Q3 2020 Silicon Motion Technology Corp Earnings Call
[noise].
Thank you one moment please.
Okay.
[noise].
Oh.
[noise].
Hi, Good to me also mean.
David Brown D.R.W.
Oh.
But just.
Good.
I don't have that I only have the.
That's correct.
So I don't know, but just for the cool.
Sorry.
Have you looked at the cyclical.
I said I only have the passcode, London names the company, helping and the uptick that's all I have.
[noise].
Well this is something you need to wait.
Oh.
Yes, its a.
Hey, I E R <unk>.
[noise].
Well I think you're right.
April Apple I for India eat for Echo are around your acreage.
Apple.
HM.
Hi, good to email address please.
David I had on first name company name.
Thank you.
[noise].
Oh.
Okay. Thank you.
[noise].
<unk>.
I'm going to place a line in the call and he will be.
You can call onto the confidence.
Thank you.
Okay.
So do you sense in listen only mode. After the speakers presentation, there will be quite shouldn't necessarily.
Question during the session easy sophisticated and number one telephone and he said as I said todays conference is being supported today.
This conference calls and pain score would be some statements within the meaning of section 27 days of the Securities Act of 933 and section 21 of these.
So.
If it's changed overnight to 34.
Oh.
And then.
Uh huh.
Such forward looking.
This includes without limitations statements regarding twins as 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 risk and uncertainties and actual market trends and our results may differ materially from those expressed for insights. He these forward looking 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.
If there were 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 of these risks and uncertainties.
These and other factors. Please see the documents we file from time to time with the Securities and Exchange Commission. He is in the obligations to update any forward looking statements. We ship like only as of the date. So these conference calls.
I would now like how to conflict or with your first speaker for today.
Is there a quiz Cheney director of Investor Relations and strategy. Please go ahead.
Thank you Randy.
Good morning, everyone and welcome to Silicon motion third quarter 2020 financial results conference call and webcast.
Yes, I mean, just mentioned my name is Chris training director of Investor Relations and joining me today on the call are wallets Koehler, President CEO Riyadh Lai our CFO.
Following my comments wallets will provide a review of our key business developments and then Riyadh will discuss our third quarter results and our outlook. We will then conclude with a question and answer period before.
Before I get started I 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.L.C.C.
For more details on our financial results. Please refer to our press release, which we filed on form 6K after the close of market yesterday.
Webcast will be available for replay on the Investor Relations section of our website for a limited time.
To enhance our investors understanding of our ongoing economic performance, we will discuss non-GAAP information during this call.
We will use non-GAAP financial measures internally.
Valuate and manage our operations. We've therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results.
For a more consistent year over year comparisons for this quarter and our upcoming fourth quarter. We are internally measuring our performance based on non-GAAP less fcr, which was divested in may of 2019.
A 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.
And now with that I'd like to turn the call over to Wallace.
Thank you Chris.
Hello, everyone and thank you for joining us today.
No Sir quoted we leveraged $126 million in sales.
5% more than the high end of our guidance.
Revenue declined 8% sequentially.
<unk> increased 11% year over year.
Turning very easy it is for this quarter was 76 cents down from any ones and in the second quarter.
Up from 50 nice in the same quarter last year.
For the first nine months of this year, our revenue grew 33%, earning for AG is a 45% higher compared with the same period last year.
Oh, sorry quota results exceeded expectations due to stronger sales obeys it'd be controlled news.
And as expected our yeah, Missy plus the U.S. is controller sales declined significantly due to a temporary customer inventory adjustments.
Well, it's the solution sales were softer than anticipated.
Oh stronger than expected is it becomes sort itself in the third quarter is this all these reversal of sub two sales in the second quarter.
As you May remember our sales quota is it becomes really the sales were affected by our NAND flash customer re directing them away from claims would be to me to search for acumen of data centers a D by the hyperscalers due to unexpected working and learning.
From home you man.
Hi, Who's good news through procurement is now over in.
In the third quarter, we saw hyperscaler procurement of data offenders the drop off.
We should have freed up NAND flash Brooklyn is a D.
This quarter was better availability of NAND, we de lever about 20% sequential it's a DEA controlled as sales grows we.
So the growth in both Oh, Nan and module maker customers and sell the group to both PC OEM input channel monkeys.
Well you have the ability of the lower cost NAND is favorable for facilitating visit grows in the adoption of is the I P she'll yens and new usage cases.
Well again council and the external storage.
Based on wise, a deacon until their sales rose during the first nine months of this year, we are likely growing roughly twice as fast as the market and we expect the momentum to continue through next year.
