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spk04: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's first quarter 2024 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, at which time, if you wish to ask a question, you need to press dial 111 on your telephone keypad. This conference call contains the following statements within 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 this 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 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 the Interim Chief Financial Officer, Mr. Jason Tsai. Please go ahead.
spk07: Thank you, and good morning, everyone, and welcome to Silicon Motion's first quarter of 2024 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 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 6K 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.
spk01: Thank you, Jason. Hi, everyone, and thank you for joining us today. We had a good start to 2024. We delivered sequential revenue growth ahead of expectations. achieved gross margin at a high end of our guidance range, and exceeded our operation margin outlook. Our ASD-controlled business was better than expected, primarily driven by demand from two of our fashion maker customers. We continued to improve our pricing in the quarter, which is driving the steady improvement in our gross margin and profitability. Our results quarter reinforce our leadership position in controlling technology and our products continue to be the high demand as our customers recognize how important our technology, innovation, and service are to their business. While the market environment remains uncertain, I am pleased by our team's execution this quarter. We are taking the right steps to efficiently navigate market dynamics, remain steadfast in delivering the products and solutions our customers need, and focus on continuing growth and improving profitability across our platform. Let me start now with an overview of NAND market and dynamics we are seeing today. We have seen NAND flash prices continue to increase since late last year, and more recently, have seen flash makers gradually increase utilization in their FAPs, but more meaningful capacity increase from the built-out next-generation NAND FAPs isn't expected until next year. Demand remains robust, especially with Chinese handset OEM, as well as with enterprise and data center storage markets, while PC demand has been steadily increasing. All of this will continue to try and amplify prices higher throughout this year. We are seeing some near-term pricing fluctuations in the channel 3D market. That may cause some uncertainty with our customers that are more focused on the retail after markets. But demand for our controller for PCOE and SD remain robust, especially with our fast maker customers. Our leadership and controller technology continues to drive stronger demand across the board with our customers. It is becoming clearer each day that our appearance and expertise with QLC NAND is a defining differentiator that has resulted in significant wins with the fashion makers and other customers across our product categories. As the 3D NAND layers continue to increase, managing chaos NAND becomes even more challenging and continues to require more sophisticated controller technology to ensure high data retention and reduce rewrite disturbance issues. Our advanced LDPC and 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 under wide temperature range. We can deliver controllers that enable 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 S devices like PC and smartphone, or in the data center and enterprise storage, QLC storage 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 the upcoming 2TB mono-di QLC NAND, they are able to have high sequential read performance, high density, and low cost solution to meet their ever-increasing AI compute and storage requirements. Now let me start with our ACD controllers. We are seeing strong traction with our new PCIe TM5 8-channel controller we taped out last year. This is the first 6nm 8-channel PCIe TM5 controller available in the market, and we are winning at virtually every top multi-maker in addition to our three flash maker customers. The results from our early testing have been very good. This is a premium product that will be ideally suited for high-end notebook and desktop AIPC, 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 10.4 SSD using their next-generation TLC and QLC NAND. This delivers high-performance, high-density, low-cost SD, ideal for a rapidly growing AIPC market. Beyond the PC market, we also have automotive-grade PCIe Gen 4 controller, WING, with two of our FlashMaker customers that will ramp with the leading electrical card platform next year. We also expect to take out our dual-port PCIe Gen5 controller for the automotive market next year for several of our Flashmaker customers to further our leadership in the market. We are confident that our broad-based ACD controller solution will continue to scale this business meaningfully this year and into 2025 as many of these new products and platforms begin to ramp. Moving to our EMC plus UFS controllers. We are successfully taping our first UFS 4.0 controller in the first quarter and are on track to start qualification with this new controller in second half of the 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 makers serving the smartphone market, we started ramping up a new fast 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 TLC NAND, We are now seeing increasing interest of QLC NAND, especially in mainstream handset, where OEM can offer higher density without significant increase in cost. We are collaborating with one of the leading handset OEM directly for QLC UI-based solution that is expected to come to market later this year for the mainstream smartphone. We expect the demand for TLC UFS products, especially in mainstream and entry-level 5G smartphones, will continue to increase as this high-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 significant traction with our EMSC and UFS controllers in the automotive market, as well as in commercial, industrial, and other connected and smart devices. These non-smartphone applications account for more than 40% of the overall EMSC plus UFS market today. With the market for automotive applications growing faster than smartphone markets, We are working with several flash makers and building EMC and USB controllers for these customers, especially for automotive market, and expect this to scale meaningfully in the next years to come. Now let me turn to our Montyton platform. As we have talked about before, the enterprise and data center storage market are tremendous opportunity that we believe we now have a truly differentiated solution with Mount Titan to scale with the Flashmakers and storage solution