looking like? Thanks. Wallace Kou: This is designed for the microSD Express C7.0, they use for content card for the Nintendo. So, I can only say we're about 80% of the share. Nick Doyle: Okay. Helpful. The importance of the boot storage application, could you just talk more about that? Like what exactly are you providing there? And does that help you get closer to providing the data storage part? Thanks. Wallace Kou: I think what I can say is because through the collaboration with NVIDIA team, we definitely understand the full field module and the ecosystem. And through the ecosystem, we work with the star ecosystem together, and that's why we get an opportunity to get our product qualified in advance. And through that, I think because we see we -- because many companies announced their 128 terabyte QLC SSD. But no one can deliver the real product except Solidigm. And we believe we could be the second player to provide the turnkey solution to the market to fill the demand for storage system. So, this is a great opportunity, but we have to execute very well, deliver the result. So, we're very excited about the new opportunity and engage with NVIDIA. I think it go beyond just the BlueField DPU, believe me. But we cannot say too much, but we do want to work because the storage system is much bigger for AI cloud and AI server. And this is the opportunity we show QLC in demand when we do see, as I said, all the cloud storage provider and changing their direction and set higher density enterprise SSD drive. So, this is a great opportunity for Silicon Motion to shine to grow. Nick Doyle: Thank you. Operator: Thank you. I'm showing no further questions. I'll now turn the conference back to Mr. Wallace Kou for his closing comments. End of Q&A: Wallace Kou: Thank you everyone for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of this event will be posted on the Investor Relations section of our corporate website, and look forward to speaking with you at this event. Thank you everyone for joining today. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: And good day, and thank you for standing by. Welcome to Silicon Motion Technology Corporation's Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry, and all future results of operations, financial condition, and business prospects. Other such statements are based on our own information and information from other sources we believe to be reliable. You should not place undue reliance on them. These statements involve risks and uncertainties, and actual market trends and results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of any change in our relationship with our major customers, and changes in political, economic, legal, and social conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, which apply only as of the date of this conference call. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to Mr. Tom Sepenzis, Senior Director of IR and Strategy. Please go ahead, sir. Tom Sepenzis: Thank you, operator. Good morning, everyone, and welcome to Silicon Motion Technology Corporation's fourth quarter 2024 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO, and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our fourth quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our Safe Harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release and Form 6-Ks filed after the close of market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. I ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Wallace Kou: Everyone, thank you for joining us today. 2024 was an exceptional year for Silicon Motion Technology Corporation across multiple fronts. We delivered over 25% revenue growth year over year, significantly outperforming the end market we serve. Gross margin improved from 43% to over 46%, and we delivered an operating margin of 15.3%, up from 11.9% in 2023, while investing heavily in next-generation solutions to expand our opportunities for long-term share gains and sustainable revenue growth. 2024 was not without challenges, however, as the consumer market saw increasing pressure in the second half of the year. Weak end-user demand that began in the third quarter of 2024 persisted through the fourth quarter, creating an unseasonably weak holiday season for PCs and smartphones. Despite this, we remained focused on our execution and taped out a number of advanced controller replacements, leading to significant new project wins with customers. We successfully entered the enterprise SSD market, adding six customers and beginning initial shipment of our first new Mount Titan product in the second half of 2024. Additionally, we further grew our automotive business to over 5% of sales and delivered a strong backlog as we entered 2025. While the smartphone and PC markets will always be important, our strategy to diversify and significantly grow our enterprise and automotive business is off to a strong start with many new projects, customers, and products expected to scale over the next few years. Flashmakers are outsourcing more and becoming increasingly reliant on Silicon Motion Technology Corporation as they are being forced to rationalize spending given the increasing development cost for memory technology to support DRAM, HBM, and enterprise storage needs. The cost of development of a NAND controller has rapidly increased with the necessary migration to advanced composite geometry solutions like a six-nanometer of the d. And UFS. Flashmaker decisions on controller development have become increasingly aligned with Silicon Motion Technology Corporation as their preferred partner. We are working with every NAND maker and winning multiple projects that range from eMMC and UFS controllers to SSD controllers for SATA, PCIe 4, and 5 solutions. Our broad portfolio enables them to scale in multiple markets faster and more cost-effectively. We have already built up a strong pipeline of new wins and expect more this year to further our share gains in 2026 and beyond. Now let me give you an update on what we are seeing in the NAND industry. With consumer demand atypically weak in the second half of last year, we are seeing consumer-grade NAND pricing continue to decline. While NAND makers are starting to limit supply and scale back production, given the ongoing weakness in the consumer markets and the global economy uncertainty surrounding tariffs, we do not expect NAND prices to recover until the second half of this year when demand for both smartphones and PCs is expected to rebound. With production cuts underway, most manufacturers are focusing on limiting the supply of consumer-grade NAND while still growing the supply of high-end enterprise-grade NAND where demand for enterprise and data center SSDs remains healthy. For Silicon Motion Technology Corporation, this means that we must focus our resources on NAND makers, strategic partners, and customers who have access to NAND. We must align our product cycles with our customer roadmaps and their steady progression toward each new generation of NAND. This is critical to our long-term success, and we are investing to ensure that we remain the leading merchant controller vendors across all flashmakers and end markets and applications. As NAND continues to evolve and the adoption of low-cost per VNAND drives higher densities, QLC is becoming a bigger growth driver for NAND makers as they enable NAND makers to increase density without purchasing new manufacturing equipment and enable device makers to offer higher density cost-effectively. We have more experience in managing QLC than any other controller makers, whether that's a merchant or captive. As the consumer market begins to rebound mid-year, and with the ongoing strength in the enterprise and AI server markets, we expect QLC will become an increasing part of the conversation in 2025 and beyond. Silicon Motion Technology Corporation is best positioned to capitalize on the growth of this new technology. Let me now discuss each of our major product segments, beginning with our client SSD controllers. In 2024, our SSD controller business grew approximately 20% compared to 2023, and our client SSD controller market share increased to over 30% as we continue to grow our share with flashmakers and win additional sockets. Gartner expects the PC market to grow by nearly 5% this year, with the second half of the year much stronger than the first, driven by the sunsetting of Windows 10, the approaching corporate PC refresh cycle, and bolstered by the increasing demand for AI PCs. We are successfully gaining market share, and with our new project wins and backlog for high-performance TLC and high-reliability TLC controllers with flashmakers and module makers, we introduced our high-end 10-nanometer eight-channel PCIe 5 SSD controller last year and have secured a dominant position in the market, winning design wins with four NAND makers as well as virtually every module maker. This controller delivers fast in-cloud performance and substantially lower power consumption than any other solution in the market. We are gaining share in the high-end PC market with this eight-channel controller, and with the wins we have amassed already, we believe we are on track to capture at least half of the market over the next couple of years, driving additional share gain opportunities for us. We also received back the initial sample from our PayPal last year of our mainstream single-meter four-channel PCIe 5 controller and have made exceptional progress in securing additional wins for this product with flashmakers and module makers alike. We anticipate this solution to be introduced late this year and begin ramping in 2026 as PCIe 5 adoption enters the mainstream PC market. The complexity of PCIe 5 controllers has increased significantly, not just in terms of process geometry but also in engineering and firmware resources. They are requiring more complex field engineer support at our customers and the BluePTOEM. We are developing closer collaboration with our customers to deliver unmatched support and reliability to ensure long-term success. In addition, our existing portfolio of PCIe 4 and SATA controllers ensures that we have the right combination of solutions to serve the needs of the high-end to mainstream to cost-sensitive markets. Beyond PC SSDs, our solutions for the growing portable SSD market are also taking a dominant position. We have wins and are shipping with several NAND makers as well as virtually every module maker in the market. Portable SSDs are becoming increasingly popular for data backup, and our portfolio of controllers enables both high-speed and high-density solutions that are cost-effective for our customers. With our broad range of products, customers, and wins, we are well-positioned for growth later this year as these wins scale and the overall market demand recovers. Now turning to our eMMC and UFS business. Smartphone demand, like the PC market, remained weak as we entered 2025. However, despite this, we grew our eMMC and UFS controller business by approximately 70% in 2024 as we rebounded from a very weak 2023 and scaled with our flashmaker customers, expanded share with module makers, and engaged with our first device smartphone OEM for QLC UFS. We expect our customer ramp to scale in the second half of this year in line with Gartner's current annual smartphone forecast of approximately 5%, with a strong emphasis on second-half growth after a weaker start to this year. Our team has been steadily developing new solutions and winning additional projects. The market is shifting away from the integrated eMCP and UMCV solutions in smartphones and moving toward discrete mobile DRAM. This is creating a significant opportunity for us as margin makers are taking greater share of the eMMC and UFS market, which is improving our position given there is significantly less competition in discrete controllers. With the lower cost involved in using discrete LPDDR for mobile DRAM, there is greater competition, which in turn leads to flashmakers outsourcing third-party controllers like Silicon Motion Technology Corporation to compete in value line mobile storage solutions such as eMMC and UFS 2.2 and reduce R&D development costs. In addition to our existing UFS 3.1 controller supporting the latest generation NAND, we expanded our portfolio with multiple new product introductions. These include a new eMMC 5.0 for low-end smartphones, smart devices, IoT, and automotive, a new cost-effective UFS 2.2 controller to target the mainstream market, and the new single-meter UFS 4.1 controller that we taped out last year, which is currently sampling and expected to begin the initial ramp in the second half of this year. eMMC remains about half of the 1.8 billion annual unit market for eMMC and UFS today, and 70% of the eMMC market is in non-smartphone applications such as smart TVs, automotive, and IoT. Our smartphone will continue to account for less and less of the eMMC market as UFS adoption increases. For UFS, the vast majority is for smartphones today, but non-smartphone applications are primarily growing at a much faster rate. So while the overall smartphone market may be maturing, we see tremendous opportunity as we expand with our flashmaker and module maker partners into these additional opportunities. Our portfolio allows us to deliver solutions to our customers that address the expanding needs of the market and gain further share. Now turning to our enterprise monetization platform. We made remarkable progress in 2024 and are well-positioned for strong growth in the enterprise storage market for us long-term. When we started 2024, we had targeted winning two tier-one customers. We won those two customers in the first quarter of 2024 and increased our target to four customers for the year. I'm happy to report that we added four additional customers and now expect to ship to six customers later this year. These four new customers have a long history of supporting tier-one and tier-two enterprises and CSPs in the US, Europe, and Asia, further expanding the reach and adoption of our Mount Titan family of enterprise controllers. We began early shipments and generated revenue in the second half of 2024, and we remain confident that with our current mix of customers and our expanding family of Mount Titan solutions, we can achieve our target of 5% to 10% of our total revenue by the 2026-2027 timeframe. Mount Titan represents one of the largest greenfield growth opportunities for Silicon Motion Technology Corporation in the coming years, given the large addressable market for TLC and QLC NAND within the AI server, enterprise, and data center storage markets. Growing interest in our unique Mount Titan platform is driven by our leading experience in QLC and TLC NAND, our dominant position in the merchant controller market, and our ability to deliver a wide range of firmware capabilities to meet the unique needs of different customer verification and use cases. We are expanding our capabilities with the Mount Titan family of solutions in 2025 through the development of additional controllers and a more comprehensive suite of software to attract a broader range of opportunities for our customers. We plan to offer a more complete family of solutions to customers, including controllers for SATA and PCIe flight server boot drives, higher performance and higher density 16-channel and 8-channel PCIe 5 controllers for enterprise storage and servers, and we are already engaged with new customers and developing next-generation PCIe 6 controllers. This, combined with our existing advantages, including our flexible firmware stack options, unique AC architecture, high capacity, leading performance, and performance shaping technology, delivers a compelling enterprise-class portfolio that is unmatched by our competition. With Mount Titan supporting the upcoming 2-terabit mono die QLC NAND, we will be able to deliver high-density, high-performance 128-terabyte SSDs with a best-in-class redundant read of 3.5 million IOPS that will be ideally suited for AI applications. This combination of capacity and performance will deliver faster training in AI applications, save power, and lower the total cost of ownership. Lastly, let me give you an update on the progress we are making in the automotive market. We view the automotive market across all our product categories. We have wins for our SATA, PCIe 4, SSD controllers, our eMMC and UFS controllers, as well as our ferrite embedded solutions across a variety of use cases in vehicles, from traditional cars to new-generation software-defined vehicles. There is a significant increase in processing capability, sensors, cameras, CPUs, and ECUs. With this new capability, the need for more memory is growing rapidly despite a mature overall automotive market. As the capacity increases, the need for more robust capabilities significantly increases, and that's why ASPICE certification is becoming more critical and more of a differentiator. We are proud to be the only supplier with a PCIe 4.0 controller to achieve ASPICE level 3 certification, significantly increasing our lead over the competition. We are already shipping into all major tier-one automotive customers, including Mercedes, Tesla, General Motors, BYD, Xiaomi, Toyota, Honda, and several others, including the leading automotive cloud service in the world. While we have been growing automotive wins for the past several years, it is now beginning to scale meaningfully and reached 5% of our revenue in the third quarter of last year. We are confident it can ramp to approximately 10% of our revenue by 2027, given our current fleet of customers and wins and the expected ramp of new products. In conclusion, as we enter 2025, despite the near-term broader market headwinds, we remain extremely well-positioned for future growth. As we are growing share within our existing markets and expanding into new high-growth markets, including enterprise with Mount Titan, automotive, IoT, and others, we have an incredibly strong portfolio of new products and a strong pipeline that will help drive long-term share gains and improve our product diversification, including our PCIe Gen 5, UFS 4.1, ASPICE-certified automotive-grade PCIe Gen 4, and, of course, Mount Titan. As Mount Titan and our automotive business continue to scale over the next several years, and our broad portfolio of solutions for IoT, industrial, commercial, and smart device applications continue to gain share, I am confident that our strategy to diversify beyond the maturing PC and smartphone markets will be successful and believe we could see 20% of our business in 2027 coming from these new opportunities. Given the strength of existing customer wins and the expected second-half recovery in the PC and smartphone markets, we expect to exit 2025 with an annual revenue run rate of close to $1 billion in the fourth quarter. I look forward to sharing more of our success with these products and new markets throughout this year. Now let me turn the call over to Jason to go over our financial results and outlook. Jason Tsai: Thank you, Wallace, and good morning, everyone, for joining us today. I'll discuss additional details of our fourth-quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with our earnings release issued yesterday. The December quarter sales decreased 10% sequentially to $191.2 million within our guidance range despite weaker end-user demand for PCs and smartphones. Gross margins increased for the seventh consecutive quarter to 47% as we are benefiting from improved product mix as we continue our shift towards customers to newer solutions. Operating expenses declined by over 10% sequentially to $58.3 million in the December quarter due to the timing of tape-out costs that elevated our September quarter R&D expenses. Operating margin improved sequentially from 16.1% to 16.5% in the December quarter at the high end of the guided range. Earnings per share was $0.91, down slightly from $0.92 in the third quarter. Total stock-based compensation, which we exclude from non-GAAP results, was $9.7 million in 4Q24. We had $334.3 million in cash, cash equivalents, and restricted cash at the end of the fourth quarter compared to $368.6 million at the end of the third quarter. Cash declined in the quarter primarily due to changes in working capital driven by higher accounts receivable that typically trend higher in the fourth quarter and lower accounts payable due to the timing of payments in the quarter. We see these as short-term impacts to our cash balance. Inventories decreased again to $201.2 million at the end of the fourth quarter from $214.6 million at the end of the third quarter as we continue to work down our inventory levels. While our end markets grew in the low single-digit range last year, we increased revenue by 26%. We were able to significantly improve profitability, driving gross margins 300 basis points higher for the year, exiting the year at 47%. Operating margins increased by more than 300 basis points as well despite our significant investments in two new six-nanometer controllers, increased R&D headcount, and continued development for our Mount Titan business. As we enter 2025, the ongoing consumer weakness remains compounded by global economic uncertainty driven by potential tariffs and other challenges, which are limiting near-term demand, growth, and visibility. Despite this, our teams have been steadily developing new solutions, winning new customers, and expanding our end market reach. Additionally, our teams have been extremely effective in delivering new products, driving the expansion of our opportunities in new and emerging markets within the enterprise, automotive, industrial, and commercial markets. We are optimistic that despite the near-term environment, through the combination of our strong customer pipeline, new product introductions, and expected second-half recovery in the consumer markets, we are well-positioned for a strong second half of the year. Let me discuss our first-quarter outlook. Revenues are expected to decline 12.5% to 17.5%, in line with the near-term expectations for the PC and smartphone end markets. Gross margin should continue to expand as we continue to transition customers to newer products and expect gross margins to be in the range of 47% to 47.5% in the March quarter. Operating margin is expected to be in the range of 7.7% to 9.7% given the seasonal revenue impact, but we expect this will rebound quickly throughout the year. Our effective tax rate is expected to be 16%. Stock-based compensation and dispute-related expenses are expected to be in the range of $7.5 million to $8.5 million. Moving forward, to remain consistent with our semiconductor peers, we will no longer release preliminary results at the end of each quarter. We will only preannounce results when they are expected to differ significantly from our outlook. We will, however, continue to provide a qualitative view of our full year but will not be providing specific guidance. To that end, while the PC and smartphone end markets are expected to grow in the low to mid-single digits this year, demand is expected to be significantly second-half weighted with the first-half expectations more muted than normal. We believe that our business in 2025 will reflect a broader industry second half of the year. This should allow revenue to grow in the mid-single-digit range for 2025 as demand rebounds and our new products begin to scale. As Wallace mentioned, we believe our revenue for the fourth quarter this year will approach close to the $1 billion annual run rate. As we saw through 2024, we expect to continue to steadily improve our gross margins throughout this year as new projects and new products scale. Gross margins have historically been in the 48% to 50% range, and we are confident that we will exit the year towards the higher end of that range. For operating expenses, we expect to continue to invest in advanced geometry products that will enable us to maintain and grow our share longer-term and expand into new markets to diversify our business. We expect that with these investments in technology, R&D engineers, and resources, our operating expenses should grow in line with our revenue. We expect the effective tax rate for 2025 to be approximately 16%. Full-year stock-based compensation and dispute-related expenses should be in the range of $27 million to $29 million. For the full year, we expect $65 million in CapEx, of which $29 million will be routine CapEx and $36 million will be building construction. Finally, I'd like to spend a moment discussing our capital allocation strategy. Our business has always been one that generates a significant amount of cash. Our capital allocation strategy for the excess cash our business generates has always consisted of three prongs: our dividends, share repurchases, and reinvestment for growth both organically and through acquisitions. Our dividend policy has been the cornerstone of our capital return strategy since we initiated our first dividend in 2013. The dividend has gradually increased over the past decade from $0.60 per ADS annually initially to now $2.00 per ADS annually. We anticipate it will continue to be a significant part of our capital return strategy and we'll look for opportunities to further increase the dividend longer-term as our business continues to scale. We have complemented our dividend with share repurchase programs from time to time, and as you saw from our press release yesterday, the Board has authorized a new six-month $50 million share repurchase program. The near-term challenges in the end markets do not reflect our views on our own long-term opportunity, and our Board feels that this is a good time to authorize a new share repurchase program. On the reinvestment front, we have occasionally acquired to expand our markets, and this continues to be something that we look at consistently. The industry is highly focused on enterprise today, and our exposure to the enterprise is through our internally developed Mount Titan families. We are constantly evaluating additions to this segment through inorganic means to expand our breadth and scale in this rapidly growing market. It's too early to discuss potential targets, but we do see ample opportunities to further diversify our business and grow longer-term. All three prongs of our capital allocation strategy will remain important drivers for us to continue to increase our shareholder value, and I look forward to regularly updating you on our progress. I would like to conclude by saying that we are pleased by our backlog and wins for this year. Our investments continue to deliver new opportunities and additional share that will drive long-term revenue growth. We anticipate the current market weakness to be short-lived and anticipate a strong rebound in the second half of the year. This concludes our prepared remarks. We will now open the call to your questions. Operator? Operator: We will now take our first question from the line of Mehdi Hosseini from SIG. Please ask your question, Mehdi. Mehdi Hosseini: Thanks for taking my question. A couple of follow-ups. Jason, how should we think about the OpEx, especially in 2025, and then to what extent are you going to increase R&D? And what should we assume for CapEx in 2025? And one follow-up for Wallace. Thanks for all the detail regarding your strategy. But all the NAND manufacturers that have reported over the past couple of months, they've all talked about a secular trend where demand is decelerating, the NAND market is no longer demand elastic. And given that and the enterprise, as you highlighted, would only be 10% of your revenue in 2026, 2027, what are some of the specific strategic changes in the strategy or other markets that you're evaluating? I want to better understand your optionality here, especially as the NAND market matures. Thank you. Jason Tsai: So to answer the first part of your question, Mehdi, from an OpEx standpoint, we talked about revenue growing for us this year in line with the end markets that we serve. So you're looking at kind of low to mid-single digits there. OpEx should grow roughly in line with that. The majority of our growth in OpEx is going to come on the R&D side. Our sales and marketing and G&A should remain relatively flat. And so the increase in OpEx is really going to be driven by increased development costs, higher headcount on the engineering side, etc. From a total CapEx for the year, we're looking at about $65 million, of which about $29 million is for