Silicon Motion Technology Corporation

Good day and thank you for standing by. Welcome to the Silicon Motion Technology Corporation second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be 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. 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 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 the 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 filed from time to time with the Securities and Exchange Commission. We assume no obligation to update any following statements which apply only as a update of this conference call. And with that, I'll now hand you over to Mr. Thomas Sepenzis, Vice President of Investor Relations and Strategy. Please go ahead.

Good morning everyone and welcome to Silicon Motion's second 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 second 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, and thank you for joining the call today. We deliver another outstanding quarter, achieving record revenue of $451 million and gross margin above 50%, driven by continued growth across all our core markets. Operation performance translating to record earning per ADS, reflecting our ongoing solution from the leading non-flag controller makers into a diversified supplier of controller and solution, spanning AI infrastructure to the edge. During the June quarter, we grew our embedded EMC UFS portfolio, delivered both sequential and year-over-year group gain in edge ASD controllers. began the initial commercial ramp of a Mount Titan Enterprise-D product and posted strong growth in our ferrite for automotive and enterprise boot drive solution business. With expanding consumer market share and rapidly broadening suite of enterprise and AI controller and solution, our competitive position keeps strengthening. We expect to deliver record revenue in 2026 of more than 100% year-over-year, setting the foundation for sustained growth in the years ahead. With the right product in the right market at the right time, we have never been better positioned to capitalize on the accelerating demand for intelligent storage from the data center to the edge. I would like to take a moment to address the current market environment. The AI super cycle has fueled significant demand for HPN, DRAN, NAND, and HDDs, driving substantial price increases over the past year and creating mounting sub-trade and supply pressure across memory and storage technology. As component prices, NAND and DRAN in particular, continue to climb, OEMs are finding it increasingly difficult to build affordable consumer products such as smartphones and PCs, especially at the low end. We expect this scarcity to persist likely until 2028 when new fabs come online and help bring NAND supply back to reduce supply-demand gap. While the NAND environment will stay challenging through 2028, we have a clear path to deliver a significant top and bottom line growth. SiliconMotion is in the early inning of a complete transformation to a diversified supplier of a NAND flight controller and solution from AI infrastructure to the edge where there is accelerating demand for next generation storage. I will now discuss our embedded EMC and UFS business. which include controller for smartphone and other IoT and connected devices. This business continues to thrive and grow significantly outpace industry despite the supply halving as NAND makers increasingly rely on third-party controller while focusing their own resources on DRAM HBM solutions. Our all performance was driven primarily by market share gains as NAND makers emphasize these solutions to the benefit to our market maker customers. Across the many markets where we sell our embedded EMC UFS products, OEMs are trimming specification to offset some of the rising cost of memory and storage. While we still expect smartphones You need to be down 10 to 15% in 2026. We anticipate strong growth in our mobile business in 2026. Driven by continued market share gains and SP improvement from a mixed shift toward newer UFS controllers. Our EMC business delivering strong results as we win new business across a range of markets. including automotive, smart glasses, watches, drones, robots, next generation cable set-up box, smart TV, and more. With the name maker interested in these markets, we were operating in an environment of stronger pricing power and profitability. Overall, we expect strong revenue growth in our embedded EMC and UFS segment in 2026, and I'm pleased with the exceptional performance our team delivered in the first half of this year. We expect our growing portfolio of new products transitioning to next-generation solutions and expansion into additional markets to try to share against to keep outpacing the micro-pressure in the smartphone market. Moving on to our SSD business, which includes Edge and Enterprise-D controllers. Our Edge-SD business improved significantly in the second quarter following a seemingly soft first quarter, delivering 40% to 45% year-over-year growth. We are beginning to see payoffs from our PCIe5 investment in the Edge, with our four-channel controller ramping steadily since its introduction in the fourth quarter of last year. However, the transition from PCIe4 to PCIe5 is proceeding more slowly than we anticipated six months ago. OEM are increasingly pairing the latest generation more cost-effective NAND with PCIe4 SAD in value and mainstream PC. This offers a way of reducing the overall bill of material. We are securing a meaningful share of this business across both land makers and module manufacturers with our leading controllers. Despite the slower pace of PCIe 5 transition, our four channels during this PCIe 5 controller continue to gain adoption among customers seeking leading performance in the mid to high-end segment of the PC market. We therefore expect to further increase AgisD's average selling price as we progress through the remaining of the year. I would now like to provide you with an update on our new Mount Titan Enterprise D business. Our new ESD business entered commercial production in the second quarter with two tier one customers, and we expect to rent five additional tier one customers in the second half of the year. There's an exceptional strong start after several years of investment in our enterprise AI-class controllers. NAND