Silicon Motion Technology Corporation

Hello everyone, welcome to Silicon Motion Technology Corporation's Q4 2025 earnings conference call. At this time, all participants are in the listen-only mode. After this week's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 1 and wait for a name to be announced. I must advise you that today's call is being recorded. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitations, statements regarding trends in the semiconductor industry and our future results of operations, financial conditions and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends, and our results may differ materially from those expressed or implied in these four working statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers, and changes in political, economic, legal, and social conditions in Taiwan. For additional discussions on these issues, 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 obligations to update any follow-up statements which apply only as of the date of this conference call. With that, I would now like to attend the call over to your first speaker today, Mr. Tom Serpensis, Senior Director of IR and Strategy. Thank you. Please go ahead.

Good morning, everyone, and welcome to Silicon Motion's fourth quarter 2025 financial results conference call and webcast. Joining me today is Wallace Koh, 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 fourth 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 6-K 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 the call today. I'm pleased to report that we deliver another excellent performance in the fourth quarter, exceeding our revenue and near the high end of our margin guidance and positioning us for a record-breaking year in 2026. We benefit from strong demand across our market and through the introduction of compelling new controlling solutions. We increase market share in existing and new market and expect the momentum to continue throughout 2026. We remain focused on delivering long-term growth while investing heavily in next generation products, increasing our engineering resources to support new product in markets. and further positioning silicon motions for long-term market share expansion. While 2026 membrane and storage industry dynamics are challenging given the supply tightness of NAND and DRAND and rapidly increasing prices of these components, we believe our resilient operation strategy and our matched NAND and maker relationship will allow us to deliver strong growth across our business. Given our current backlog and shell plan, we believe that first quarter 26 revenue will be the lowest of 2026, thanks to our sequential growth throughout the remainder of the year. As we continue to introduce the skills compelling new EMC and UFA controller, PCI-E client-stake controller, Mount Titan enterprise-stake controllers, enterprise boot drive solution, and our expansion Ferris multi-portfolio, we expect to deliver broad-based growth and to deliver the highest annual revenue in the history of the company in 2026. But we capitalize on multiple new products and execute on our continuing diversification strategy. I would like to start by addressing the current market environment. The rapid adoption and growth of AI has introduced significant demand across all memory and storage technology, including HPN, DRAM, NAND flash, and even hard drives. The new and growing demand has led more recently to supply constraint, time market condition, and increasing pricing pressure across multiple markets, including AI and enterprise storage, boot drives, PC, smartphone, and most other markets that use NAND flash. AI CSPs have attempted to lock up all the DRAN and NAND supply through 2026, which has made it increasingly difficult for other market players to get a product, and is driving significant intra-quarter price increases. Given the growing supply constraint in DRAN and NAND, industry analysts are beginning to take a more cautious approach regarding smartphone, automotive, and PC uni growth in 2026. SiliconMotion, however, remains extremely well positioned in the consumer market, despite the tight conditions given our longstanding partnership with all the major flash vendors. Our expanding market share within our existing market and the introduction of the new higher ASP products. We are leveraging our strong relationship with dispatch makers, OEMs, and module makers to help secure NAND supply for our smartphone and PC OEM customers and ensure steady access to NAND even in the tight times. We are delivering greater value-add to both our NAND maker partners and OEM customers, driving stronger partnerships that will lead to sustainable long-term growth. As a result, Despite the expected market having, based on our existing backlog, we expect growth in our major product line in 2026, including automotive, mobile, PC, enterprise ID, and boot drive storage solution, giving a strong and growing market position and leading product portfolios. I would now like to discuss our highlight in EMC and UFS. Growing AI demand in focusing a more disciplined KPI approach by memory and storage market to prioritize resources across multiple technology, product, and market. Increasingly, we are seeing additional opportunity for Silicon Motion to supply controller and then make a shift in internal resources to focus on DRAM, HVN. and customized memory technology for high-performance AI requirements. The mobile market is a prime example of this trend, a landmaker actively exiting mobile in favor of DRAM and HBM, which has led our mobile business to outperform in 2025, as our EMC UFS business grew 25% for the full year, far outperforming the smartphone and embedded market. Module makers are seeing great asset success by using local NAND supply. Coupled with our controller, just as many of other NAND flash makers have looked into exit the mobile market in favor of the enterprise. We will continue to benefit given that we are the only meaningful merchant controller maker for the EMC and UFS. While the overall smartphone market is expected to decline this year due to higher DRAM and NAND component cost, we expect a continuing shift from NAND FlashMaker to ModuleMaker to continue in 2026 and further benefit our EMCU of the controller business. Leveraging our strong relationship with local NAND makers and helping to align supply with handset OEM, and module maker will lead to continuing output forms for our business. In addition, the market for EMC are vast and growing, with over 900 million units shipped annually. We are shipping EMC into automotive, industrial, commercial, IoT, smart device, streaming device, and many other markets, but FlashMaker has all but exited for EMC market, the competition has diminished significantly, and we are experiencing strong revenue contribution from this segment. Given our current backlog and customer outlook for 2026, we expect to significantly outpace the market and deliver another strong year of growth of our EMC and UFS business, despite the difficult market environment. I will now discuss our client-side business. 