routine CapEx, which is software, testing equipment, etc., and then $36 million is to finish up our new office here in Jutsu. Wallace Kou: Okay, Mehdi. Let me answer your question. First of all, I want to say this. I believe the NAND makers scaling back regarding the NAND investment, especially from consumer products, also gives us tremendous new opportunities for growth. Because we basically, in the past six months, have more projects than we can develop for the NAND makers. So this is a great opportunity for us to continue to gain market share for client SSD and mobile controllers. But beyond that, we also want to grow heavily for enterprise and automotive businesses. So automotive, because they take a longer term, and so we won't see the immediate and strong rebound this year. But we are confident it will double from now to 2027. But for enterprise, we have a strategy. I think we're growing high in more R&D for enterprise storage now covering high performance, high density, as well as boot storage, composed in the US and China markets. At the same time, I think we evaluate because we are building the new team for service and mixing node development. And this team is developed for all the high-performance connectivity with the storage together. I cannot give more detail. Certain developments we consider internally, certain we consider doing acquisition, some we could do joint development with third parties. So this is in discussion, and I think when the product matures, we're going to have a press release to our investors. Jason Tsai: Thank you. Also, one more thing, Mehdi, in terms of Mount Titan and automotive growing to roughly 5% to 10% of our business by 2027. That's not a final target. Right? We do expect that to continue to grow longer-term. That is just the first waypoint for you guys in the relatively medium term. Mehdi Hosseini: Just quickly, I think you said that the incremental revenue contribution from these new areas would be about 20% of revenue by 2027. Did I hear that correct? Wallace Kou: That's correct. Mehdi Hosseini: Thank you. Operator: Thank you. We will now take our next question from the line of Craig Ellis from B. Riley Securities. Please ask your question. Craig Ellis: Yeah. Thanks for taking the question. Good evening, team, and congratulations on the way you executed 2024 and how you're starting 2025. Wallace, I wanted to start by going back to some of your comments on Mount Titan in the enterprise SSD area. Great to see customer expansion to six customers. What I'm hoping you can do is share with us some color on what you'd expect in the back half of this year on a couple of parameters. One, customers, maybe not by name, but just characterize who are going to be the leaders and when would early shipments start and when would the latter of the six customers start to ship, and maybe help us understand how you see the volume potential across those customers and how that plays out. Just enrich the view of what's coming with enterprise SSD, please. Wallace Kou: So we do have tremendous interest and opportunity, and currently, we secure six customers, two tier-one, one in the US and China, the other is really enabling to support tier-one, tier-two customers in both the US and China. Now for tier-one customers, the firmware development really needs to tailor their own development. So they take time. But initial production will be later this year, and it will gradually ramp. Normally, it takes about six months for the ramp to reach a high level. So we expect it will start to ramp late this year, and you're going to see the high volume reach a more meaningful volume from the middle of 2026. The same for the China customers. I think they also have dedicated customers and for the firmware development. For the other four customers, some use our turnkey solution, some use joint development format. So this, we also have very limited resources to support the customer. But importantly for us to expand for the other business, is our turnkey solution needs to be fully mature and ready, then we can use the same solution and one or two dedicated NAND to expand to further business. We see many, many customers, especially from the US, they really demand high-density QLC. For the China side, the majority is TLC, from 32 terabytes to 64 terabytes. But the US all have high density, from 64 to 128 terabytes. So this will need tremendous time, but because we really don't see near-term competition, and we really need to deliver results. We just need time to deliver results. We believe the ramping could be much higher and faster than we plan right now, but we just want to be patient and see the proof of results next year. Craig Ellis: That's really helpful, and I would certainly appreciate it if it was much higher and much faster. I wanted to move on to another question that was really related to the back half of the year, so it's really helpful to get the color that in the calendar 4Q, the business could be operating at a $1 billion annual revenue run rate. The question is this: from first-half levels as we work through soft PC and smartphone demand, etc., how would you force rank the growth drivers half on half within the business, either client SSD, UFS, Mount Titan, etc.? Help us understand how we get from where we are now to that billion-dollar run rate fall. Wallace Kou: Yeah. I see. Major growth driver from our business this year. It depends on PCIe 5 eight-channel high-end product line. Currently, we are just in the very small volume, and we will start to ramp from the second quarter. And I believe in Q3, it will be meaningful volume because this includes four NAND makers and almost a half dozen module makers. And this is a higher ASP. I can only tell you some more than ten dollars per ASP. So they were driving well, it must. And our mobile controller is also growing very fast, and because we are engaged with multiple NAND makers as well as module makers, primarily from low-end eMMC UFS 2.2 and moving to 3.1, our high-end UFS 4.1 also will start to ramp in the fourth quarter. So I think we have multiple major programs, and it's just a timing project transition. I hope we are not suffering from the really seasonality, but we do have many, many multiple major project pipelines in our hand. That's why we're confident to have a $1 billion dollar run rate for this year. Craig Ellis: That's very helpful. Thanks, team. Operator: Thank you. Our next question comes from the line of Quinn Bolton from Needham and Company. Please ask your question. Nick Doyle: Hi. This is Nick Doyle on for Quinn. Thanks for taking our questions. How are you thinking about the gross margin target of 48% to 50% through the year? It sounds like this PCIe eight-channel will really be a big driver there. So, you know, is that the main tailwind or maybe any other end market expansions getting to that higher end of the range like you mentioned? Thanks. Wallace Kou: So PCIe 5, eight-channel, that's new to the market? See, for notebooks, this year, it probably just bought 5%. But the majority also moved to desktop and gaming PC and the PC workstation. And we are confident we can own more than 50% of the high-end market for PCIe Gen 5. And with the momentum, I think next year, PCIe Gen 5 high-end will grow to 10% of the notebook. And so this is where our four-channel for mainstream also will start to ramp up by late this year and early 2026. I see the PCIe Gen 5 in 2026 will have roughly around 20% to 30% market share. And in this, that's just the thing. We see the pipeline transition favors Silicon Motion Technology Corporation because we have a much more design pipeline in our hand, just a transition sometimes it depends on each of a NAND maker customer's NAND allocation. Sometimes they allocate more for enterprise, for data center, sometimes they need it for the consumer for PC OEM. So, but when we have multiple main customers and the module maker, support both channel and the PC OEM, we feel very comfortable to do that. In addition, I think our UFS, even value line UFS controller, and also new UFS 4.1 controller also marked is above our corporate average. That's why this will help our average gross margin toward 48% to 50% by the year-end. Nick Doyle: Thanks. Which of the NAND providers is the biggest competitor in the auto market? And what's your geographic exposure? It was definitely helpful to hear some of those customers, but just wondering if you're more levered to the share gainers versus the share takers. Thanks. Wallace Kou: We cannot comment on our NAND partner because we work with every NAND maker for specific project development. I think every NAND maker has a different strategy. They have different planning, they also have an R&D resource allocation. Some move more to HBM, some move more to a different category. So we cannot comment from time to time. However, we always want to be sure when they do outsourcing to third parties, Silicon Motion Technology Corporation is the best candidate there. Operator: Thank you. Now we will take our next question from the line of Suji Desilva from ROTH Capital. Please ask your question, Suji. Suji Desilva: Hi, Wallace. Hi, Jason. So just expounding on the 2025 guidance, the billion run rate exiting the year. What's a typical 2H versus 1H sort of split for a year, and this year sounds like it's more back-end loaded? Just trying to get a sense of maybe how much more back-end loaded this year is versus the typical year. Maybe you could touch on inventory and if the channel inventories are in good shape or whether you're starting to see any build there, that'd be helpful. Jason Tsai: Yeah. Typically, for us, you're looking at roughly kind of a 45-55 split between first half and second half. It's going to be much more second-half loaded this year compared to kind of previous or normalized years. From an inventory basis, you know, we don't see really a whole lot of excess. We see our customers ordering roughly in line with end market demand. So we think channel inventory remains healthy, and we don't see that as an issue as demand ramps up. Suji Desilva: Okay. Great. Thanks, Jason. And then maybe a longer-term strategic question. On the diversification strategy, the multiyear plan here, maybe Wallace or Jason, you give us a framework of what areas you've been in, areas you've divested, you've acquired in the past. What areas would make sense from a strategic perspective? Any color there would be helpful. Wallace Kou: So I think we focus now on mixed-signal design and also the related enterprise because we see the storage and connectivity, they are very closely coupled. Certain areas, I think we can share internal technology and now as well as we try to acquire some new, some important technology we don't have in-house. We came to join development. We might acquire if the property to do so. So this is the area we're seeing that's all around the enterprise area. Suji Desilva: Okay. Thanks, Wallace. Thanks, Jason. Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from the line of Matt Bryson from Wedbush. Please ask your question, Matt. Matt Bryson: Thank you. Just starting off with one more on 2025. I know it's back-half loaded. But, typically, you tend to see seasonality. We pick up in Q2, Q3, Q4. We assume that Q1 should represent a bottom in terms of revenue for the year. Jason Tsai: Yeah. Yeah. We certainly believe so. Q2, we do expect to see sequential growth throughout the year, and obviously, that's Q1, Q2. Matt Bryson: And then I guess my second question is about future M&A strategy if there happens to be an M&A. I guess the question would be, can you give us any idea of what you would be looking for in terms of kind of necessary metrics around returns or opportunity to pull the trigger on M&A versus it seems like Silicon Motion Technology Corporation has so many opportunities moving forward and is so undervalued. I guess, wouldn't it seem that you have a pretty high bar to go out and acquire a company versus buying back your own stock given where the valuation is today, I guess. And I just want some comfort that M&A in the past hasn't necessarily quite worked out as well as you'd hoped it. We might not see another Shannon, for instance. Wallace Kou: I think our M&A is focused on core technology and focus on core business to grow. So this is not something where we want to buy the company to grow the revenue. We really want to build around the enterprise SSD because we are starting to win design with our major customers. We also found out there are several key components around, and then we are able to also have similar products. But we are lacking some key elements. And so this is an area we evaluate whether we're able to win and grow faster in the market is big enough, and we have a value to do so. So this is M&A. We have been more strategic to expand our core technology and key product, and we do have end customers who need it, and we will move in that direction. Jason Tsai: And also keep in mind, Matt, as I said, our capital allocation strategy is three-pronged. Right? Dividend will still continue to be the primary part of that. And then, you know, the dividend, the share repurchase is something that we have done from time to time, and the press release yesterday certainly being one of those times. Matt Bryson: Got it. So it sounds like, though, if you step forward with acquisitions, you'll have certainty in some sense around there's this additional opportunity, and this is the right way to go versus partnering or building internally. And so, you know, you'll see the ROI will be relatively clear to us in the investment community when you do, assuming you move in that direction. Jason Tsai: Yeah. And I would say that, you know, look, we're always evaluating the best ways in which we can use a large amount of cash that we generate to generate shareholder value. Right? Acquiring complementary technologies and businesses that offer additional growth or technologies that Wallace pointed out to our existing products has always been part of our strategy, and we'll also be looking at it if there are right targets, but nothing imminent, nothing particularly specific right now. It's obviously something that we continue to evaluate. But in the meantime, you know, the dividend and time-to-time repurchases are going to be the primary ways of returning capital to shareholders. Matt Bryson: Awesome. And I just have one more. So great to hear that you guys signed four new customers versus the two you promised on Mount Titan exiting Q4. I guess you were also talking previously about Mount Titan being 10% of revenue roughly in 2027. I guess, what would you need to see to be able to lift that metric given it does sound like things are moving really well there. Jason Tsai: Yeah. Look. I mean, we're still early in the process here. Right? I mean, we're beginning to scale. We started shipping last quarter. We're obviously very optimistic about the wins that we have and the interest that we've generated until we start seeing this scale more meaningfully. You know, we'll stick with the 10% target in 2027 for now. And as we have more data points, to Wallace's point, we can scale that faster and larger, and we have the data points to support that. We'll obviously want to bring that to your attention sooner rather than later when that's available. Matt Bryson: Awesome. Thanks again. Jason Tsai: Thank you. Operator: Thank you. I am showing no further questions. I'll now turn the conference back to Mr. Wallace Kou for closing comments. Wallace Kou: Thank you, everyone, for joining us today and for your continued interest in Silicon Motion Technology Corporation. We will be attending several investor conferences over the next few months. The schedule of these events will be posted on the investor relations section of our corporate website, and we look forward to speaking with you at these events. Thank you, everyone, for joining us today. Bye-bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's Q3 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial conditions and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements, which apply only as of the date of this conference call. With that, I'd now like to turn the call over to Tom Sepenzis, Senior Director of Investor Relations and Strategy. Thank you. Please go ahead. Tom Sepenzis : Thank you, and good morning, everyone, and welcome to Silicon Motion's third quarter 2024 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our third quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore, chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Wallace Kou: Thank you, Tom. Hello, everyone, and thank you for joining us today. We delivered another quarter of sequential revenue growth and gross margin in the high end of our guided range, our sixth consecutive quarter of gross margin expansion. Revenue strengths were driven from our NAND flash maker customers as they continue to source controllers externally rather than develop them in-house as they focus on long-term profitability and reduce their operating expense. Our strategy of deepening our partnership with the leading flash makers and investing in new technology and driving success across our business. We are winning more programs in mainstream PC, smartphones, automotive, industrial and other markets, and we expect this effort to accelerate as we move into high-end PC through the introduction of our first PCIe 5.0 controllers, Silicon Motion is best positioned to capture increasing share in the markets we serve, further strengthening our position as a leading merchant controller vendor in the world. In the third quarter, our NAND maker revenue grew more than 60% year-over-year as we continue to increase share gains through new product introduction and effective strategy. Both SSD and eMMC, UFS controller strength from our OEM programs more than offset of continuing weakness in the retail aftermarket for SSD. That has been impacted by high NAND prices and lower consumer spending driven by inflationary pressures. Despite these near-term macro challenges, I'm pleased with our team's execution throughout the year and the building momentum as we continue to gain share across the markets we serve. We believe that our ability to capture increasing shares through our NAND flash maker partners and OEM channel will continue to allow us to outpace the market. Our unequalled technical and financial strength to build next-generation controllers has and will continue to enhance our position through the introduction of multiple new products and through our continuing drive to provide world-class customer service. Combined with the initial ramp of our new MonTitan enterprise-class solution and our first PCIe 5 controller in the current quarter and the expected introduction of our new UFS 4 controller next year, Silicon Motion in the best position for long-term growth and share gain in our history. Our opportunities are growing significantly as we deliver product and solutions that are matched by our competitions, and we remain focused on driving additional revenue and profitability across our platform of leading NAND controller solutions. I would now like to provide you with an overview of the current NAND market dynamics. Overall, consumer-grade NAND price increases have slowed and in some cases, are beginning to see modest declines. Despite the modest improvement in NAND prices, the PC and smartphone markets as well as the aftermarket for client SSD are all experiencing near-term weakness. Reflecting the industry-wide demand slowdown for consumer electronics this holiday season, enterprise-grade NAND pricing is stable as the demand for AI storage solution remains strong. Looking into 2025, we are encouraged by growth driver in the PC market, including an expected PC replacement cycle and the increase in storage density from AI-at-the-edge and will be enabled by next-generation processor from Intel, AMD and Qualcomm for PCs. In the smartphone market, the introduction of more AI capable processors from Qualcomm, MediaTek and others could drive an upgrade cycle in 2025. Given these tailwinds and ongoing strength in the enterprise storage market, we continue to expect NAND supply to tighten by mid-2025, driven by storage demand and density growth. Gartner recently published its outlook on NAND, highlighting the growing importance of QLC. They expect QLC production to increase to more than 25% of total NAND output by 2028, up from less than 10% today. As a result, interest in QLC NAND is increasing as density demand are growing rapidly with the rise of artificial intelligence. Silicon Motion stands to be one of the biggest beneficiary of the growth and adoption of QLC NAND over the next several years, given our unrivaled experience and expertise in the technology. We are currently engaged in discussion with all the major flash makers and module makers for the development of QLC NAND across multiple markets, including enterprise AI, PC, smartphone, IoT and others. Gartner is projecting significant adoption of QLC across all markets over the next 5 years. QLC adoption in PC is expected to increase from about 20% today to over 55% in 2028. For smartphone, QLC will be especially important in mainstream and low-end device and adoption will grow to about 15% from virtually 0 today. And in the enterprise, QLC expect to account for nearly 35% for server storage market and nearly 65% of the enterprise storage SSD market by 2028. QLC NAND, while providing low-cost storage density is significantly more challenging than its predecessors to manage and require more sophisticated technology in controller and firmware. Our QLC NAND experience has become a key differentiator in the market, resulting in multiple wins with flash makers and module makers across all our product categories. Our proprietary advanced LDPC, 3D RAID technology and leading firmware algorithms have replaced Silicon Motion in the best position to benefit from the emerging push to deliver QLC-based storage solutions, and we expect to be one of the primary winners in the growth of the new technology. Now I would like to discuss each of our major product segments, beginning with our SSD controllers. Demand remained robust from our flash maker customer in September quarter, driven by PC OEMs, which represented approximately 75% of our client SSD controller sales, significantly higher than normal third quarter seasonality as high NAND prices and the weaker consumer demand continues to pressure the retail aftermarket for SSD. Despite the near-term challenges, this is an exciting quarter for Silicon Motion as we introduced our new PCIe Gen5 8-channel controllers. This is a premium product, ideally suited for high-end AI notebook, desktop, gaming and workstation PC that offer unparalleled performance and best-in-class power consumption. Our controller is the first 6-nanometer 8-channel PCIe Gen5 controller in the market and has led to 4 flash maker design wins and multiple engagements with nearly all of the module makers. The controller delivered 20% to 30% lower power consumption than competing controllers, including internally developed controller from the major NAND makers. This new PCIe Gen5 product is extremely important for Silicon Motion as they mark our entry into the high-end PC market for the first time. High-end PC account for approximately 10% to 15% of the overall PC market, representing a significant opportunity for market share gain and top and bottom line growth for our company. The high end of the market delivers the added benefit of high ASP and accretive margin, and we are entering the market with an incredible strong position. With our 4 NAND flash maker partners and the growing number of module maker customers, we believe we can grow our share of high-end PC market rapidly. I would also like to share another significant achievement by our team involving the automotive market. Our new PCIe Gen4 automotive-grade controller has recently received ASPICE Level 2 certifications. This is the first PCIe Gen4 controller in the market to achieve this level of certification, and we are engaged with multiple customers and design into several new automotive platforms. Level 2 is the most critical step in ASPICE's certification as they validate the development is complete and fully managed and ready for release. We expect to achieve ASPICE Level 3 certification with the controller -- with the same controller in 2025. And we remain on track to deliver our new PCIe Gen5 automotive-grade controller in the second half of calendar 2025. While automotive market has experienced a challenging year, we are continuing to experience growth. Automotive already accounts for approximately 5% of our revenue today. And we expect to reach 10% of our total revenue by late 2026 or nearly -- or early 2027. Our pipeline of design activity for next-generation PCIe Gen4 controller using both TLC and QLC NAND remains strong. These new SSD deliver high performance and high density at a lower cost than PCIe Gen5 platforms and are increasingly ideal for multiple applications that require low-cost solution. We are growing our SSD market share in the PC, game console, automotive, industrial, IoT and other markets and will continue to diversify our customer base and market moving forward. Now I would like to discuss our eMMC and UFS business. Our eMMC and UFS business continue to be strong growth area for us as we continue to capture more share. We have a significant new product ramp in UFS and eMMC next year as we capture more opportunity in low-end to mainstream handset and through continuing expansion in automotive, IoT and other growing markets. Our complete family of UFS, eMMC controllers in conjunction with our strategy of customer diversification through working with NAND makers, module makers and handset OEMs directly is enabling us to become the preferred controller maker across multiple markets. This includes the important market in China, where our module maker customer can deliver solution that comply with increasing localization standard. Our ability to support the broadest range of NAND, including QLC, gave our customers the greatest amount of flexibility to support a wide range of performance feature and sourcing requirements. UFS 2.2 and 3.1 remains the largest portion of the smartphone market, and we expect this will continue through 2026. As UFS 4 expands from the high end to more mainstream handset, our new 6-nanometer UFS 4 controller is well positioned to benefit from this growing adoption. We continue to receive positive feedback from our partners and in qualification with multiple handset OEMs, flash maker and module maker ahead of our expected product ramp in mid-2025. Our highly differentiated 2-channel solution supports the latest generation 3.6 gigabit per second I/O speed for 3D NAND, offering higher performance and lower cost solution that will be in increasingly high demand as UFS 4 adoption move to mainstream smartphones. As compared to the current UFS 4 4-channel controller in the market today that only support 1.6 gigabit per second and 2 gigabit per second I/O speed NAND, our solution has less complicated substrate need, lower power usage, better performance, higher signal integrity and a lower overall BOM cost. One of the most important growth area for our eMMC, UFS business involves QLC. So I would like to update you on our project with our first customer. As we have discussed previously, we have been working directly with a handset customer to develop a QLC NAND memory solution for mobile smartphone. I'm pleased to report that our customer has already begun shipping handset with our QLC UFS controller and will ramp more meaningfully next year as they expand QLC into additional models. We are in early discussions with additional Tier 1 handset OEM for QLC solution for mainstream to low-end smartphone to effectively increase density without significantly increasing cost. Flash makers continue to be resource constrained, but we are seeing them move their existing UFS controller development toward next-generation UFS 5.0 and opening new opportunity to outsourcing for mainstream solution. We are confident that we can continue to grow our share in this market as our product road map and strategy is aligned with our customers' own internal plan. As adoption of eMMC, UFS controller to grow, we believe our opportunity to gain share will accelerate it. And well -- with our complete family of solutions and growing customer base, we are well positioned for continued growth. Now I would like to turn to our MonTitan platform. MonTitan represents a significant opportunity for Silicon Motion, given the large addressable market and expected growth in QLC NAND within the enterprise storage and AI server market in the coming years. While we are a newcomer in the enterprise market, our experience in QLC and TLC NAND coupled with our dominant position as the leading merchant controller maker have driven strong interest in MonTitan. We continue to see more inbound interest in our enterprise-class solution given our unique differentiation. We believe we are well positioned to scale with a flash maker and storage solution enabler as well as directly with the data center and enterprise customer in the coming years. As we announced early this year, we have secured 2 initial Tier 1 customers that will receive initial order this quarter, and we expect to announce 2 additional design wins by end of this year. MonTitan has several advantages that we believe put us in excellent position to grow significant share in this market and allow us to achieve our target of generating 5% to 10% of our overall revenue from this business by calendar 2026 to '27. Some of these advantage include our unmatched experience managing QLC NAND, a flexible ramp-up approach, our unique architecture, high capacity capability and leading performance. With MonTitan, customers can choose either our turnkey firmware solution or they can develop their own firmware using our SDK. Most of our competitors only offer one or the other option, but not both. We also offer unique capability, including performance shape, which allow on-the-fly adjustment targeting either battery read performance, write performance or lower power, while our competitors require a onetime setup without the ability to change dynamically. MonTitan also include in the upcoming 2-terabit mono die QLC NAND, the ability to deliver 128-terabyte SSD that will be ideally suited for AI server and application. And finally, MonTitan also delivered best-in-class random read of 3.5 million IOPS, significantly better than most other options that are limited to 2.8 million to 3.0 million IOPS. This performance delivered faster training in AI application, save power and lower the total cost of ownership. We continue to achieve both our internal milestone and our customer milestone regarding the introduction of MonTitan. And we are on track to begin early production in the current quarter and ramp up more meaningfully in the second half of calendar 2025. It is becoming increasingly clear from customer feedback that our MonTitan solution will be a key addition to next-generation data center and storage build-out plan, especially for delivering faster and more accurate AI capability to the market. As we have mentioned on previous call, given our record of meaning -- of managing more QLC NAND than anyone over the past decade, we believe that this new product platform will drive multiple year growth cycle for Silicon Motion. Overall, despite the near-term headwinds in the retail SSD aftermarket and the expectation of a muted holiday sales this year, I'm pleased with our strong execution in 2024 and meaningful wins and pipeline our team has delivered. Looking forward to 2025, we have much to be excited about the new product transition, including PCIe Gen5, UFS 4 and our new enterprise-class MonTitan open multiple new avenues for growth for Silicon Motion. Additionally, we continue to diversify our end market beyond the PC and smartphone with many new exciting growth opportunities in the automotive, industrial, commercial, IoT, game console and other markets. I believe this new product and the design win pipeline will help Silicon Motion grow in 2025, and I look forward to sharing more about our progress in future updates. Now let me turn the call over to Jason to go over our financial results and outlook. Jason Tsai : Thank you, Wallace, and good morning to everyone joining us today. I will discuss additional details of our third quarter results and then provide our guidance for the fourth quarter. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the September quarter, sales increased 23% year-over-year to $212.4 million. SSD controller sales were approximately flat sequentially in 3Q '24 as our continued share gains were offset by weakness in SSD aftermarket sales and lower-than-expected holiday ramps from the PC OEMs. The weakness was exacerbated by continued inflationary pressure, high NAND flash prices and a modest slowdown ahead of next-generation Intel, AMD and Qualcomm platforms that support PCIe 5. eMMC controller sales were up slightly in 3Q '24 and up over 44% year-over-year as our diversification strategy continues to work, with NAND makers, module makers and handset OEMs directly driving strong growth. Gross margin increased for the sixth consecutive quarter to 46.8%, as we continue to benefit from improving product mix as we shift our customers to newer solutions. Operating expenses were $65.1 million in the September quarter, up from $62.1 million in the June quarter. The increase, as we discussed in our last call, was attributable to the expected tape-out expense for our new 6-nanometer 4-channel client PCIe Gen5 SSD controller, which is targeting introduction in early 2026. This ramp of this product timing is timed with -- to coincide with PCIe 5 entering the mainstream PC market and can benefit from significant unit volume scaling. Operating margin was 16.1% in 3Q '24, down slightly from 16.5% in the June quarter given the PCIe 5 4-channel tape-out. And earnings per ADS was $0.92, down 5% sequentially due to the tape-out, but up over 46% year-over-year. Total stock-based compensation, which we exclude from non-GAAP results, was $3.7 million in 3Q '24. We had $368.6 million of cash, cash equivalents, restricted cash and short-term investments at the end of the third quarter compared to $343.6 million at the end of the second quarter. Inventories decreased from $240.8 million at the end of second quarter to $214.6 million at the end of the third quarter, a reduction of over 11%. Now let me turn to our outlook. As Wallace described earlier in the conference call, demand for retail aftermarket SSDs remains weak. Additionally, expected holiday PC and smartphone sales are muted, leading to lower than seasonal order patterns from OEMs and module makers in the current quarter. Despite near-term weakness, our increased OEM share gains will allow us to achieve our full year 2024 guidance that we had raised earlier this year. We do expect current weakness to be short-lived as we are introducing a number of new products, including our new client PCIe 5 8-channel SSD controller and our MonTitan enterprise SSD controller, both in the current quarter and our UFS 4.1 controller in the second half of next year. We have already secured significant wins and design momentum with these new products that will drive additional share gains in our existing markets and open up new greenfield growth opportunities in enterprise -- in the enterprise storage market that will scale over the next few years. For the fourth quarter, we expect revenue to be down 5% to 10% sequentially to be in the range of $191 million to $202 million, driven by weaker-than-seasonal smartphone and PC sales and continuing weakness in the SSD aftermarket. Gross margin is expected to be 46.5% to 47.5%, driven by continuing improvement in our mix towards newer products. Operating margin is expected to be in the range of 15.6% to 16.6% as operating expenses are expected to decline due to better expense control as well as no additional 6-nanometer tape-out this quarter. Fourth quarter effective tax rate should be approximately 18%. Fourth quarter stock-based compensation and dispute-related expenses in the range of $13.4 million to $14.4 million. Despite the near-term weakness in the end markets, our increasing share of controller outsourcing is expected to drive significantly better than end market demand growth next year. As Wallace mentioned, we are in a better position for growth today than at any other time in our history. I am pleased with the progress our team has made this year in securing new opportunities that will be the foundation of strong growth for years to come. This concludes our prepared remarks. We will now open the call for your questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Mehdi Hosseini from SIG. Mehdi Hosseini : Yes. I want to look into early '25. And what gives you confidence that this kind of a weakness that you're experiencing in Q4 is not going to sustain into early '25, especially since Q1 is typically a weak -- seasonally driven weak period? And I have a follow-up. Wallace Kou : I think our today position, our design pipeline, we are definitely confident to grow in 2025. But regarding the latest retail weak demand due to the inflation, due to high NAND prices and multiple reasons, we cannot guarantee whether Q1 will recover. However, we do see more meaningful progress from module customers, including industrial customers, who believe from late Q1 or early Q2 and customer -- end customers start to do more booking. So I think it's more challenging. We also see the PC cycle refresh and demand, our smartphone customers start to have multiple new programs coming. So this is more exciting. We believe the worst situation will be gone, and we should look for more exciting 2025. Mehdi Hosseini: Great. And one follow-up for you, Wallace. You're very excited with the new products that you highlighted in the prepared remarks. But as it relates to capital return, I feel like we have been here before. The stock is near 2x book. More than 1/3 of your book is liquid cash. And I understand you may not be a fan of buyback. But not -- why not step up and increase cash dividend to illustrate how confident you are with all of these new products that you highlighted? Wallace Kou : I think as you know, our share repurchase program has always been opportunities. And our Board also always evaluate the -- when we should do the share buyback and how we return cash to shareholders fairly. So this is very, very important. This strategy behind our dividend amount has always been to set it at a level that is comfortably affordable and we'll continue to evaluate it going forward. As you know, we might still have a legal expense to pay, and there's still a certain time to go. That's why we try to maintain the position and focus on the business to grow. Operator: [Operator Instructions] Our next question comes from the line of Craig Ellis from B. Riley Securities. Craig Ellis : Yes. Wallace, thank you very much for all the details in your prepared remarks around what you see next year. What I wanted to do is see if you could give us more of a high-level summary view of what it all adds up to as we look at PCIe Gen5 coming in with its higher ASPs and higher margins, UFS 4.0 coming in, in the back half of the year, MonTitan after initial shipments in the fourth quarter, sounding like it's ramping up in the back half of the year, and then the strength you're seeing in the automotive market and eMMC. As you look at what's happening, one, do you feel like in the core PC SSD and UFS markets, you're tracking to another year of 500 basis points of share gain as we targeted for this year? And secondly, is there a way you could quantify the level of growth we could get next year? Are we looking at a mid-single-digit year-on-year growth year, high single digits? Help us just understand what all this adds up to. Wallace Kou : Well, thank you, but you have a pretty big question. So let me just answer the product one by one, especially for PCIe Gen5 8-channel controller. We are in a very unique position today to launch the PCIe Gen5 8-channel high-end controller with DRAM. And we won 4 major NAND flash makers. We almost won every module maker today. So for PCIe Gen5 high-end next year going to ramp, align with the Intel, AMD, the CPU and chipset by late Q1 and early Q2 for notebook. And so this initially, I think, will be take about 5% to 10%. I think the high-end will be overall 10% to 15% above the market. We believe when they reach the fully 10% to 15%, we should own minimum 50% to 60% of high-end market share by 2026. So this is a very exciting revenue growth for us and from top line and bottom line because we never have a high-end PC market before. Second, go to UFS 4. This is also a very unique product we launched, and as we are going to launch with 1 NAND maker in middle of next year, and this will be the high-end. And we're going to launch in the early 2026 with another NAND maker at the high-end. So you can see in late '26, '27, the market is going to launch UFS 5 at the high-end. UFS 4 going to transition to be mainstream. So all the current NAND maker, their current UFS 4 is a 4-channel legacy controller, support the NAND interface only go to 1.6 gigabit per second to 2 gigabit per second per NAND. So that is very limited. So you can see mainstream 2-channel UFS controller with 6-nanometer, we are much more compelling and positioned than the NAND maker today solution. So we believe majority will come back to SMI, even we only have 2 committed customers to ramp in the next 1 year. So this is a very exciting product we launched. We support all the way to 300-plus stack new NAND for TLC and QLC. So we're ready to grab the market and grow. In addition to go to MonTitan and because our current sales revenue forecast from 2026 to '27 to become 10% of total revenue is just based on 2 Tier 1 customers. And we have that confidence to ramp because the Tier 1 customer in China will have multiple end customer to grow. So this is a very, very exciting program. We see we're going to win 2 more Tier 1, and we have multiple Tier 2 customer and using for ecosystem for MonTitan, because our technology to provide high-density QLC base with FDP firmware that will be unique and ideal solution for AI server, AI data center. So this is, say, so many customers approach us, and we are really short of resource. We are not able to handle to serve their need. But we believe through the product maturity and firmware, we are able to initial ramp this quarter. I think from second half of 2025 will be meaningful revenue, and we have confidence to reach 10% by 2026 or 2027, our total revenue. Jason Tsai : And Craig, in terms of guidance for next year, it's a bit early. Obviously, we normally put that out on our next earnings call when we report our fourth quarter results. So stay tuned for that. But as Wallace pointed out, there's a number of new products, new opportunities that we're scaling that we're really confident about for next year. Wallace Kou : Yes, regarding -- sorry, I would add regarding automotive, automotive today, the total is about 5% of total revenue, but we have confidence to grow to 10% by late '26 or early 2027. Because this year, pricing is very challenging, we are not aggressive to win any design because margin is very, very low. But we continue to develop new products and winning new NAND maker and also our Ferri product line. And we believe next year, we're going to launch with the Toyota global model, are going to bring meaningful revenue with company growth, and we have multiple new projects we're going to announce in by second half next year, wait and see. Craig Ellis: And that sounds very encouraging, Wallace. And I get the point on the specific guidance, Jason. I'm hoping that you could help us on a 2025 set of items related to gross margins. Without providing guidance, can you just talk about some of the gives and takes with gross margins? Clearly, there's a lot happening with new products that should be a tailwind. Are there any pressures we need to be aware of in on OpEx? Help us level set with what we should expect with mask set cost intensity versus 2024? And do you expect to increase R&D intensity in areas like enterprise SSD just given the demand you're seeing? Jason Tsai : Yes. So we said that we expect our gross margins to get back to historical levels of 48% to 50% by early next year. We're still on track for that. So we don't expect that to change. We obviously have a good mix. PCIe 5 on the client side, higher ASPs, higher gross margins. MonTitan on the enterprise, certainly, again, much higher ASPs and higher margins. So as those continue to become bigger and bigger portions of revenue, certainly, longer term, we could see that being additive to our overall gross margin picture longer term. In terms of the OpEx, we are planning to have 2 more advanced controller tape-outs for next year. And so that will -- we expect that to continue to be kind of steady state from where we are this year. We taped out 2 6-nanometer controllers this year. We expect to tape out an equivalent number next year. So I think from an OpEx standpoint, we do anticipate obviously some inflationary growth in terms of wages and headcount, et cetera, but also maintaining the same level of tape-out activity for next year as well. Operator: Our next question comes from Suji Desilva from ROTH Capital. Suji Desilva : So on the client side, the PCIe 5 wins on any of four flash makers, are those ramps going to be staggered? Or are they all hitting in a time frame where the new PC processes are available to support PCIe 5? Wallace Kou : For PC OEM, they definitely align with the PC OEM requirement. But for retail, because 2 of them have a retail business, so they're going to start to ramp by late this year and Q1 next year. So depends the retail demand. I think, well, probably 2026, they're going to reach a maximum around 15% level. But we do see we might have opportunity to gain more -- one more NAND maker opportunity in the high-end by late next year. So hopefully, we can really have the -- really home run with the 6-nanometer. Very, very great power efficiency and data efficiency to position into the mainstream notebook. Suji Desilva: Okay. And then on the MonTitan side, I'm curious, the use of QLC, is that, Wallace, by application workload or is it across the board opportunities? And are the customers initially going for their own firmware or more using SIMO's turnkey? I'm curious which are the directions they're going initially. Wallace Kou : You have a very good question. I think one of the Tier 1 has developed their firmware themselves. One of the other Tier 1 is the kind of a joint development firmware. So this is, try to accelerate the time to market. And we do see certain OEMs, they prefer develop their own firmware, certain preferred turnkey, especially time to market. Because for the AI data space, as you know well, there are 4 major stages, right, like ingest to collect all the data, and second stage go to the -- go to preposition, which we call transformation, is to be tokenized and changing for become AI GPU recognized language, and then the third stage go to training, and the third stage go to inference. But during the process, because of MonTitan, our data shipping, program shipping and power shipping technology, that's ideal for the customer to adjust when you're going to reach the highest performance, when you can reduce the power and reduce overall the power efficiency. So this is ideal case for our customer to utilize the MonTitan technology and software to dynamic changing and help for the data center and for the server. So that's why this is very, very attractive to the end customer because it's very unique. And this we believe with FDP and QLC that can make the high-density SSD drive become more interesting and more valuable. Operator: [Operator Instructions] Next question comes from Matt Bryson from Wedbush Securities. Matt Bryson : Jason, congrats on formalizing the role as CFO. I guess my first question is just looking at the QLC solution that you're shipping to a handset vendor. It's a slightly different path to market than we've typically seen, where normally you work with fabs and module makers. Is that something that you see becoming more common going forward where you're working with OEMs directly? Wallace Kou : I think, as you know, smartphones have predominantly been using TLC NAND for memory solution. But AI-at-the-edge is driving higher density demand for low- to high-end smartphone platform. I think because QLC is much more attractive because they can provide you higher density, but the cost can be managed meaningfully. So that's why it attract many, many smartphone makers who like to provide higher density storage, but without increasing the cost significantly. This is the motivation for them. And the reason to work with the controller directly, not go to the NAND maker, I didn't say no NAND maker work for a smartphone maker, but particularly, this is a top 5 smartphone maker choosing Silicon Motion because they want to collaborate with us and do all the field tests and figure out all the issue overcome and to maintain the know-how remain in the company. So that's why they do not want to share the know-how with the NAND maker. They prefer initially want to keep the know-how and they're able to decide what they want to expand next year. So that's why we are very, very happy to have the opportunity to engage with this smartphone maker. And we believe we're going to have a second smartphone maker to engage in 2025. So this has helped us to really gain much more knowledge how to transition from QLC moving to smartphone storage and primary storage and increase the density and also add value to smartphone makers. Matt Bryson: Just following up on Mehdi's question around Q1 seasonality. I mean, if you're not seeing the typical pickup into the holiday season, then I mean, shouldn't we expect the downtick in Q1 would also be muted simply because you're coming off a higher comp? And then just with inventories being worked down within the client OEM -- client OEMs, I mean, shouldn't we also expect that you'll see a bump back up in terms of demand when that process is completed sometime in the first half, I think you said? Wallace Kou : I think what I can only say is, as of today, the viewing about the retail consumer electronic product is really weak and the visibility is very, very low, because we are going to launch several new products, especially PCIe Gen5, and it could change certain color in both retail and the PC OEM. So that's why we -- I think it's too early to comment about Q1 outlook, but I think we're focused on Q4, but we are more optimistic about the Q1, whether it will be like a conventional seasonality weak Q1, we might have a more broader opportunity to sustain the growth. Matt Bryson: Awesome. And just one more for me. In terms of gross margins, you're still running a little bit below what had been normal gross margins. Should we still expect that you get back to the roughly 50% or just below 50% range in 2025? And I guess, structurally, it sounds like you have a lot of opportunities to move into higher gross margin areas. I mean, do you foresee in the future potentially being able to be above that kind of historic norm given those opportunities? Jason Tsai : Yes, Matt. Yes, our historic norm is 48% to 50%. And so we do anticipate getting back there in early next year. In terms of going above and beyond that, it's -- obviously, with more enterprise and more higher-end products ramping, there's an opportunity for that longer term, but it's too early to say how that shapes up. Wallace Kou : I think our goal is definitely to reach back to 50% by -- before end of 2025. But I think because there's seasonality and also there's a business strategy consideration become low end and the high end. But overall, I think the direction and the goal won't change. Operator: [Operator Instructions] It appears to have no further questions at this time. I'd like to hand the call back to Wallace for closing remarks. Wallace Kou : Thank you, everyone, for joining us today and for your continuing interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of this event will be posted on the Investor Relationship section of our corporate website and look forward to speaking with you at this event. Thank you, everyone, for joining us today. Goodbye for now. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporations' Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] This conference call contains forward looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and all future results of operations, financial condition and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties, and actual market trends, and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers, and changes in political, economic, legal and social conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward looking statements which apply only as of the date of this conference call. