Silicon Motion Technology Corporation

Ladies and gentlemen, thank you for standing by and welcome to Silicon Motion Technology Corp Q4 2020 Earnings Conference Call. At this time, all participants are listen-only mode. After speaker's presentation, there will be a question and answer session. To ask questions during the session, you will need to press star 1 on your telephone. This conference call contains forward-looking statements within the meaning of Session 27A of the Securities Act of 1933 and Session 21E of Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and are for the results of operation, financial condition, and business prospects. Although such statements are based on our own information and information from the 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 or prices unpredictable changes in the technology and consumer demand of multimedia consumer electronics, the state of and change in our relationship with our major customers, and change 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 Security and Exchange Commission. We assume no obligation to update any forward-looking statements which apply only as of the date of this conference call. I would now like to hand the conference over to your first speaker today, Mr. Chris Cheney, Director of Investor Relations and Strategy. Thank you. Please go ahead, sir.

Thank you, AJ. Good morning, everyone, and welcome to Falcon Notion's fourth quarter 2020 financial results conference call and webcast. As AJ mentioned, my name is Chris Cheney, Director of Investor Relations. And joining me today on this call are Wallace Koh, our President and CEO, and Riyadh Lai, our Chief Financial Officer. Following my comments, Wallace will provide a review of our key business developments, and then Riyadh will discuss our fourth quarter results and our outlook. We will then conclude with a question and answer period. Before we get started, I'd like to remind you of our safe harbor policy, which was just read at the beginning 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 our Form 6K 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. For a more consistent year-over-year comparison for this quarter and our upcoming fourth quarter, we are internally measuring our performance based on non-GAAP less FCI. which was divested in May 2019. 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. Now with that, I'd like to turn the call over to Wallace.

Thank you, Chris. Hello, everyone, and thank you for joining us today. In the fourth quarter, we delivered $144 million in sales. about 4% more than the high end of our guidance range. Compared to the third quarter, revenue was up 14% sequentially. Earnings per eight years for the fourth quarter were 86 cents, up from 76 cents in the third quarter. For the full year, revenue was $540 million, up 20% compared to last year. Earnings per eight years was $3.24, up 25% from a year ago. Our fourth quarter results were stronger than expected, but consumer procurement continued to be robust. Sales of our EMC plus UFS controller for smartphones and IoT devices were especially strong, and our SSD controller continued to benefit from strong PC demand. Sales of our SSD solution were, however, seasonally soft. Based on purchase orders received from our customers, we are expecting the strength of our fourth quarter to strengthen further through the first quarter and stay robust through the rest of 2021. Purchase orders received for the first quarter already exceed our first quarter sales guidance. and purchase orders for the full year already meaningfully exceed our full year guidance. Our ability to meet customer orders is, however, limited by our product supply. Our first quarter sales are limited by availability of product in inventory, and our full year sales growth is limited by the current foundry supply shortage that is also affecting much of the overall semiconductor industry today. Demand of our SSD and EMC plus UFS controllers remain very strong. We continue to see robust sales of PC-driven, especially by the need of working from home and online learning. Additionally, OEM adoption of SSD in PC and other devices continue to grow as more low-cost NAND for SSD facilitates the replacement of HDDs. And furthermore, we expect our SSD controller market share gains to accelerate based on our pipeline of design wins, both with NAND flash makers and module makers for the OEM market. We are expecting stronger SSD controller sale growth this year compared to last year. We continue to see OEM smartphone build activity improve. More meaningfully, the transition from the legacy EMC mobile embedded storage to newer UFS technology continue to increase rapidly as OEM pair UFS with new generation of application processors and higher spec cameras. Sales of EMC controllers to module makers who are building cost-effective storage solutions for low-cost smartphones, Chromebooks, smart speakers, and other IoT devices remain strong. As previously discussed, NAND Flashmakers have been turning over legacy EMC business to module makers, and we benefit from this. We are also expecting stronger EMC per UFS controller sales growth this year compared to last year. We believe our ACD and EMC plus UFS controller market share gains will accelerate because of our growing design wing pipeline. Currently, boundary capacity shortage is also affecting nanoflash makers with captive controller programs. as well as other merchant controller suppliers. Because of the shortage issue, we are seeing non-flashmakers rationalize internal controller programs and seek to outsource more. We are also seeing merchant controller competitors, who are all meaningfully smaller than us, face more adverse boundary supply shortage issues, which has led several of their customers to redirect business to us. Let me now share with you key objectives for our three-year strategic plan. With the growing strength of our business and better visibility for our expanding OEM program, we are increasingly confident that we can achieve our strategic plan of delivering $1 billion of sales by 2023. with a stable 50% gross margin, 30% pocket operation margin, and EPS growing meaningfully faster than revenue. Our audit book today, unconstrained by boundary capacity limitation, will already take us to a considerable way beyond our full year guidance toward this $1 billion sales objective. We sell growth primarily for our clients to be and ENC per user controllers, plus additional contribution for our ferrite industrial ACD. With our new PCIe Gen5 Enterprise-C controller sampling in the second half of next year, we are not expecting our Enterprise-C controller to be a material contributor to our $1 billion cell objective. We are planning on material Enterprise-C controller cells contribution only after 2023. In the 500 plus million units a year client device market, primarily SSD supply to PC, consumer electronics, and industrial OEM, as well as into aftermarket channels, SSD adoption has increased rapidly and will continue to increase rapidly as HDD are further replaced. With our design wing pipeline, we expect a roughly double our SSD controller sales in three years from our combination of SSD adoption in client devices, increasing from 60% to 65% last year to 80% to 90% by 2023, and our overall market share increasing to about 40%. Our market share in smaller channel segment is already high, while our share in the larger OEM sector segment is low. We expect to maintain our high shares of the channel market and drive faster growth with OEM, the segment where we have a large and growing pipeline of design wings, and rapidly gain market share in the OEM segment. We expect to deliver our SSD controller growth objective just based on sales to the existing NAND flash and module maker customers. Our EMC plus USB controllers, we are expecting our sales to more than double by 2023, driven by a combination of our market share reverting to about a quarter from meeting last year. as well as UFS adoption in smartphone and other devices increasing from 45 to 50 percent last year to at least 80 percent in three years' time. Again, we are also expecting to deliver our EMC per UFS controller growth objective just based on sales to existing NanoFlash and module maker customers. We are also expecting meaningful sales growth from our Ferri SED, a part of our SED solutions. In past years, most of Ferri SED was sold into diversified sets of industrial, commercial equipment and data networking applications. More recently, we also started selling to automotive component suppliers, building infotainment systems and dashboards for Japanese and German car brands and expand meaningful growth over the next three years from sales to these customers. To summarize, we have high confidence in delivering to our strategic plan, not only because our broadband flash and module maker customer base and the extensive pipeline of business engagement but also because our older book that is now limited by foundry supply availability will already take us to a considerable way toward our $1 billion sales objective. I would like to thank GSMC for their continued support, without which our ability to support a broad customer base and the extensive nanofash ecosystem this year will be in jeopardy. and our customers for their understanding of the extraordinary supply constraints that we are temporarily facing. Now I will turn the call over to Riya to discuss our financial results and our outlook.