Last quarter, we announced several new P.I.E. Gen. Four is a de controller design win with a fine NAND Flash makers. We continue to make is so solid progress we saw engineering work in bringing these design wins with our finance that.
Customers into production beginning in the middle of next year.
Four of our five Gen four name customers, our existing Jane Street customers.
One of the site however, if new.
Korea Nanfang customer.
The partner with whom we have a long well establish and deep relationship.
Furthermore, we have already secured multiple besides age and pool is that he comes with a design win with this Korean customer.
Recently, we announced the real loud overall raw ran your P. Sei Jin for is the DEA controlled or is it.
Yes in putting two city for a high performance applications.
In talking to a 67 for the mainstream segment and it's in 22, C. Seven X T for the Sadiola mine deeper into those clients a D.
We believe it's a real Oh disease gene pool controllers is a well timed with Intel's current and upcoming launch of their new series of Elevens generation CVU that are designed specifically for the fast.
That's true Pciethree Careport connectivity.
In addition to our design win with the fly NAND Flash makers. We also have extensive design win with most of the leading module makers, well Jumbo Hey data one of our largest module maker customers.
Begin commercial sales of the new P. show you can foresee D last month using our controller.
This is one of the first to enforce a D available today, that's a I'll give my specifically for notebook PC.
And and other energy efficient applications.
Previously Oh, Gee I place a D what power hungry and only suitable for desktop PC and other devices always connected to electricity.
[noise] Sea view from both Intel M.D. that support piece agent for become more widely available you should expect to see more of cloud customers released products, we saw new Genfour controllers.
And as some of you know.
The performance of our new Genfour controllers based on key metrics.
Oh, the best of breed versus others say mother in merchant and captive solutions.
Bras slate of design win with a fine NAND flash makers and leading module makers is a testament to our very competitive value proposition to customers.
Three years ago, we ship a little over $250 million of visit become Childers.
This year, we are tracking to worry roughly doubling that.
And based on our current pipeline of design design activities, we are confident.
More ruled by the DEA controlled or the sales gross life.
Lies ahead.
Separately, we are excited about the design work that our team has been planning and executing relating to our upcoming state of the art enterprise grade piece I can find ways to become truly.
This product is designed specifically for the enterprise market and including many technological breakthroughs and that we believe well be well received by targeted data center customers I.
I look forward to sharing more about this next year.
Let me now talk about or you want me to see both youth is controllers.
This quarter as previously communicated.
Are you even see probably use a controller sales declined sharply as our large you as this customer had has had to temporarily digests this elevated inventory.
We believe this customer benefited from strong rebound in smartphone shipment in the third quarter and made a good progress depleting is access you as this inventory.
With smartphone shipments expected to continue growing in the fourth quarter and we saw positive booking trends. We believe our units until the sales are making good progress toward recovery in the fourth quarter.
Earlier this year, we mentioned that this customer was some building the Industrys first LP teed off like you Emcp a.
You if it's three part a data position well resilient for high volume sales.
We are therefore delighted with their recent announcement that a commercial production has started.
Previously for several years, we had a being shipped shipping U.S. is two controller to this customer in volume.
We are now excited to add the new U.S., its street controlled or to ourselves to them.
Similar to use this to progress in our youth is three program also has multiple years real map.
We expect all you have is three program to take advantage of <unk> customers upcoming generations of NAND flash as well as in.
Incremental you and fifth Street enhancements.
Separately, we are making good progress we saw other name customers. Your history project would you continue to party Nishio production by me 2021.
Similar to that of our first you with this customer.
This program will also spend money flow NAND flash and youth is generations.
The legacy IBM Siem market has surprised us we use this resilience even with smartphone transition to you at this.
Several years ago, we use supported half a dozen Chinese module maker interesting theory, Im seeing battery storage going emerging smart set up box speakers team.
TV game console and a host of.
Sure I O J devices.
The volume of these devices are going to be a quarter to assert the size of the smartphone market.
These module makers have also started shipping you didn't see to tier two and tier three smartphone all yen.
And for low cost smartphone of tier one Oems.
Recently, we also expand our module maker customer base to include Kingston, and specialty module maker found elsewhere in Asia, North America, and Europe for automotive and boot cold storage applications.
And then the first nine months of this year.
Even with our customers last third quarter inventory adjustment.
We were able to grow our M.C. for Europe itself, 70% year over year. This.
The smartphone industry is roughly halfway through so you have this technology transition.
So from roughly asserted last years and weak spot.