is an essential and growing technology across the enterprise storage ecosystem. Spanning warm storage and compute storage applications, Mount Titan is well positioned for rapid growth. Our first customers are targeting the compute market using TLC-NAND, which is in growing demand for next-generation AI platforms that leverage NAND to support compute storage solutions that deliver high-speed, low-density storage dedicated for near-GPU and near-CPU KV cache. Several customers are leveraging Montyton to target this market and will be ramping production throughout the remainder of this year. We continue to believe that TLC monotitan solution will run faster than TLC-based solution until two terabit TLC NAND dies become more broadly available. High capacity one-star ESD leveraging TLC NAND remains a larger addressable market for monotitan for long-term growth, and we expect The QLC-based solution will begin their initial ramp in the second half of the year with multiple customers. We are seeing increasing inbound interest in our Mount Titan 4K solution to drive long-term growth. Finally, we are completing the tape-out of our next-generation 4nm PCIe Gen 6 controller in August of the year, targeting hyperscaler and CSP. We developed this controller in close collaboration with several customers, and we have already secured multiple design wins with both FlashMaker and CSPs. We expect this new controller to be a significant growth driver in 2028. With TLC and QLC Mount Titan controllers already in customer qualification and clear rollout plans in place, I'm confident We will hit our revenue target this year, and I expect significant growth in 2027 and beyond as the business scale scales. Our customer base is strong and expanding, and Mount Titan is well positioned to drive meaningful revenue growth from here. I look forward to sharing further updates. And then finally, I would like to provide an update on our FairEye for Automotive and Enterprise BlueDry storage business. Our FairEye for Automotive and Enterprise BlueDry storage business is growing rapidly across automotive and AI infrastructure markets. Landmakers are leaving the automotive market as the volumes are now meaningful to their business and the quality and technical support demands are significantly greater than in other markets. And the name makers access automotive. The model makers show same likely successors, but they do not have the infrastructure, the resources, the certification process, or the expertise to deliver automotive-grade products. This has benefited SiliconMotion significantly. As we know, the automotive market, the customers, and supply chain extremely well. We have developed our automotive product and certification for over a decade and already support three of the name makers with automotive controller and firmware. Our success in automotive has generated interest in our fair-right solution for additional large and growing markets, including robots, drones, advanced networking, and other applications. In the emerging robotic market, we are now actively engaged with multiple companies that want to leverage our storage products. We believe there are multiple opportunities in the emerging physical AI market for storage in humanoid robotics, including vision systems, LIDARs, computing storage, balance systems, and many others. It appears that, from our initial conversation, the opportunity in robotics may be larger than automotive, and our fair-right solution will be ideally suited to support this future opportunity. Moving on to our growing Android boot drive storage business. This is a new and growing market. Android boot drives for server CPU have been around for over 30 years. and the NAND maker have supported this market with solutions that employ both DRAN and the NAND. As we move into next generation of AI and enterprise application, enterprise CPU customer will continue to use enterprise boot drive with DRAN to enhance random write performance and reduce latency. Most other customers including TPU and switch makers are looking for enterprise boot drive solution with our unique D-Winless technology that offers enhanced security and is our primary focus today. While some land makers may choose to continue the support of conventional architectures, they do not have D-Winless PCIe SD controller and they are not likely going to dedicate the RD resources necessary to develop them for comparatively low-volume market. SecoMoting has the right technical know-how, the leading controller and firmware technology, and the right relationship to deliver turnkey enterprise full-drive solution, and this is why we are winning in the market. The ferrite and full-drive storage solution segment is growing rapidly, and we expect new customer design wins in both automotive and AI infrastructure to drive strong growth for the future. One of the most important reasons of our success in the solution business has been our long-term relationship, which have allowed us to secure NAND from multiple suppliers despite recent supply shortage, a significant and enduring differentiator. In second quarter 26, Faraday and Entify boot drive solution more than double sequentially and represent near 30% of our total revenue, up from 4% a year ago. And we are just getting started. In conclusion, we reported our second consecutive quarter of record revenue for second motion as we executed across our rapidly diversifying business. We are fundamentally a much stronger company today than we were just a year ago with a broad suite of product to support the increasing demand from AI, from the data center to the edge. This gave us a strong balance across our markets and greater flexibility to capitalize on pockets of strength by overcoming end market challenge like those we are seeing today in PC and smartphones. I'm extremely proud of our teams for building a durable, diversified business that benefit from best-in-class technology, expanding share, and entering into new end markets, all while monetizing the strong relationship we have built with OEMs. module makers and land makers over the past two decades. I'm more confident than ever that we will deliver broad-based sustainable growth across our business in 2026 and beyond. Now let me turn the call to Jason to go over our financial performance and outlook.