enabler, as well as directly with data center 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 Gen 5 SSD is expected to increase more than five times to more than 60 million units in 2027. QLC-based AD are expected to account for nearly 30% of the total petabyte in 2027, up from less than 10% in 2023, representing a huge growth opportunity that we are uniquely positioned to lead. Our first-man Titan PCIe Gen5 controller will manage TLC or QLC NAND on a single platform. enabling the seamless transition and adoption of QoS Inland with enterprise and data center storage applications long-term. I'm excited to announce that we have one, two Tier 1 customers in the first quarter for the Mount Titan BCIE Gen 5 controller. One is in the United States and one is in China that are expected to begin ramping later next year. We continue to sample with more than a dozen additional customers expected to secure more wins throughout this year. We are on track to begin mass production late this year and run more meaningfully next year. Our early 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 ACD than any other platform in the market today. Using our patented performance and power-shaping technology, we enable our customers to dynamically adjust for peak performance versus low power consumption, depending on the various workload requirements to achieve the best result. 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 QLCSD for the increasingly data hungry AI compute and storage needed. Given our proven track record, of managing more QLC NAND than any other vendor in the market over the past decade, we can leverage our unparalleled experience and expertise with QLC into the Mount Titan controller platform to build SSD solutions that can effectively display portions of near-line HDD with high-capacity near-line SSD. These solutions offer a lower TCO compared to legacy HDD due to their smaller form factor, 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 multi-year growth cycle for the company. Overall, I'm excited by a strong start to 2024. and achievable opportunities on our horizon for the rest of the year. Beyond our strong results, our underlying business momentum continues to accelerate as we add more products and more wings to drive a sustainable long-term growth of our business. We continue to see very strong traction across the board with controllers we are beginning bringing to the market and have a greater confidence that our strategy to diversify beyond PC and smartphone into new opportunities in the enterprise and automotive market will soon scale meaningfully with our T1 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.
spk07: 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 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 for ADS were $0.64, down from $0.93 we reported in the fourth quarter. Total stock-based compensation, which we excluded 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 in 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 Ed Wallace mentioned, the continuing success we are seeing with Flashmakers is 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 three months ago. While the strength we are seeing with our current products, as well as the increasing interest in Montyne products, We are prudently increasing investments in R&D primarily through higher headcounts 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 percent sequentially to approximately $199 to $208 million. We expect EMMC and UFS sales to increase, and SSD controller sales will be stable sequentially. Second quarter gross margins is expected to continue to improve and be in the range of 45% to 46%. Second quarter operating margins 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, dispute-related expenses in the range of 2.5% to 3 million. For the full year of 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 percent sequentially to approximately 800 to 830 million. Gross margin is expected to be in the range of 45 to 47 percent. Operating margins is expected to be in the range of 14.7 to 16.7 percent as we further invest in our technology leadership. 2024 tax rate to be approximately 19 percent. And 2024 stock-based compensation and dispute-related expenses in the range of 30 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 throughout the balance of the year. For operating expenses, we taped out our new 6-nanometer UFS 4.0 control in the first quarter and expect to tape out our 6-nanometer PCIe Gen 5 4-channel SSD control 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 Montine Enterprise Controller Group, to support the opportunities we are seeing with our sampling customers, as well as the increasing amount of inbound interest. This concludes our prepared remarks. We will now open the call to your questions.
spk04: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mehdi Hosseini from SIG. Please ask your question, Mehdi.
spk02: Yes, thank you for taking my question. Two follow-ups. 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 Gen 5? I think in the past you've talked about evaluation in the second half of 24 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?
spk01: oh uh thank you manny we we see the very strong momentum for demand from titan q1 we had a two tier one customer design wing one from the united states the other from china we also have some ongoing module maker design that's why we start to see some revenue by end of 2024 they come in 14 2095 but the two tier one customer will run by late 2024. But we had to announce our goal is to win minimum two tier one U.S. and two tier one in China. It's on track. We might have more than what we really can support. But we believe 2025, late 2026 will be much more meaningful self-revenue growth for our Montyton business for enterprise.
spk07: And Matty, in terms of you know, gross margin and profitability. You know, certainly, you know, 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, you know, 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 target each quarter.
spk02: Thank you. Just a quick follow-up. Given the mix in your revenue, could you hit the 25% operating margin at a lower revenue run rate?
spk07: 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 factors in both of these businesses, but typically what we've seen historically is that SSD controllers account for anywhere from half to two-thirds of our business in any given period. And EMMC and UFS account for about a quarter to a third in any given period. So we don't see that percentage changing much. And certainly if we see automotive or Montyton becoming a bigger portion of revenue, then that can skew our gross margins to be better than what historical average has been. But it's too early to say what those long-term targets are yet, given that we have yet to scale those products meaningfully.
