Silicon Motion Technology Corporation

Good day and thank you for standing by. Welcome to Silicon Motion Technology Corporation's fourth quarter 2024 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, at which time, if you wish to ask a question, you will need to press star 11 on your telephone keypad. This conference call contains four 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 four 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 have plenty of reliance on them. These statements involve risks and uncertainties, and actual market trends and our own results may differ materially from those expressed or implied in these following 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 effects of pressure on this. Unpredictable changes in technology and consumer demand for multimedia and consumer electronics. The state demands 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 further 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 Mr. Tom Spences, Senior Director of IR and Strategy. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to silicon motions fourth quarter 2024 financial results conference call and webcast joining me today as well as go our President and CEO and Jason sigh our CFO. Wallace will first provide a review of our key business developments and then Jason will discuss our fourth quarter results and outlook following our prepared remarks, we will conclude with a Q amp a session. Before we get started, I would 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 US 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 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 consistent with 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. With that, I will turn the call over to Wallace.

Thank you, Tom. Hello, everyone, and thank you for joining us today. 2024 was an exceptional year for Silicon Motion across multiple fronts. We delivered over 25% revenue growth year over year, significantly outperforming the end market we served. Growth margin improved from 43% to over 46%. And we deliver operation margin of 15.3%, up from 11.9% in 2023, while investing heavily in next generation solution that will expand our opportunities. So I have long-term share gains and a sustainable revenue growth. 2024 was not without challenges. However, the consumer market saw increasing pressure in the second half of the year. Weak end user demand that began in the third quarter of 2024 persisted through the fourth quarter, creating an unseasonally weak holiday season for PC and smartphones. Despite this, we remain focused on our execution and take out a number of advanced controllers for SSD and UFS, leading to significant new project wins with our FlashMaker and ModuleMaker customers. We successfully entered the Enterprise AD market, adding six customers and beginning initial shipment of our first new Mount Titan product in second half of 2024. Additionally, we further grew our automotive business to over 5% of sales and delivering strong backlog as we entered 2025. While the smartphone and PC market will always be important, Our strategy to diversify and significantly grow our enterprise and automotive business are off to a strong start with many new projects, customers, and products expected to scale over the next few years. Flashmakers are outsourcing more and becoming increasingly reliant on SiliconMotion, but they are being forced to rationalize spending given the increasing development cost for memory technology to support DRAM, HBM, and enterprise storage needs. But the cost of development of a NAND controller has rapidly increased with the necessary migration to advance process geometry solution, like a 6 nanometer of SID and UFS. Flashmaker decisions on controller development have become increasingly aligned with silicon motion as their preferred partner. We are working with every name maker and winning multiple projects that range from EMC and UFS controller to SSD controller for SATA PCIe 4 and 5 storage solution as our portfolio breadth-based enable them to scale in multiple markets faster and more cost-effectively. We have already built up a strong pipeline of new wings and expect more this year to further our share gains in 2026 and beyond. Now let me give you an update on what we are seeing in the NEM industry. With consumer demand typically weak in the second half of last year, we are seeing consumer grade NAND pricing continue to decline. While NAND makers are starting to limit supply and scale back production given the ongoing weakness in the consumer markets and the global economy uncertainty surrounding tariffs. We do not expect NAND prices to recover until the second half of this year when demand for both smartphone and PC are expected to rebound. With production cuts underway in most NAMM makers, the focus is to limit supply of consumer-grade NAMM, while still growing supply of the high-end enterprise-grade NAMM, where demand for enterprise and data center SD remains healthy. For Silicon Motion, this means that we must focus our resources on NAMM makers, strategic partners, and customers who have assets to NAND. We must align our product cycles with our customer roadmap and their steady progression toward each new generation of NAND. This is critical to our long-term success, and we are investing to ensure that we remain the leading merchant controller vendors across all flash makers and end markets and applications. And NAND continues to involve and the adoption of low-cost per-bit NAND drive higher densities. QLC is becoming a bigger growth driver for NAND big growth as they enable NAND makers to increase density without purchasing new manufactured equipment and enable device makers