Thank you, Wallace, and good morning to everyone joining us today. I will discuss additional details of our second quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included in the earnings release issued yesterday. Our second quarter performance was even stronger than expected. Sales increased 32% sequentially and 127% year-on-year to 451 million, coming in well above the high end of our guided range of 393 to 411 million, delivering our third consecutive quarter record revenue. We experienced strong growth across all our businesses in the second quarter with standout growth in Farai for Automotive, Enterprise Boot Drives, and Embedded EMMC and UFS. Gross margin was 50.2%. exceeded our guided range of 48.5% to 49.5% as we capitalized on new product introductions. Operating expenses increased sequentially to $122.1 million given increased investments in new controller and solution development, new tape-out related expenses, and higher headcount. Operating margin was 23.1% and exceeded our guided range of 21% to 22% driven by higher than expected revenue gross margins during the second quarter. Our earnings per ADS was $2.43. Total stock-based compensation, which we exclude from non-GAAP results, was $3.4 million in the June quarter. We had $181.8 million in cash, cash equivalents, and restricted cash at the end of the second quarter, compared to $210.9 million at the end of the first quarter. Cash decreased in the second quarter through a combination of dividend payments of $16.9 million and an increase in inventories to support our growing business. We continue to navigate the memory and storage supply challenges effectively. Investments in new advanced geometry products for both our established markets and our emerging enterprise markets are ongoing and we are building a balanced and resilient portfolio of products that target everything from AI infrastructure to the edge. These investments will continue throughout 2026 as we support the growing demand for our new enterprise portfolio and Fuel are growing market share across our consumer portfolio. For the third quarter of 2026, we now expect revenue to grow 15 to 20% sequentially to 519 to 541 million. We expect growth across nearly all our product segments led by FairEye for Automotive, Enterprise Boot Drive Solutions and our new Montitan Enterprise SSD controllers. Gross margins are expected to increase sequentially to 50 to 51% in the September quarter given the product mix existed by greater contribution from Montyton and our PCI-5 controllers. Operating margin is expected to grow substantially to 27.5 to 28.5% as strong revenue growth drives leverage to the bottom line. Our effective tax rate is expected to be 22%. Stock-based compensation and dispute-related expenses is expected to be in the range of 14.9 to 15.9 million. 2026 is on track to deliver record revenue for Silicon Motion, with top line expected to more than double this year. While we continue to invest heavily in R&D this year to expand our portfolio with leading edge solutions, we're confident that along with much higher revenue and improved gross profitability, our operating margins can exceed 30% exiting this year. We're navigating today's memory and storage supply constraints and elevated pricing with remarkable success. a direct result of the relationships we spent more than two decades building with NAND flash makers. At the same time, our leadership in the merchant controller market and our multi-year investments in enterprise and AI SSDs are starting to pay off with MonTitan and our enterprise boot drive storage business now ramping in volume. Our diversification strategy to expand beyond consumer-centric applications into automotive and enterprise is beginning to yield outsized results. Our wins in these new markets are for solutions that bring much better visibility, much longer product cycles, and much higher barriers to entry that ensure strong long-term revenue and profitability growth for SiliconMotion. We will be less subject to consumer cyclicality as these new wins scale in a diverse range of end markets, and our visibility and predictability will further improve significantly. Together, these drivers are the foundation of the transformation Wallace spoke about earlier, and will set the stage for significant revenue growth at Silicon Motion in 2026 and well beyond. I look forward to sharing more on our progress next quarter. This concludes our prepared comments. I'd like to open it now for questions. Operator?

