Silicon Motion Technology Corporation

Good day and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's first quarter 2026 earnings conference call. At this time, all participants are in 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 keypad. Please be advised that today's conference is being recorded. 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 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 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 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. And with that, I'll now hand you over to Mr. Tom Spences, Senior Director of IR and Strategy. Please go ahead.

Good morning, everyone, and welcome to Silicon Motion's first quarter 2026 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 first 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 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 the 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, and thank you for joining us call today. I'm pleased to report another quarter of better than expected result, highlighted by record revenue of $342.1 million. Growth and operating margin both exceeded our guidance. A stronger than anticipated revenue drove improved overall profitability. We saw strong performance across embedded EMC and UFS, as well as our fair ride and boot drive solution. driving solid growth this quarter, following an exceptional start and giving our current pipeline a win across all our markets. I'm confident that we will deliver meaningful growth throughout what should be a record revenue year for Silicon Motion. Now let me first address the current market environment. The memory and the story market continue to create significant challenges across the market in which we operate. NAND prices continue to rise sharply, with a sequential increase of about 55% to 60% in the first quarter of 2026. AI adoption has driven significant demand across all memory and storage technologies, including HPM, DRAM, NAND, and HDD. Growing demand from hyperscalers and cloud service providers for AI infrastructure deployment combined with the low NAMP B growth and insufficient D-RAMP capacity have led to significant scarcity, naturally impacting many market-included smartphones and PCs, particularly in the low end. Despite these challenges, we executed well in the first quarter with our backlog design win and new opportunity ramping throughout the year. we are confident in our ability to deliver solid growth. We have spent many years developing deep relationships with the NAND flash makers, which have allowed us to gain share as NAND makers outsource more of their controller requirements. These strong relationships have also allowed us to secure NAND in the difficult environment as we ramp our ferrite and enterprise boot drive business and help our module maker and AI smart storage system customers secure NAND, making us an even more valuable and strategic partner. While we expect the NAND shortage will remain challenging throughout 2026 and 2027, we have never been better positioned. We have and will continue to benefit from the fundamental shift by the name maker toward higher end and high capacity enterprise and data center solution, driving a greater reliance on Silicon Motion to serve the consumer market and opening a new opportunity in automotive and lower density storage solution. As a company, we are at the start of a wholesale transformation as we scale our new cloud AI opportunity with our Enterprise Mount Titan controller and boot drive storage products, which will drive meaningful growth to both our top and bottom line going forward. We are also benefiting from our edge AI opportunity, including smartphones, PC, automotive, IoT, and other applications where we are seeing a rapid shift toward next generation storage capabilities. Silicon Motion is playing pivotal role with an expanding pipeline of product spanning edge AI and cloud AI platform in 2026 and beyond. Given our current backlog and design wing pipeline, we expect sequential growth across our product portfolio in 2026 as we capitalize on our investment, gain share in existing market, and benefit from our diversification strategy, starting with another strong sequential quarter of growth of 15% to 20% in June. I will now discuss our embedded EMC and UFS business, which include controllers for smartphones and other IoT and connected devices. AI is fundamentally reshaping how memory and storage makers are allocating capital. Memory and storage makers are increasingly redirecting kind of resources toward DRAM, HBM, and other high-performance memory technologies for AI workloads, and stepping back from the edge market, including phones and other smart devices. For the first quarter, our mobile business was up between 30% to 35% sequentially and over 140% year-over-year, significantly outperforming the industry, but share gains further fueled strong growth for our business. The mobile market is undergoing a rapid shift as NAND manufacturer accelerate the outsourcing of controller to third party, especially second motion. Some NAND makers are also finding increasingly attracted to monetize wafer rather than investing in development of complete EMC and UFS solutions for smartphone. Module makers have stepped in to fill this gap. and they rely heavily on single motion controller in the firmware. Our relationship with the NAND supplier and our ability to assist our market maker customer in securing NAND put us in the best position to benefit from the rapidly shifting landscape in the mobile market. Looking ahead, the smartphone market is likely to stay pressured due to ongoing NAND and DRAND supply constraints. Chinese handset OEM are expected to face greater headwind than Apple, given