Silicon Motion Technology Corporation

Good day and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's Q2 2025 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 need to press star 1-1 on your telephone. You will then hear automated message advising your hand is raised. 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 industries and our future results of operations, financial 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 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 Exchange Commission. We have some 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 call is being recorded. Now that we have the conference, over to Mr. Tom Sapenzis, Senior Director of IR and Strategy. Thank you. Please go ahead.

Good morning everyone and welcome to Silicon Motion's second quarter 2025 Financial Results Conference call and webcast. Joining me today is Wallace Coe, our President and CEO, and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments and then Jason will discuss our second quarter results and outlook. Following our prepared remarks, we will conclude with a Q&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 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 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.

Mr. Thomas, hello everyone and thank you for joining us today. I am pleased to report that we exceeded our revenue and the operation margin guidance for the second quarter that we further benefited from the introduction of new controller that drive higher market share and our continuing expansion and growth into new markets. As we further scale and shift to high-end UFS PCIe controllers and grow automotive and mountain products in second half this year, we expect our revenue growth to remain strong and probability to further improve. We are excited by the progress and foundation of growth we are building and based on our backlog, diversification strategy and design win momentum, we are well positioned for strong second half and remain confident that we will exit the year is our target $1 billion revenue round rate. Let me start by discussing our view of a broader nanfash environment and how it is positively affecting our business today and opening new opportunities long term as well. The nan industry experience improvement in the second quarter with flash prices increasing at the inventory level in the PC and smartphone market decline further given a modestly better demand environment. Enterprise power demand remains strong in the quarter with AI expanding into nearly every industry. Nanfash makers have reduced capital expenditures for big growth and continue to increase prices as enterprise and AI growth are limiting nan supply. Our module maker partners continue to build inventory ahead with an expected increase in nan prices in the second half of 2025. We will remain flexible and as well positioned with both nanfash makers and module makers to fulfill their growing requirements. With nan prices expected to increase demand for more cost effective QLC nan expanding in clients D, smartphone and enterprise storage increasing QLC production is a lower cost way to rapidly growing big growth for flash makers while QLC based solution deliver high density storage at a significantly lower cost. We are the only controller company partners with all flash makers giving us significant advantage and insight into current and future nan technologies. We believe these partnerships and our unmatched experience in managing QLC nan will allow us to maintain our industry leadership and drive long term sustainable revenue and earning growth for many years. In addition the demand for memory and storage solution expanding to new end markets in consumer, commercial, industrial, automotive and enterprise. Memory makers are constraining where they can allocate RD resources and capital resource between nan HPN and DRAM. The demand from each of these markets continue to rise and new generation of nan involves the need for next generation controller for these different applications expanding. Our flash maker partners are turning to Sikamotion as their primary merchant supplier to help build comprehensive portfolios expanding our market share and building the foundation for strong multi-year growth with an increasingly diversified range of products in end markets. Now let me share some update for each of our business segment beginning with EMC and UFS. Our mobile business significantly outperformed our expectation in the second quarter as we benefited from several positive trends for our EMC and UFS controllers. We continue to see strong booking momentum from both flash maker and multi-maker customers entering the second half of the year. Multi-maker in particular are experiencing strong growth in mobile as they are benefiting from the trend toward discrete EMC and UFS solution driven by the increasing availability of low cost mobile DRAM. Flash maker have also adopted our controller as they continue to embrace outsourcing to stay competitive, improve their time to market and prioritize their own internal R&D resources for other technologies and end markets. Our modern mobile and IOT devices grew meaningfully in the quarter as demand from both our flash maker and multi-maker customers accelerated. Driven by strong end market demand, the increasing share of UFS in smartphone is driving stronger demand for our new high ASP UFS controller in mainstream and high end devices. In addition, our new engagement with handset OEM for KLC and UFS solution are also expanding and diversifying our market penetration. We expect this trend to continue in the second half of this year. For EMC, our increasing share and robust demand in the quarter also deliver strong sequential growth for our controllers. Demand is accelerating in multiple existing emerging markets including IOT, smart watches, smart TV, set up box and emerging consumer products such as AI glasses. The market for EMC account for over 800 million units per year and the now smartphone account for much of this market. We believe our EMC business will remain a strong contributor for many years to come for these additional markets for the scale. Now I would like to move on to our SDD business. The PC market appeared to be bottom out in the first quarter of 2025 and stabilized in the second quarter. We believe that market will grow in the low single digit in 2025 and we are fighting a stronger second half given typically seasonality which benefit from the back to school and holiday sales. This year we also see further benefit from some setting of window 10 in October and we are beginning to see more widespread adoption of AI as the edge in consumer and commercial PC which is increasing in demand of higher performance solution including SDD powered by our PCIe5 controllers. As we have discussed previously we expect to drive significant market share gains in client's