Thank you. To ask a question now, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for this question. We will now take our first question from the line of Neil Young of Needham and Company. Please ask your question, Neil. Your line is open.

Hey, everyone. Thanks for letting me ask your question. So it sounds like there's some bigger contribution from Farai that I think people have expected. So I was wondering if you could give us the approximate Booth Drive Revenue Contribution in 2Q, or maybe some idea of the percentage split between the Booth Drive, Enterprise Booth Drive, and FairEye, and maybe what's embedded in the 3Q guidance between the two of those. And then I have a follow-up. Thanks.

Yeah. Neil, we're not giving out that level of granularity. I can tell you, though, that we are seeing tremendous growth across both of those categories. So this isn't really driven by one or the other. It's driven by both. For Q3, again, we're not going to be providing that much detail, but certainly from the backlog that we've talked about, that we've seen, that we have in building, and the order of patterns that we're seeing, we're seeing very strong contributions across all of these SSD solution products.

Okay, great. Thanks. That's helpful. And then, you know, on Montyne, you obviously gave the update on the the customers in production, sort of what you're expecting to the rest of the year. Are you still guiding to that 10% revenue run rate exiting 2026? And then maybe helpful if you could distinguish the timing of the TLC compute and the KB cash programs from the QLC warm storage programs, just what you're seeing there. Thanks.

Yeah, we're still on track. I think Wallace had mentioned that we're well on track to achieve that 5% to 10% of the Thank you.

Thank you. We will now take our next question. And the next question comes from the line of Mehdi Hosseini of SIG. Please ask your question, Mehdi. Your line is open.

Yes, thanks for taking my question. This is for the team. I think it will be very helpful for us and the investment community if you guys could elaborate on a revenue mix by a market, Enterprise, Consumer, and Auto, and how it would map to specific products. And I understand you don't want to be specific, but any kind of a qualitative view on how end market and products are mapping would be great, and I have a follow-up.

I think, as we said in the past, all our product lines are growing in 2026. Of course, our edge SD, I think because the PC market unique decline. But however, due to the multi-share gain, we continue to grow 50% compared with the last year, first half. Our enterprise, because the base is small, so we grow faster enterprise controller. And for Ferrai and for automotive and Bujai, we do have multiple major customers supporting our growth trends. So we expect to see continued growth through the 2026 and to 2027.

I think another way to look at it also is, you know, the majority of EMMC and UFS is really going to be consumer-centric. Today, SSD controller sales, the majority of that is going to be consumer-centric, going to edge SSD controllers. But certainly, as we exit this year, getting to that 5% to 10% coming from on-tightened contribution. Farai and Boot Drives, Farai for Automotive, and Enterprise Boot Drive Solutions. Again, you can imagine those are going to be less consumer-centric.

Okay. Moving on to my next question, the 2TB die and the timing of the QFC ramp. It's been more than a year of waiting, and I'm just wondering if Wallace could share with us, is that the qualification that is an issue? Is that the capacity? Or is it something else? And I'm asking this question in the context of would this actually provide an opportunity for controller suppliers like Silicon Motion? or is it just a manufacturing ramp that is delayed? Any call would be great.

So I think you ask a very good question. We have been waiting for also a very long time, too. The 2TB QLC is supposed to be the great darling for the NAND industry and to drive the QLC-based storage SD to be a next level. However, due to the price increase, supply shortage, I think high capacity and many more. And we also see the D-RAN NAND maker that Daphne put in more focus and KPAT into the D-RAN HBM. That's why the development for two terabits are to fine tune the quality to next level is to take a much longer time. So this is why it's a current market situation. Daphne is, I think, the and more attractive and driving more high profit. But it just takes some time, we believe, because the high demand through the AI inference for the data storage. So demand for storage is much bigger than the current supply. And through the new K-Path, we see the arrangement, 2028, we'll see meaningful recovery from NAND supply. And we see, that's why we see all the NAND makers should have a two terabit QLC by that time.

And I want to make it clear, Mehdi, that the delays here are on availability of NAND side. Our controllers are here. Our controllers are ready. As we said, we're going to be starting to ramp early ramp of some of the QLC-based solutions with our customers by the end of this year. So this isn't something that's a controller issue. This is an industry availability issue of the NAND.