Perjury strong growth next year.
With strong continued growth our first U.S. this name customer.
Growth in our second you with his name customer and further growth Bob Ross said, a module maker customer focus on bringing M.C. in Europe is embedded storage to known smartphone devices.
Turning to our SSD solutions.
No were softer than expected due to more competitive maki unleashing and slower hyperscale spending in China.
Our sales of a customer design open generous D to Ali Baba where in mind with internal plan.
But our Shannon standards any any it's a D base boasts more intensive competition bound flash makers as well as further weakening of demand force a D by data center operations in China.
These unfavorable market conditions affected both our sales and gross margins.
We are however optimistic about next year.
Ali Baba Alban channel, it's a de projects for next year remains on track and we expect the shooting to Street program next year compared to one program this year.
Ali Baba increasingly appreciate the.
Enhance performance over this operation selling yielding open channel technology and is keen to expand.
The real loud and continue upgrading of this technology is data center infrastructure.
Now I would turn the call over to Ria to discuss our financial results and our outlook.
Thank you Wallace and Hello, everyone.
I will discuss additional details of our third quarter results and then provide our guidance.
My comments today will focus primarily on non-GAAP results last F.C.I. unless otherwise specifically noted.
A reconciliation of our GAAP to non-GAAP data is included with the earnings release.
She was yesterday.
In the third quarter revenue was $126 million.
8% lower sequentially by 11% higher year over year.
Year to date revenue of $396 million is 33% higher than for the same period a year ago.
Earnings per ATM in Q3 were 76 cents, 6% lower sequentially and 10% higher your year.
Year to date earnings per 80, as our $2.38.
45% higher than for the same period a year ago.
[music].
Now some details starting with performance of our three key products.
SSD controller sales increased about 20% sequentially due to improved availability of NAND supply and strong demand by PC Oems in China markets.
Year to date sales are up over 20% year over year and growing roughly twice as fast as the market.
MMC plus your Fas controller sales declined about 50% sequentially and about 10% year over year due to a large customers temporary temporary you up that inventory adjustment.
As discussed last quarter. This large but temporary drop was expected year to date sales are however, up about 70% year over year as smartphone embedded storage technology transition further from legacy E. M. C. Can you are you are bad.
In our U.S. NAND customer gain market share.
SSD solutions sales declined about 10% sequentially because of continued softness in demand by Chinese hyperscalers.
More intense competition from NAND flash makers in the standard enterprise Nvme Pcie SSD market.
Year to date sales are up about 80% year over year with similar growth from both our Shannon and fair eye products.
Shannon sales are up this year, because our first generation open channel as a d. only started sales in Q3 last year.
This year, we have the benefit of a full year of open channel sales.
<unk> sales are up this year, because last year NAND prices fell sharply well this year and then prices are more stable.
Gross margin in Q3 declined to 49.1% from 50.0% in the prior quarter you too much lower SSD solutions gross margin.
Gross margin uplift from a slightly higher mix of controllers and gross margins that were unchanged sequentially was more than offset by much lower SSD solutions gross margins, primarily because Shannon standard and be any SSD gross margins contracted more than expected.
Operating expenses in Q3 were $32.9 million.
$5.1 million lower than the prior quarter, primarily due to the temporary temporarily lower R&D tape out expenses.
Operating margin in Q3 was 23.0% an increase from 22.2% in the prior quarter due to lower operating expenses.
Our effective tax rate in Q3 was 10.5% towards the low end of our 10% to 15% guidance range. We currently enjoy a tax benefit that will expire in Q4.
Without this tax tax benefit our Keetac Q3 tax rate would have been slightly higher than 15%.
Stock based compensation in our operating expenses, which we exclude from our non-GAAP results was $3.1 million in Q3 within our $2.7 million to $3.7 million guidance range.
We had $360 million of cash cash equivalents.
Strictly cash and short term investments at the end of Q3 compared to $380 million at the end of the prior quarter.
We paid $12.3 million to divot in dividends to shareholders. The fourth quarterly installment of our $1.40 cents per 80 as annual dividend that was announced in October of last year.
Our board recently declared dividends.
For the next four quarters with quarterly installment payments of 35 cents per ATM unchanged from the previous four quarters.
We repurchased 25 million of adss.
In dollars of Adss during the third quarter.
626080, S. adss at an average price of $39.91.
Since the beginning of the share repurchase program two years ago, we have repurchased.
$84.8 million of Adss 2.4 million.
Yes that is equivalent to 7% of total shares outstanding at an average price of $35.38.