D over the next few years especially in the high end driven by our leading position in PCIe5. So overall 8 channel controller launching December of last year continue to grow quickly in the second quarter increasing by more than 75% sequentially and already account for more than 10% of our client's fee controller revenue driven by strong share gains and higher ASP. We felt additional momentum with our PCIe5 controllers throughout this year as OEM increased sales at the high end. Additionally we will start initial ramp of our 4 channel D-Rampless PCIe5 controller at the end of this year and have already won design with 4 of 6 fresh makers and nearly all the market makers. This new controller will target the broader segment of PC and aftermarket SDD sales and we believe that this introduction will help us achieve 40% of the SDD market by 2028 up from 30% today. I will now provide an update to our automotive and other business. As I mentioned earlier we continue to experience tremendous design win activity in our automotive segment. Vehicle capacity is increasing with the growing demand of high speed and low latency storage. We support the motor storage need across nearly our product line including PCIe, EMC, U.S. surface and increasingly. Our ferrite embedded solution. We were the first company to achieve A-Spec level 3 certification for our PCIe4 solution and we are on track to table our new automotive PCIe5 controller in 2026. Demand of more starry solution is increasing in conventional cars as well as with next generation electrical vehicle makers. Our controller power increased storage density, speed and reliability for diverse and including smart cockpit, data sensors, cameras, navigation and other applications. We are now seeing increased demand for starry integration to help automaker drive differentiation and customer loyalty. We are currently shipping to many of the largest and multi-brand in the business including Mercedes, Tesla, BYD, Xiaomi, Toyota, Honda and many others. As we enter the second half we are seeing greater demand from our partners in China. Our brands are successfully taking worldwide market share for low cost automobiles and leading electrical vehicles. Given the strength in China and increasing design win activity globally we are increasingly confident that automotive will account for at least 10% of our revenue by 2026 to 2027. During the second quarter we also experienced strong growth in our memory card business due to the highly successful launch of Nintendo Switch 2. We started ramping with the leading South Korea flash maker with direct attach to the 3-2 games as well as partnering with leading brands like ADATA and Lonesome for retail expandable storage with PCIe SD level performance in a micro capacity phone factory. For the first half of 2025 our memory card revenue more than double year over year and we expect to see continuous success in the second half of the year as the Switch 2 demand remain robust and as we enter the holiday season. The SM2708 delivers a high density, high speed required by modern portable gaming devices and we are pursuing other opportunities with this exceptional controller to drive diversified mountain growth. Finally, I would like to provide highlights on our enterprise business. Both memory and storage needs are evolving rapidly in the AI era and the opportunities for silicon motion are expanding. AI education requires success to data more quickly driving increased adoption of SD throughout the data center. The current infrastructure comprises high performance memory, near GPU storage, compute storage, warmth storage and cold storage. Our Muntitan platform is ideally suited to manage high density, high performance SD that are both cost effective and power efficient to serve the warmth storage market with our leading controller when paired with QLC. The warmth storage market has traditionally been served by HDD but storage performance requirements have increased due to AI application and the price disparity between HDD and QLC SD converge. We expect more hyperscalers and CSPs will adopt high capacity QLC SD for warmth storage while new light HDD move to support the growth and growing cold storage need. Recently, we have been receiving interest from customers to expand beyond warmth storage into compute storage market with our Muntitan. The new product will pair Muntitan with up to 16 terabytes of TLC NAND to target the high performance near CPU market and represent an exciting new opportunity for Muntitan. Longer term, we are also beginning to work with our industry and the flash maker partner to support the development of a new JEDA standard for new line flash that will likely come to market in the next three to five years to further drive adoption of HDD in warmth storage application, especially the need to access more data more quickly, grow with AI. The new line flash requirement will allow for more relaxed specification for QLC with lower cost driven by higher yield. This should drive even greater adoption of QLC NAND in warmth storage and by extension should create a bigger market opportunity for Muntitan. At the upcoming FMS conference next week, we will be co-hosting a demo with the vast data to demonstrate how our Muntitan SSD can deliver a compelling solution for the insatiable growth in AI application. The collaboration will showcase the vast data storage class memory or SCF for its new Cirrus V2 platform. Cirrus V2 leverage the NVIDIA Bluefield Street DPU platform for AI storage. The Cirrus intelligent storage platform is used by SysIngrader and Architext and deployed in hundreds of large enterprise around the world including banks, data centers, retailers, multinational conglomerate and other leading companies that are leveraging or are developing AI applications. We invite you to join us at FMS to see how our Muntitan solution will drive the next wave of AI solutions for the next several years. In conclusion, the second quarter of 2025 has delivered a significant rebound in our business and we are beginning to see return on the investment we have made over the past few years. This includes our leading signal meter product, our new UFS and PCIe5 controllers, our new Muntitan ESD and Boost storage solutions, our market leading automotive portfolio and our new microSD product for multiple applications including the Nintendo Switch 2. We are in a better position to expand our market share across each of our markets in 2025 than ever before but we continue to capture additional share with the Flashmaker across our product portfolio. Given the current customer demand in our legacy business and the growing success with our new product, I'm increasingly confident that we will achieve our goal of exiting 2025 at the $1 billion revenue round rate and grow further in 2026. Now let me turn the call over to Jason to go over our financial results and outlook.