Thank you.

We will now take our next question, and the next question comes from the line of Matthew Bryson of Wedbush. Please ask your question, Matthew. Your line is open.

Thanks. Congratulations on the great results. Just with gross margins, given how strong the embedded piece was, and that's typically a lower gross margin, for Silicon Motion. I would have expected a little bit of a headwind there. Can you talk a little bit about the puts and the takes that affected the gross margin line in Q2?

Yeah, so I think what we've always said is that our Montaigne controllers are margin accretive. And so as those have begun to ramp, that's been able to help offset and drive strong gross margins for us here. in the second quarter, as well as in the back half of the year. The back half of the year, we're also going to benefit from additional growth in our PCI-5 controllers, for example. So all of these things are going to be margin accretive. That's going to offset some of the margin pressure that we see from the solutions business.

And Jason, when we're thinking about things moving forward with MonTitan seemingly being as successful as it's been. I know longer term you've talked about kind of gross margins being a little bit below 50. Should we be rethinking that if Montyton's going to ramp like this? Any commentary there would be really helpful.

Yeah, I think we're still comfortable with the 48% to 50%. As I think we've said in the past, We're going to see a little variability of that depending on mix in any given periods. So we're still targeting 48% to 50%, certainly in certain periods like Q2, Q3, when we're seeing a little bit above that. We're certainly going to be able to take advantage of some of these mix benefits in the near term, but long term we still expect to be in that 48% to 50%. Awesome.

Thank you.

The next question now comes from the line of Sebastian Nagy of William Blair. Please ask your question, Sebastian. Your line is open.

Good morning and thank you for taking the questions. Congrats on another quarter of record results here. First, I just wanted to ask about what you're seeing in the mobile market and specifically at the Chinese smartphone makers. Last night Qualcomm reported and posited that calendar Q2 will be the trough for China handset demand in their business. and given your exposure to some of those vendors, could you maybe just comment on whether you're saying the same signals that point to a potential recovery in the second half or if you're seeing anything different?

Yeah, we see the China smartphone market is very challenging due to the price increase of both LPDG RFI and also the storage product. and see for value, especially value line, I think the software much more because if you're looking for the DRAN and the NAND, it's almost 50, 60% of the total bond cost for the low-end smartphone. So this is a same challenge. But however, because we work with the NAND maker outsourcing to us in certain model and the model maker continue gain market share, and then we benefit from collaborate with the smartphone maker directly through the QLC development. So we see our demand for smartphone for our UFS and EMC continue to grow from Q2 and also moving to next quarter. I think we do not have a single market share in the low end. That's why the impact for our business is relatively small.

Got it. Okay, that's helpful. And then maybe for my follow-up, just on the boot drive business, can you comment on whether you're starting to see the benefit of Bluefield 4 sales in either Q2 or your Q3 guidance as NVIDIA starts to ramp their Vera Rubin platform, or has much of the growth so far been tied to the first-generation Bluefield 3 program?

We cannot comment specifically regarding the time, but I think that The Bluefield Fort Daphne will go with the customer's announcement, right? But we do have a pretty large share for Bluefield supply for the bujai, so we're very happy when it ends up in the second half of this year.

Okay, great. That's helpful. Thank you. Thank you.

And our next question comes from the line of Craig Ellis of B. Reilly Securities. Please ask your question, Craig, your line is open.

Yeah, thanks for taking the question and team congratulations on the AI solution evolution that you're engineering with the business. Wallace, I wanted to start by seeing if you could characterize the growth that we could expect to see in the Farai and DPU business over the next few quarters versus what we've just seen, that 110% rise. And similarly, help us frame the right expectations for MonTitan. And I wanted to see if in so doing you could also help us understand if you thought the MonTitan business could over time rise to the size of what you're seeing with FairEye and TPU.

Yeah, we cannot comment specific customer, but what I can tell you is our boot drive business is going to grow very strong, not just through one customer, it's through multiple customers. We said last time, our boot drive is not only winning for TPU, also winning for TPU and the telco company, and we see we're engaged with the leading server maker too. So our boot drive will grow very broadly but definitely with the leading GPU company, it will go even much stronger and even for next year. Our Mount Titan is very exciting. We have two tier one customer ramping from second quarter. We'll add five more customers coming second half and we believe next year we're going to ramp much more revenue growth than this year. And with our PCIe Gen 6 have much broader design wing even before we even tape out, So we have very, very high competence among Tizen Gen 5, Gen 4 going to carry significant growth for company for long-term growth and their profitability.