Since its two year share repurchase program will expire in November and $115.2 million remains on use our board recently authorized a 12 month extension to allow for more time to complete the program.
Now, let me turn to our fourth quarter guidance and forward looking business trends.
For the fourth quarter, we expect revenue to increase in a range of 3% to 10% sequentially to approximately $130 million to $139 million.
We expect higher SSD controller sales as current positive momentum continues.
Higher MMC plus your Fas controller sales after one quarter as customer inventory adjustments.
And lower SSD solution sales as our 2020 Alibaba projects seasonally ended at the end of Q3, and our other solutions products faced less favorable competitive dynamics.
Fourth quarter gross margin should be in the range of 48% to 50% yeah.
We expect that further contraction in SSD solutions gross margin will offset the higher sales mix and stable margins of our controllers.
[noise], we expect fourth quarter operating margin to be in the range of 19.5% to 20.5%.
Operating expenses will increase meaningfully in the fourth quarter due to timing of R&D tape out expenses.
Our fourth quarter tape out expenses were lighter than normal while our fourth quarter tape out expenses will be heavier than normal.
Our overall second half tape out expenses are at levels consistent with the first half of the year.
In the fourth quarter, we expect stock based compensation of $8.6 million to $9.6 million higher than in previous quarters. This year, but at a consistent pattern with past years due to seasonal timing of RSU grants.
With the expiration of certain tax benefits, we expect our effective tax rate for the fourth quarter to be higher in the 15% to 20% range.
Next year, we expect our effective tax rate to stay within this 15% to 20% range.
We have cash disbursement authorization to opportunistically repurchase our adss in the fourth quarter.
Amounts ultimately repurchase will depend on the market price of our Adss. This concludes our <unk> our prepared remarks, we will now open the call to your questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session answer your question.
Specify the number one we need to be now.
Answer to the question.
He wants to answer your question. Please press Star then the number one.
Okay.
First question is something like that should be a much media Needham and company. Please go ahead.
Yes, Thank you and congrats on good results in the third and fourth quarter.
Question was regarding the.
The acquisition of Intel's NAND business by SK Hynix wanted to get your thoughts on that I know that Intel is a large customer for you in on the controller side.
Wanted to see what management is thinking in terms of would there be any impact.
SK Hynix acquires and tells men business I'm on your business and how we should think about that.
Well. Thanks for the question. We are excited that our NAND pay pottery are taking steps to consolidate ensure their long term the colony viability.
Our relationship with both our long and a well established and stronger than ever and anything or engine to see them more profitable and cover their opportunity cost. So they are incentivized to continue investing in NAND into the future.
Oh, Yeah, everybody know Ingo lead the industry in kills the NAND technology and supply is significantly more closely than any other NAND maker.
This is a significant technology edge and hynek well be acquiring the TLC leadership.
In general controlling TLC NAND today, our PRC controller technology is likely the best in the industry.
All of Intel clients, a d. use kill CNN and our controller technology.
Given our unmatched kill C controller leadership and track record. We are confident we will more than likely continue supplying controlled or two then after that question close.
Okay. Thank you.
And the rebound that you're seeing in essence the.
Going into Q4, how would you characterize kind of NAND pricing environment now.
You mentioned that there's more availability of NAND as Hyperscalers and third crewman.
Wanted to get a sense in terms of what the NAND pricing is looking like in Q4, and how should we think about that in terms of counter 21, and along those lines. How do we think about the attach rate for client SSD.
But also kind of movement into desktops and gaming. Thank you.
First things first regarding the pricing and pricing is showing some signs of stabilization.
We believe the fourth quarter price may be down in the mean single digit presenters range. We are hearing about a plan for a stronger capex spending by the NAND Flash maker next year, which could lead to stronger industry be supply growth and larger supply.
I have a lower cost next generation NAND supply.
We have been seeing for many years now consistent with our thesis clients. These sales benefiting volume cuisine and supply lower NIM prices and their related price elasticity of demand.
We believe.
Next year, and then price she'll be also stabilize but we don't have a really clear picture regarding then price trend in putting 21.
And Raj into your second part of your question relating to our market opportunity a client SSD market opportunities as a as you know based on a third party research like garner the PC OEM SSD market last year was about on.
And so it's 160 million units and is expected to forecast is forecast to grow about 15%. This year was SSD adoption, increasing from 60% to 75%, obviously adoption is much higher when notebook Pcs versus desktop but.
For both segments. They are still increasing and there is still room for further.
Displacement of hard disk drives and use of of Ssds.