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to Mr. Tom Sepenzis, Senior Director of IR & Strategy of the company. Please go ahead, sir. Tom Sepenzis: Good morning, everyone, and welcome to Silicon Motion's second quarter 2024 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our Interim CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our second quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved with investing in our securities, please refer to our filings with the US Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Wallace Kou: Thank you, Tom. Hi, everyone, and thank you for joining us today. We had a strong start to 2024, building on the momentum that began in second half of calendar 2023. We delivered sequential revenue growth ahead of expectation and achieved gross margin at the high end of our guidance range, as better mix and pricing continued to steadily improve our profitability. The revenue upside was driven by our continued strength in our NAND flash customer, as demand from PC and smartphone OEM increased in anticipation of seasonally stronger second-half demand. Additionally, we benefited from increased market share at the top NAND flash maker, as they continued to source controller externally rather than develop them in-house. Over the past few quarters, our team has been working hard toward deepening our partnership with our NAND flash maker customers. We are winning more and more sockets from mainstream to high-end SD, and eMMC and UFS controller for PC, smartphones, automotive and other markets. Our success with our flash maker partner has helped improve our visibility and is crucial to our strong growth this year despite market uncertainty, especially in the retail aftermarket. This quarter, our revenue from NAND flash maker grew nearly 15% sequentially, accounting for more than 60% of our total revenue. Both SSD and eMMC+UFS have controllers strengths from new program more than offset emerging softness in the retail market as our module maker customers. Demand for our product is rising as NAND flash makers increasingly outsource controller solutions, and we are in the best position to benefit from this growing trend. We have unmatched technical and financial resources to build next generation controllers, and we intend to enhance our position through the introduction of multiple new products in the coming year, including our enterprise class MonTitan family, new PCIe 5.0 and UFS 4.0 controllers. I am pleased with our team’s execution in the first half of the year and the momentum going into second half of this year. We have significant opportunities ahead of us, as we deliver product and solution our customers' needs and remain focused on driving additional revenue growth and improving profitability across our platform of leading NAND controller solutions. I would now like to provide you with an overview of the NAND market dynamics. NAND pricing is increasing and expected to move higher throughout the remainder of the year and early 2025, primarily driven by demand from data center and enterprise storage applications. The pricing continued to increase from the lows experienced last year. NAND makers are beginning to bring some capacity back online and invest in new-generation NAND productions. But we do not expect NAND supply and demand to come back into balance until middle 2025. Higher NAND pricing and the weaker global economy environment caused by higher inflation has softened retail demand for our module-maker customers. With continued inflationary pressure and expected NAND price increase for the remainder of the year, we expect muted back-to-school and holiday sales of retail aftermarket SSD. Despite the headwind, the overall PC demand appears stable and we also continue to see incremental improvement in the smartphone market, with the unit sales expected to grow modestly year-over-year. OEM entry in QLC NAND continued to increase in both the data center and the edge in PC, smartphone and other devices. This is being driven by device OEMs anticipating the need to support AI and other applications that require higher performance and higher-density solid-state storage solutions. It becomes clear each day that our experience and expertise with QLC NAND is a defining differentiator that has resulted in significant wins with flash makers and other customers across major product categories. As 3D NAND layer continues to increase, managing QLC NAND becomes even more challenging, as they require more sophisticated controller technology such as our proprietary advanced LDPC and 3D ray technology and advanced firmware algorithm to ensure data retention and reduce read/write disturbing issue. We expect QLC NAND will increasingly be deployed across all major market categories that we serve, given its ability to deliver high density at low cost, and we believe we are best positioned to benefit from the trend in the coming years. Now, I'd like to discuss each of our major product segments beginning with our SSD controllers. We experienced strong demand in June quarter from our flash maker customers, driven by PC OEMs. PC OEM SSD controller sales represent approximately 80% of our client SSD controller sales. It is the high end of our historical range, as the high NAND prices are putting pressure on channel and multi-makers. We continue to generate strong interest in our new PCIe Gen 5 eight-channel controller that we taped out last year. This is a premium product that will be ideally suited for high-end notebook and desktop AI PC, as well as for gaming and workstation PC that offer unparalleled performance with ultra-low power consumption. The controller offers best-in-class power to performance, offers 20% to 30% lower power consumption than competitive controllers, including those internally developed by NAND makers. This is the first 6-nanometer eight-channel PCIe 5.0 controller available in the market, which has led to significant wins, including our fourth NAND maker which I'm pleased to announce we won this quarter in addition to nearly every major module makers. We remain on track to ramp initial units of the new PCIe 5.0 controller with our customers later this year. Additionally, we have a strong pipeline of design activity with several flash makers of PCIe 4 SSD using next-generation TLC and QLC NAND. This new SSD delivers high performance and high density at a lower cost, ideal for rapidly growing AI PC market that is searching for lower-cost solutions. While the PC market remains a top priority and we'll continue to drive significant growth in revenue, we are seeing emerging opportunity with our automotive, commercial, industrial grade SSD controllers. This includes our automotive grade PCIe 4 controller as well as multiple controllers targeting industrial and commercial applications. We intend to expand our leadership through the introduction of our upcoming dual port PCIe 5.0 controller for the automotive market next year. And we expect to continue adding meaningful growth opportunity in 2025 and beyond with a more diversified customer and end-market base. Now, I would like to move to our eMMC and UFS business. We continued to benefit from the improving smartphone market during the June quarter, as well as with strength with our two eMMC and UFS NAND customers, we successfully taped out our first UFS 4.0 controller early this year and the response has been positive. We are beginning qualification and we are targeting production ramp in the second half of calendar 2025. UFS 3.1 and UFS 2.2 continue to account for most of the smartphone market volume today and are expected to stay relevant in the coming years. While flash makers allocate more resources to next generation UFS products in support of new generation NAND, we are seeing greater opportunity in high volume application as flash makers look to outsource mainstream controller so that they can more effectively compete in leading edge. As with our leading PCIe product, we are generating strong inbound activity in our QLC controller technology in UFS and EMC. With the growing interest in Edge AI, smartphone OEMs are looking for cost effective ways to increase own device memory density. Our leadership in QRC NAND controller technology plays Silicon Motion as a forefront of QLC adoption and smartphone manufacturers are looking to deploy QLC with UFS for mid to high end devices, adding QLC with EMC in low-end handsets for AI and other storage intensification over the next few years. Our first handset OEM partner that will deploy QLC on UFS expected to ramp later this year. What is more, I'm pleased to report to you today that this customer expects to expand production of this new QLC UFS solution into additional smartphone models next year. Looking beyond the smartphone market, OEMs are interested in adoption of UFS eMMC for smart connected devices and other consumer applications. Our growing list of win and customers in this additional area will further diversify our end-market growth opportunity. Given the increasing opportunity to capture share with our flash maker partners and through the introduction of new eMMC and UFS QLC solution, we believe we are well positioned for continued growth. Now, let me turn to our MonTitan platform. As we have mentioned before, enterprise and data center story offers Silicon Motion a tremendous new revenue opportunity combined with a meaningfully high ASP and margin profile over the medium to long term. We continue to see more inbound interest in our MonTitan solution. Given our unique differentiation, we believe we are well positioned to scale with a flash maker and storage solution enabler, as well as directly with data center and enterprise customer in the coming years. Our first MonTitan PCIe 5 controller managed TLC and QLC NAND on a single platform, enabling the seamless transition and adoption of QLC NAND with enterprise and datacenter storage applications. As we announced last quarter, we have won two Tier 1 customers for our new MonTitan PCIe 5 controller, one in the US and one in China, and expect to secure two additional Tier 1 wins later this year. We are on track to begin early mass production later this year and ramp more meaningfully next year. Our early success has been driven through differentiation with our controller offering high performance and greater power efficiency, with support for more NAND than any other platform in the market today. MonTitan delivered two key technologies, Zone Name Space and flexible data placement with QLC, which combined with -- to improve latency and throughput speed while lowering overall cost through reduced DRAM demand. Additionally, our proprietary power and performance shipping technology enables our customer to dynamically adjust their storage to meet rapidly changing data-centered performance requirement. This includes in the upcoming 2-terabyte mono-die QLC NAND, the ability to deliver 128-terabyte SSD. These high-capacity SSDs have the higher sequential read performance and lower cost to meet ever-increasing AI compute and store requirement. It is becoming increasingly clear for our customers that our MonTitan solutions will be essential for the next generation data center and storage build-out plan, especially for delivering faster and more accurate AI capability to the market. But we have mentioned on previous calls, given our record of managing our QLC NAND than anyone over the past decade. We believe that this new product platform will drive multiple-year growth cycles for silicon motion as we enter a greenfield market opportunity for our company with leading technology. Given the early MonTitan performance and widespread interest in our products, we expect the platform to grow to 5% to 10% of our total revenue in the 2026 to 2027 time frames. Overall, I'm excited by our strong start to 2024 and our outlook for the remainder of the year. I'm especially pleased that we continue to target year-over-year revenue growth of 25% to 30% despite the challenging -- in the near term from increased NAND prices in the -- some of our customers. Looking ahead, we are confident that our technology leadership and diversified portfolio of our controller across a wide range of the market and application will accelerate and drive the substantial long-term growth of our business. We continue to push beyond PC and smartphone into new opportunity, including the enterprise, automotive, industrial, commercial and consumer markets. I'm especially excited about the emerging MonTitan opportunity and what I expect will be a significantly positive impact on our revenue growth and operating margins over the next few years, as we capture share in the enterprise market. I look forward to detailing more about our progress in the area in the future update. Now, let me turn the call over to Jason to go over our financial results and outlook. Jason Tsai: Thank you, Wallace, and good morning, everyone, joining us today. I will discuss additional details of our second quarter results and then provide our guidance. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included in the earnings release issued yesterday, as well as the presentation that was uploaded to our website a little -- a while ago. In the second quarter, sales increased 11% sequentially to $211 million. SSD sales increased modestly sequentially, representing our fifth consecutive quarter of growth. Our strong share gains with flash makers continues to deliver outstanding results, despite some market uncertainties from continued inflationary pressure and higher NAND flash prices contributing to weaker aftermarket SSD demand. eMMC and UFS controllers increased 25% to 30% sequentially, as demand inflected in the second quarter from increased smartphone builds in anticipation of demand growth in the second half of this year. SSD solution sales increased 20% to 25% sequentially. Gross margin in the second quarter increased to 46%, primarily from better mix to newer products. Operating expenses in the second quarter were $62.1 million, a slight decrease from the first quarter. Operating expenses, specifically R&D project expense, was higher than expected in the second quarter, as we made the decision to retape out our upcoming high-performance eight-channel PCIe 5 client SSD controller to deliver superior yields when we enter mass production later this year. This will result in higher overall gross margins for this product in the long term. Operating margins increased to 16.5% in the quarter, up from 12% in the first quarter. Our effective tax rate in the second quarter was 16.5%, a modest increase from the 16.1% tax rate in the first quarter. Earnings per ADS were $0.96, an increase from the $0.64 in the first quarter. Total stock-based compensation, which we include -- exclude from our non-GAAP results, was $385,000 in the second quarter. We had $343.6 million of cash, cash equivalents, restricted cash and short-term investments at the end of the second quarter compared to $349.3 million at the end of the first quarter. Inventory decreased sequentially in the second quarter to $241 million from $253 million in the first quarter. Before I turn to outlook, I'd like to talk a bit more about our higher R&D investments that we are making this year. As the industry adopts new high performance standards that doubles the performance from previous standards, power consumption needs to remain at the same or lower to assure the same battery life for smartphones and notebooks that consumers demand. The only way to balance both significantly higher performance and lower power is to move to lower process geometry production, and that means building these next-generation PCIe and UFS controllers on 6 nanometer. In addition, we need to develop new SoC architecture, new firmware architecture, and customized mixed signal capabilities that collaborate closely with our NAND partners to achieve these goals. While all of this does result in higher R&D expenses in the near term, we do see significant benefits, including higher ASPs, more outsourcing, and a bigger moat around our product leadership than ever before. We have unmatched technical and financial resources, and intend to make this essential investment in order for us to continue to grow faster and increase our market share and to drive higher growth and better profitability over the long term. Let me now turn to our outlook. As Wallace talked about earlier this year -- earlier, due to the ongoing higher NAND prices and weaker retail consumer electronics demand, our customers, especially module makers, are seeing demand soften in the retail aftermarket. As a result, they are anticipating a much more muted seasonal pattern for retail demand for the second half of this year Despite this, our ongoing success with flash makers, customers and the increased outsourcing we have won over the past year gives us confidence that we'll be able to achieve our full-year revenue outlook. For the third quarter, we expect revenue to be flat, plus or minus 2.5% sequentially to approximately $205 million to $216 million, due to the expected weaker than seasonal aftermarket SSD demand. We expect eMMC and SSD controller sales to be stable sequentially. Third-quarter gross margin is expected to continue to improve and be in the range of 46% to 47%. Our improving mix of sales towards newer products should lead to sustained gross margin improvements. Third-quarter operating margin will experience a one-quarter decline driven by the expected tape-out of our new six-nm four-channel mainstream client PCIe 5.0 SSD controller. We expect this new controller will enter mass production in early 2026, as PCIe 5.0 SSDs expand into the mainstream market. Operating margin is expected to be in the range of 14.3% to 15.3% in the September quarter and then return to more normalized levels. Third-quarter effective tax rate should be 18% and third quarter stock-based compensation and dispute-related expenses to be in the range of $6.4 million to $7.4 million. For the full year, we are maintaining our revenue outlook given the continuing strong demand from our NAND maker customers, but improving our profitability. Revenue is expected to increase 25% to 30% this year to approximately $800 million to $830 million. We're tightening our gross margin range. Given the strength of our margin improvement this year already, full-year gross margins is expected to be in the 46% to 47% range. Operating margin is expected to improve modestly, given the better gross margin performance in the first half this year and is expected to be in the range of 14.8% to 16.8% despite accelerated investments in our technology leadership and the new product introductions that should lead to revenue growth in 2025 and beyond. Our 2024 effective tax rate is expected to come down slightly and be now approximately 18%. 2024 stock-based compensation, dispute-related expenses, and loss from settlement of litigation should be in the range of $29 million to $31 million. With the dedication of our team over the past year, we have been able to develop and deliver cutting-edge controller solutions that will power AI applications and PCs, smartphones, and soon, data centers and enterprises. Our wide range of controller solutions are gaining significant traction in other markets such as automotive, industrial and commercial applications, further diversifying our long-term growth drivers. Our efforts to collaborate more with flash makers have allowed us to benefit from the recent trend of more outsourcing, driving more predictable growth and better visibility despite near-term market volatility. While we will continue to invest in growing our R&D capabilities and building more leading-edge controllers, we're seeing these investments begin to pay dividends and we expect these products to scale meaningfully next year, driving additional revenue growth and profitability, and further extending our technology and market share leadership in the flash controller market. This concludes our prepared remarks. We'll now open the call for your questions. Operator: [Operator Instructions] Our first question comes from the line of Craig Ellis from B. Riley Securities. Please ask your question. Craig Ellis: Yeah, thanks for taking the question. Wallace, I wanted to start off with one that was high-level and followed-up on some of your comments regarding execution with NAND OEM share gain. At the beginning of the year, we were intending to see 500 basis points of share gain this year. Can you just talk about where you think you stand at mid-year against that objective and any positive or negative variances versus what you were hoping for six months ago? Wallace Kou: So far, I think we're on track for all the projects we're aiming and plan to do. We maintain very, very close relationship with all the NAND makers and we capture all the variable socket open to us. And so, our share last year was about --- for SSD about 25% to 30% and we believe we'll continue to gain share with this as a forecast and design win. And we believe the mobile portion we're also gaining around 20% to 25% range by year-end. So, we're cautiously monitoring all the opportunity to capture our source to third parties, especially second motion. Craig Ellis: That's helpful. And then the follow-up question, excuse me, relates to the PCIe Gen 5 transition. Can you just help us put that in context by providing a summary of where PCIe Gen 4 mix would be this year? And as we look to next year when PCIe Gen 5 would ship in higher volume, how much of the business on the SSD controller side shifts over to PCIe Gen 5 next year? Thank you. Wallace Kou: Yeah, PCIe Gen 5 will start to ramp from early 2025, but 2025 will maintain the high-end premium line. So, that will be the high-end notebook in the high-end PC -- for AI PC and gaming PC and workstation PC. So, next year, the volume probably will still maintain very low, only about 5% transition But for 2026 we're moving to the high volume and the mainstream PCIe Gen 5 coming. So next year, I think PCIe -- majority of SSDs will maintain in the PCIe Gen 4 in -- by 2026 and probably PCIe Gen 5 will occupy around 30% of total market. Craig Ellis: Very helpful, Wallace. Thanks, and I'll hop back into the queue. Operator: Thank you. Our next question comes from the line of Tony Stoss from Craig-Hallum. Please go ahead, Tony. Tony Stoss: Thank you. Good morning, guys. Maybe for you, Jason, just want to follow-up on the tape-out commentary expected for Q3. Can you maybe size that for us? And also, do you expect any continued tape-outs in Q4? And then, I'd love to hear your thoughts. A lot of positive commentary related to increasing gross margins. Can you give us a sense of, kind of, what you think ballpark might be heading into 2025? I would assume it's higher than 2024. Jason Tsai: Yeah. So for tape-out costs, we talked about 6-nanometer tape-out costs typically running $15 million to $20 million per controller. Obviously, that's over the entire production of the tape-out. In the given -- any given quarter where we do actually tape-out, that's probably a $5 million to $10 million charge in that quarter. So, that's what we're -- that's the ballpark that we're talking about here from an incremental perspective in Q3, given the new 6-nanometer four-channel PCIe 5.0 controller taping out this quarter. Going into Q4, we do not expect any additional tape-outs for PCIe -- for 6- nanometer, so you should see our OpEx come down in the fourth quarter. In terms of gross margins, we've been steadily progressing over the last year or so, improving our gross margins due to better mix. And we expect that to continue as more and more of our products come from newer generation products. Next year, we'll also have PCIe 5.0 as well as MonTitan starting to ramp a little more meaningfully. So, those should be positive and additive for us as well. Historically, we've been at 48% to 50% gross margins. I think we're going to get pretty close to that this year. And then going into next year, we should be in that range. Tony Stoss: Got it. And then, Wallace, maybe a follow-up for you on the MonTitan and your adding of two additional customers to make it four at the end of this year. I think in the last quarterly conference call, you talked about a number of customers that you can handle. Can you update us on do you think you could take on even more customers and maybe give us a sense of how many additional ones you think you can take on in 2025? Wallace Kou: Yeah. So, we have a -- roughly, our R&D resource can handle maximum around four Tier 1 customers simultaneously. But the -- as of today, we're winning two Tier 1 customers. One of the customers would develop the firmware themselves with our SDK, so that will help us offload the resources. We provide complete documentation. It's about technology and by the way, help them to porting their firmware into our platform. So, once it gets done, I think that will be the golden basis for the complete SDK and documentation we can offer to other OEM customers. We're looking forward to expand more resources and we try to expand a wider range of customers in 2025 because if customers decide to use our standard turnkey solution with both firmware and our ASIC, I think we are able to support more than for Tier 1 customers. Tony Stoss: Great. Thanks guys. Appreciate it. Operator: Thank you. Our next question comes from the line of Quinn Bolton from Needham & Company. Please ask your question, Quinn. Quinn Bolton: Hey guys, just want follow-up, sort of similar question to what Craig asked, except this time maybe on the mix of QLC. Where do you see QLC as a percent of both SSDs and the smartphone business as you get into '25 and '26? And then I've got a couple of follow-ups. Wallace Kou: So, it's a very good question. I think the QLC today in the PC, that's about around 10% to 15% in the very low single digit -- very low side. But all the NAND makers are roughly driving into the QLC office. So, in 2025 for clients would be -- what should be minimum 20% to 25%. For smartphone, because majority smartphone makers, they are deploying the opportunity in the trial mode, so for next year, the total percentage should be very, very low single-digit, probably less than 5%. But after they deploy very successful, they will expand to multiple models. We see the UFS adoption initially come from the mid-range, but after mid-range is down, they will try to fill into the high end. At the same time, we see two smartphone makers going to try QLC into the eMMC for value line. So, this is a tremendous opportunity and momentum. But they have to try the field -- try and make sure it's really transparent to end users and consumers. They probably won't see the difference between TLC and QLC, but with a higher density than traditional TLC. Quinn Bolton: Got it. Thank you for that, Wallace. And then a follow-up question on MonTitan. As you ramp that solution, you mentioned it carries premium margins. Wondering if that ramp to the extended hits that 5% to 10% target in '26, '27, do you think that, that carries enough, lift on margins that it puts you to the higher end of your, kind of target range of 48% to 50%? Could it push you above the 50% level? Just, any sense on how additive MonTitan could be to the margin profile. Jason Tsai: Yes, it's a little too early for us to comment about '26, '27 margin profile at this point, Quinn. But, I think historically we've been able to achieve that 48% to 50% based upon what we have today and what -- the products that we have today versus MonTitan is a greenfield opportunity, like Wallace had pointed out. So, I think that could be additive to that, maybe potentially lift us up longer term. But it's a little too early to say how additive that is in that '26 to '27 time frame. Quinn Bolton: Yeah, no, I know it's a long ways out. And then lastly, Jason, just, as you look at the expenses you're spending today on the PCIe Gen 5 products, the UFS 4 controllers, wondering if you expect another heavy investment year in '25. You guys have done a great job upside in revenue this year, but obviously expenses are increasing as well and so, there's been less fall-through to EPS. And, just wondering if you might expect additional operating leverage on revenue growth next year as perhaps some of those investments kind of maybe stabilize next year rather than continue to increase at a pretty fast pace. Jason Tsai: Yeah, that's exactly the way we look at it. We're going to start seeing the dividends pay off of these investments we're making this year. That'll lead to revenue growth. But we do expect to -- I think it's a little early talk about OpEx for next year, but we wouldn't expect it to grow nearly as fast as we saw it grow this year, just given the kind of initial sting of the 6-nanometer tape-outs that we had to bear this year. Wallace Kou: Let me just add some comments. I think we try to control our operating spend next year. However, we have a very, very strong demand from NAND makers. So, you have to customize certain new UFS controllers. We have the base on the resource and financial return to do calculation. If we decide to do it, that will increase some -- our operating expense. But I think we will -- based on every major project we will be --- cautiously review the ROI to make a decision. Quinn Bolton: Thank you, Wallace. Thank you, Jason. Operator: Thank you. Our next question comes from the line of Suji Desilva from Roth Capital. Please ask your questions, Suji. Suji Desilva: Hi,, Wallace. Hi, Jason, congrats on the progress here. The AI PC, I'm just wondering, what is the content uplift there for the SSDs in terms of product or ASP versus the non-AI PCs? Just if you could clarify that, it'd be helpful. Wallace Kou: Yeah, it’s a very good question. I hope I can answer you by saying that so far AI PC got a tremendous momentum. However, we did not see any meaningful impact or increase in PC unit shipment so far. Besides Microsoft Copilot, I think the market really waiting for more meaningful application coming to add a practical application purpose to make both the corporate and consumer feel comfortable. So, I think there's many -- different new platform coming, but it's also some -- bundled with PC OEM's own AI application. So, we have to wait for -- see the consumer feedback to see adoption. So far, I think the PC unit shipment for 2024 is maintained the same as at the beginning of the year for single-digit increase compared to 2023. Suji Desilva: Okay. And then switching over to the infrastructure side… Wallace Kou: Sorry. We definitely see PCIe Gen 5 SSD, that becomes a plus because they have much better performance, provided better sequential read, provided much better shorter latency. So, that's why this -- we do see --- potentially there'll be high demand for PCIe Gen 5 Channel SSD in 2025. Suji Desilva: Okay, that's available '25. Great, got it. And then, switching overall to the AI infrastructure side. Can you give us some framework for these programs that are on the -- that you might be adding. How to think about the inner ASPs maybe on a content per server, content per rack opportunity framework, maybe that would be one way to kind of get a sense of these MonTitan programs and how big they can get for you. Jason Tsai: We talk about it on a volume basis, right, because we are -- we sell controllers, we don't sell density. I think if you take a look at historically, enterprise SSD controllers, typically in the 50 to 75 plus range, in that ballpark. Obviously, configurations for different servers, different applications can vary. So, it's difficult for us to assess or to really say that there is any sort of real kind of algorithm you could use on that. Wallace Kou: So, we can only give you roughly range for the 16-channel MonTitan controller, the ASP is between $55 to $65 range. [Talking about] (ph) TLC/QLC, talking about density, the conservative price is similar range. For the --- we also have a version for eight channel controller, which we have a new design probably tape-out middle next year. And this will -- so for eight channel controller the selling price between $42 to $50 range. So, this is part of the ballpark for the MonTitan family controller price. Suji Desilva: All right, very helpful, Wallace, Jason. Thanks. Operator: [Operator Instructions] Our next question comes from the line of Robert Hsu from JPMorgan. Please ask your question, Robert. Robert Hsu: Okay, thank you. I'm asking on behalf of Gokul Hariharan. So, I have a quick question on the inventory level. How should we think about the inventory level for the client SSD with the PC OEMs as well as the mobile solutions with the OEM customers? Thank you. Wallace Kou: So at this moment we see the inventory level in the channel naturally relatively healthy. But however, just because demand side is very weak from the channel in retail. So, most of our customers see inventory level I think is largely healthy and in line now. And for the NAND maker, I think they definitely have a much lesser inventory for the clients to do. Operator: Do you have any follow-up question, Robert? Robert Hsu: Yeah, that's it. Operator: All right. Thank you. I'm showing no further questions. I'll now turn the conference back to the President and CEO, Mr. Wallace Kou, for closing comments. Wallace Kou: Thank you, everyone, for joining us today and for your continued interest in Silicon Motion. We'll be attending the Future of Memory and Storage Conference in Santa Clara next week, as well as several investor conferences in the coming months. The schedule of these events will be posted on the Investor Relations section of our cooperate website. And look forward to speaking with you at this event. Thank you, everyone, for joining today. Good-bye for now. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's First Quarter 2024 Earnings Conference Call. [Operator Instructions] This conference call contains forward-looking within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial condition and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices; unpredictable changes in technology and consumer demand for multimedia consumer electronics; the state of and any change in our relations with our major customers; and changes in political, economic, legal and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements, which apply only as of the date of this conference call. Please be advised that today's call is being recorded. I would now like to hand you over to the Interim Chief Financial Officer, Mr. Jason Tsai. Please go ahead. Jason Tsai: Thank you, and good morning, everyone, and welcome to Silicon Motion's First Quarter 2024 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO; Wallace will first provide a review of our key business developments, and then I will discuss our first quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I'd like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. The webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore, chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results. The reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Chia-Chang Kou: Thank you, Jason. Hello, everyone, and thank you for joining us today. We had a good start to 2024. We delivered sequential revenue growth ahead of our expectations, achieved gross margin at the high end of our guidance range and exceeded our operation margin outlook. Our SSD controller business was better than expected, primarily driven by demand from 2 of our flash maker customers. We continue to improve our pricing in the quarter, which is driving the steady improvement in our gross margin and profitability. Our results this quarter reinforce our leadership position in controller technology and our products continue to be in high demand because our customer recognized how important our technology, innovation and service are to their business. [indiscernible] Micro environment remains uncertain, I'm pleased by our teams execution in this quarter. We are taking the right steps to efficiently navigate in market dynamics, remain steadfast in delivering the products and solutions our customers need and focus on continuing growth, improving profitability across our platform. Let me start now with an overview of NAND market and dynamics we are in today. We have seen NAND flash prices continue to increase since the late last year and more recently, have seen flash maker gradually increase utilization in their past, but more meaningful capacity increase from the build out on next generation NAND flash is unexpected until next year. Demand remained robust, especially with Chinese handset OEMs as well as with enterprise and data center storage markets, while PC demand has been steadily increasing. All of this will continue to drive NAND flash prices higher throughout this year. We are seeing some near-term pricing fluctuations in the China's SSD market, that may cause some uncertainty with our customers that are more focused on the retail aftermarkets. But demand for our controller for PC OEM and SSD remain robust, especially with our flash maker customers. Our leadership in controller technology continued to drive stronger demand across the board with our customers. It is becoming [ serious ] each day that our experience and expertise with QLC NAND is a defining differentiator that has resulted in significant wins with the flash makers and other customers across all product categories. With the 3D NAND layer continue to increase, managing QLC NAND become even more challenging and continue to require more sophisticated controller technology to ensure high-data retention and we do rewrite if there are any issues. Our advanced LDPC in the 3D Ray technology are the best in class to protect data during high-speed data transfer between the controller and the NAND and operate on the wide temperature range. We can deliver controller that enables a no-compromise, high-performance and low-cost solid state storage solution incorporating the latest generation of QLC NAND, especially with the rapid adoption of AI, whether it's in edge devices like PC and smartphone or in the data center and enterprise storage. QLC star devices are becoming increasingly central to AI application and growth going forward. OEM no longer need to choose between high performance or lower cost. With QLC, especially upcoming 2 terabyte [ mono die ] QLC NAND, we're able to have high sequential read performance, high density and lower cost solution to meet their ever-increasing AI compute and store requirement. Now let me start with our SSD controllers. We are seeing strong traction with our new PCIe Gen5, 8 channel controller we tape out last year. This is the first 6-nanometer 8-channel PCIe Gen5 controller available in the market, and we are winning, it is virtually every top module maker in addition to our 3 flash maker customers. The result from our early testing has been very good. This is a premium product that will be ideally, solely for high-end notebook and desktop, AI, PC as well as for gaming and workstation PC that offer unparalleled performance with ultra-low power consumption. In addition, we have a strong pipeline of design activity with several flash makers for PCIe Gen4 SSD using in their next-generation TLC and QLC NAND. This deliver a high performance, high-density, low-cost SSD ideal for rapidly growing AI PC market. Beyond the PC market, we also have automotive-grade PCIe Gen4 controller win with 2 of our flash maker customers that will ramp with a leading electrical car platform next year. We also expect to tape out our due for PCIe Gen5 controller for the automotive market next year for several of our flash maker customers to further our leadership in the market. We are confident that our broad based SSD controller solution will continue to scale this business meaningfully this year and into 2025, as many of these new products in platform begin to ramp. Moving to our eMMC+UFS controller. We have successfully tape out our first UFS 4.0 controllers in the first quarter and are on track to start qualification with this new controller in the second half of this year. We also continue to see stronger than ever demand for our UFS 3.1 and 2.2 controllers, especially to support new generation of low-cost NAND. In addition to several top module markers serving the smartphone market we started ramping up a new flash maker customer for UFS 3.1 and 2.2 this quarter. And this customer is expected to ramp with our UFS 4.0 controller next year. While the smartphone market has predominantly used QLC NAND. We are now seeing increasing interest of QLC NAND, especially in mainstream handset where the OEM can offer higher density without significant increase in cost. We are collaborating with one of the leading handset OEMs directly for QLC UFS solution that is expected to come to market later this year for their mainstream smartphone. We expect the demand for QLC UFS product especially in mainstream and entry-level 5G smartphone will continue to increase this higher-density low-cost UFS solution will be required to drive adoption of AI beyond the premium segment of the smartphone market over the next few years. In addition, we are seeing a significant traction with our eMMC and UFS controller in the automotive market as well as in commercial, industrial and other connected and smart devices. This non-smart qualification account for more than 40% of the overall eMMC+UFS market today. With the market automotive application growing faster than smartphone market, we are working with several flash makers and building eMMC and UFS controller for this customer, especially for the automotive market and expect this to scale meaningfully in the next years to come. Now let me turn to our MonTitan platform that we have talked about before, the enterprise data center starting market are tremendous opportunity that we believe we now have a truly differentiated solution with MonTitan to scale with the flash makers and solid solution enabler as well as directly with data centric and enterprise customers. Based on market data from Gartner and IDC as well as our own analysis, we anticipate the market for enterprise SSD for both enterprise storage and data center will grow by more than 50% to approximately 35 million units by 2027. But more importantly, the market for PCIe Gen5 SSD is expected to increase more than 5 times to more than 60 million units in 2027. QLC based SSD are expected to account for nearly 30% of the total paid-up volume in 2027, up from less than 10% in 2023, representing a huge growth opportunity that we are uniquely positioned to lead. Our first MonTitan PCIe Gen5 controller, well-managed TLC or QLC NAND on the single platform, enabling the seamless transition and adoption of QLC NAND with enterprise and data center solid application long term. I'm excited to announce that we have won 2 Tier 1 customers in the first quarter for the MonTitan PCIe Gen5 controller, 1 in the United States and 1 in China and are expected to begin ramping later next year. We continue to [ suffer ] with more than a dozen additional customers expect to secure more wins throughout this year. We are on track to begin mass production late this year and ran more meaningfully next year. Our earnings success here has been our ability to differentiate with our high performance and power efficient controllers that support more NAND including TLC and QLC for high-capacity SSD than any other platform in the market today. Using our patented performance and power shipping technology, we enable our customers to dynamically adjustable peak performance versus low power consumption, depending on the various workload requirements to achieve the best results. We are seeing inbound interest from the world-leading data center providers because of our ability to deliver high density, high performance, low-cost TLC and QLC SSD for the increasingly data-hungry AI compute and storage needed. Given our proven-track record of managing more QLC NAND than any one other vendor in the market over the past decade, we can leverage our unparalleled experience expertise with QLC into the MonTitan controller platform. To build SSD solution that can effectively display portion of the new line HDD with high-capacity new line SSD. These solutions offer a lower [ TCO ] compared to legacy HDD due to their smaller compacted, higher storage densities, lower power consumption and higher reliability and resiliency. We see an incredible market opportunity here to differentiate with our MonTitan platform and deliver solutions that are critical to the further build out and adoption of AI in the enterprise and data center, driving a multiple-year growth cycle for the company. Overall, I'm excited by a strong start to 2024 and the achievable opportunity on our horizon for the rest of the year. Beyond our strong results, our underlying business momentum continue to accelerate as we add more products and more wins to drive a sustainable long-term growth of our business. We continue to see very strong traction across the board with the controllers. We are beginning -- bringing to the market and have greater confidence that our strategy to diversify beyond DC and smartphone aimed to new opportunity in the enterprise and automotive market will soon scale meaningfully with our Tier 1 customers. We are very proud of this, and it gives us good confidence in our pipeline, our ability to serve our current and new customers to drive long-term growth. Now let me turn the call over to Jason to go over our financial results and outlook. Jason Tsai: Thank you, Wallace, and good morning, everyone. I will discuss additional details of our first quarter results and then provide our guidance. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. The reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the first quarter, sales increased -- actually sales decreased 6% sequentially to 189 million. SSD controller sales increased slightly by 0% to 5% sequentially. eMMC and UFS controllers declined 10% to 15% sequentially. SSD solutions sales decreased 5% to 10% sequentially. Gross margin in the first quarter increased to 45%, reflecting both better mix and higher ASPs. Operating expenses in the first quarter were $62.5 million, $1 million higher than the prior quarter, primarily due to higher R&D expenses to support our technology leadership. Operating margins in the first quarter was 12%, down from 13.8% in the fourth quarter. Our effective tax rate in the first quarter was 16%, an increase from the 2.3% tax rate in the fourth quarter, primarily due to a tax reversal benefit we had in the fourth quarter. Earnings per ADS were $0.64, down from $0.93 we reported in the fourth quarter. Total stock-based compensation, which we exclude from our non-GAAP results, was $3.2 million in the first quarter. We had $349.3 million of cash, cash equivalents and restricted cash and short-term investments at the end of the first quarter compared to $369 million at the end of the fourth quarter. Inventory increased sequentially in the first quarter to $253 million from $217 million in the fourth quarter to support revenue growth in the second quarter and the rest of the year. Let me now turn to our outlook. As Wallace mentioned, the continuing success we are seeing with flash makers and providing more clarity around the improving fundamentals of our business. We're seeing strong demand in smartphones and coupled with improving demand in PCs, our design wins for this year are well positioned to drive better growth than we had anticipated just 3 months ago. While the strength we are seeing with our current products as well as the increasing interest in monetizing products, we are prudently increasing investments in R&D primarily through higher head count to support increasing programs we are engaging in with our customers. Now let me turn to our second quarter outlook. Revenue is expected to increase 5% to 10% sequentially to approximately $199 million to $208 million. We expect eMMC+UFS sales to increase and SSD controller sales will be stable sequentially. Second quarter gross margin is expected to continue to improve and be in the range of 45% to 46% and second quarter operating margin is expected to improve and to be in the range of 16.5% to 17.5%. Second quarter effective tax rate to be approximately 19% and second quarter stock-based compensation and dispute-related expenses in the range of $2.5 million to $3 million. For the full year 2024, we are increasing our outlook given the strong momentum we are seeing from our customers. Revenue is now expected to increase 25% to 30% sequentially to approximately $800 million to $830 million. Gross margin is expected to be in the range of 45% to 47%. Operating margin is expected to be in the range of 14.7% to 16.7% as we further invest in our technology leadership, 2024 tax rate to be approximately 19% and 24 stock-based compensation and dispute-related expenses in the range of $30 million to $32 million. With a strong start to the year and the building momentum in our backlog, we expect to see sequential revenue growth and profitability improvements around the balance of the year. For operating expenses, we take out our new 6-nanometer UFS 4.0 controller in the first quarter, and expect to tape out our 6-nanometer PCIe Gen5 4 channel SSD controller in the third quarter. We expect our operating expenses to decline sequentially -- but to increase again in the third quarter to support the technology leadership investments we continue to make. We have accelerated some R&D hiring, especially in our MonTitan enterprise controller group to support the opportunities we are seeing with our sampling customers as well as an increasing amount of inbound interest. This concludes our prepared remarks. We will now open the call to your questions. Operator: [Operator Instructions] Our first question comes from the line of Mehdi Hosseini from SIG. Mehdi Hosseini: Two follow-ups. First, for Wallace. Can you give us an update or review some of the key milestones determining your penetration into the enterprise segment with the PCIe Gen5? I think in the past, you've talked about evaluation in the second half of '24, vision by '25. Where are we with those milestones? And then for Jason, what are your thoughts on the longer-term growth and operating margin targets? Chia-Chang Kou: We see the very strong momentum for demand for MonTitan. Q1, we had a 2 Tier 1 customer [indiscernible] one from United States, the other from China. We also have some ongoing module maker design as we will start to see some revenue by end of 2024, become [indiscernible] 2025, with the 2 Tier 1 customers were [indiscernible] by late 2024. But we had announced our goal is to win minimum 2 Tier 1 U.S. and 2 Tier 1 in China is on track. We might have more than what we really can support. We believe 2025, late 2026 will be much more meaningful sales revenue growth for our MonTitan business for enterprise. Jason Tsai: And Mehdi, in terms of gross margin and profitability, certainly, our goal is to continue to gradually improve our gross margins. We believe we can return back to our historical gross margins level by early next year. And then in terms of operating profitability, again, as we scale our revenue, as we see our gross margins further improve, we believe we can continue to improve long-term operating profitability and get back to our historical range of 25% plus as well. We don't have a specific guidance around timing at this point. But certainly, as we continue to execute and deliver, we expect to get closer and closer to that journey each quarter. Mehdi Hosseini: Just a quick follow-up. Given the mix in your revenue, could you hit the 25% operating margin at a lower revenue run rate? Jason Tsai: Look, I think if you take a look at our products today, our revenue -- our SSD controller business, those SSD controllers tend to be above corporate average gross margins. while our eMMC and UFS controllers are below corporate average gross margins. There is certainly a number of growth vectors in both of these businesses. But typically, what we've seen historically is that SSD controllers account for anywhere from half to 2/3 of our business in any given period and eMMC and UFS account for about 1/4 to 1/3 in any given period. So we don't see that percentage changing much. And certainly, if we see automotive or MonTitan becoming a bigger portion of revenue, then that can skew our gross margins to be better than longer than what historical average has been. But it's too early to say what those long-term targets are yet given that we have had to scale those products meaningfully. Operator: Our next question comes from the line of Quinn Bolton from Needham & Company. Quinn Bolton: Wallace, Jason, congratulations on the nice results and particularly on the MonTitan wins. Wallace, I am wondering if you might try to size the opportunity for us for MonTitan for Silicon Motion in 2025. Is this something that you see contributing tens of millions of dollars as the 2 Tier 1 ramp next year. Could you try to help level set us on what's a reasonable expectation for MonTitan revenue next year? Chia-Chang Kou: Yes. We need a 2 Tier 1 customer would run in late 2025. They were probably more meaningful in 2026. But we believe MonTitan enterprise controller revenue will be around meaningful 2026 or '27. Meaningfully is at least 5% to 10% of total revenue. Quinn Bolton: Perfect. And then I think you commented in the script but also in the press release about increasing backlog and visibility. I'm guess wondering, I guess I would think the NAND controller space would typically be a pretty short sort of lead time business because it's just the market can change pretty quickly. How far does your backlog extend? Do you have pretty good visibility now into the second half or is your backlog shorter term in nature, really only cover say, 90 or so days? Jason Tsai: Yes. So our backlog, we obviously have some long-term customers, especially with our NAND makers, where we have much better clarity on what their demand profile looks like over a longer term. These are rolling forecasts, and we do get updated on that pretty regularly. So it does vary depending on the end markets they're serving. They're serving PC OEM customers. There's certainly a little bit better visibility there. But I would also point out that from an inventory management standpoint, it does take us about 3 months to get products in and out of our manufacturing partner stores. So we do need that advanced notice in order to build inventory to support those upcoming products, those upcoming sales, those upcoming ramps, especially going into the back half of the year, where NAND is typically stronger, we need to make sure that we've got adequate inventory to support that revenue growth. Chia-Chang Kou: Let me add a comment, if we are able to increase our annual sales guidance, which mean we have better visibility for the second half of this year. Quinn Bolton: Got it. And then lastly, Wallace, you mentioned price -- the NAND price sort of fluctuations might cause some perturbations in the retail SSD market. Just wondering if you could sort of expand on those comments? Is it just the pricing is coming up pretty quickly, and that could create sort of lower demand temporarily in the retail channel? Or were you trying to imply some other behavior? Chia-Chang Kou: Well, I think the current situation like this, the NAND maker have pretty high confidence because demand from data center and enterprise is very, very strong. So that's why they definitely continue see the supply shortage going to increase the wafer price and we see it going to increase gradually throughout whole year. However, for certain channel market while demand for SSD, see the demand is not that strong as the wafer price increase. That's why some fluctuation. But overall, we see it stabilized and we see the demand for our controller is still strong and stable. So I think primarily because a lot of our module customers have acquired quite many inventory last year, so they can balance for their cost. Operator: Our next question is from Craig Ellis from B. Riley Securities. Craig Ellis: Congratulations on the very strong start to 2024. Wallace, I wanted to start with a higher level question for you that helps put into context what you're seeing with NAND OEM controller outsourcing. So if we take a look at where we are today and compare it to January and early February. Can you talk about the incremental design wins that you've seen with NAND OEMs that would ship in 2024? And it seemed from your prepared commentary that you're also being actively engaged with some 2025 projects. So the question is, what have you seen in the last 3 months that impacts this year's revenues? And what are you seeing that kind of starts to give at least project visibility for 2025? Chia-Chang Kou: I think that the 3 years don't really have a major changes, but we really start to see the NAND makers, they all focus on profitability. Every NAND maker have their own strategy and how to really [ invest in ] CapEx for the equipment. But we're definitely working even since from last year for several 2025 OEM project covered from clients for UFS for automotive eMMC, automotive PCIe, for SSD, multiple projects with individual NAND makers. So they're quite busy and MonTitan also working with quite a -- we have 2 major design wins for Tier 1 customers, we have several in the process incorporating engagement. So we're quite busy this year, and we are pretty confident of our design pipeline for 2025. Craig Ellis: And on that on MonTitan point to follow up Mehdi and Quinn's questions. It seemed like you were saying, if we look in 2027, at market projections with QLC, where you have just an amazing history with product development and performance that -- that part of the market would be about 1/3 of the market or maybe 25 million units. The question is, given your history with the technology, given the solution you've developed what might be a reasonable share position that investors could look at even if it's a fairly wide range for 2027, Wallace? Chia-Chang Kou: Yes, we cannot comment regarding our market share for 2027. While I can give you a certain guidance regarding why MonTitan meaningfully get tremendous traction and interest from the Tier 1 customer. The main reason is because the AI cloud and AI server demand is very, very strong. And we see many Tier 1 customers from the U.S. and China. They really try to export the QLC based SSD for enterprise storage solutions because QLC base it will be cheaper and can build us much bigger capacity we see so many demand [indiscernible] high density for future SSD. So that will be suitable for AI data process, especially sequential rate and low latency. So because we have a very, very strong position and know-how in QLC so that we get a tremendous interest from customers to engage with that for quantification and joint development. That's why we see that trigger the stronger demand than using process and we receive especially for 2 terabyte [ mono die ] QLC, they become a main, main product to enable the future near line SSD to replace portion of HDD. So we are very happy we can be part of it. Craig Ellis: That's really helpful color. And then, Jason, if I could follow up with one for you before hopping back in the queue. Appreciate the point on revenues rising sequentially through the year. Any color as we look at the year's progression on how mix between SSD controllers and eMMC, UFS and some of the other segments might play out even at a high level? Jason Tsai: Yes. I mean, look, I think we anticipate growth this year from both of those segments. Obviously, eMMC, I think we obviously have a much more difficult year for eMMC and UFS last year given where inventory levels were in the smartphone market. So I think you'll see certainly a stronger year-on-year growth given that it was a bit more depressed last year. SSDs were a bit more stable. And so while it will still grow, it's not going to grow at the same growth rates as we saw with -- as we expect to see in the eMMC and UFS this year. But overall, again, the percentage of our business for SSDs and eMMC to UFS kind of typically stay in those bands that we talked about earlier, and we don't see that changing any time in the near future. Chia-Chang Kou: I think, let me add some comment. We definitely both SSD and mobile eMMC UFS will gain market share this year. However, our mobile controller eMMC UFS last year, the base is smaller. So we have much bigger momentum to gain market share in mobile controller. Operator: Our next question will come from the line of Suji Desilva from ROTH. Sujeeva De Silva: Wallace and Jason, congrats on the progress here and the strong start to the year. On the -- sticking on MonTitan and the AI opportunity, if it is supporting AI, do you have a sense of whether it's supporting