to offer higher density cost effectively. We have more experience meaning QLC than any other controller makers, whether that's a merchant or captives. As the consumer market begins to rebound mid-year and with ongoing strength in the enterprise and AI server markets, we expect QLC will become an increasing part of the conversation in 2025 and beyond. And Silicon Motion is the best position to capitalize on the growth of the new technology. Let me now discuss each of our major product segments, beginning with our client-side controllers. For 2024, our SD controller business grew approximately 20% as compared to 2023. And our client-side controller market share increased to over 30% as we continued to grow our share with Flashmakers and win additional sockets. Gartner expects the PC market to grow by nearly 5% this year, with the second half of the year much stronger than the first, driven by the sunsetting of window 10, the approaching COVID corporate PC refresh cycle, and bolstered by the increasing demand for AIPC. We are successfully gaining market share, and with our new project wins, and backlog for high-performance TLC and high-reliability QLC controllers with flash makers and module makers. We introduced our high-end 6nm 8-channel PCIe 5 SD controller last year and have secured a dominant position in the market, winning design wins with 4 NAND makers as well as virtually every module maker. This controller delivers best in cloud performance and substantially lower power consumption than any other solution in the market. We are gaining share in the high-end PC market with this eight-channel controller, and with the win, we have amassed already. We believe we are on track to capture at least half of the market over the next couple of years. driving additional shear gain opportunity for us. We also received back the initial sample from our table last year of our mainstream 6 nanometer 4-channel PCIe fly controller and have made exceptional progress in securing additional wings for this product with flash makers and module makers alike. We anticipate this solution to be introduced late this year and began ramping in 2026 as PCIe 5 SD adoption entered the mainstream PC market. The complexity of PCIe 5 controllers has increased significantly, not just in terms of process geometry, but also in engineering and firmware resources. They require more complex field engineer support at our customers and with PCOEM. We are developing closer collaboration with our customer to deliver a match support and reliability to ensure long-term success. In addition, our existing portfolio PCIe 4 and the SATA controller ensure that we have the right combination of solution to serve the need of the high-end to mainstream to cost-sensitive market. Beyond PCSD, our solution for the growing portable SD market are also taking a dominant position. We have a wing and shipping with several NAND makers, as well as virtually every module maker in the market. Portable SD are becoming increasingly popular for data backup, and our portfolio of controllers enable both high-speed and high-density solutions that are cost effective for our customers. With our broad range of product customer in the wings, we are well positioned for growth later this year as these wings scale and the overall market demand recovers. Now turning to our EMC and UFS business. Smartphone demand, like the PC market, remained weak as we entered 2025. However, despite this, We grew our EMC and UFS controller business by approximately 70% in 2024, as we rebound from a very weak 2023. And we scaled with our FlashMaker customers, expanded share with module makers, and gained with our first device smartphone OEM for QLC UFS. We expect our customer ramp to scale in the second half of this year, in line with Gartner's current annual smartphone forecast of approximately 5%, with a strong emphasis on second half growth up to a weaker start to this year. Our team has been steadily developing new solutions and winning additional projects. The market is shifting away from the integrated EMCP and UMCP solutions in the smartphone and moving toward discrete mobile DRAMs. This is creating a significant opportunity for us as module makers are taking great share of the EMC and UFS market, which is improving our position given there is a significant less competition discrete controllers. With a lower cost involved in using discrete LPDDR4 mobile DRAM, there is a greater competition, which in turn leads to flash makers outsourcing third-party controller like SMI to compete in value line mobile storage solution such as EMC and UFS 2.2 and reduce R&D development cost. In addition to our existing UFS 3.1 controllers supporting the latest generation NAMM, we expanded our portfolio with multiple new product introduction. These include a new EMC 5.1 for low-end smartphone, smart devices, IoT, and automotive. A new cost-effective UFS 2.2 controller to cut the mainstream market is the new 6nm UFS 4.1 controller that we taped out last year, which is currently sampling expected to begin initial ramp in the second half of this year. EMC remains about half of the 1.8 billion annual union market for EMC and UFS today. And 70% of the EMC market is a non-smartphone application like Setabox, Smart TV, Automotive, and IoT. While smartphones will continue to account for less and less of the EMC market as the UFS adoption increases. For UFS, The vast majority are for smartphone today. For a non-smartphone application, primary going to automotive applications are growing at a much faster rate. So while the overall smartphone market may be mature, we see tremendous opportunity as we expand with the flash makers and the module maker