Additionally, you also have which are the channel market for insight for example, estimates that the China market for SSD is about a 120 million units or the China market was obviously more inherently volatile and more difficult to predict yeah, but in the third quarter, we saw solid demand from both Oems and.
China customers, which were better than expected, so overall, where where we believe the decline as the market should grow about 5% to 10% and for US a year to date, we've been going over there over 20% year to date.
[laughter].
Okay.
Any we can go to the next question.
Yes. Thank you next question is from the line of Cod Ackerman of Collins. Please go ahead.
Yes, hi, Thank you two questions. If I may I. Just first one is a clarification I was hoping you could provide a little bit more color on.
Your commentary.
Oh, Riyadh about the expectation for you or a fair Rice solutions business. I think you said it was going to perhaps decline in the fourth quarter I was hoping you could expand a little bit about that.
You know both.
Both in the fourth quarter and as you think about counter 2020, and I have a follow up.
Well overall for the fourth quarter, we are expecting our SSD solutions to decline sequentially. So did decline sequentially SSD solutions in the fourth quarter. This.
This is.
The result of.
On the Shannon side or are Ali Baba project, ending seasonally at the end of Q3, So we will not benefit from having Alibaba revenue Q4. Additionally for other Shannon as well as favourite products were facing a more competitive dynamics and so this is leading to a to our own.
Overall, our SSD solutions to be down in the fourth quarter.
Okay.
As a follow up you know one of your merchant SSD controller Pierce has spoken quite extensively about winning designs offer.
For custom SSD controllers to U.S. hyperscale providers.
What are your plans to drive toward leading edge silicon for your enterprise SSD controller designs and do you think your capability to support <unk> four point now creates.
Creates greater opportunity for you to address the merchant market for enterprise SSD controller design beyond the programs you spoke about with Alibaba. Thanks.
Yes, we are currently actively engineering the next generation of our enterprise Decontrolled or peace agents like this it has a very unique on page here with them. Many many technological you mentioned into those design, we have dedicated a 60.
Dean dedicate some are team we have dedicated architecture for both basic and downward and we have a complete new c. modeling team. This really will be let's stay with our technology and we are positioned to be the leading product competing engine by which it will be a very Boeing plenty.
22.
And I've seen in the meantime, we're also seeing good traction of our current antibody C controller, which are using are already open generosity and kings and data center and other major enterprise customers, they're gonna ramping very sharply in 2021.
Our U.S customer had been using our controller to view the engines like Gray is a D well, leading your several yen scenes late last year. So we are seeing good progress and we believe our new partner will be stronger and take a leading position.
Thank you.
Keith.
Thank you next question from the line of Anthony Stoss, Craig Hallum.
Please go ahead.
Good morning, guys nice execution, a couple of questions here, yes.
You're talking about your Ah returning Korean customer and Wallace I think you mentioned multiple design wins can.
Can you help quantify that little bit more maybe put a number on that number design wins or how big you think the opportunity is.
Moreover, do you think that they could also returned like they had to pass on the smartphone side.
And then maybe two for you Riyadh can you.
Maybe put a more of a timeline on the three Ali Baba projects to the all kick off at once are they spread over March June and September and then lastly, Riyadh can you just give us the the Q4's expected tape out expenses. Thank.
Thank you.
Okay.
Yeah for you if this project just for our first.
You his name customers and it really has begun to from multiple generations of NAND and with the dividend controller. For example, Europe is 2001, and we have to do been cherishing you have history, though one for this customer too.
Implement with a tool even generation technology of the NAND.
Well our second.
You as customers named customer is similar trend because the U.S. industries on one July you stood on why they're going to run for the next three to four years, that's why they're going to adopt for deepen generation NAND and board given generation mobile DRAM and create a diva multiple project that.
Well, we position this relationship and busy doing last for multiple years.
Ah Tony to your questions.
Well first relating to.
Our our tape out expenses, our Q3 tape out expenses is significantly lighter than they were in the first in Q1 and Q2 of this year and certainly will be lighter than in the fourth quarter.
Tape out expenses for us have been running about a $7 million to $8 million per quarter.
In in Q1, and Q2 and in Threeq in Q3 for US we do not have any new tape outs. So operating expenses was there for a much lower than they were in the previous two quarters. In Q4, however, our tape out expenses will be heavier, but overall our first quarter.
Our first half 2020 tape out and related expenses are going to be similar to what we're going to be seeing in the second half of this year.
To your.
Other question, Tony if if if you could could you repeat your second question again.