Apple's purchasing scale, and Samsung, given its captive memory supply. At the start of the year, we projected global smartphone unit volume would decline by 5% to 10% in 2026. However, recent estimates suggest the decline could be more than 10% year over year. With a greater weakness, concentrated in China. Importantly, much of this unit pressure is occurring at the low end of the smartphone market, where we have limited exposure. Elevated memory and storage costs make it increasingly difficult to produce low-cost smartphones, a dynamic we expect to persist through at least the end of 2026 to 2027. Our EMC business remains stronger than expected, driven by multiple markets, including automotive, smart TV, AI glasses, smart watches, next-generation cellar box that demand higher capacity storage, and many others. The market for EMC are large and growing at over 900 million units sold every year, with major flash makers essentially Gone from this segment, competition is decreasing, and our revenue contribution from this market is growing. Based on our current backlog, customer forecast, and continuing share gains, we expect another very strong year of growth in our embedded EMC and UFS business, with share gains dramatically outpacing the macro pressure on smartphone unisales. Moving on to our ASD business, which includes Edge ASD and Enterprise Controllers. In the first quarter, our overall ASD controller business revenue declined approximately 10% sequentially, in line with the seasonal trend, but it was up approximately 45% year-over-year, as we benefited from the early impact of PCIe 5 on our mix and early RAM of our Mount Titan controllers. For our HSD business, our clients' big controllers are utilized in a variety of products, including PC, gaming consoles, and PC workstations. The PC market has been a challenging area so far this year, given supply constraints and high prices associated with both NAND and DRAM. PC manufacturers are lowering for new computers and passing on higher NAND costs to consumers, which we expect will contribute to overall unique decline in the PC market in 2026, especially at the low end. Fortunately, for Silicon Motion, our products span the market from value line to the high end, and we continue to gain share across the range of devices that the NAND market makers except the consumer segment. 2026 will be a defining year for our client-side business. PCIe 5 began to displace older technologies. Our 8-channel PCIe 5 controller leads the market in performance and RAM steadily throughout 2025. While we expect a DRAM supply constraint could limit growth of this high-end controller in 2026, it is still highly sought for this unmatched power and performance. In December, we launched our four-channel D-RANless PCIe 5 controller and in the mass market. And we expect this to become the volume-leading PCIe 5 chip in our portfolio this year. This controller brings PCIe 5 performance to a broader audience at a more accessible price point and remove a significant component hurdle for our customer at a time when DRAM availability is constrained and the costs are elevated. We have our NAND FlashMaker customers for each of our PCI-Fi controllers. Well, nearly all the module makers are expected to drive high ASP and improve margin in our client-state business throughout 2026, as PCIe 5 grows as a percentage of our sales mix. Entering this year, we estimate that the PC market will experience a unique decline of 5% to 10% in 2026, given the tightening land and demand supply and increased prices. Current expectation are being lower with anticipate unique decline now in the 10% plus range. Despite this, we expect to grow our Edge SD business through a combination of increased market share and higher ASP as our PG55 controller continue to ramp and as NAND FlashMaker found retrieved from Edge market in favor of Enterprise and Cloud AI. For our MonTitan enterprise controller business, our cloud AI opportunity in the data center and AI infrastructure are growing rapidly. And we are in the early inning. NAND is a central part of enterprise and AI infrastructure deployment spanning warm storage, compute storage, and increasingly near CPU and near GPU storage applications. The need for speed, lower latency, greater power efficiency is driving a technological shift in the data center. And Mount Titan is squarely in the middle of the transition. Mount Titan, when paired with TLC NAND, power high-performance CMX, KV cache, and Compute SD using near CPU and near GPU environment. When paired with QLC NAND, Mount Titan enable high capacity high-performance enterprise and AI data storage. During the December quarter, end-user qualification of TLC base and high-performance compute SD powered by Mount Titan began with multiple customers. These qualifications have been progressing well and these end customers are now expected to begin volume commercial ramp in the current quarter. one quarter earlier than expected. Currently, we see greater demand for TLC-based CMX compute and the KVCache SD controller than for QLC, given a slower rollout of two terabit NAND than initially expected, while we anticipate more initial revenue contribution to come from TLC Configure Mount Titan solution. we believe QLC configured solution will begin contributing more meaningful later this year and long-term. Higher capacity one storage SD leveraging QLC NAND will represent the largest addressable market for Montyton. And we expect to begin ramping multiple customer as broader availability of the next generation two terabit QLC NAND die become available from nearly all net makers and supply return to more normal levels. Our QLC solution offers a meaningful advantage over HDD for AI inference workload, faster