Silicon Motion Technology Corporation

Good day and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's third quarter 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, at which time if you wish to ask a question, you will need to press star 1 1 on your telephone keyboard. Please be advised that today's conference is being recorded. This conference call contains forelooking 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 forelooking statements include, without limitation, statements regarding trends in the 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. The statements involve risks and uncertainties, and actual market trends and our 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 effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and 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 file from time to time with the Securities and Exchange Commission. We assume no obligation to update any following statements which apply only as of the date of this conference call. And with that, I'll now hand you over to Mr. Tom Sabances, Senior Director of IR and Strategy. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to Silicon Motion's third quarter presentation. 2025 Financial Results Conference Call and Webcast. Joining me today is Wallace Koh, our President and CEO, and Jason Tsai, our CFO. Wallace will provide a review of our key business developments, and then Jason will discuss our third quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we begin, 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.

Thank you, Tom. Hello, everyone, and thank you for joining us today. I'm pleased to report that we deliver another strong performance in the third quarter. Exceeding our revenue and operation margin guidance, we continue to benefit from the introduction of new controller existing in new markets and drive increased market share across our portfolio. We remain focused on delivering both top- and bottom-line growth and improving profitability while investing heavily in the next-generation controllers, increasing our engineering resources to support new products and markets, and further positioning Silicon Motion for long-term market share expansion. We expect strong revenue growth to continue as we introduce compelling new PCIe client-side controllers next generation EMC and UFS controllers that drive higher share benefit from strong growth in our multi-business and as our Mount Titan enterprise business begins to scale. I'm excited about the foundation for growth that we are building across each of our major markets and I believe we are well positioned to see sustained revenue and profitability growth in both the near and long term. Let me start by discussion and broader marketing environment, and then each of our major business in greater detail. AI remains a significant growth factor across memory and storage industry, driving strong demand for NAND and other technology, including DRAN and HDD. The growing AI demand has, for the first time, greatest supply shortages in HDD, NAND, and DRAN. Leading to price increases for the past three quarters, a trend we expect will continue at least through 2026. In the early stage of AI development, AI training drove strong demand for high-performance memory and storage using DRAM, HBM, and then for lower-capacity TLC-based compute SSD. As AI evolves, the focus is changing to inference, which relies more on high-performance high-capacity storage rather than raw computing power. The increasing demand from inference is putting a large strain in the HDD supply chain that traditionally served this market and is expected to continue well into next year as HDD makers struggle to quickly meet the growing demand. Inference is also increasing demand for high-capacity high-performance QLT-based S&D, and creating a significant trend for the NAND market supply and availability. As AI is still in its infancy, we expect that these demand drivers will continue to impact supply availability across all memory technology for quite some time as CAPAC spend increases to catch up with market demand over the next few years. Growing AI demand is also forcing a more disciplined CAPAC spending approach and is driving difficult resource allocation decisions by the memory and storage makers to prioritize engineering resources across multiple technologies, products, and markets. Increasingly, we are seeing a greater willingness by the NAND flash makers to rely on Flickr Motion to complete their product portfolio but they shift their internal resources to focus on DRAM, HBM, and future customized memory technology for high-performance AI environments. We are in an active discussion with all NAND makers about expanding our partnership and taking on a broader range of projects long-term to offset growing internal resource shortages. Looking ahead, we see continued NAND enterprise increases and shortages given the impact of AI on overall demand, which has been amplified by reduced new capacity investment as a flash maker over the past two years. Despite the challenges inherent with the NEM price increases, we believe our business will remain robust. Our module maker customers have been building NEM inventory ahead of anticipated price increases and are well positioned for next year. to meet expected market demands. Our direct business with NAND Maker continues to be strong, accounting for more than 50% of our revenue, and we expect to gain significant share over the next few years. Additionally, more than 70% of our business with NAND FlashMaker and MultiMaker customers goes directly to PC, smartphones, servers, and other device OEMs. that are not significantly impacted by high NAND markets. We are a robust design pipeline in EMC, UFS, Client SD, and Enterprise SD controllers, and our ferrite pipeline should benefit from the increased NAND price trend. Additionally, given