2025 market turning point of our client-side business, given the success of our new PCIe 5 controllers. We introduced our 8-channel PCIe 5 controller at the end of 2024, with four fashion makers on it and nearly all multi-maker makers, setting us a clear path to grow our client-side PC market share from 30% today to 40% over the next few years. We expect our new D-RANless 4-channel PI5 controller that we introduced last quarter to ramp significantly throughout 2026, targeting the mainstream market and driving higher adoption of PCIe 5 given that it is D-RANless, making it easier for our customer to create SSD despite D-RAN shortage. We have secured design wing with four NAND flash makers, including the two from South Korea for TMC and QLCSD. And then nearly all the for this controller. And then we expect to benefit from higher ASP and profitability as this new controller enters the mix. Until the memory and storage makers increase their big production capacity, to alleviate the current shortage, the PC market will likely experience some difficulty driven by both shortage and demand destruction from higher prices. Syncomotion, however, remains in excellent position to grow its PC business in the near to long term, given market share gains. ASP increases and growing decision by the NAND Flashmaker to walk away from the consumer business in favor of AI. And we expect continued growth from our Client-to-Dee business in 2026. I will now provide an update on our enterprise business. The opportunity of Silicon Motion in data centers and AI infrastructure expanding daily. are for data center and AI infrastructure investment to exceed $1 trillion by 2030, and the non-verification of NAND technology expanding rapidly to help store and process large volume of data quickly. The need for increased speed and lower latency is driven greater adoption of SD in the data center. And the industry is increasingly looking to adopt NAND solution in one storage, compute storage, and eventually near GPU storage as well. Interests in our growing portfolio of Mount Titan controllers increasing as they are ideally suited to address the involving requirement of AI workload for both compute and storage. In the December quarter, we began end-user qualification of TLC-based high-performance computer CD using Mount Titan with multiple customers. This qualification will progress throughout the first half of calendar 2026 and will begin to ramp commercially in second half of the year. High-capacity QRC-based storage CD represents the largest addressable market for Mount Titan, and we remain on track with multiple customers to begin qualification this year. Among Titan QLC one storage solution offers significant advantage over HDD for AI inferences including speed and power. Additionally, demand for QLC storage solution has accelerated in recent months given the current supply storage of HDD. Over the next few years, we expect the QLCSD will become a compelling alternative to HDD as they offer unmatched economies of scale, which will lead to lower prices over time, in addition to the inherent speed and power advantage. During 2026, we plan to take out our first 4-nanometer chip, a PCIe 6 version of Long Titan, that is targeting hyperscalers, nanoflash makers, storage system providers, CSP, and other Tier 1 customers. We have been developing the chip in association with multiple partner customers and expect this new controller to try additional success for Montyton beginning in the 2027-2028 timeframe. I'm pleased to announce that we have already secured design win with multiple Tier 1 customers for this new controller which is expected to ramp significantly in 2028. We remain confident that Mount Titan will ramp to represent at least 5 to 10% of revenue exiting 2026 and should experience further success in 2027 and beyond as our entry into enterprise market scale meaningfully in the near two meter. And finally, I would like to discuss our enterprise-grade boot drive storage business, which is rapidly evolving into a significant new era of growth for our company. We are collaborating with multiple customers to develop an enterprise boot drive solution that can work across multiple platforms. In the fourth quarter, we start volume shipment to the leading AI GPU maker for their current GPU product. We are currently working with this customer to qualify the next generation version of their GPU, as well as for several NVLink and Ethernet switches of their new GPU-CPU platform that are expected to launch in the second half of 2026. This next generation GPU and switch product require higher capacities with much higher ASP and unit volume, creating a significant new growth opportunity for SiliconMotion. We are also working with other potential customers, including a leader, leading search engine company, to develop enterprise-grade boot storage drive based on our leading controllers. But the enterprise boot drive complete S&D product, this business will face greater exposure to our NAND security and high pricing environment, placing greater emphasis on sourcing NAND to supply our customers. While this has become more difficult given the supply constraint and recent price increases, we remain confident that Our relationship with the NAND Flashmaker developed over the past 20 years will help us succeed with these significant new opportunities. For our Fairlight Star solution, we are seeing strong demand from our automotive and industrial customers. Especially in the tight NAND environment, our customers are relying more on us for steady and consistent supply. to ensure smooth supply chain dynamics. We will continue to play a more strategy, strategic role and partner to our Fairlight customer, but we'll also look to balance revenue growth with margin stability to drive profitability growth. In conclusion, the fourth quarter of 2025 delivered significant growth for our business and accelerated our full-drive storage business. In 2026, beginning in the first quarter, we expect to continue to reap the reward of our investment in Mount Titan, our signal meter client state controller, and our new portfolio of EMC and UFS product that are experiencing rapid growth and the ramp of automotive business to about 10% of total business by the end of this year. We have never been better positioned as a company given our expanding product portfolio and scaling in a large new market, including the AI and enterprise storage market. I'm increasingly confident that we will deliver strong, broad-based, sustainable, sequential growth throughout 2026 and beyond as we scale multiple existing and new opportunities. Now let me turn the call to Jason to go over our financial performance and outlook.