spk02: Thank you.
spk04: Thank you, Mady. Our next question comes from the line of Quinn Bolton from Needham and Company. Please go ahead. I didn't catch.
spk00: Was that Quinn from Needham?
spk04: Yes, it is. Please go ahead.
spk00: Oh, perfect. Okay, sorry. You cut out there when you announced the name. Hey, Wallace, hey, Jason. Congratulations on the nice results and particularly on the Montyton wins. Wallace, I'm wondering if you might try to size the opportunity for us for Montyton for Silicon Motion in 2025. Is this something that you see contributing tens of millions of dollars as the two tier ones ramp next year? Could you try to help level set us on what's a reasonable expectation for Montyton revenue next year?
spk01: Yeah, we mean the two Tier 1 customers with revenue in late 2025. They were probably more meaningful in 2026. But we believe the enterprise-controlled revenue will be around meaningful 2026 or 2027. Meaningful means at least 5% to 10% of total revenue.
spk00: Perfect. And then I think you commented in the script but also in the press release about increasing backlog and visibility. I guess I'm kind of wondering, you know, I guess I would think the NAND controller space would typically be a pretty short, you know, sort of lead time business because it's just, you know, 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, you know, shorter term in nature and really only covers, say, 90 or so days?
spk07: Yeah, so our backlog, we obviously have some long-term customers, especially with our NAN 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, if they're serving PCOE end 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 three months to get products in and out of our manufacturing partners' doors. So we do need that advance 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 demand is typically stronger. We need to make sure that we've got adequate inventory to support that revenue growth.
spk01: Let me add a comment. If we are able to increase our annual sale guidance, would it mean we have better visibility for second half of this year?
spk00: Got it. And then lastly, Wallace, you mentioned the 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? Thank you.
spk01: Well, I think the current situation like this, the NAND makers have pretty high confidence because demand from data center and enterprise is very, very strong. So that's why they definitely continue to see the supply shortage going to increase way per price. And we see it going to increase gradually throughout the whole year. However, for certain channel market for demand for ACD, the demand is not as strong as the way per price increase. That's why there's some fluctuation. But overall, we see it's stabilized, and we see the demand for our controller is still strong and stable. So I think primarily because a lot of module customers have acquired quite many inventory last year, so they can balance for their cost. Got it. Thank you.
spk04: Thank you, Quinn. Next question . Please ask your question, Craig.
spk05: Yeah, thanks for taking the questions and 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. The question is, what have you seen in the last three months that impacts this year's revenues, and what are you seeing that kind of starts to give you at least project visibility for 2025?
spk01: I think that the three years don't really have major changes, but we really start to see the net makers, they all focus on profitability. having every netmaker have their own strategy and how to really invest their K-PAC for the equipment. But we definitely working, even seen from last year, for several 2025 OEM projects covered from Client-to-D, or UFS, Automotive EMSC, Automotive BCIE, Portable SD, multiple projects with individual netmakers. So they're quite busy and our MonTitan also working with quite a, we have a two major design wing for tier one customer. We have several in the process in qualification and engagement. So we're quite busy this year and we're pretty confident our design pipeline for 2025.
spk05: And on that 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 TLC, where you have just an amazing history with product development and performance, that that part of the market would be about a third 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?
spk01: Yeah, we cannot comment regarding our market share for 2027, but I can give you certain guidance regarding why Mount Titan lately gets tremendous traction and interest from the Tier 1 customers. The main reason is because the AI cloud and AI server demand is very, very strong. And we see many tier one customers from US and China, they really try to explore the QLC-based SSD for enterprise storage solution. Because QLC-based, it will be cheaper and can build much bigger capacity we see so many demands for 32 terabytes of higher density for future acd so that will be suitable for ai data process especially sequential read and low latency so because we have a very very strong position and know-how in qrc so that we get a tremendous interest from customers to engage with us for qualification and joint development That's why we see that trigger the stronger demand than usually processed. And we receive, especially for 2 terabit monodire QLC, they become the main, main product to enable the future near-line SAD to replace portion of HDD. So we are very happy we can be part of it.
spk05: That's a 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. And any color as we look at the year's progression on how mixed between SSD controllers and EMMC, UFS, and some of the other segments might play out even at high level? Thank you.
spk07: Yeah, I mean, look, I think we anticipate growth this year from both of those segments. You know, obviously, EMMC, I think, you know, we obviously had a much, was 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, you know, certainly 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'll still grow, it's not going to grow at the same, growth rates as we saw with, as we expect to see with EMMC-UFS this year. But overall, again, the percentage of our business for SSDs and EMMC-UFS, you know, kind of typically stay in those bands that we talked about earlier, and we don't see that changing at any time in the near future.