Sure on Alibaba, the three projects to the arguments at the same time are they spread out throughout 2021, and maybe all its misunderstood my question on the returning Korean customer for SSD.
Design wins.
Kind of that you talk about multiple design wins can you quantify that a little bit more thank you yes.
Yes. This is a hard Korean customer employs a d. also including.
One or two W.P. shy in general controller, which is a different type of NAND, including both TLC Ang two LC.
The revenue benefits will be a multiple year out benefit our products will start going into production or mid of Oh next year, and we'll scale and scale even more meaningfully in the following year. So you space should expect good things out of out of our program with this Korean customer.
Your question about Alibaba, we currently still do not have a a it's a dollar sales procurement forecast from from Alibaba, What we do have our three projects that we've been working on this is two projects more than what we've been working on for what Weve been delivering this year. This year, we have one.
Project that is equivalent to a two or less than 5% of Alibaba is overall, a petabyte procurement relating to their ssds next.
Next year, we believe the Pettit by Procurements are continue we'll continue to rise and so based on three projects.
We believe our share of Alibaba is overall procurement should be much higher than the share from one project.
Thank you Riyadh.
Thank you.
Next question something line of Mehdi Hosseini sales SSG. Please go ahead.
Yes. Thanks for taking my question My first one is for.
Bonus.
I'm looking at your guidance for the December quarter, and next calendar year revenues up 18%.
On a year over year basis, but no leverage and also the margin logistic the mid point on Q4 operating margin guide.
Yes, you are actually going to be right around 21% profit margin despite.
Some government growth I look back to 2018, and the nine compared to only 22 calendar 2018 sales from revenues of 6% and actually margins down 500 basis point.
It's something that we have been turns but understand when all of these new tape outs going to ramp when Sherman is going to have operating leverage I believe one or two years ago you right.
Right down some assets within the organization, but probably still don't see any leverage and help me understand how you're thinking about rewards and the actions taken to bring some more leverage and I have a follow up.
Regarding our operating expenses versus a sales grows or it's all depend on law or when we do the table as you know.
Today's most of a new technology, we adopt TSMC, taking on tell me on either.
Thinking 20, we're going to we're going to move to seven nanometer. So the tape out regarding 16 until now meter minimum asking nisha wafer well around $3.5 million easily.
So that it will depend on when we do the tape out for example, like Q3, Oh racing event is a less than normal quarter like Q4 will be heavier due to the project table, which is a 16 millimeter tell no major in TSMC, that's why we wait.
We don't have any looking forward to future wholesale revenue growth Momentums further which will show the better calibration margin.
From an operating expense.
Well I guess, what I'm asking is help us understand what gives the confidence that you're going to be able to skilled revenue to the point, where there would be operating leverage.
I think we have a pretty strong confidence in 2021.
Oh sure you probably know this if we as we stay initially in the early this year, our sheep online should grow unfold.
Unfortunately, it's a really unpredictable.
Koby 19 pandemic, but for next year regarding the new U.S., a design win and a smartphone recovery, our mobile business look or grow sharply our clients deal with today's design win pipeline, we had very strong tighter than our clients decongest to continue grow.
Rapidly our SSD solution also a benefit from China data center based customer, including Alibaba and other leading customers Alright business will also grilling, putting 21, so we have pretty good confidence next year, we shall see see.
Good and strong growth for total sell revenue.
Okay and my follow up is for Reorders, given the confidence there is with all the new product ramp and your very strong net cash per share why not distribute more the carriage to investors. If there is such a confidence that both revenue.
From an operating profit with the skill 2021 versus Tony Tony.
And maybe that's a great question or a as you know last week, our board decided to keep our annual dividend at a dollar and 40 cents per 80, S. you know a a although we are very optimistic as Wallace had at DAC at Cagney share Jesse.
A second ago regarding our growth prospects for next year. We're also very conservative in how we deploy our free cash flow.
We don't want to get ours to get ahead of ourselves right now with the uncertainties of the U.S. elections delay resurgent the COVID-19 in us and Europe, escalating U.S., China geopolitical tensions broader global unemployment and economic issue and on and on other issues we buy.
I believe it's a it's important to be more conservative and stay financially flexible and and have more liquidity.
Got it thanks guys.
Thank you.
Next question is from the line of Suji Desilva of Roth capital.
Uh huh.
Hello, Wallace Riyadh, so the I wanted to get a sense of the SSD controllers share you guys have now and how you think about the opportunity for the share your share in saada versus the new pciethree opportunity going forward.
So we carefully internally and with some analysts we believe were around one sort of a market share today.