I'd also point out, Craig, that our solutions business, the boot drive, just a reminder, it's controller plus NAND. So ASPs are going to be naturally much higher than what you're going to see on a controller only. while certainly we're excited about the scale and opportunity of MonTitan, just keep that difference in mind where ASPs are going to be certainly lower on MonTitan than relative to the boot drive side.

Yeah, and that really relates to my follow-up question, Jason, so thanks for the color. And the question is this, given the company's unusually long and broad expertise with NAND makers, as a controller designer, and given the evolution we're seeing in the memory industry where customers really want full solutions, to what extent are customers asking for more of a full solution beyond what you're providing today in businesses that may be auto-related or associated with MonTitan, and to what extent would that look attractive for you as a way to further evolve the business model. Thank you.

Yeah, you raised a pretty good question. I think today, Mount Titan controller business are totally independent of boot drive business. However, I think in certain cases, we see they add value together as a package sale and penetration. and because we do see our boot drive solution business have very unique position because first of all, NAND maker does not have a during list, it's enterprise D controller. Second, they have less interest to invest because it's a relatively smaller market compared with enterprise D solution. So we are in very unique position to grow the enterprise blue drive business. In the same time, we can also offer the Mount Titan controller business together to support the tier one customer who don't get the enough supply from Netmaker directly. So that is how we play and try to grow together. So far, Mount Titan, because we already have very, very strong momentum, and we don't even have enough R&D resources to support so many projects, It's very exciting to see the position we are today, but we'll continue to invest, and we're definitely going to see much stronger growth in 2027.

Thank you very much, Wallace. Good luck, team.

Thank you. Our next question now comes from the line of Shubham Siganya from J.P. Morgan. Please ask your question, Shubham. Your line is open.

Hi, this is Gokul. Can you hear me, Jason?

Yeah, we can hear you.

Yeah, so hi. This is Gokul from J.P. Morgan. So first question on the boot drive market. Wallace, could you help us kind of size this market a little bit? Because it seems like this market is growing much faster now. and become much larger than what we would have expected or even you would have expected maybe a year back when you outlined this market for us. And secondly, could you also address how the market share and competition you're expecting to shape up here given it looks like right now Silicon Motion is kind of a large majority of the market Do you feel like there will be some competition entering this market in the next maybe one or two generations?

Okay, I think the boot drivers have a very, very wide range opportunity. First of all, near CPU boot drive, that's with the conventional Android controller with the DRAM together. but because with DRAN you have a much better random write performance and with low latency. So that's it for servers, CPU, doesn't matter Intel or AMD or even Vira. They have a boot drive with DRAN. That business belong to name maker. It's conventional, traditional. We don't compete that sector. However, I think some of server maker come to second motion they will have a solution. So we do provide some controller to either NAND maker or to multi-maker to support that portion with the DRAN for boot drive. But for the rest of the other sector, like DPU, like TPU, NPU, like PCIe switch, like NVLink switch, like Ethernet switch, there is a boot drive they need and today they favor Durandless because it costs better without Durand. And we have specific security support and performance also very good. And as long as we can secure the NAND supply, that portion is really our crown jewelry to grow in the next few years. And we do see the demand is stronger because the bootstrap number per silver rack, that's huge. That's more than 30, 40. It depends on the server rack. So this is a really great opportunity we see. And not only the number of boot drives, but also capacity might be increased in the next few years. So this really can boost our self-revenue growth in the top line and the bottom line.

Any thoughts on competition, Wallace, from either So far we see we are comfortable in current position. We did not see more competition and really to NAND maker because the density is really

My second question is on Montyton.

Could you talk a little bit about your market opportunity, especially as you migrate to PCIe Gen 6 with your next generation on Titan platform? What is the competitive landscape looking like? Because I remember several enterprise controller companies are kind of terminating or slowing down their development in PCIe Gen 6. So could you help us understand like your market opportunity? when it comes to when it comes to Mount Titan with PCIe Gen 6. Originally it was mostly about QLC but it definitely feels like you're kind of expanded beyond just the QLC opportunity to give you cache uploading and some of the TLC opportunities as well.

