Silicon Motion Technology Corporation

Good day, and thank you for standing by. Welcome to Silicon Motion Technology Corporation's Q4 2023 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 need to press star 11 on your telephone. 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 limitations, statements regarding trends in the semiconductor industry and our future resource 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 follow-up case 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 discussions of these risks and uncertainties and other factors, please see the document 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 Chai, Vice President of IR and Finance. Please go ahead.

Thank you, and good morning, everyone. Welcome to Silicon Motion's fourth quarter of 2023. financial results conference call and webcast. Joining me today is Wallace Koh, our President and CEO. Wallace will first provide a review of our key business developments, and then I will discuss our fourth quarter result 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 read at the start of this call. For a comprehensive overview of the risk 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 6K 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 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 in our earnings release issued yesterday. We ask that you review it in conjunction with this call. As we have previously shared, Silcomotion filed a notice of arbitration against MaxLanier for the 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, substantial damages, interest and costs. The company filed this notice of arbitration claim against MaxLinear in the Singapore International Arbitration Center on October 5th, 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.

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 expectation. We benefited in the quarter from stronger demand from both our SAD and EMC plus UFS controllers and saw pricing and mix improve to try stronger gross margin improvement for our business than originally expected. More importantly, Our technology leadership in controller and our unvarying engagement with our customers, both flash makers and module makers, has laid the foundation for strong 2024 growth, despite only modest growth expected in the PC and smartphone device markets, driven largely by our ongoing shared gains with our customers. Over the past six months, we have been busy making organizational changes to better position second motion for the future. We restructured our business to better engage in a new opportunity in the market and spend a lot of time re-engaging with 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, ESDI groups. Our new organizational structure allows us to be more focused on each segment. To have dedicated industry veterans as a leader enables our team to be more agile and responsive to the market. And to better engage with customers and anticipate their needs, we truly differentiated high-performance and cost-effective solutions. We are seeing the successes of this already as our cast group have been increasing share as our customer by winning significant new designs with both flash maker and module maker for the PC, smartphone, automotive, industrial, and other markets. Our ESDI group has also made incredible progress with some on Titan product in a short amount of time. securing more than a dozen sampling customers already. With these changes, we are better positioned than ever before and look forward to demonstrating the ongoing strengths of our business to our investors 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 shipment, 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 makers will grow this year despite the headwinds graded 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 focus investment from developing new generation of NAND to developing storage solution to satisfy a wide range of end market requirement. These solutions range from high performance to value oriented using D-RAN and D-RANless, as well as utilizing TLC or TLC to serve broad range of end market need in EMC per UFS, client SED, embedded, enterprise, and industrial applications. We are seeing Flashmakers focus on their own effort on leading-edge, high-performance solutions 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 fashion 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 new and fresh customer we have this year. our revenue from FlashMaker expected to grow approximately 50% this year, as design wins across our controller program ramped meaningfully throughout 2024. Turning to RSD's controllers, we taped our first PCIe Gen 5 8-channel controller last quarter and have already secured three FlashMaker wins and this product, as well as several Modumaker wins. This is the first time that Flashmakers 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 Flashmakers as well as other multi-makers expect to win more designs through 2024. Our second PCIe Gen 5 controller will be taped out early in the third quarter this year, and we already have significant interest from both FlashMaker and MultiMaker for the mainstream Gen5 solution that is expected to run in late 2025. While we are excited by our progress with PCIe Gen5, it's important to point out that we continue to win significant new programs with several FlashMaker with older generation interface as well, including two new SATA SD programs, several PCIe Gen4 SD, including one using next generation QLC flash on the value of PCoE and market, and several USB 3.2 portable SD projects. Our QLC controller with our proprietary 3D ray and more than LDPC for battery error correction and data protection and recovering offer no compromise solution that maintain high performance and reliability by 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 PCOEM as well. Moving on to our EMC plus UFS controller solution. We are taking our UFS 4.0 solution this quarter and remain on track to ramp with the FlashMaker customer later this year, as well as several module makers targeting the smartphone market. UFS4 remains a flagship and a premium solution this year, expected to expand into high-end mainstream handset market in 2024 and after. Aligned with WAN, our solution with our FlashMaker and ModuleMaker customers expected to ramp. UFS 3.1 and 2.2 remain the 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 see flash makers focusing on their own internal controller development on the latest flagship generation of UFS, where they get the highest premium for their high performance solution. As each of UFS generation moved from flagship to mainstream, we are seeing FlashMaker turn to us to utilize our controller paired with their newest NAND that offer high performance at lower cost, ideal for the mainstream smartphone market. That is a symbolic relationship that has driven our strong partnership with FlashMaker and driving moving and long-term growth for our EMC by UFA controller business. Now let me give you an update on the progress of our Montyton Enterprise State Development Platform. We started sampling Montyton 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 and companies, ranging from NAND flash makers, hyperscaler, storage solution provider, enabler, as well as module makers are in the process of evaluating the solution. Mount Titan's highly differentiated storage solution provides support of both high-performance TLC-SD as well as high-capacity QLC-SD. We are finding that this idea of balance of performance and features is appearing to customers across all enterprises and data center makers back market segment. Based on our ability to support a wide range of customer engagement model from the turnkey to layer firmware stack development, Mount Titan accelerates the asset to an extensive amount of data at Gen 5. Speed ideal for a variety of application including high performance edge computing and AI in interference, and machine learning. We are confident that we will continue to make an inroad during the Gen 5 transition into the AI era. 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 unvarying commitment to our customer had enabled us to continue to win socket after socket and position us strong share growth this year and beyond. Our position with our FlashMaker customer had never been stronger than the new design win I expected to ramp since early 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 solution 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.