SATA controllers and it we're going to stay Philippines, shake until they're going to grow rapidly next year 21, the major driver if I'm trying to see is GP shy each industry. Initially used on media over next year, PIH and forestar to ramp, but the volume is still relatively small.
No, but we believe 2022, our PHH infill program, all ramp up and well aligned with the Intel Elder Lake platform, which will create a even much stronger momentum to grow our christie due to the higher speed and better picture for the girls Wilmington, though we we think.
We will continue and expand we might gain more market share in 2021 and 2022.
Okay and then my other question, perhaps for Riyadh or the SSD A.S.P. has that been stable with the mix of OEM and channel moving around here versus the the higher channel product versus the the lower priced ones any color there would be helpful.
Sure sure. Our ASV is I've always been a stable we have a newer products like the PCIA Gen. Four products that are coming in these are premium products, so asps and margins always going to be more attractive for a tougher for these premium products, while our older products like SATA, three projects or products or the ISP.
I have been declining and will likely continue decline, but overall by having that makes up new product and all products. We've been able to go out to manage our our overall blended ASP is that pretty stable bases are helping us preserve which also helps us preserve our our gross profitability.
Okay. Thanks, guys.
Thank you next question is from the line of Quake eight hours of the lightest Securities. Please go ahead.
Hi, Thanks for taking the question and good evening gentlemen, I just wanted to first follow up on the M.C. in you Fs business. So it's nice to see your customer working through an inventory issue, but if my models correct. It seems like fourth quarter revenue could still be about a third lower it.
What we were saying before the inventory correction issue. So so the question is with five G units very strong and with U.S.S. penetration increasing significantly next year do you feel like you have visibility for that business to get back to.
Prior highs and and if so do you feel like you Ben can kind of see those next year, just given you have faster adoption trends. So the question is really.
The calendar 21 outlook for your pets.
Well, we saw broad based smartphone industry shipment recovery in Q3 from both large and small Oems that we've been seeing positive trends continue in Q4 current indications from our conversations with suppliers up and down the supply chain suggest good smartphone recovery.
Next year or so for us our Ah it.
With our U.S. Nan.
Your best customer, we benefited or they have been benefiting from Arthur from the rebound in smartphone shipments in Q3.
Okay.
They're making good progress managing down there you up as inventory in that place out meaningfully larger you off has controller sales without in Q4 are up you are fast and M.C.I. controller sales are making good progress towards recovery in the fourth quarter.
We may not be fully recovered as compared to prior quarters, but where we're making very good progress yeah getting to where we previously were and certainly a in upcoming quarters.
We're going to be a growing even to higher levels than what we had previously achieved in past quarters.
Yeah, we look at all you are doing.
And the.
Go ahead.
Sorry, we do have had long 2021.
Forecasts on a customer so you broke out looking very strongly and putting a new one.
Yeah. So everything is on track I think we show really full recovery in 2021 and with additional see NAND makers surrendering me, though between 21, which you'll see much better at all look for 21 for you are you at risk.
Revenue.
Okay.
That's helpful. And then the follow up is really going back to met his question and then I think it so it's a question.
Regarding the growth of the business that a lot of investors are focused on and I'll I'll try and position at this way.
As the company looks at calendar 20 one's growth potential and clearly across every segment. There are a number of growth drivers. Maybe you can help us by ranking from what you see today not looking for specific guidance, but ranking.
From what you see today.
Your segments, which would give us the greatest dollar growth next year.
SSD controller, CMC Europe, that's versus SSD solutions, and which you think could give us the best percentage growth.
Thanks, Tim.
I think from C dollar and percentage all from mobile controller.
Our U.M.C. play your fist controller business, putting anyone but give us the most dollar growth as well as presented to girls.
And this will be followed by our SSD controllers, our specialty controllers is.
By far much larger so we're operating from a much larger base.
Our SSD controllers are 50, 60% of our total revenue last year. So from this larger base. It's also much harder to grow at the rate that are the percentage growth rate that our mobile MMC plus you fs that we'll be able to to carry itself.
But that said, we're also spec sales being strong sales our dollar wise or.
In calendar on 2021 from our SSD controller, and then thirdly growth from our SSD solutions.
And if I could ask a follow up to that Riyadh is there any change strategically as the company looks at SSD solutions, just given the comments you had earlier in the call regarding pricing regarding margins for what you've seen as you've gone through mid calendar 2000.
Strategically for our Shannon and fair eye products, we've we've been focusing on ways to to bring more value from what we already have relating their controllers. We have our core competency relating control is what else can we add two or two to bring more value to our.