spk01: I think, I may have some comment. We definitely, both Client ID and mobile EMC UFS will gain market share this year. However, our mobile controller EMC UFS last year, the base is smaller. So we have much bigger momentum to gain market share in mobile controller.
spk05: Really helpful call, guys. Thank you.
spk04: Thank you, Craig. Our next question will come from the line of Suji Desilder from Ross. Please ask your question, Suji.
spk03: Yeah, good morning, Wallace. Jason, congrats on the progress here and the strong start to the year. Sticking on Montyton 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?
spk01: you asked a very good question but naturally we really don't know but i think that um sd today is not helping any for compute for ai but they're supporting it for storage but storage i think fundamentally is real data i believe when you really see the upcoming the flash marriage summit in august in santa cara you're going to see many name maker and enterprise these suppliers couldn't tell you what exactly they see regarding supporting AI and associate. So definitely is related to the inference also related to training process. Also is really regarding the swapping between the LM model and doing the different application running. So I think the storage has a specific performance requirement and there's certain features we can add, especially for edge devices because they're limited in density. mobile, UFS, they have many, many technology we can help in the AI application.
spk03: OK. Thanks, Wallace. And then my other question is on the smartphone market. I heard you guys talk about a OEM that is trying to insource the controller effort 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 SYMO in terms of opportunity.
spk01: So it's very, very good that we see the momentum from some smartphone makers. they are considering adopting QLC into the mobile solution. I think that you can see Samsung has worked with one of the leading smartphone makers in the last two years and bring the solution to the market since the Q4 production last year. And we're very happy to work with 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 that are looking for how to bring the flagship model into the AI smartphone, because everybody's looking for very high performance and how to maintain low power and to supporting different live alien model. But in the other area, many, many smartphone makers also bring the mainstream smartphone into the AI arena. So this is why we see the leading smartphone maker 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 explore the potential opportunity to bring the UFS with the 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.
spk03: All right, great. Very helpful color. Well, it sounds like you guys are well-positioned. Thanks.
spk06: thank you ellen next question comes from the line of matt bryson from wet bush thanks for taking my question um i i have a few uh so on the enterprise ssd side uh we've seen substantial demand for 32 and 64 terabyte ssds uh recently i i guess It sounds like what you're doing with your technology is enabling QLC, so allowing other vendors beyond, say, Soladyne 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 three, four months when it appears like these high-capacity SSDs have all of a sudden started to see incremental demand?
spk01: I won't say SiliconMotion will be the first to invoke QLC for Enterprise-CD. Definitely we are the leader for client-CD for QLC. But because lately we got tremendous demand, but also because all name makers are going to have a QLC available in the market. And I believe all NAND makers are going to have a 2 terabit QLC in MonoDIY by late 2025. That's why that triggered the strong interest from hyperscalers, data centers, and server leaders to try to potentially adopt QLC for the upcoming strong demand for AI server, AI cloud services. So because QLC by natural is built for near-line SSD, it will be much more attractive for near-line HDD from data asset point of view. So with silicon motion, because our controller can work with all net maker QLC So we are in a very unique position for the customer directly to work with Silicon Motion and to visit the different NAND suppliers. So I cannot say that we are better than NAND maker, but we think we are in a very unique position to enable the trend of top QLC to enter the city.
spk06: 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 two customers who've selected a solution, which bucket they'd fit into in the yeah we cannot comment customers until they really announce the name for the one tier one us one tier one china and we believe by end of the year we have two more to add on the list awesome um and then i guess my last question is i know this has kind of been asked um but just in terms of the the tam um on either on both that with that enterprise product um but also in the automotive Can you characterize what you see those two TAMs as being versus your more traditional markets in UFS, EMMC, and SSD controllers?
spk07: 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 controller's margin, certainly better than corporate average. So it is a big opportunity, even though the unit volumes are much smaller compared to PCs and smartphones. On the automotive side, again, 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, 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 PCP
spk01: Let me add a comment regarding automotive. As you know, SMI have a two different approach to expand our automotive visibility. One is a direct controller. The other is our fair ride pipeline. For controller, we have engaged three NAND makers and for PCIe also as well as the UFS and EMMC development. I think some are in production today. We have two makers going to production with PCIe Gen4. And then we also have a new EMC with a NAND maker For Feri, it's based on our own solution and engage with automotive customers. And we already win, which we have set with Toyota and Honda, also including China BYD. So we have multiple design wins in the pipeline. We believe we will grow our automotive business very, very strongly from 2025.
spk06: Thanks for all the color, and congrats on a good course.
spk04: Thank you, Matt. Thank you. Just a reminder, to ask a question, please press star 1 1 on your telephone keypad.
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