increased NAND prices, we expect OEM to more rapidly adopt QLC technologies where we have a significant advantage over our competition. And finally, we are starting to scale our new enterprise products, including Mount Titan, which are less price sensitive than the consumer market. We expect AI demand to continue to put a greater demand on inference than it has. A more large learning model, rich maturity, putting more focus on the high performance high-capacity storage capability that a QLT-based SSD ideally suited to address. I will now discuss each of our business units in greater detail, starting with EMC and UFS. We've turned another exceptional quarter of growth in our EMC UFS business, with strength across the board in smartphones, automotive, industrial, and IoT. EMC and UFS revenue was up over 20% sequentially as we continue to increase our market share and capitalize our new product introduction. Market makers are benefiting as NAND makers have walked away from EMC and UFS2 due to lower ASP margins, which has helped market makers gain market share rapidly using our EMC and UFS controllers. Overall, and market demand in the third quarter was higher than expected and helped us deliver strong sequential growth with our NAND Flash partner as well. Smartphone EM continued to shift to our new UFS controller in mainstream and now value-aligned devices, driving better ASP and margin for our business. Additionally, we continue to have success with our direct OEM engagement with the QLC controller. Our first customer is introducing a second smartphone with our chip in the current quarter. We plan to introduce additional models next year. Given the current NAND environment, we expect that other smartphone manufacturers will increasingly look to QLC to deliver high-capacity storage at lower cost. which could lead to further customer engagement. UFS will continue to grow rapidly in the smartphone market as low-end smartphones continue migrating from EMC to UFS to deliver better performance cost effectively. While smartphones are rapidly shifting away from EMC to UFS, EMC remains an important revenue driver for SiliconMotion. As we mentioned, The market for EMC extends well beyond mobile phones and accounts for more than 900 million units annually. The market for EMC includes automotive, commercial, industrial, IoT, smart devices, data box, streaming devices, robotics, and many more, including the rapidly growing market for smart glasses championed by Meta, Apple, Google, Amazon, Xiaomi, and others. These solutions will likely continue to use EMC, providing a strong foundation for market growth for years to come. As the NAND Flashmaker increasingly concentrates on the enterprise market, the opportunity for second-motion EMC and UFS continues to grow. We expect to see further market share expansion as the Flashmaker outsources more and believes that our shared gain in EMC UFS will remain a strong contributor to our future growth, leading to expanding market opportunity and end market growth. I will now discuss our client-side business. Our client-side revenue was up more than 20% sequentially in the September quarter, after a slower start in the first half of the year. We are beginning to see greater PC demand driven by the sunsetting of Windows 10 this month, and the adoption of AI at the edge in commercial and consumer PCs, which require higher-performance SSD solutions. We are also benefiting from the positive impact of our 8-channel PCIe 5 controller that launched at the end of last year, with revenue growing 45% sequentially in the third quarter and which now represents more than 15% of our client fee revenue. This new controller has significantly higher ASP than our PCIe 4 offering, and it will help drive revenue growth as it scales. As we have discussed, we have four of six NAND batch makers and nearly all the module makers using this performance-leading controller for their high-end offerings. and that we expect to capture significant market share in the top tier for the PC market first time, which represents approximately 10% to 15% of the overall market. We have win with all the top PCOEN in many of the upcoming high-end models that are expected to ship later this year and scale through our next year. We are introducing our second six nanometer DCI-E5 controller during the four-channel version that's targeting the mass PC market. And that we will begin initial shipment this quarter. We have already secured design win with also four NAND flash makers and nearly all the module makers for this controller as well. This new controller targets the largest segment of PC and retail SD market. And we expect that it will help drive our clients' market share from approximately 30% today to 40% over the next few years. We expect the PCIe 5 will become the dominant technology in consumerization over the next few years. And we are in the best position to benefit given our strong customer partnership with both NAND flat makers and module makers. I will now provide an update about our automotive business. We continue to experience significant design win activity in our automotive segment across each of our product units, including EMSC, UFS, BCIE, and our ferrite embedded solution. While the overall market has experienced challenges in 2025, given the broader geopolitical and tariff issues. We continue to grow our product portfolio and market share. We are also benefiting from the super trend of increased vehicle capacity, which is driving the need for additional high-speed, high-performance storage. We recently won a significant design win with a Tier 1 Japanese auto manufacturer in their global model that could contribute to top-line growth moving forward. As I mentioned during our last call, we also recently won with a large South Korea customer that has started to sample our EMC controller-based solution to multiple