inference or whether it's supporting training or traditional cloud instances. Any specific color on those programs and where you're seeing traction? Chia-Chang Kou: You asked a very, very good question, but naturally, we really don't know but I think that SSD today is not helping any for compute for AI, but they're supporting it for storage. But [ storage ] I think, fundamentally uses real data. I believe when you really see the upcoming Flash Memory Summit in August in Santa Clara, you're going to see many NAND maker and enterprise these suppliers are going to tell you what exactly they see regarding supporting AI and associate. So that is related to inference also related to training process. Also, it's really regarding the swapping between the LLM model and during the different application running. So I think the storage has a specific performance requirement and their certain feature, we can add especially for edge devices because there are limited in density. SSD, mobile UFS, they have many, many technology we can help in the AI application. Sujeeva De Silva: Okay. And then my other question is on the smartphone market. I heard you guys talk about a OEM that is trying to in-source the controller efforts versus using a merchant controller? I know some of the flagships have been doing that for years. But curious if that's a trend you're seeing or if that's an exception and what that impact might be for SIMO in terms of opportunity? Chia-Chang Kou: So it's very, very good that we see the momentum from some smartphone makers. They are considering a data QLC into the mobile solution. I think as you can see, Samsung is the one of the leading smartphone maker in the last 2 years and bring the solution to the market since the Q4 production last year. And we are very happy to what we serve one major leading smartphone maker for QLC project, and we believe this will be in production by later this year and this is going to bring us real momentum. I think a lot of the players in the smartphone segment, they are looking for how to bring the flagship model into the AI smartphone because everybody is looking for very high performance and how to maintain low power and to supporting different [indiscernible] model. But in the other area, many smartphone makers also bring the mainstream smartphone into the AI arena. So this is why we see the leading smartphone makers try to increase the density, but without increase the cost, and that's why QLC becomes the best candidate. And so many smartphone makers, we believe are going to try to export the potential opportunity to bring the UFS with a QLC solution and to try the market. And I think eventually, they will become the key to enable smartphone -- AI smartphone from the flagship to mainstream and beyond. Operator: Our next question comes from the line of Matt Bryson from Wedbush Securities. Matthew Bryson: I have a few. So on the enterprise SSD side, we've seen substantial demand for 32 and 64 terabyte SSDs recently. I guess it sounds like what you're doing with your technologies enabling QLC, so allowing other vendors beyond, say, [ Solodyn ] with their QLC solution to address this market with those capacities and higher capacities. Historically, there hasn't been a ton of success for third-party controller vendors in the enterprise market. I mean do you see your advantage around QLC as enabling that opportunity for you, so you can get some success in this market. Is that correct? And have you seen more momentum over the last 3, 4 months when it appears like these high-capacity SSDs have all of a sudden started to see incremental demand? Chia-Chang Kou: I want to say that Silicon Motion will be the first in both QLC for enterprise SSD that mean we're the leader for client [indiscernible] with QLC, because lately, we got tremendous demand, but also because all NAND makers are going to have a QLC available in the market. And I believe all NAND maker going to have a 2 terabyte QLC in 2 terabyte QLC in [indiscernible] by late 2025. That's why that trigger, the strong interest from hyperscaler data center and server leader, we try to potentially adopt QLC for the upcoming strong demand for AI server, AI cloud services. So the -- because QLC financial is built for new line SSD, it'll be much more attractive for new line HDD from data asset point of view. So with Silicon Motion because our controller can work with all NAND maker QLC. So we are in a very unique position for the customer directly work with Silicon Motion and we serve as different NAND supplier. So I cannot say we are better in NAND maker, but we think we are in a very unique position to enable the trend adopt QLC to enterprise SSD. Matthew Bryson: Got it. And Wallace it sounds like you're working with all of the different customers out there, in the sense you've talked about hyperscalers, OEMs, module makers, and I guess my question is, can you characterize what those first 2 customers of selective solution, which bucket they'd be fit into the OEM... Chia-Chang Kou: We cannot comment on such [indiscernible] customer until they really announce that name. But 1 Tier 1 in U.S. and 1 Tier 1 in China, we believe by end of the year, we have a 2 more to add on the list. Matthew Bryson: Awesome. And then I guess my last question is, I know this has kind of been asked. But just in terms of the TAM on either -- on both that -- with that enterprise product, but also in the automotive market, can you characterize what you see those 2 TAMs as being versus your more traditional markets in UFS, eMMC and SSD controllers? Jason Tsai: In terms of the enterprise TAM, obviously, from a unit volume perspective, it's not going to be anywhere near as big as the PC market or the smartphone market, right? But however, ASPs for our MonTitan product are certainly several multiples higher than our client SSD controllers, margins certainly better than corporate average. So it is a big opportunity, even though the unit volumes are much smaller compared to our PC and smartphones. On the automotive side, again, the total number of cars shipped today is a lot smaller than either of those other markets. But what we're seeing now is multiple storage requirements and multiple storage devices required per car to run things like not just the infotainment system, but the ADAS, the sensors, the cameras, all those things require individual independent storage solutions that significantly balloon the size of the number of units. I don't have that number handy. We can get back to you on that one Matt, but these are certainly much higher, more sticky engagements that we would be going into as opposed to the PC and smartphone market. Chia-Chang Kou: My other comment regarding automotive. As you know, SIMO has 2 different approach to expand our automotive visibility. One is direct controller, the other are [indiscernible]. For controller, we have engaged 3 NAND makers and for PCIe also as well as the UFS eMMC development. I think some are in production today. We have 2 makers going to production with PCIe Gen4, and we also have new eMMC with a NAND maker. And for [indiscernible] we already -- it's based on our own solution and engage with our multi customer. And we already win, which we have set with Toyota and Honda, also including China BYD. So we have a multiple design win in the pipeline. We believe we will grow our automotive business very, very strongly from 2025. Operator: [Operator Instructions] I'm showing no further questions. I'll now turn the conference back to the President and CEO Wallace Kou, for closing comments. Chia-Chang Kou: Thank you, everyone, for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months as well as the [indiscernible] Tech Conference in Taiwan in June. The schedule of this event will be posted on the Investor Relationship section from our corporate website and look forward to speaking with you at this event. Thank you, everyone, for joining us today. Goodbye for now. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Silicon Motion Technology Corporation’s Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include without limitation statements regarding trends in the semiconductor industry and our future results of operations, financial conditions, and business prospects. Although, such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relations with our major customers, and changes in political, economic, legal, and social conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors please see the documents we file from time-to-time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements which apply only as of the date of this conference call. Please be advised that today’s call is being recorded. I would now like to hand the call over to Mr. Jason Tsai, Vice President of IR and Finance. Please go ahead. Jason Tsai: Thank you and good morning everyone. Welcome to Silicon Motion’s fourth quarter 2023 financial results conference call and webcast. Joining me today is Wallace Kou our President and CEO. Wallace will first provide a key overview of our key business developments and then I will discuss our fourth quarter results and outlook. Following our prepared remarks, we will conclude with Q&A session. Before we get started, I'd like to remind you of our Safe Harbor policy which was right at the start of this call. For a comprehensive overview of the risks involved in investing in our securities please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of market yesterday. This webcast will be available for replay on the Investor Relations section of our website for a limited time. To enhance investor's understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results. The reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. As we have previously shared, Silicon Motion filed its Notice of Arbitration against MaxLinear for the willful material breaches of the merger agreement that was signed on May 5, 2022. The company is seeking payment of the termination fee of $160 million, substantial damages, interest, and costs. The company filed its Notice of Arbitration claim against MaxLinear in the Singapore International Arbitration Center on October 5, 2023. The arbitration process is confidential, and we will therefore not be commenting further on this matter today. With that, I will turn the call over to Wallace. Wallace C. Kou: Thank you, Jason. Hello, everyone and thank you for joining us today. We are pleased by the steady recovery across our business throughout 2023, with fourth quarter revenue and gross margin exceeding expectations. We benefited in the quarter from stronger demand from both our SSD and eMMC+UFS controllers and saw pricing and mix improved to drive stronger gross margin improvement for our business than originally expected. More importantly, our technology leadership in controller and our unwavering engagement with our customers, both flash makers and module makers has laid the foundation for strong 2024 growth despite only modest growth expecting in the PC and smartphone device markets, driven largely by our ongoing share gains with our customers. Over the past six months, we have been busy making organizational changes to better position Silicon Motion for the future. We restructured our business to better engage in a new opportunity in the market and spend a lot of time reengaging with the customers to win back their confidence in us as a long-term partner. As you saw, we formed two new business units, client and automotive storage, CAS, and our enterprise storage and display interface solution, the SDI Groups. Our new organizational structure allows us to be more focused on each segment, to have dedicated industry veterans as the leader enable our team to be more agile and responsive to the market and to better engage with customers and anticipate their need with truly differentiated high-performance and classify solutions. We are seeing the successes of this already as our CAS Group have been increasing share as our customers by winning significant new designs with both flash makers and module makers for the PC, smartphone, automotive, industrial, and other markets. Our ASDI Group has also made incredible progress with some untitled product in a short amount of time securing more than a dozen sampling customer ready. With these changes, we are better positioned than ever before and look forward to demonstrating the ongoing strength of our business to our investor each quarter. Now let me move into our business and give you an update on the NAND market dynamic we are seeing today and what we are expecting for 2024. Pricing for NAND Flash has been steadily increasing and expected to continue to improve throughout 2024 and into 2025. NAND makers are being disciplined in their production and limiting output, resulting in higher NAND flash prices. Demand is also expected to pick up this year as both the smartphone and PC markets will grow modestly after two years of meaningful decline in unit shipments. While higher pricing may limit the activity we typically see from our module maker customers, many have pre-bought low-cost NAND in the second half of last year, and we have secured significant wins with them for upcoming products this year. We believe our business with module maker will grow this year despite the headwinds created by higher NAND flash prices. For flash makers, while higher flash prices over the past few months have improved their profitability, most are still facing negative or very low margin, and this is why we are seeing them increasingly focus on profitability. Flash makers need to prioritize their focused investments from developing new generation of NAND to developing storage solutions to satisfy a wide range of end market requirement. These solutions range from high performance to value-oriented using DRAM and as well as utilizing TLC or QLC to serve a broad range of end market need in eMMC+UFS, client SSD, embedded enterprise and industrial applications. We are seeing flash maker focus on their own effort on leading-edge, high-performance solution where margin and profitability tend to be highest and they are turning to us as a partner of choice to help bolster their portfolio with high-performance, lower-cost solutions, utilizing their latest generation of high-performance, high density NAND to serve a broader range of market requirements. Our progress with our flash maker partner over the past year has resulted in strong backlog of new wins across all our product groups that will drive meaningfully higher share and faster growth this year and lay the foundation for strong long-term growth. We continue to grow our customer relationships and are on track to grow our business with every NAND flash customer we have this year. Our revenue from flash maker expected to grow approximately 50% this year, a design win across our controller program meaningfully throughout 2024. Turning to our SSD controllers, we take our first PCIe Gen 5 channel controller last quarter and have already secured three flash maker win in this product as well as several module maker wins. This is the first time that flash makers adopt our controller for high-end notebook models. We expect sales of this high-performance controller to begin late this year. We are engaging with other flash makers as well as numerous other module makers expect to win more designs through 2024. Our second PCIe controller will be taped out early in the third quarter this year, and we already have significant interest from both flash makers and module makers for the mainstream Gen 5 solution that are expected to ramp in late 2025. While we are excited by our progress with PCIe Gen 5, it's important to point out that we continue to win significant new programs with several flash makers with older generation interface as well, including two new starter SSD programs, several PCIe Gen 4 SSD including one using next-generation QLC flash on the value of PC OEM market and several USB 3.2 portable SSD projects. Our QLC controller with our proprietary 3D array and more advanced LDPC for better aero correction and data protection and recovering offer, no compromise solution that maintains high performance and reliability while utilizing the most cost-effective flash to further improve affordability. We are seeing strong traction of QLC controller with both our flash makers and module maker customer and more widespread adoption by PC OEM as well. Moving on to our eMMC+UFS controller solution. We are taking out our UFS 4.0 solution this quarter and remain on track to ramp with a flash maker customer later this year as well as several module makers targeting the smartphone market. UFS 4 remains a flagship and a premium solution this year and expected to expand into high-end mainstream handset market in 2024 and after. Aligned with win, our solution with our flash maker and module maker customer expected to ramp. UFS 3.1 and 2.2 remains a primary solution for mainstream smartphones this year, and we are seeing continuing strong demand for our current UFS controller with additional flash makers and module makers. We are seeing flash makers focusing on their own internal controller development on the latest flagship generation of UFS, where they get the highest premium for their higher performance solution. As each of UFS generation moved from flagship to mainstream, we are seeing flash maker turning to us to utilize our controller paired with their newest NAND that offer high performance and lower cost, ideal for the mainstream smartphone market. It is a symbolic relationship that has driven our strong partnership with flash makers and driving more win and long-term growth for our eMMC+UFS controller business. Now let me give you an update on the progress of our MonTitan Enterprise State Development platform. We started sampling MonTitan to customers at the end of last year, and we are excited to announce that more than a dozen customers, many of them Tier 1 end companies ranging from NAND flash makers, hyperscaler, storage solution provider, enabler, as well as module makers are in the process of evaluating the solution. MonTitan’s highly differentiated storage solution provides support of both high-performing TLC SSD as well as high-capacity QLC SSD. We are finding that this ideal balance of performance and features is appealing to customers across all enterprise and data center market segment. Based on our ability to support a wide range of customer engagement model from the turnkey to layer firmware stack development, MonTitan has raised the asset to an extensive amount of data [indiscernible], speed ideal for a variety of applications, including high-performance edge computing and AI interference and machine learning. We are confident that we will continue to make it grow during the Gen 5 transition into the AI era, and expect to secure a first design win in the next few months and generate clearly revenue by the end of this year. Overall, I'm excited by the opportunity ahead of us in 2024. Our team dedicating to maintaining our technology leadership and our varying commitment to our customers has enabled us to continue to win socket after socket and positioning us strong share growth this year and beyond. Our position with our flash maker customer has never been stronger with the new design wins are expected to ramp since the beginning of this year. Our module maker customers are coming into 2024 with strong inventory of low-cost NAND and choosing us to help them bring competitive SSD and embedded solutions to the market. We are well positioned to continue to further strengthen our design pipeline in 2024 to drive growth in 2025. Now let me turn the call over to Jason to go over our financial results and outlook. Jason Tsai: Thank you, Wallace and good morning, everyone. I will discuss additional details of our fourth quarter results and then provide our guidance. Please note that my comments today will focus primarily on our non-GAAP results, unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the fourth quarter, we grew sales 17% sequentially to $202 million. SSD controller sales grew 15% to 20% sequentially. eMMC and UFS controller sales grew 25% to 30% sequentially and SSD Solution sales decreased 5% to 10% sequentially. Gross margins in the fourth quarter increased to 44.1%, reflecting both better mix and higher ASPs. Operating expenses in the fourth quarter were $61.5 million, $12 million higher than the prior quarter due to higher R&D expenses to support our technology leadership. Operating margin in the fourth quarter was 13.8%, flat from the third quarter. Effective tax rate in the fourth quarter was 2.3%, a decrease from the 22.8% tax rate in the third quarter primarily due to a tax reversal in the quarter. Excluding this, tax rate would have been 28%. Earnings per ADS were $0.93, 48% higher sequentially. The stock-based compensation in our operating expense, which we exclude from our non-GAAP results, was $5.7 million, and we had $369 million in cash, cash equivalents, restricted cash, and short-term equivalents -- short-term investments at the end of the fourth quarter compared to $350.3 million at the end of the third quarter. Inventory increased sequentially in the fourth quarter to $217 million from $199 million in the third quarter. Now let me turn to our first quarter and full year 2024 guidance and forward-looking business trends. For the first quarter, we expect revenue to be down 10% to 15% sequentially to approximately $172 million to $182 million. We expect SSD controller sales will decline slightly in the first quarter and eMMC and UFS controller sales will decrease. First quarter gross margin is expected to be in the range of 44% to 45%. First quarter operating margin will be in the range of 10.5% to 11.5%. First quarter effective tax rate to be approximately 19% and in the first quarter, we expect stock-based compensation and dispute-related expenses to be in the range of $6 million to $7 million. For the full year 2024, revenue will increase 20% to 25% to $765 million to $800 million. Gross margin is expected to be in the range of 45% to 47%. Operating margin should be in the range of 14.7% to 16.7%, and our effective tax rate for the year is expected to be approximately 19%. Full year stock-based compensation dispute and related expenses will be in the range of $31 million to $33 million. Let me provide some additional color on our first quarter and full year expectations. As Wallace mentioned, we are making strong progress with our flash maker customers. We have a strong pipeline of design wins and are positioned to gain meaningful share this year. We expect our revenue from all of our flash maker customers will grow in 2024 and to increase approximately 50% this year. In addition, we have high visibility that two additional flash makers will be ramping new projects with us this year in eMMC and UFS and in SSD controllers, and we will be able to grow revenue from each of these flash makers very meaningfully. We expect normal seasonality to impact our business in the first quarter but are confident that we are well positioned to grow sequentially throughout the rest of the year based upon our strong backlog of wins and project ramps. We expect to see consistent improvement in our gross margins this year driven by better mix towards newer generation interfaces in our eMMC and UFS and SSD controller sales, a number of new projects ramping, and overall pricing starting to normalize and improve. For operating expenses, we'll continue to invest in maintaining our technology leadership in the market, including the tape-out of two 6-nanometer controllers, one in Q1 for UFS 4 and one in Q3 for a second PCI Gen 5 SSD controller. This will lead to elevated operating expenses in those quarters. This concludes our prepared remarks. We'll now open the call for your questions. Operator: [Operator Instructions]. First question comes from the line of Mehdi Hosseini from Susquehanna International Group. Please ask your question. Mehdi Hosseini: Yes, thanks for taking my question. I have two. Wallace, can you help me understand what you're seeing in SSD Solutions business segment, I understand that your continued traction with flash makers and a new product ramps that are more focused on SSD controller and the smartphone, but could you give us a feel for SSD Solution and whether you would be able to actually slow down the decline in revenues here? And I have a follow-up. Wallace C. Kou: I think our SSD Solution in Ferri has been stable, and we are seeing a strong pipeline of win. I think for Q4 revenue decline due to some of multi-customer see the inventory pile-up and we do see 2024, we have accumulated more design. But we see we have a stronger growth in 2025 from an automotive customer for our Ferri product. Mehdi Hosseini: Okay, great. And your 2024 guide is very encouraging. You are also ramping a 6-nanometer takeout. I understand what's driving the OPEX increase. I also look at your cash, you have almost $10 of net cash per share. Your just operations should help with additional cash generated, you sound very confident, why not revisit the capital return, especially with the buyback, especially with the investors that have been patient, any thoughts, any color here would be appreciated? Jason Tsai: Yes, thanks for the question, Mehdi. Look, that's a good question. If we look at our capital allocation program constantly, that's something we review with our Board regularly. We have the dividend policy that we've been paying for a very long number of years with the exception of when we were in the acquisition process. Strategy behind the dividend, as you know, has been always to set it at a level that's comfortably affordable and we'll continue to evaluate going forward, whether to increase the dividend in a future time as business continues to scale and cash flow increases longer term. In terms of things like a share repurchase, as you know, our share repurchase program in the past has been opportunistic. We do not have a program in place today, but the Board is always evaluating ways of returning cash to shareholders and share repurchase is something they'll continue to look at. Mehdi Hosseini: Thank you. Operator: Thank you for the questions. One moment for the next questions. Next question comes from the line of Quinn Bolton from Needham. Please go ahead. Quinn Bolton: Hey guys, congratulations on the results and outlook. Thanks for taking my questions. I wanted to follow up, Wallace on your comments. Very encouraging to hear that you'll grow with every NAND manufacturer in 2024. But I think one of the concerns we've heard from investors is that as UFS 4.0 becomes mainstream, that one of your customers that's in-sourced, UFS 4.0 that may be a headwind more in 2025 than 2024. And so I'm not trying to get you to give guidance for 2025. But overall, would you expect your business in aggregate with NAND vendors to continue to grow in 2025 as UFS 4.0 becomes more mainstream? And then I got a follow-up. Wallace C. Kou: Yes, we believe we definitely we can continue to grow from our mobile controller for both UFS and eMMC. As you know very well, the UFS 4.0 has still remained the high end for 2024 and 2025 and probably will go to mainstream up to second half of 2026. And we have a very strong UFS 3.1, 2.2 today, not only for existing NAND partner but also winning one to two additional NAND maker business and going to ramp in 2024 and 2025. In addition, we also see NAND makers, they focus on the new development. So when UFS 4.0 becomes mainstream, their R&D is focused on UFS 5.0 development and sometimes outsourcing the new UFS 4.0 project to Silicon Motion because our new laser controller can capture the latest new generation high-performing I/O NAND with higher density NAND. So that will become much more attractive and value add to our NAND partner, extend the product life cycle. So we see our position very well with NAND maker as well as growing module maker who are moving from eMMC to UFS. Jason Tsai: And I think also that it's becoming a much more diversified business. It's no longer really driven by one customer. We have a multitude of flash makers and module makers that address the smartphone market all very effectively. And so as we ramp up with these new flash makers and module makers, we're confident that we can continue to grow this business long term. Quinn Bolton: Great. My second question is more a clarification about the two new NAND vendors that ramp this year. Can you give us any color, is that specifically on the eMMC