I think our Mount Titan Gen 5 has already set a foundation for our customer. So when we develop a Gen 6, not only Gen 6, Gen 5 customer all sign in, but we attract many tier one customers from NAND maker and CSP. So there's more than a dozen tier one customers waiting for Mount Titan PCIe Gen 6 sample, and this has a very unique architecture. We offer a particular focus zone and either AI inference, especially around the NVIDIA CMX architecture, but also particularly for the data storage. Right, so we have a multiple dimension and support and support multi-host and also it will be very efficient under the new AIE route and as we work with closely with the NAND maker and also leading server maker as well as CSP and so this particular sound feature we exclusively design for certain customer. We believe when Mount Titan and PCIe Gen 6 start to run will be much stronger and faster, quicker than our PCIe Gen 5.

Got it. Any idea about how much of the market can you address with the PCIe Gen 6 solution? Do you think you can address maybe 30, 40% of the market already with that or that is too high an expectation?

Well, we set the market just a minimum 15% to 20% at the beginning. Hopefully, it can grow faster.

Got it. Thank you very much.

Thank you. As a reminder, before we take our next question, if you wish to ask a question now, please press star 1-1 on your telephone keyboard. We will now take our next question. And next question comes from the line of Suzy De Silva of Ross Capital. Please go ahead, Suzy.

Hi, Wallace. Hi, Jason. Congratulations on the progress here. Maybe the first question for Jason, with the mix that's steadily shifting, would we think that seasonality would be more muted in the 27 timeframe or 28, perhaps, and linearity be greater, more steady, or would that still be kind of a further out trend?

Yeah, we're not going to comment on 27 yet at this time. We're only guiding one quarter out, so stay tuned on that. To your point, there are a lot of moving pieces depending on how quickly certain businesses scale. That could certainly limit the seasonality that we historically would see. But right now, given how much we're in the early stages of some of these businesses ramping and some of these new customers coming on, it's hard for me to say right now, and we're not guiding that far out.

Fair enough, Jason. Thanks. And then maybe the second question for Wallace, perhaps. The ferry roadmap, how are you evolving that to support newer end markets like robotics? And when might that be a meaningful contributor? How far out could that be?

And it's a very good question. And we have been constantly monitoring the survey and engage with the robot developer on China and US, also including the drone. And so we see the drone was coming earlier. with a high volume and robot will probably come later. But however, to diversify is so many new opportunity for the storage and not just one solution per robot, it's multiple. So there's many, we would like to engage and also provide certain reference as well as the custom design to show the differentiation with robot maker. And now I think The initial for next year is a volume still pretty small, but we believe 29, 30, 20, 30 will be a much higher volume, and we want to start in the early stage and make sure we can occupy the higher market share.

Okay. Thanks, Wallace. Thanks, everybody.

Thank you. Next is a follow-up question from the line of Mehdi Hosseini from SIG. Please ask your question, Mehdi. Your line is open.

Yes, thank you. A couple of follow-ups. First one, would it be possible if you could just elaborate on the mix of EMMC and UFS, either the mix of the specific product or mixed by like a smartphone versus other consumer electronics? And I do have another follow-up.

So within the eMMC and UFS business, the majority of revenue comes from UFS just given that it's a much higher ASP product. Unit volumes in eMMC are still very strong, but given the much lower ASPs in eMMC, it's a smaller contributor to our overall revenue. The vast majority of our UFS business is going to smartphones. The majority of our eMMC business is going to really more IoT consumer-centric connected devices.

Gotcha. Thanks. And then I'm not asking for a guide, but when I look into 2027, your commentary and excitement around new product ramp suggests to me that Farai and boot drive could at least be a third of your revenue mix. Is that in the ballpark?

Look, I think certainly the backlog we have and the strength we're seeing in the pipeline with our customers and new customers ramping, I think that's certainly a possibility.

Thank you.

Thank you. We have now reached the end of the question and answer session. I'll now turn the conference back to Mr. Wallace-Cow for closing remarks.

Thank you everyone for joining us today. and for your continuing interest in Second Motion. We will be attending several investor conferences over the next few months. The schedule of these events will be posted on the investor relationship section of our corporate website. And we look forward to speaking with you at these events.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.