Silicon Motion Technology Corporation

good day and thank you for standing by welcome to the silicon motion technology corp q3 2021 earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance please press star 0. kindly note that 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. I would now like to hand the conference over to our first speaker today, Mr. Chris Cheney, Director of Investor Relations and Strategy. Please go ahead.

Thank you, Rohit. Good morning, everyone. and welcome to silicon motions third quarter 2021 financial results conference call and webcast as ro had mentioned my name is chris cheney i'm the director of investor relations at silicon motions joining me today on the call or wallace co our president and ceo and riad lai our chief financial officer following my comments wallace will provide a review of our key business developments and then riad will discuss our third quarter results and our outlook we'll 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 read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to the 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 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 our 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 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. And 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 third quarter, sales and earnings reached another quarterly company record. Revenue grew 15% sequentially. and over 100% year-over-year to $254 million. Earning per ADS more than doubled from $0.76 a year ago to $1.70. Our sequential revenue growth last quarter and this quarter were driven by upselling of richer product mix, allocating more product to higher margin accounts, and repricing product to cover higher manufacturing costs. As previously communicated, we have not received any incremental foundry wafer supply since early this year. Since demand from our customers for our products continued to outstrip our ability to supply because of foundry wafer allocation limitations, our business has not been exposed to end-market seasonality patterns and The other changes in the market condition, for example, relating to smartphones or PCs. We expect this situation of demanding excess of supply to continue through next year, seeing the foundry capacity will likely only start improving in 2023. Our audit book remains strong and continues to be well in excess of $1.5 billion for next year. We have seen, however, some adjustment in our order book with the softening of order for channel market products and strengthening of product for OEM customers. For example, we are seeing demand for S&D by global PCOEN continue to strengthen, while client S&D for retail markets, especially in China, softening. Since we are supply constrained, we have been looking at our revenue round rate for annualized sales targeting. In the third quarter, we deliver $1 billion in revenue round rate a quarter ahead of when we had previously communicated and expect our revenue round rate to increase further in the fourth quarter as we focus on managing our product mix. customer allocation, and pricing. We have already received foundry wafer allocation for 2022. That is incremental to what we have this year, and we are confident we can grow ourselves next year toward our $1.5 billion order book. We believe demand will continue to exceed supply next year, but even under this scenario, our revenue growth next year will still be very strong. Now let me talk about our major pilot lines. SID controller sales were approximately flat sequentially in the third quarter as we have allocated more production toward EMC and UFS controllers for sales in the third quarter. This will reverse in the fourth quarter. as production and sales shift back toward S&D controllers. Here today, our S&D controller sales grew about 70% to 75% year-over-year, significantly faster than market growth, but we have been gaining share. In the third quarter, our S&D controller sales drove in more than double year-over-year. We are tracking toward gaining 5% to 10% points of the market share this year. We believe it is important to maintain diversified exposure to different customers and end market, and have a good balance between our OEM and channel markets, and a diversified balance of NAND flash and module maker customers. Currently, we are seeing very strong sales to OEM through both our NAND flash and module maker customers. while the channel market has been soft. We have been shipping our PCIe Gen4 SD controllers since the third quarter of 2020 for SSD, so in the channel market. In this recent third quarter, we started ramping our Gen4 controller for PCoEM with two customers and are on track to expanding from two to eight customers beginning early next year. Much longer time is required to bring OEM project to production versus channel market products because of extensive OEM qualification and testing. When our PCIe 2 and 4 OEM projects are fully ramped toward the end of 2022 or in the first half of 2023, we expect to be in approximately half of all PCIe Gen4SD sockets unchanged from what we had previously communicated. Next year, we will likely pick up 5% to 10% additional points of market share on the top of this GAN this year. Engineering work on our upcoming flagship enterprise class PCIe Gen5SD controller remain on track. We continue to expect pilot production to begin in the second half of next year and volume production in second half of 2023. Now I will discuss our EMC plus UFS controllers. Our share quota EMC plus UFS controller sales grew 60% to 65% sequentially. As we focused production and sales of both our classic EMC and next-generation UFS controllers. Sales of EMC controller approximately doubled sequentially as our module maker customers continue expanding their opportunities with OEM in low-cost smartphones and the large but fragmented IoT and smart devices markets. Our EMC controllers are benefiting from NAND FlashMaker beginning to exit this low-density segment of storage market. Additionally, our primary UFS NAND flash customer continues to be very aggressive in the mobile storage market, and we are benefiting from their strong procurement momentum. We believe the mobile storage industry is about to enter another major technological shift. analogous to what we experienced almost a decade ago with the transition from 2B per cell MLC to lower cost, higher density, but much more difficult to manage 3B per cell TLC NAND flash technology. Today, we are working with both NAND flash makers and smartphone OEM to begin the transition from TLC to 4-bit per cell QLC NAND flash. The push to use QLC NAND stems from the ongoing focus of smartphone OEM to reduce cost and size and increase features, performance, and capacity. For the same small storage footprint inside a smartphone, gigabit capacity from the use of QLC can be much larger than TLC. Also, for that same footprint, the use of TLC is much cheaper than TLC on a dollar per gigabit basis. The trade-off is TLC technology is much harder to manage than TLC because of worse endurance, worse write and random rewrite speed, and worse data integrity issues. Much more sophisticated controller technology are necessary to overcome these issues and provide consumer with the same level of trust and user experience. We have a clear controller technology leadership and more experience in the managing QLC NAND technology than any other company in our industry. Several years ago, we developed a controller that enabled the first commercialized SSD using QLC NAND and today. We continue to supply all the controllers using PCoE and SSD built with QLC NAND. Because of our QLC controller leadership, we have also been working extensively with both NAND flash makers and smartphone OEM on UFS embedded storage that enable the use of lower cost high-density QLC NAND, and respect product introduction in the 2023 to 2024 time frame. Generally, the smartphone industry adoption of new NAND technology lags the PC industry by several years. The adoption of QLC technology in UFS solution using smartphone and other applications will further strengthen and expand our position in mobile storage controller market. To recap, we have already received our purchase order for 2022 sales and are busy working with TSMC and other suppliers to plan and schedule production for next year's sales. The emphasis of our business development and R&D efforts is now for beyond 2022. We are working to further expand our client-side market share, introduce and scale our innovative enterprise class PCIe 2.5 SD controller, solicit by our merchant market share leadership in class EMC, bring QLC technology to UFS mobile storage, and expand our growing presence in the automotive storage market, which I had discussed. last quarter. Now I will turn the call over to Ria to discuss our financial results and our outlook.