UFS business, is it across both mobile as well as the SSD business, just any color? And then, Jason, just a quick looks like OPEX for the full year probably comes in at about $240 million or on average about $60 million a quarter. I know there's some tape-outs in Q1 and Q3 that will probably increase R&D in that -- in those quarters. But is that sort of $240 million not the right range to be thinking about for OPEX in calendar 2024? Thank you. Wallace C. Kou: The two NAND makers, I think, really one is for UFS, one for eMMC, but we are continuing looking for engagement with the NAND makers. Jason Tsai: Yes. And for OPEX, I think -- yes, I think it's in that range. $230 million to $240 million is probably the way to look at it. Quinn Bolton: Perfect, thank you. Operator: Thank you for the questions. One moment for the next question. Next question comes from the line of Gokul Hariharan from J.P. Morgan Chase. Please go ahead. Gokul Hariharan: Yeah, hi. Thanks for taking my questions. First question is on enterprise, given that you have -- you are getting pretty good traction with your new product and you also reorganized the organization to focus more on enterprise. Wallace, could you give us a little bit more color on how big is the enterprise addressable market for Silicon Motion, what is something that you can really achieve over the next maybe three, four years in terms of the enterprise traction? And could you also give us a little bit of color in terms of what kind of design wins are you getting, are you getting more design wins on like core storage products, or is it like making OEMs and hyperscalers, is there any mix in terms of where you're getting the payments, maybe you will give us a little bit more color on the enterprise addressable market? Wallace C. Kou: So it's a very good question. I think that we are seeing very good traction today as we continue to sample and go through the qualification process with these Tier 1 customers and by a dozen customers from U.S. and to Taiwan, China. And I cannot give you the quantize number, I think by end of 2024, we'll have meaningful revenue. We have much bigger revenue in 2025 and 2026. The reason we get traction not only the standard B&G, we're gaining momentum because the high-performance and all the number index that exceed expectation, but also we get a traction due to the QLC SSD coming into the data center. And then the -- this is for twofold. One is FTP standard for QLC, also Zone NAND safer QLC in China. I think U.S. one customer is also very interested for space. So that makes us a very differentiated compared with conventional solution. Due to the AI server demand and AI demand, I think Gen5 SSD become much more attractive. So this is a similar our demand, and that's why many customers will qualify our Gen 5 solution. Gokul Hariharan: Got it, thank you very much. My next question is more near-term. For 2024, you have a 20% to 25% revenue guidance. Could you give us some color on how you expect client SSD to grow and mobile to grow? And within mobile, recently, we are hearing some concerns about the end of restocking for some of the Chinese customers. Are you seeing the China, the smartphone customers being a little bit more conservative in terms of procurement in the near-term? Wallace C. Kou: Yes. I think for Client SSD, last year, our market share -- global market share is around 25%, 26%. We believe this year we will grow to 30% to 32% range because total overall SSD number overall will grow another probably 10 million to 20 million for global unit shipment. For mobile, we will grow faster and stronger because we have more customers in the pipeline not only the existing NAND maker, they continue to grow compared with last year, but also we have two additional NAND maker joined the group to grow. And module maker, we see they will grow even stronger. And we also have a platform development with both Qualcomm and MediaTek. We also have direct engagement with smartphone maker to strengthening our position and technology and pacing for 2025 growth. Gokul Hariharan: Okay, got it, thank you. Operator: Thank you for the questions. One moment for the next questions. Our next question comes from the line of Anthony Stoss from Craig-Hallum. Please ask your question. Anthony Stoss: Thank you. Jason, I was trying to write as fast as I could. On the tape out commentary, could you just break that out again by quarter and kind of the cost that you expect for the quarter? And then I had a follow-up for Wallace. Jason Tsai: Yes. So we're expecting to tape out our UFS 4 6-nanometer controller here in the first quarter, and then we'll tape out our second PCI Gen 5 controller early in the third quarter. So that's going to result in more elevated OPEX kind of similar to what you saw here in the fourth quarter for each of those two quarters. And then in Q2 and Q4, that should revert back down to a more normalized level because of those -- because those peers don't have the tape-out. Those tape-outs as we have said in the past, are typically north of $15 million in terms of total development and investment cost for us. So during the quarter, where they're taping out, it's certainly a big step up on the OPEX. Anthony Stoss: Okay. Got it. And then Wallace, I'd love to hear a little bit more last quarterly conference call, you talked about a new Korean NAND maker coming on as a customer. I'm curious to your view on how quickly they could wrap and could they be a, let's say, a top three customer in 2025? Wallace C. Kou: We cannot comment individual NAND maker customers about the revenue, but we definitely look forward to stronger engagement and broaden our product line and design win. I think we would start looking forward to embrace the NAND maker who really can outsource more projects to Silicon Motion, and will add value to them. I think that 2024, 2025, they are really a good timing for us to show our technology and serve our NAND maker, select their R&D extension and looking forward to more exciting results. And we will definitely rollout this year. Anthony Stoss: Okay. And if I could sneak in one more on your MonTitan, so you talked about having secured one design win. Can you give us any color on if it's a data center hyper scaler, NAND maker, and then how quickly do you think you can secure additional out of those 12 that have sampled? Wallace C. Kou: We cannot comment the customer and the type, but I think with Tier 1 customers and with that, we believe we will secure the second one in the second half of 2024. So I think we're confident to win at least two Tier 1 customers by end of 2024. Anthony Stoss: Very good, thank you. Operator: Thank you for the questions. Next question comes from Craig Ellis from B. Riley Securities. Please ask your question. Craig Ellis: Yeah, thanks for taking the question. Wallace, I wanted to start with you and follow-up on some of the outsourcing questions from the call, but also really continue the conversation that you and I have had over the last couple of years. So I think we both expected that there would be an increase in outsourcing from NAND customers. And the question is this, as you look across the increase in activity that you've observed over the last 12 months or so, can you characterize how extensive that is from OEMs that are maybe just doing one or two new products to much more wholesale changes, what's happening on the continuum a little bit to a lot, and how much of that is baked into the guidance that you and Jason have given for calendar 2024? And then I had a couple of follow-ups. Thank you. Wallace C. Kou: I think the -- as you can see through the 2023 it was a difficult year for all the NAND makers because the weak demand and the oversupply, the NAND price declined sharply and nobody really make any planning. Everybody is margin negative. And we are able to gain share because I think we are treated view, recognize the extension of NAND makers on R&D. So that's why we have been developed such relationship recognition, trust, and respect for the past 15 years. And we're capable and handling. So NAND makers, their focus now is not focused on market share. They focus on profitability. So they are not either invest more CAPEX in the NAND capacity. They only invest the technology they want to deliver. So their focus on the development between the high end, more value, we can maximize the profitability they can get. And the mainstream [indiscernible], they will try to also to third party like Silicon Motion, which we can help them and diversify and bring a more portfolio offered to the very end customer. So this is the idea we bring to the table, and we see more and more outside opportunity from NAND maker when they make a business decision, they tend to go to the third party like Silicon Motion. Craig Ellis: Got it. And then the follow-up question is just a continuation. What are the things that you're looking at that will indicate that this is not only a trough cycle reaction from NAND OEMs, but through the sweet spot of the cycle and towards the peak of the cycle, they would sustain this level of outsourcing or perhaps even grow it? And then the follow-up is for Jason. Jason is MonTitan ramps in calendar 2024, how should we think of the gross margin implications relative to corporate average? Wallace C. Kou: We see this cycle because now NAND well-being shortage. So NAND maker the careful to value all the priority inside the company. Every NAND maker may have a different strategy, and we cannot comment for that. But we believe this cycle will continue until middle of 2025 or late 2025, when supply demand reached balance and NAND makers start to invest more about the CAPEX and to meet the higher demand. Jason Tsai: And I also think that -- I think to your question about how much of this outsourcing is temporary versus more of a structural shift. We have wins going into 2025 and further out. So I think this isn't something where they were just using us for a short-term stop gap. This is something where we're building much more substantial long-term relationships with them. In terms of the MonTitan revenue ramp and margin impact, that's not going to expect it to happen until late into Q4 -- late into 2024, excuse me, in Q4. So it's too early to say what impact it will have. More meaningful ramp in 2025 and certainly, as we have better visibility around that, around timing of wins and scale of the wins, we'll be able to provide more color. But right now, it's a little too early to talk about the impact of both revenue and margins at this point. Craig Ellis: Got it. And the gross margin color on calendar 2024 guide was quite helpful. Can you talk about the visibility that you have, Jason, to gross margins ultimately reattaining that more normalized 50% level? Jason Tsai: Yes. I think we're feeling pretty good about that just given the mix of new products, new projects, new technologies that are coming to market that we already have strong design win and pipeline for. As each day passes, we're also seeing these new engagements bring with them healthier pricing levels at healthier margins, and we're certainly working on our own back end and production to also improve costs as well. So I think we're on a good track here and the guidance that we provided, we believe that it's attainable. Craig Ellis: Thanks Wallace, thanks Jason. Operator: Thank you for the questions. Our next question comes from Suji Desilva from ROTH MKM. Please go ahead. Suji Desilva: Hi Wallace, hi Jason. Congrats on the good guidance here. You talked about the module makers securing lower-cost NAND in late 2023 that they're selling through now. Can you just talk about the behavior you'd expect as that lower cost NAND gets worked through and how they respond, would they then look to market conditions or just any thoughts there on how that might impact the financials after that gets worked through? Wallace C. Kou: Most of our leading module makers I think they have been in the market for a long time. So they understand NAND price trend. So they procure a very large amount of NAND through last August to November. So that really is prepared for NAND price up. They understand NAND price, NAND will be in shortage and NAND price will go continually throughout the entire 2024. So they're procuring advance and to balance their cost they will continue to buy some of NAND this year. But product mix and NAND different pricing makes them to be more competitive to compete with other module makers. Suji Desilva: Okay, alright, thank you Wallace. And then my other question is on the MonTitan as it ramps up. Is this the right way to think about that, that maybe some of the AI servers out there, great opportunity for attach rates and content increases of MonTitan or is that not the right framework for what might be...? Wallace C. Kou: I cannot comment on that, but I think the current demand is in the very wide range from the hyperscalers and from AI server, from all-flash array, from conventional servers. So I think we're definitely looking forward to -- but the more important is a Tier 1 customer who have a really good volume, and we believe we can -- we have secured one. We're looking forward to see your second one by second half of 2024. Suji Desilva: Okay, that’s very helpful Wallace. Thanks. Operator: Thank you for the questions. [Operator Instructions]. We have a follow-up questions from Mehdi Hosseini from Susquehanna International Group. Please go ahead. Mehdi Hosseini: Yes, great, thanks for the follow-up. Jason, I understand the 6 nanometer tape-out is going to keep your R&D in the $47 million to $48 million a quarter this year. Should we expect additional tape-outs next year, or in other words, should R&D stay at these elevated levels into 2025 or would it taper off? Jason Tsai: I think we'll continue to invest here. I think it's a little too early for us to comment about what 2025 OPEX looks like at this point. But obviously, it's important for us to continue to invest, to continue to stay ahead. We tape out a 6 nanometer because it's what we need to do. The technology requirements for performance and power, you can only get both of those to the right levels when you go down to this lower process geometry. I think there are options for us to look at ways of reducing tape-out costs and foundry costs longer term that we're exploring. So stay tuned as we have more to share on that we will. But certainly, our goal here is to continue to invest, but invest responsibly and try to bring the cost down as much as we can, but still maintain our technology leadership. Mehdi Hosseini: Sure, that's fair. Ultimately, we're just trying to figure out if the company is still targeting mid to high 20% operating margin and OPEX is a factor here. So any thoughts on the longer-term operating margin target since...? Jason Tsai: Yes, that hasn't changed. I think if you take a look at our business in the past, we are typically a 48% to 50% plus gross margin company and operating margins in that 25% to 30%. There's nothing fundamentally different about our business today that says that, that's not an achievable target for us longer term. Mehdi Hosseini: Okay, very helpful. Thank you. Operator: Thank you for the questions. One moment for the next questions. We also have a follow-up question from Craig Ellis from B. Riley Securities. Please go ahead. Craig Ellis: Thank you for taking the follow-up. Wallace, you mentioned the company has a collaboration with both MediaTek and Qualcomm. And I was hoping you could comment a little bit further on that, both on the duration of those two partnership engagements and two, the nature of them, are you a reference design partner for those solutions, and if so, to what extent, and to what extent have those been part of UFS revenues in the past, and are they expected to be in 2024 and 2025? Thank you. Wallace C. Kou: It's important for our new products and to qualify on leading SoC provider, like the Qualcomm MTK for the mobile platform. And then normally, we have direct engagement also through our customer, joint qualification. So they help us to resolve some issue during the preproduction qualification. So this is a joint prequalification and help us to gain confidence for our quality for firmware as well as ASIC. And we also and what we serve Qualcomm for automotive platform qualification. So they extended our product line like Ferri and MediaTek and other NXP. So this is the platform and platform engagement to help accelerate our product readiness, also help our customers to end the production sooner. Craig Ellis: And how material are those relative to the revenue that we've been seeing and that you would expect to see in 2024? Wallace C. Kou: I cannot quantize the numbers, but I tell you it's very helpful and our company put a big effort for platform qualification and team and dedicated to help our product line. Craig Ellis: Thanks Wallace. Operator: Thank you for the questions. Next up, we also have a follow-up questions from Gokul Hariharan from J.P. Morgan Chase. Please go ahead. Gokul Hariharan: Yeah hi. I had one question on AI. Thanks Wallace, you did highlight the AI adoption on the enterprise side. Could you also talk broadly on what happens when you have more adoption on edge devices, especially most of your PC and smartphone customers are launching AI-enabled PCs and smartphones this year and probably more next year. What does it do to NAND flash content and what does it do to your controller ASPs or controller specs? Wallace C. Kou: So these are very good questions. Naturally, not only us, all the NAND maker, I think have spent probably at least half year looking forward to how the AI will impact for storage solution and what a controller maker need to do to improve our value and enhance AI application. So there's a lot of exciting applications for AI PC. You're looking from the Intel, AMD, the SoC, also Qualcomm and NVIDIA coming provide the solution. There are also third-party for AI SoC for PC, but not for the notebook, but for desktop and for PC workstation. So we are involving for what our company is for enterprise AI, the SSD probably because the enterprise -- the server AI is more important for compute. So it's solution is really a system role. So the regular latency and sequential results is very critical and to supporting and obviously all the AI server requirement. But for the AI PC, that's a different story because you cannot use HBN for the PC. You cannot use a very, very high density and limited density for DRAM. So the -- swapping become very critical. So several technologies, several requirement is really neither SSD controller and a solution to provide to allow to make the Edge AI to be more meaningful and more practical. And I cannot go to detail. I'd just say, this is all the area we are looking for to add value and study. I think all NAND makers and leading control makers are looking for to provide solution and be part of the Edge AI trend. Gokul Hariharan: Okay, thank you very much. And second, on PCIe Gen 5, could you talk a little bit about the pricing uplift you're expecting as you go from PCI Gen 4 to PCI Gen 5, I remember I think you talked about significant premium in the last call. Could you talk a little bit about what you're seeing in the market for the flagship products and how that is likely to shape out as we get into more mainstream PCI Gen 5 products towards next year as well? Wallace C. Kou: I think, I cannot give you exact number, but our high-end PCI Gen 5 channel controller is about two times of PCIe Gen 4 controller today. We are very exciting to see our high-end PCIe Gen 5 controller adopted by three NAND maker. We believe there will be additional join in later this year. So this is very important for us to expand our market share for notebook, for PC OEM, as well as we see the increase in our sales revenue as well as margin. And this is a very important milestone. And the PCIe Gen 5 and the high-end controller can also be adopted by the server for boot storage. And I think there's a trend we're seeing and not just for notebook, but PC for workstation for gaming PC that will be our top high-end PCIe Gen 5 channel controller. Operator: Thank you for the questions. With that, I would like to hand the call back to the management for closing remarks. Wallace C. Kou: Thank you, everyone for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of this event will be posted on the Investor section of our corporate website. Thank you, everyone for joining today. Goodbye for now. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corp. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only. After the speaker's presentation, there will be question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include without limitation statements regarding trends in the semiconductor industry and our future results of operations financial condition and business prospects. Although, such statements are based on our own information and information from other sources, we believe to be reliable you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressure on prices unpredictable changes in technology and consumer demand for multimedia consumer electronics the state of and any change in our relationship with our major customers and changes in political economic legal and social conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors please see the documents we file from time-to-time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements which apply only as of the date of this conference call. And now, I'd like to hand the conference over to Mr. Jason Tsai, VP of Investor Relations and Finance. Please go ahead sir. Jason Tsai: Thank you. And good morning, everyone, and welcome to Silicon Motion's Third Quarter 2023 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou our President and CEO. Wallace will first provide a review of our key business developments and I will discuss our third quarter results and our outlook. Following our prepared remarks, we will conclude with a Q&A session. Please note that, Riyadh Lai, our CFO will not be joining us on today's call. Riyadh worked intensively on the merger with MaxLinear over the last 15 months, while continuing to manage all the CFO responsibilities. He's now devoting his time to prepare him for the arbitration against MaxLinear. As a result I was asked to lead our investor-related activities. We will then conclude with Q&A. Before we get started, I would like to remind you of our safe harbor policy which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the US Securities and Exchange Commission. For more details on our financial results please refer to our press release which was filed on Form 6-K after the close of the market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found on our earnings release issued yesterday. We ask that you review it in conjunction with this call. As we have previously shared, Silicon Motion filed its Notice of Arbitration against MaxLinear for its willful and material breaches of the merger agreement that was signed on May 5, 2022. The company is seeking payment of the termination fee of $160 million further substantial damages interest and costs. Please note that, the arbitration process is confidential and we will therefore not be commenting further on this matter today. With that, I will turn the call over to Wallace. Wallace Kou: Thank you, Jason. Hello everyone and thank you for joining us today. It is good to speaking with you again after such a long break to provide an update on the progress we have made over the past year and a half. Since our founding nearly three decades ago the strengths of our business and the fundamental drivers of our growth have always been our technology leadership and the quality and depth of our customer partnership. Today, the statement has never been truer. Silicon Motion Technology leadership continue to enable us to win sockets and grow our share as NAND makers. At the same time, it drives them to rely on us more each day, to outsource more in order to target a wider range of end markets that their own R&D did not have the bandwidth to support. Our relationship with our module maker customer continued to deepen to our broad portfolio of solution enable them to be the most competitive in their respective end markets. Our technology leadership also paves the way for us to expand into additional markets; like enterprise and data center storage, automotive, commercial, industrial and IoT. And now that is clear that we will remain a standalone company. Our engagement with our customers have been steadily increasing as well. Our unwavering focus on technology leadership will be what continue to drive our growth longer term and ensure our partnership with both NAND maker and module maker alike remain strong. With that, I will turn to our results for the third quarter. Our business continued to gain momentum with the revenue growing 23% sequentially to $172 million and earning per ADS growing 67% sequentially to $0.63. We saw inventory level begin to normalize across the majority of end markets and OEM order activity pick up in the third quarter leading to a strong revenue growth in the quarter. We expect this trend to continue and are confident they will lead to strong sequential growth in the fourth quarter. While the first half of 2023 was challenging due to the global macro economy weakness and excess inventory in the channels the inventory level across our end market are normalizing and OEM demand continue to improve. Today, I'm pleased to say that we are shipping to more customers than ever before working with all the major NAND makers on the multiple engagement across several end markets and expanding our footprint among market-leading module makers with an innovative solution for the smartphone, PC, automotive, industrial, commercial and enterprise markets. We continue to invest in our technology leadership and in coming quarters expect to introduce several industry-leading solutions for SSD and embedded market. That will drive sustainable long-term profitable growth for our business. QLC NAND is essential to further improve affordability of solid-state storage, but also posted greater challenging to overcome leading to worsened endurance reliability, data integrity and performance. As flash makers continue to roll-out next-generation higher-density 3D QLC NAND with 200 to 300 plus layers controller technology requirements are scaling up significantly requiring the use of more sophisticated LDPC as well as our proprietary 3D RAID technology for better error correction and recovery data, protection and reliabilities. These next-generation controllers will require final design and manufacturing processes to deliver a much higher performance while maintaining the same low-power consumption as previous generation solutions. We invest early in supporting QLC NAND and Silicon Motion have more experience managing the technology than any other company in our industry. Our leadership in these areas are second to none, especially, in the merchant market. We expect to continue to maintain our leadership in the market with these next-generation solutions and win meaningful share of a new product with all NAND flash makers as well as all the leading module makers. By end market standpoint excess inventory in the PC and smartphone markets have plagued the industry since late 2022 when the global economy weakened and demand lowered. It has taken nearly a year, but we believe the inventory level in both the PC and smartphone markets are normalizing. We are seeing more consistent order patterns from our customers and better visibility that are more closely aligned with end market demand. We are optimistic that this trend will continue and that the industry is well positioned to return to growth in 2024. Now let me now discuss our SSD controller business. Our SSD controller business grew 5% to 10% sequentially in the third quarter. We are beginning to see the PC market rebound and believe that the replacement cycle of corporate that personally no going early days of COVID are beginning. This should lead to stronger PC demand in the coming months. For the current PCIe Gen4 SSD market, we just began shipping our Gen4 controller to our newest Korean NAND maker customer for their PC OEM customers. And we're now supplying our SSD controller to all but one of the major NAND makers. Our large expanding NAND flash customer base and our strong share with all the leading module maker continue to position us well in the PC OEM and