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.