Shareholders with our ferri products, we have existing controllers, there under service markets relating to the industrials.
Automotive and office automation. These are under serviced by module makers and the flash makers, which creates the opportunity for us to bring a differentiated.
Products with custom firmware.
Two to two customers and therefore, a broadening have brought running the overall lot NAND market, where the Shannon product or the strategic angle for us is to accelerate our jump into a into the enterprise market.
You know to go from a a client centric our product focus to one where we are.
You're very quickly in the weight of the datacenter hyperscaler market and and quickly generating speaker at credibility.
With our products, so control that but at the same time generating a incredible an incremental value added from the design services that we provide to Alibaba for offer open channel technology.
Thanks, Ryan Thanks Wallace.
Thank you next question is from the line of Gokul Hariharan JP Morgan. Please go ahead.
Yeah. Thanks for taking my question. My first question is on the.
Controller.
I think it looks like we are.
Continued to gain market share. This year could you talk a little bit about what is it that will be of market share gains that we have going into the next couple of years given your design pipeline.
I think previously you had talked about potentially getting into game consoles.
Okay, as a new market opportunity or do we have any line of sight into bat, maybe think about 2021 2022.
Second.
The question is back to that.
There is a lot of conversation about the change or no change in supply team after that though.
The consolidation in the NAND flash side.
Could you talk a little bit about where your Korean customer on.
The controller easier engagement, primarily to do with humans, the man art and combat boot DMC as well as well as the man from that site. Thank you.
Well I mean, just to answer your first question is our current clients de marchi. She was around sort as we present a loan thing go is a 40% and probably a little higher from design pipeline. We believe we have a strong combination to to do so the reason is that we have a.
Very strong.
Peafiel yen appearance today.
For example, we have a web afford.
For customer, including both NAND and module maker for by solution to Novo. We have also for deepen customer provide solution to Dell and HP. So we have a very strong position phones. It kind of broad based to provide solution to the customer segment is as we mentioned we have a.
By PIH insight design wing phone now.
NAND makers, one is new is from Korean customer and this will give us new really dilemma to grow our clients a D. Two different level and this is a become mainstream clients D was.
Stephen is that will be done using both plc and kill seat.
Either way Ingo dilution from the acquisition of IP Hynek.
After the acquisition.
Well you can see that really gave a tremendous benefit for entailed kill see growth as well as the Korean their own TLC all their TLC. We don't know why you didn't know will be but as I give tremendous financial growth and market share for them to grow into much bigger level. So we.
We'll benefit because we have programs being there, but today than we can continue to grow with your market share growth and we said our relation with the Kingston continue grow into multiple projects. We believe that gave was a Muslim benefit to grow the youngest channel as well as the teams.
Then also penetrating the PC OEM, they become strong provider photography Brazilian for 2021.
It does give us really the horizon for such a coat, hi, comfort and visibility to grow beyond associated present in putting 20.
Got it.
I wanted to talk a little bit about game console at an opportune be what is the visibility we have on that.
Yeah regarding the game console as some of our new Shyue Ching fourth mancos or marry our targeting game console and our engineering for upcoming OEM refresh projects, our new PIH is well controlled areas, which are optimized for gen poor performance versus.
Is there any gen four solution positioning us very well with these customers.
We are not in the Korean game console roll out today, but our name customer are targeting upcoming product refresh.
Understood. Thank you.
Hi, Kevin. This is a question answer session I would like.
I will hand, the call back to the two lines.
Yes.
Thank you everyone for joining us today and for your continuing interest like emotion.
I would like to leave you with some final south.
This year has been challenging and unpredictable phones, the perspective of managing our business.
Pandemic sharply reduced sales visibility on China, when do lock down in Q1, and the rest of the world follow in Q2.
Oh, you said it demands on the working and learning from home temporarily affected our client SSD controller does in Q2 and separately last two are locked you as a customer to temporarily overbuild inventory, which goes back to us in Q3 they.
Nevertheless, we manage our business flexibly and continues to deliver solid results. Our Q3 year to date sales up sort of 3% year over year and earnings Brady is up 45% year over year.
We believe these are good results despite challenging environment.
We continue to build our foundation for further growth and look forward to next year.
We will be attending several virtually investor confidence so year end, the schedule, which will be posted on our investor Relations website. Thank you and for continued interest and for listening to our call today say goodbye for now.
Thank you.
Gentlemen that can take conference for today, Thank you for participating.
Yeah.
[music].