automotive OEMs, which we expect to drive perfect growth in our automotive business in 2026 and beyond. We are also on track to extend our lead in ACE-5 certification which we achieved this year with a Level 3 certification for our PCE4 controller. We plan to take our next generation automotive PCE5 controller next year. The increased demand for advanced storage solutions in automotive is being driven by AI, multiple screen integration, ADAS sensors, cameras, navigation, and authentication. We are shipping to many of the leading automotive manufacturers in the world, including Tesla, BYD, Xiaomi, Mercedes, Toyota, Honda, and many others. Entering the second half of 2025, we experienced greater than expected demand from our partners in China, as our strong design pipeline has led to market share gains with leading car makers like BYD and Didi. Chinese automotive brands are rapidly taking market share worldwide, given their leadership in electric low-cost vehicles. As we continue to introduce compelling new automotive controllers, and as we expand our customer relationship, we remain confident that automotive will represent at least 10% of our revenue by 2026-2027. Finally, I will now provide an update to our enterprise business. The requirement of AI computation, training, and inference are rapidly evolving and driving new requirements on storage and memory solutions that deliver performance, capacity, power, and affordability. These growing opportunities are expanding their prospects. The prospect for second motion Mount Titan family of enterprise-grade controllers. The need for increased speed and lower latency is driving greater adoption of AZ in the data center, and the industry is increasingly looking to adopt that solution in long storage, few storage, and eventually near GPU storage as well. Our Mount Titan solution ideally suited to address the increasing requirement of AI workflow for both compute SD using TLC to high capacity one storage SD using TLC. The opportunity for compute SD represent most of the enterprise SD market today, while high capacity SD are just beginning ramp, but are expected to be much larger market opportunity longer term. Initially in Montyton, for compute storage TLC-SD application is increasing. This quarter, our customers are beginning qualifications with end-customers DSP, enterprise, and data center with TLC-based high-performance TLC-SD using our Montyland controller, targeting the high-performance requirements of AI in the data center. We expect these qualifications to progress into first half of next year and begin to run commercially in the second half of next year. For high-performance, high-capacity QLCSD, our Mount Titan-based solution helps deliver significant advantage over HDD for the AI inference in for CSP, hyperscalers, and enterprise by elevating the speed and power bottleneck inherent in HDD technology for warm storage. The 3-2 NAND technology for warm storage is being accelerated by the current supply shortage in the major HDD manufacturers. Making HDD more expensive and high-capacity QLCD is a cost-effective, better performance option. Longer term, One-star requirements offer a much bigger market opportunity when compared to the opportunity for compute SSD, and we see increasing interest in our industry-leading Mount Titan QLC solution. We are on track to begin end-customer qualifications for QLC-based high-capacity SSD late this year or early next year. We are increasingly confident in Mount Titan as a significant new growth opportunity given our successes and win today in both the compute and high-capacity wall storage market. We remain confident that Mount Titan will deliver 5% to 10% of our revenue by the late 2026 or 2027 time frame. As these new opportunities and customers scale, in the near and the mid-term. And finally, we continue to collaborate with customers to deliver compelling enterprise boot drive solutions that can work across multiple platforms, engaging directly with the world's leading AI GPU makers, as well as hyperscalers and CSPs. We began volume shipment of a boot drive to the leading AI GPU makers this quarter. for their current TPU product, and start in qualification of their next generation TPU for following products. Working on expanding our relationship with the customer, we are also in the qualification process of our boot drive solution for a variety of switch product also as well, including NV-Lite, AMN-Link based design, as well as Ethernet switch design. both of which are expected to run later next year. We expect the boot drive solution will add an additional long-term sustainable growth driver for Silicon Motion as we expand our storage technology and business partnership with this leading GPU, GPU maker. In conclusion, the third quarter of 2025 delivers significant growth for our business, but we ask you on our diversification strategy with new products into new markets. We continue to see the reward of investments that have made over the past few years. These investments include our market-leading signal meter products, our new UFS DCI-E5 controllers, our new Mount Titan and BoostArch Enterprise Cloud solution, our growing automotive portfolio, and our new microSD products for multiple applications, including Nintendo 3.2. We have never been a better position than our market share, given our leading product portfolio and the growing need for flash makers to shift their focus from consumer to enterprise applications. Given the growing demand in our legacy business and our new automotive and enterprise products, I'm increasingly confident that we will deliver strong, attainable top and bottom line growth. Given our current backlog, I'm very confident in our ability to exceed our target annual revenue run rate of more than $1 billion this quarter. Now let me turn the call to Jason to go over our financial performance outlook.