Silicon Motion Technology Corporation

Good day and thank you for standing by. Welcome to the Silicon Motion 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in the 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. This conference call contains thought-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 full-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 all results may differ materially from those expressed or implied in these fault-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 any change in our relationship with our major customers and changes in political, economic, legal, and social conditions in Taiwan For additional discussion of this risk and uncertainties and other factors, please see the documents we filed 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. Well, please be advised that today's conference is being recorded. And if you require any further assistance, please press dial zero. And I'd like to hand the conference over to your first speaker today, Mr. Chris Cheney. Director of Investor Relations and Strategy. Please go ahead, sir.

Thank you, Amber. Good morning, everyone, and welcome to Silicon Motion's fourth quarter 2021 financial results conference call and webcast. As Amber mentioned, my name is Chris Cheney. I'm the Director of Investor Relations here at Silicon Motion. Joining me today on this call are Wallace Koh, the President and CEO, and Riyad 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 and full year results and our outlook for the upcoming year. 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 Amber 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 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. And now with that, I'd like to turn the call over to Wallace.

Thank you, Chris. Hello, everyone, and welcome to our earning call. Silicon Motion just wrapped up a stellar year, and we believe we are now gearing up for another great year. Our fourth quarter sales were up 84% year-over-year, and the full-year sales grew 71%. Our fourth quarter earnings per eight years were up over 120% year-over-year, and full-year earnings grew over 90%. Our 2021 business activities were extremely strong, and we are seeing much of this momentum continuing into 2022. Last year, demand for our SSD controllers using OEM program for PC and other client devices, as well as our EMC and UFS-embedded storage controllers used in smartphones, automotive, IoT, and smart devices was tremendous. and demand for OEM continue to be very strong. Last year, we delivered corporate record sales. Despite our very strong sales, we could not meet the full demand of customers who are building SAD and other storage devices for OEM in many categories of applications. We are not able to meet their full demand because our business was supply constrained. constrained by limited availability of foundry wafer supply necessary for fabricating RICs. Today, supply continues to be very tight, and we don't expect this situation to change this year. As previously discussed, our audit book was significantly backlogged last year, and today this backlog remains significant. Early last year, we originally communicated a 20% to 30% sales growth guidance for full year 2021. This revenue guidance was based on both meaningful incremental foundry wafer supply allocated to us, as well as existing product mix and pricing arrangements. From that starting point, our operation team was able to meaningfully upsize cell growth to 71% for full year 2021 by optimizing our product mix, customer allocation, and pricing. Now turning to this year, for full year 2022, we have again received meaningful incremental wafer supply from our primary foundry partner. Based on this incremental wafer supply, we will be able to grow full-year sales 20% to 30%. We believe, however, that there are opportunities for us to grow even faster than this baseline range. And our operation team has already begun implementing strategic initiatives with the aim of delivering upside to baseline. Upside opportunities include better product optimization additional wafer supply and pricing. I look forward to sharing with you more on this in the following quarters as we can successfully execute. So both RSD controller and EMC per UFS controller were extremely strong. Now let me talk about each one of these two key product lines. Full-year sales of ASD controller grew 75 to 80%, significantly faster than the market. In 2021, we likely gained close to 10% points of market share. With full-year clients of the controller market share today, that is roughly in the 35 to 40% range. Our ASD controller growth was driven by extensive adoption of SSD by PC OEM using our controllers. Cells in almost every one of our key customers involving OEM program, whether NAND flash makers or module makers, grew strongly and we expect the significance of our cell to OEM to continue to increase. The portion of our SSD controller using OEM program grew to account for well over half of all our SSD controller sales in the second half of 2021, significantly higher than one-third the year before. The rest are controller for channel market. We anticipate the significance of OEM program to grow further and account for close to two-thirds of our overall SSD controller sales this year. Last year, we saw the continued ramp-up in sales of our PCIe Gen 3 SSD controller, which have been widely adopted by PC OEMs. And in the second half of this year, we launched the first generation of our PCIe Gen 4 series of SSD controller, also to OEM. The rollout of Gen 4 with OEM lacked our initial launch for our Gen 4 into the channel market by well over a year because of extensive verification and testing by both our direct customers and the PCOEMs. We are now initiating the launch of our second generation PCIe Gen 4 controller and expect Gen 4 to account for a majority of ISD controller sales this year, which coincide with accelerating broad-based adoption of PCIe Gen4 SD by PCOEMs. We believe that we will continue to gain market share this year. Based on the design wing and cell projection, we expect our controller to be in half of all of PCIe Gen4 sockets at PCOEM by the end of this year or early next year. when our Gen 4 programs are scaled. Additionally, our NAND 5 customers continue to work with game console VMs for the adoption of our SSD controller in their next major device upgrade cycle next year. It is likely that PCIe Gen 4 will last a few years since Intel and AMD both continue to bring new upgrades variant of CPU with PCIe Gen 4 to the market. Similarly, we are preparing for the launch of our third generation PCIe Gen 4 controller next year before transitioning to PCIe Gen 5 in the following year. Before moving to our EMC plus UFS controller, let me provide an update on our enterprise SD controllers. As many of you know, we have been investing actively for several years in enterprise-class SSD controller R&D. We have been investing in our understanding of the large, complex, and fragmented market and the technology necessary for bringing differentiate and compelling solution to customers. The design cycle in the enterprise market are also much longer than the client and mobile OEM markets. Our current product before the upcoming launch of our flagship enterprise class PCIe Gen5 controller are finally completing final customer testing and qualification and moving to production sales this year. We are currently rolling out our enterprise class SATA ISD controller for the large volume long-tail, well-established enterprise market, and separately, our turnkey PCIe Gen 4 SSD controller with robust firmware that is performant tuned for certain enterprise data center applications. And additionally, we are on track to begin sampling our flagship SM8366 PCIe Gen 5 SSD controller in the second half of this year. We believe our Gen 5 is uniquely positioned with both very competitive operation performance and robust architecture, and is also compellingly differentiated with features designed by hyperscale and enterprise customers, such as a highly customization firmware, performance shaping capability, and optimized data placement technologies. We believe we are well-positioned to repeat the success we have achieving client-CD controller in the enterprise-CD controller area as well. Now let me turn to our EMC plus UFS controllers. Last year, sales of both EMC controller and UFS controller roughly doubled, with growth coming primarily from market sharing again. Cell UFS controller grew strongly as our U.S. NAND flash customer continued to expand aggressively to build its market position with smartphone OEMs. Our UFS controller cells also benefited from growing cell to other customers. We are seeing renewed growth in cell of our classic EMC controller from the proliferation of new application. such as automotive with ADAS, telematics, and entertainment system that use EM&C, but also from the opportunity created as many of the NAND flash makers began to exit from this older load capacity storage technology. We have benefited from the supplying controller to module maker stepping into the market. Additionally, a few NAND flash makers who are facing foundry wafer supply issues are also outsourcing EMC controllers from us. This is an attractive market for us because we are the only meaningful merchant supplier of EMC controllers, and the EMC market is relatively big with annual market sales volume of approximately 1.5 billion units. Now I will turn the call over to Riya to discuss financial results and our outlook.