asset, higher speed, lower power consumption, and improving cost trajectory. I'm excited to announce that our Montyton customer plan to begin ramping of three Tier 1 Asian CSP and two U.S. Tier 1 CSP later this year, which both TLC compute and QLC one-star SSD solutions. In the third quarter, we expect to tape out our first four-nanometer controller, a PCIe 6 mount Titan controller, targeting hyperscalers and CSPs. that have been developed in close collaboration with multiple partners and customers. And we expect to drive the next phase of Mount Titan growth beginning in the 2027-2028 timeframe. Importantly, we have already secured design wins with multiple Tier 1 customers with volume expected to ramp meaningfully in 2028. Given the traction we are seeing and the progression of end user qualification for both TLC and TLC implementation of Mount Titan, we are increasingly confident that the business will grow rapidly throughout this year and exit at our target run rate of five to 10% of our now expanded 2026 revenue expectation with the further growth anticipate in 2027. and beyond as our entry into the enterprise market scales meaningfully over time. And finally, I would like to provide an update on our ferrite and the bulldry storage business. Our ferrite and bulldry storage business delivered exceptionally performance in the March quarter as we began scaling several new projects in ferrite for automotive as well as in our emerging enterprise boot drive business. So this business is growing rapidly this year. Sourcing NAND is becoming more critical to our long-term success. Our unparalleled relationship with the NAND maker has become a key differentiation and has enabled us to secure NAND from three different makers. which will ensure we will remain a resilient supplier of Fairlight solutions and boot drives for our customers despite the increasing supply constraints. NAND supply allocations for 2026 were largely finalized by all factory makers by mid last year. Our ability to secure NAND has given us a meaningful competitive advantage as we are one of few suppliers globally able to consistently source NAND to support our customers' accelerating requirements. Ultra-light storage is rapidly becoming one of our most exciting growth opportunities as we are actively engaged with multiple customers to build solutions that operate across a variety of platforms. This includes leading DPU, Ethernet, and AV link switches and other opportunity across different AI infrastructure architecture. In the fourth quarter of 2025, we began volume boot drive shipment to a leading AI GPU manufacturer for their current DPU product. In the first quarter, we work with that customer to qualify next generation DPU design, as well as Ethernet and AV link switches of their new GPU CPU platform to be launched in the second half of this year. As our customer transition to the next generation GPU CPU platform, our opportunity is increasing rapidly with a much broader footprint beyond the DPU boot drive and with a density that increased two to four times from the previous generation. We anticipate strong revenue contribution and growth with this customer this year and throughout 2027. In addition to this customer, we have recently won the design with the leading telecommunication infrastructure provider, and it will be ramping initial scale with them later this year. We are also sampling with the leading search engine company for the TPU architecture as well. and we will continue to develop a new boot drive storage device built around our leading controller to drive future growth. Our ferrite business is experiencing strong demand from automotive and industrial customers as the name maker continues to shift away from lower density solutions to focus on higher ASP, higher density enterprise solutions. Our more than 10 years of developing automotive grade ferrite solution provides significant differentiation by offering reliable supply, proven technology, dedicated technical support, and the qualification expertise tailored to the automotive market. As a result of these investments, demand from global automotive OEM and their subsystem suppliers continue to accelerate across the U.S., Europe, China, and Japan. We are gaining meaningful share, creating a strong pipeline of near-term revenue and long-term sustainable growth opportunities. In conclusion, the first quarter was exceptional, delivering our highest quarterly revenue at Silicon Motion as we continue to drive meaningful share growth across our markets Despite ongoing supply constraints and price increases associated with NAND and DRAM, we continue to expect that we will deliver sequential growth throughout 2026 as we reap the benefit from the investment we have made over the past few years. This growth will cross all our major business propelled by our growing cloud AI opportunity with our enterprise AI product, including Mount Titan, and our emerging boot drive storage business that are just beginning to ramp. We are in the strongest position in our company history with a deeper product portfolio, growing foothold in edge and cloud AI, with multiple opportunity growing in tandem in the legacy and new market. The successes we have made through the partnership with all the NAND makers over the past many years have given us an unparalleled advantage that we leverage these relationships to gain access to NAND supply. These relationships are the strategic differentiation for our company, and I am extremely confident in our ability to deliver broad-based sustainable growth as we scale both establish an emerging opportunity across the business in 2026 and beyond. Now, let me turn the call to Jason to go over our financial performance and outlook.