partners into these additional opportunities. Our broad portfolio allows us to deliver a solution to our customers that address the expanding need of the market and gain further share. Now turning to our Enterprise Mount Titan platform. We made remarkable progress in 2024 and are well positioned for strong growth in the enterprise storage market for us long term. When we started 2024, we had a target of winning two tier one customers. We won those two customers in the first quarter of 2024 and increased our target to four customers for the year. I'm happy to report that we added four additional customers and now expect six customers to rent later this year. So four new customers have a long history of supporting Tier 1 and Tier 2 enterprise and CSP in the US, Europe, and Asia, further expanding to the reach and adoption of Mount Titan family of enterprise controllers. We began early shipment and generate revenue in second half 2024. And we remain confident that with our current mix of customers and our expanding family of Mount Titan solution, we can achieve our target of 5% to 10% of our total revenue by the 2026-27 timeframe. Mount Titan represents one of the largest greenfield growth opportunities for silicon motion in the coming years, given the large addressable market for TLC and TLC-NAND within the AI server, enterprise, and data center storage markets. Growing interest in our unique Mount Titan platform is driven by our leading experience in QLC and TLC NAND, our dominant position in the merchant controller market, and our ability to deliver a wide range of firmware capability to meet the unique need of different customer application and use cases. We are expanding our capability with Mtitan family of solution in 2025 through the development of additional controller and the more comprehensive suite of firmware and software to address broader range of opportunity for our customer. We plan to offer more complete family of solution to customer including controller for SATA and PCIe 5 server boot drives, higher performance and high density 16-channel and 8-channel PCIe 5 controller for enterprise storage and servers. And we already engage with new customers and developing next generation PCIe 6 controller. This combined with our existing advantage, including our flexible firmware stack options, unique AC architecture, high capacity, leading performance, and performance shape technology delivers a compelling enterprise class portfolio that is unmatched by our competition. With Mount Titan supporting the upcoming 2 terabit mono-die QLC LAN, we will be able to deliver high-density, high-performance 128 terabyte SD with a best-in-class random read of 3.5 million IOPS. that will be ideally suited for AI applications. This combination of capacity and performance will deliver faster training in AI applications, save power, and lower the total cost of ownership. Lastly, let me give you an update of the progress we are making in the automotive market. We support a multi-market across all our product category, We have winged for our SATA PCIe 4 SSD controller, our EMC and UFS controller, as well as our ferrite embedded solution across a variety of the use cases in vehicle. From traditional cars to new generation software-defined vehicle, there is a significant increase in processing capability, sensors, cameras, CPUs, and ECUs. With these new capability, the need for more memory is growing rapidly. Despite a mature overall automotive market, as the complexity increases, the need for more robust capability significantly increases, and that's why H5 certification is becoming more critical and more differentiated. We are proud to be the only supplier with a PCIe 4.0 controller to achieve H5 Level 3 certification, significantly increasing our lead over the competition. We are already shipping into all major Tier 1 automotive customers, including Mercedes, Tesla, General Motors, BYD, Xiaomi, Toyota, Honda, and several others, including the leading automotive car service in the world. While we have been growing automotive wings for the past several years, it's now beginning to scale meaningfully and reach 5% of our revenue in the third quarter of last year. We are confident it can ram approximately 10% of our revenue by 2027, given our current slate of customers and wing and expected ram of new products. In conclusion, As we enter 2025, despite the near-term broader market headwinds, we remain extremely well-positioned for future growth, as we are growing share within our existing markets and expanding into new high-growth markets, including enterprise decontroller, automotive, IoT, and others. We have an incredibly strong portfolio of new products in our pipeline. that will help drive long-term share gains, improve our product diversification, including our PCIe Gen 5, UFS 4.1, ASPy certified automotive grade PCIe Gen 4, and of course, Mount Titan. As our Mount Titan and automotive business continues to scale for the next several years, and our broad portfolio of solutions for IoT, industrial, commercial and smart device application continue to gain share. I'm confident that our strategy to diversify beyond the maturing PC and smartphone market will be successful and believe we could see 20% of our business in 2027 coming from this new opportunity. Given the strength of existing customer wings and expected second half recovery in the PC and smartphone market. We expect to exit 2025 with an annual revenue run rate of close to $1 billion in the fourth quarter. I look forward to sharing more about our success with this product and new market throughout this year. Now let me turn the call over to Jason. to go over our financial results and outlook.