channel market for SSD. We expect Gen4 SSD to continue to be the majority of the PC SSD market through 2025 and PC OEM will begin adoption of PCIe Gen5 SSD for high-performance PC in 2025, when Intel and AMD adopt standard in notebooks. This PCIe Gen5 SSD will enable much higher data bandwidth and performance that will be critical for next-generation PC and will also enable new capabilities such as AI as an edge and will eventually become standard. We already secured design wins with other flash makers that are outsourcing controller to merchant supplier and expect to begin shipments in late 2024. Our first Gen5 controller is tapping out in this quarter and will serve the high-performing market with an 8-channel solution using TSMC's 6-nanometer technology that will deliver unparalleled performance and low-power consumption. PC OEM expects significantly higher performance with Gen5 SSD. But at the same time power consumption in Gen4 SSD requiring us to move 6-nanometer process technology to achieve both high performance, as well as low-power consumption requirement. This new SSD controller USB will be nearly double than our comparable 8-channel Gen4 controllers. We expect to tape out our second PCIe Gen5 controller a full channel solution in the second quarter of next year and began sampling in the second half of next year. We expect this solution to help expand the adoption of Gen5 SSD into more mainstream PC in 2026. For the enterprise market we will sample our MonTitan PCIe Gen5 SSD controller this quarter. We are working with several enterprise and data center customers around the world and expect to generate initial revenue in late 2024, with more meaningful revenue in 2025 and beyond. Now moving to our eMMC and UFS business. Revenue from these products rebounded strongly in the third quarter and more than doubled as demand ramped ahead of the holiday season and inventory level in the channel and smartphone OEM are normalizing. Our diversified customer base of NAND flash makers and module makers have expanded our share with a leading handset OEM. UFS 3.1 as well as the UFS 2.2 solution remains a dominant interface for smartphones and we continue to win new programs with both flash makers and module makers. UFS 4 is only adopted by factory smartphone today and we do not expect to see adoption of UFS 4 into mainstream smartphone until 2025. We are working on our own UFS solution also using 6-nanometer process technology to deliver higher performance while maintaining the same power consumption of the UFS 3.1. We expect to tape-out the product in early January and start sampling in the first half of 2024, with mass production expected in early 2025. We are already engaged with the flash makers as well as module maker targeting leading handset OEMs and on track to meet their expected ramp for UFS 4.0 in 2025. We are also seeing expanding use case of eMMC and UFS beyond smartphones and have significant wins already in the automotive IoT, commercial and industrial market with NAND makers as well as module makers. We believe we are well positioned to continue to see our eMMC and UFS business to continue to grow in 2024 and beyond. We have talked a lot about expanding use case of solid-state storage and I would like to highlight a particular end market as an example of our success in diversifying our business. In the automotive market our embedded SSD controller as well as our FerriSSD are making significant progress with the flash makers and module makers, targeting storage for central vehicle control unit infotainment dashboard and ADAS functions. We are shipping our controller to two flash maker already and in development with two additional flash makers for solution targeting this market. Our FerriSSD are already shipping to several top carmakers including two of the largest Japanese automakers. As we said, we see significant opportunity beyond just smartphone and PC to continue to grow our business. And the success we are seeing in the automotive market across all our product groups is a good example of the traction we have been making. Overall, we are pleased by the progress we are making despite macroeconomy headwinds for the industry this year. Our focus on our technology leadership has yielded strong customer traction strong share in the market we serve and diversified the end market our products are using. Combined we expect all of this to drive growth in 2024 as the end market and the NAND flash industry economies improve. Now I will turn the call over to Jason to discuss our financial results and our outlook. Jason Tsai : Thank you, Wallace, and good morning everyone. I will discuss additional details of our third quarter results and then provide our guidance. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with our earnings release issued yesterday. In the third quarter we grew sales 23% sequentially to $172 million. SSD controller sales grew 5% to 10% sequentially. eMMC and UFS controller sales more than doubled sequentially, as we benefited from ramping holiday season build and normalizing inventory levels. SSD solutions sales decreased 5% to 10% sequentially. Gross margins in the third quarter were stable sequentially and remained at 42.5%. Operating expenses in the third quarter were $49.5 million, $1.5 million higher than the prior quarter primarily from higher R&D expenses to support our technology leadership. Operating margin in the third quarter was 13.8%, an increase from 8.3% in the second quarter. Our effective tax rate in the third quarter was 22.8% an increase from the 12.7% tax rate in the second quarter. Earnings per ADS were $0.63, 67% higher sequentially. Stock-based compensation and our operating expense, which we exclude from non-GAAP results was $3.8 million in the third quarter. We had $350.3 million of cash, cash equivalents restricted stock and short-term investments at the end of the third quarter compared to $305 million at the end of the second quarter. Inventory decreased again sequentially in the third quarter to $199 million from $251 million in the second quarter. Earlier this week, our Board declared a new annual dividend of $2 per ADS. The first $0.50 installment will be paid in November. Now let me turn to our fourth quarter guidance and forward-looking business trends. In the fourth quarter, we expect revenue to be up 10% to 15% sequentially to approximately $190 million to $198 million. We expect SSD controller sales to be stable in the fourth quarter while eMMC and UFS controller sales will increase. Fourth quarter gross margin is expected to be stable and be in the range of 42.5% to 43.5%. Fourth quarter operating margin should be in the range of 13.5% to 15.5%. Fourth quarter effective tax rate to be approximately unchanged from the third quarter. And in the fourth quarter, we expect stock-based compensation in the range of $6.2 million to $7.2 million. Let me provide some additional colour to our fourth quarter expectations. Our business will continue to rebound in the fourth quarter and sequential revenue growth is expected to be stronger than normal seasonality. Our gross margins are expected to be flat to up slightly. We expect our gross margins to improve gradually over the next few quarters, as the financial health of the NAND makers and the memory market overall slowly improves. Most of our NAND maker and module maker customers have been selling NAND products below their cost since early this year. And even with the sharp increases in NAND prices we've seen lately it is still challenging, especially for NAND makers. Our pricing is somewhat reflective of our customers' challenges and as their financial conditions improve we believe we can gradually improve our pricing and our margins but it will take time. Our cost of goods especially wafer prices remain high but we believe we can extract some additional manufacturing cost improvements over the next few quarters as well. Combined with an improving mix of new products including the new -- our new Gen -- PCIe Gen4 and five controllers and UFS four solutions, we believe we can gradually return to our historical gross margin levels. For operating expenses as Wallace mentioned, we will be taping out three new 6-nanometer controllers our 8-Channel PCIe Gen5 controller this quarter, our UFS 4.0 controller in the first quarter and our four channel PCIe Gen5 controller in the second quarter. The total investments to get each of these products to market are more than $15 million. So we expect our operating expense to be elevated for these three quarters and then come down a bit in the second half of next year driving additional operating margin leverage. As Wallace mentioned our business is steadily improving as end market demand stabilizes and inventory levels normalize. We'll continue to invest to maintain our technology leadership with best-in-class next-generation storage controllers. Our broadening product portfolio and diversified customer base will further solidify our strong foundation for continuing revenue and profitability growth. We are optimistic that industry conditions will improve and believe we are well positioned to benefit from these improving market dynamics. This concludes our prepared remarks. We will now open the call to your questions, Operator? Operator: [Operator Instructions] Our first question comes from the line of Mehdi Hosseini from SIG. Please ask your question, Mehdi. Mehdi Hosseini: Yes. Thanks for taking my question, two for me. First in terms of technology migration among the NAND manufacturers I wanted to better understand how increased adoption of QLC is helping you? And how should we compare that to end market system unit trend? In other words, how a smartphone, notebook unit would fare against migration to QLC? And my second question has to do with strong cash. And what would it take for a company to -- or for the Board and the company to become more aggressive in a stock buyback? Wallace Kou: So let me answer your first question Mehdi. Regarding QLC, we see the trends. All NAND makers are going to have a QLC NAND and product by late 2024. So we see QLC initially all transition to client SSD. And we believe in 2025 probably value line more than 80% of value line SSD will all adopt QLC in 2025. And we've seen the QLC trending into mobile phone will take time. And I believe the leading smartphone maker which will try to adopt QLC but when it's going to be in mass production when it will create a meaningful volume we don't know yet. All the NAND makers are trying to explore the opportunity. But we also believe QLC will enter data center sometime in 2026 or 2027. That's why QLC becomes very, very important and it becomes a major offer for the NAND maker after 2026 2027. Jason Tsai: And Mehdi to answer your second question about the share repurchase as you know our share repurchase program has been opportunistic in the past. We do not have a program in place today but the Board is always evaluating ways of returning cash to shareholders and share repurchase is something that they will continue to look at. Mehdi Hosseini: If I may just a quick follow-up to Wallace, let me rephrase my first question. Let's say, if units -- units of smartphone and notebook were to go flattish next year could the migration to QLC for client SSD drive growth? Is that something that could provide additional growth drivers? Wallace Kou: I think that we believe our customers will gain market share in 2024, although the total unit for PC might not grow very much maybe just a single-digit of 2% to 3% because our strong technology in QLC and supporting with our major controllers for both Gen4, Gen5 are going to be helping us to transition to take additional market share in 2024. Mehdi Hosseini: Great. Thank you. Operator: Thank you. Our next question comes from the line of Quinn Bolton from Needham & Company. Please ask your question. Quinn Bolton: Hey guys, congrats on the nice results and outlook. I guess maybe first Wallace and Jason, can you just maybe expand on your outlook for gross margins? I know you're looking for a gradual recovery as the market improves. But can you give a little bit of shape to that gradual? Is that 50 basis points a quarter? Is it 100 basis points a quarter? What trajectory would you see? And any thoughts on when you might get back to a 48% to 50% gross margin would be helpful? Jason Tsai: Yeah. So, look, obviously as you know there are still a lot of challenges in the NAND flash industry. NAND makers are still struggling economically. And our goal is obviously to continue to gradually improve our gross margins and get back to where historically we were. And as the industry's health improves, we believe our pricing, our gross margins will also improve. And as we roll out new products, the new products that we talked about just a little while ago right some of the new PCIe Gen4, Gen5 and UFS four controllers as those come out to market that will also have an uplift to our gross margins. But we haven't provided specific guidance for next year. And certainly as we move into January report on fourth quarter we'll have a better view on what that longer term gross margin profile looks like for next year. Quinn Bolton: Great. And then just looking forward to the eMMC and UFS market, can you give your thoughts on market share looking forward? I think one of your customers is trying to in-source UFS 4. Does that have a significant impact on your outlook? Or do you think it's just -- there are some puts some takes, but you still feel very confident about your overall market share position in UFS? Thanks. Wallace Kou: Yeah. We believe one of our major customer partners or NAND makers they have a internal solution controller for UFS 4 since four years ago that we know that. But as you know, we're working closely with this particular partner because for each of the NAND makers their controller probably supports one to two generation NAND. So they have -- when you have a new generation NAND and that's the opportunity we've taken. So we'll continue to discuss the future opportunity with this customer and to expand even to the additional new legacy UFS 2.2, 3.1, as well as the potential newer generation including UFS 5.0. In addition, we have engaged multiple NAND makers not just one for UFS. So we are targeting a new customer in production from late Q1 or early Q2. And so I think because our technology expanded and because there are more NAND coming to the market and we definitely benefit for more NAND maker, which don't have internal resource on the Wave G third-party controller like Silicon Motion to help engage with the smartphone market. Quinn Bolton: Got it. Thank you very much, Wallace. Operator: Thank you. Our next question comes from the line of Anthony Stoss from Craig-Hallum. Please ask your question, Anthony. Anthony Stoss: Thank you. Wallace, you gave us some info on what you expect PC growth and that you expect to grow faster for taking share. I'm curious, if you'd offer something overall including smartphones, auto, et cetera where you think 2024 growth might be for Silicon Motion? Then I had a couple of follow-ups. Wallace Kou: Well, I think it's a good question, but I think we will wait for our Q4 earnings call. We'll give you guidance. But we're definitely looking forward to continue growing in 2024. And what scale? I think that we will give our guidance for next earnings call. Anthony Stoss: Okay. And then following up on the comment on large Korean NAND maker now back and I believe you said in Q3, can you give us a sense of kind of design activity you have with that customer for 2024? What percentage of their share you think you'll have? Wallace Kou: We're not able to comment regarding particular customer. But overall, we see significant growth opportunity with all flash makers although there is some potential consolidation, but we believe we'll continue to see opportunity open for Silicon Motion to grow our share with our customers. Anthony Stoss: Okay. And last question for me. Over the last year or so, with the MaxLinear proposed deal do you felt that some of your customers were opting or thinking about moving to their own internal solutions or external? Seems, like they're reengaged. I guess I'm trying to figure out, if you lost share in terms of designs maybe for I don't know 2024 or something, just based on the MaxLinear deal and the pause that that may have created. Wallace Kou: Yes. From our legal counsels -- but we cannot comment any of MaxLinear's related question. But I think that as you know very well for any conventional M&A it definitely has a certain impact for the customer. If the customer do not understand, the potential buyer so they have some fear and concern. I cannot give you, how that really impacts for our business. But definitely every company have some gain, have some loss. But overall, we will continue to gain market share and with more opportunity And especially after July 26 we do see the momentum become stronger. Anthony Stoss: Perfect. Thanks, Wallace. Operator: Thank you. Our next question comes from the line of Suji Desilva from ROTH MKM. Please go ahead, Suji. Q – Suji Desilva : Hi, Wallace. Hi, Jason. So congrats, on the progress here. So the eMMC UFS market smartphone you had very strong results this quarter you're guiding for that. Just can you give us a sense of the sustainability of the recovery in the end market and the demand perspective versus -- is the channel restocking? And are channel inventories typical levels now? Or are they actually leaner than typical? Wallace Kou: Yes. Let me comment about the smartphone market based on my -- our view. The channel inventory has become normal and in a healthy position. We definitely see growth rebound for both eMMC and UFS products. And we also see we will gain more share for the UFS in 2024. And although, I think in managing particular customers they have internal controller but that's the UFS 4.0 for next year primarily still see UFS 3.1 as well as the 2.2 for 4G smartphone. And we see we'll have more customers jumping into the market and that's why we are able to gain market share. And in addition, we are working directly with the smartphone maker to tailor certain soft firmware and to specify for certain requirements that gave us advantage compared with even NAND maker to provide the solution for a specific customer. So we're very happy for our position. I think in certain detail, if we are able to we will release during the next quarter or two. Q – Suji Desilva: Okay, Wallace. That's helpful. And then my other question is on the operating expenses. Jason I think you talked about the R&D being elevated for the next two to three quarters. Can you give a sense of what it comes back to after that in the second half 2024? Is it back to sort of the $40 million level in the second quarter? Or just trying to understand, what it reverts to after the elevated spend in the next three quarters? Jason Tsai: Yes. It's -- we'll obviously provide more color on that in the next earnings call, but it will temper back a little bit. As we said, the total investment cost for each of these 6-nanometer products is north of $15 million. Obviously, all of that not that entire cost is beared in one single quarter. It does get spread out over several quarters depending on the timeframe of the investment process into that new controller. So it will step back a little bit in Q3 and Q4 next year, but we'll provide more color on that in next quarter -- next earnings call. Wallace Kou: I can give you addition -- I'll give you some reference. 6-nanometer tape-out normally that probably is about 30 to 40 -- it will be two times to 3 times more expensive than 12-nanometer tape-out. And we believe after the three 6-nanometer tape-out we won't have any 6-nanometer tape-out within a year. But we do have additional 12-nanometer, 28-nanometer tape-out quarter-by-quarter. So, definitely operational expense will go down, but versus scale it depends on product how many products we're going to tape-out. So, I think we'll give you more color when we have the next quarter or next year guidance. Q – Suji Desilva: Okay. Thank you, Wallace. Thank you, Jason. Operator: Thank you. Our next question comes from the line of Gokul Hariharan from JPMorgan. Please ask your question Gokul. Gokul Hariharan: Yes, hi. Thanks for taking Wallace and Jason and congrats on the good rebound in the numbers. My first question is could you give us a little bit of a kind of a backdrop in terms of how your market share situation is right now for client SoC controller? Just to get an update after almost a year or more than a year in terms of their market share is? And also you did allude to some of the design wins in enterprise and data center. Could you give us a little bit of a color on what is the size of the opportunity there? And what is the nature of engagement you have? Is it still mostly the PCIe Gen5 controllers for enterprise market? Or are there previously you had tried open-channel controllers for certain segments of the market. So, just wanted to understand what is the approach to kind of tap into the enterprise market and data center market size? Wallace Kou: All right Gokul. Thank you. Great to talk to you again. Regarding the our client market share we continue to maintain a stable market share around 30%, maybe up and down a little bit, but I think we're gaining market share continuing for 2024. But regarding the data center, I think the major enterprise product we're shipping meaningful still SATA. And our PCIe really we focus on PCIe Gen5 because Gen4 controller we're not able to show meaningful financial results and it's not cost competitive. But PCIe Gen5 MonTitan we are in a very good position we believe worldwide show meaningful financial results by end of 2024 and more meaningful in 2025. Gokul Hariharan: So, could you give us a sense of how big this enterprise and data center market size is? I think I remember a few years back when you started talking about this you indicated that it is similar size to the client SSD market in terms of controller revenue size. Any updates on how big the market is given data center demand has clearly grown since then? : Gokul it's Jason here. Yes look we're seeing a good traction today. We're working with a number of data center and enterprise customers around the world. But it's still early. We're going to start sampling this quarter. It's too early to say how big that opportunity is at this point. As we get closer to launch as we have more concrete and better visibility we'll be able to provide more additional details at that point. But right now it's just a little bit early. Gokul Hariharan: Okay. Got it. And one question on pricing. Could you talk a little bit about how pricing has evolved in the last 12 months or so? Clearly pricing seems to have come off from the $4 to $5 kind of average client SSD controller ASP that you had? And do we need to wait for Gen5 to really come through on the client SSD controllers for you to start potentially seeing some price increases coming through? Do you need to wait for the next generation for like price increases to come through? Or do you think that you can adjust price as we go along once the market starts getting a little bit better? Wallace Kou: As you know very well this year is very challenging for NAND flash makers as well as the controller makers because before September 90% of our customers are selling product below cost. And thanks to the price increase in the last two months many NAND makers their gross margin is still negative. And we definitely as a leading controller maker we have to share the pain. But we believe when the NAND price gradually recover to breakeven and become profitable our certain controller segment and we will also gradually increase the ASP. But I think the PCIe Gen5 eight channel controller as we stated the ASP is two-times than Gen4 eight channel controller. And this would be much more competitive in helping for both gross margin and also ASP. And we also believe the PCIe to UFS 5.0 -- 4.0 also gaining -- help us gaining mix regarding both gross margin as well as ASP. So, we do have other new products coming and also create a more positive regarding the product mix by helping our ASP and gross margin. Gokul Hariharan: Okay. Thank you very much. Operator: Thank you. Our next question comes from the line of Matt Bryson from Wedbush Securities. Please ask your question, Matt. Matt Bryson: Yes. Good morning, guys. Thanks for taking my question. First question is, I think in the prepared remarks you mentioned that there's still some inventory getting worked down at your customers. I guess in Q4 is the expectation with that guide that inventory is fully worked down? Or is there a potential that there's still some incremental revenue that you'll see in forward quarters because inventories are normalized in future periods? Jason Tsai: Hey Matt, it's Jason here. I think we're very close to normalized inventory levels if not there already. There may be -- I mean it varies by product by product. It varies customer by customer end market. But by and large we see inventory has normalized for the vast majority of the end markets and customers that we work with. Matt Bryson: Thanks. And I guess my second question is around new products. So it sounds like both in terms of returning pricing and margins -- or returning margins to more traditional historic levels as well as potentially seeing some revenue growth tied to higher ASPs that the new products are very important. I guess is there any help you can give us in terms of thinking about how those parts roll out either in terms of time after tape-out the revenue starts to become meaningful? Or if you could give us some color around when you think customers start shifting to either Gen5 PCIe or UFS 4.0 solutions. That would be really helpful. Thanks. Jason Tsai: Yeah. So our first 8-channel Gen5 controller is getting taped out right now. We'll start sampling that here shortly and then we expect to start seeing the first shipments late 2024. UFS 4.0 is getting taped out in the first quarter. We'll start seeing shipments of that late 2024 into 2025. And then the 4-channel Gen5 SSD controller, that's really more of a late 2025 -- mid to late 2025 into 2026 type event for us. Matt Bryson: Thanks. That’s all I got. Jason Tsai: Thank you. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Craig Ellis from B. Riley Securities. Please go ahead, Craig. Ethan Widell: Hi. This is Ethan Widell calling in for Craig Ellis. To start you provided some good color on the near to intermediate term slope of OpEx as you focused on strategic investments. I was wondering to what extent the timing of those investments is sensitive to the slope of recovery in end market demand? Thanks. Jason Tsai: I'm sorry. What's the slope of the OpEx? And how does it tie to the end market recovery? Is that what you asked? Ethan Widell: Right. Jason Tsai: Yes. So obviously we're seeing strength in the end markets. The guidance we provided for Q4 is stronger than seasonal. And then certainly we expect to continue to grow in 2024 as well. The OpEx should stay at these levels for Q4, Q1 and Q2 and then that will come down a little bit in the second half of next year but that's depending on the number of additional tape-outs that we'll be doing can vary a little bit. So we'll provide more color around that next earnings call. Ethan Widell: All right. Thank you. And then, given your cash position, I was hoping that you could just broadly speak to your cash deployment plans? Jason Tsai: Yes. So for cash deployment as you may have saw earlier this week we instigated our $2 per year dividend. That will be paid quarterly. The first quarterly payment will start here in November. And with regards to share repurchase, it's something that historically we've been opportunistic about. We don't have a program in place today but the Board is always looking at ways of returning cash to shareholders and it's something they'll continue to evaluate. Ethan Widell: Thank you. That’s all for me. Operator: Thank you. [Operator Instructions] Jason Tsai: Okay. I think -- Wallace? Wallace Kou: All right. Very happy to talk to you guys have been 1.5 year. Thank you everyone for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of this event will be posted on our Investor Relationship section of our corporate website. Thank you everyone for joining us today. Goodbye for now. Operator: That concludes today's conference call. Thank you for participating. You may now disconnect.