Q4 2020 Silicon Motion Technology Corp Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to Silicon Motion Technology Corp, Q4, 'twenty and 'twenty earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

And during the session you will need to press star one on your telephone. This conference call contains forward looking statements within the meaning of section 27, and eight of the Securities Act of 1933 and section 21 E of Securities Exchange Act of 1934 as amended.

Forward looking statements include without limitation statements regarding trends in the semiconductor industry and also for the results of operations non shall condition and business prospects. Although such statements are based on our own information and information from the sources, we believe to.

We rolled out but you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and other results may differ materially from those expressed or implied and these forward looking statements for a variety of reasons.

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 and the technology and consumer demand of multimedia cars consumer electronics and the state of and change in our relationship with our major.

Customers and changed and political and economic legal and social conditions and Taiwan for additional discussion of these risks and uncertainties and other factors. Please see the documents we file from time to time with the Securities and Exchange Commission, we assume no.

<unk> to date.

Any forward looking statements, which apply only as of the date of this conference call.

I would now like to hand, the conference and what's your first speaker today, Mr. Chris Chinese director of Investor Relations and strategy. Thank you. Please go ahead Sir.

Thank you AJ.

Good morning, everyone and welcome to Silicon lessons for quarter 2020 financial results conference call and webcast.

And you mentioned my name is Christine any director of Investor Relations and joining me today on this call and Wallace Cole, our president and CEO and we outline our chief financial Officer.

Following my comments policy will provide a review of our key business developments.

And then Riyadh will discuss our fourth quarter results and our outlook.

And then conclude with a question and answer period.

Before we get started I'd like to remind you of our safe Harbor policy and basically just read every day on this call.

For a comprehensive overview of the risks involved and the best thing and our securities.

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 our form 6K, after the close and the market yesterday.

And it's webcast will be available for replay on the Investor Relations section on our website quite a limited time.

And to enhance investor understanding of our ongoing economic performance, we will discuss non-GAAP information during this call.

And we use non-GAAP financial measures internally to evaluate and manage our operations and have therefore chosen to provide this information to enable you to perform comparisons of our operating results and a matter of similar if and how we analyze our own operating results.

For a more consistent year over year comparison for this quarter and our upcoming fourth quarter.

We are internally measuring our performance based on non-GAAP less Sci.

Divested and May 2019.

A reconciliation of the GAAP and non-GAAP financial data can be found in our earnings release issued yesterday.

We ask that you review and in conjunction with this call.

Now with that I'd like to turn the call over to Walt.

Thank you Chris.

Hello, everyone and thank you for joining us today.

And the fourth quarter, we deliver $144 million and sales above 4% more than.

The high end of our guidance range compared to the third quarter revenue was up 14% sequentially.

Turning for ideas for the fourth quarter and 86 cents.

Up from 76 cents and the third quarter.

For the full year revenue was $540 million.

20 per cent compared to last year.

And even for ideas was $3 20 per cent.

25 per cent from a year ago.

For the fourth quarter results were stronger than expected and kind of a sooner and procure them and continue to be robust.

Sales of our E M C per U S. S controller for smartphones and Iot devices was especially strong and.

And I used to decontrol, there and continue to benefit from strong PC demand.

Sales of all is a day solution, where however suddenly stopped.

Based on purchase order as we see you saw on customers. We are expecting the strength of our fourth quarter two strengths and further should the first quarter and stay robust through the rest of the 'twenty 'twenty one.

Purchase out there we see for the first quarter already exceed our first quarter sales guidance and purchase order for the full year already meaningfully exceed our full year guidance.

Our ability to me cause from Alder is however limited by our product supply.

First quarter yourself are limited by a variability of product and inventory and our full year sales growth is limited by the current and foundry supply shortage that is also affecting much of the overall semiconductor industry today.

Demand for.

As a D and E M C plus and use and controllers remain very strong and we continue to see robust sales of P. C driven, especially by the need of working from home and online learning.

Additionally, Oh, yeah, and adoption and how they see in P. C and other devices continued to grow as more low cost and poised for D C pace.

Placement of H D D.

And Furthermore, we expect our HDD controller and market share gains to a salary based on our pipeline of design wins.

Those with NAND flash makers and module makers for the OEM market.

We are expecting strong day is decontrolled yourself growth this year compared to last year.

We continue to see OEM smartphone build active team prove more meaningfully.

Transition from the legacy E&C mobile embedded storage to newer youth as technology continues to increase rapidly cause OEM per use this with new generation of application processors and the highest act cameras.

Additionally sales.

Sales of Emt controller to module maker, who are building coffee and factories salary solution for low cost smartphones chromebooks.

Our speakers and other Iot devices remained strong.

Previously discussed NAND flash makers have been turning over legacy EMC business to module makers and we benefit from this.

We are also expecting stronger UMC for U S and controller sales growth this year compared to last year.

We believe our S. A D and E M C plus user control their market share again, well salary because of our growing design win pipeline.

Currently foundry capacity shortage is also affecting NAND flash makers with Caf II controller programs.

As well as other emerging controller suppliers.

Because of the shortage issue, we are seeing NAND flash makers rationalized internal control their program and seek to outsource more.

We are we also seeing merchant controller competitors, who are all meaningfully smaller than us based more categories sundries supply shortage issues, which had last several of their customers to redirect business to us.

Let me now share with you key objective for our three year strategic plan.

With the growing strength of our business and better visibility for our expanding OEM program.

We are increasingly confident that we can achieve our strategic plan of delivering one beating your salary of sales by 'twenty and 'twenty three we just stay below 30% gross margin, so reefers and pocky operating margin and EPS growing meaningfully faster than revenue.

All of the book to date and.

Sales trend by foundry capacity elimination, well already take us to kind of a suitable way beyond our full year guidance towards this $1 billion objective.

We sell growth primarily.

On a D and E M C per user controllers.

Plus additional contribution dollar figure I industrial is a day.

With our new Pcie Gen five enterprise C controller and assembling in the second half of next year.

And not expecting our and device decontrol, there could be a material contributor to our $1 billion sell objective.

We are planning on material and the biopsy controller sales contribution only app to 'twenty to 'twenty three.

And the fiery and plus meaning units a year climb device market.

Primarily it's a day supply to P C.

Schumer electronics, and industrial OEM as well as into aftermarket channels and.

As a day adoption has increased rapidly and will continue to increase gradually as they should.

D D preserved replace.

With our design win pipeline, we expect roughly double our SSD controller sales in three years from now.

Combination of S. A D adoption and client devices and.

Cuisines from <unk> to 65% last year to 80% to 90% by 'twenty and 'twenty three.

And all of our overall market share increasing to above 40%.

Our market share in smaller channel segment.

Is already high.

All share and the larger OEM sector segment is low.

We expect to maintain our high chairs of the channel market and drive faster growth with OEM.

Segment, where we have a large and growing pipeline of design wins and rapidly gain market share and the OEM and segment.

We expect to deliver our USB controller gross objected just based on sales to the existing NAND flash and module maker customers.

Our E M C bus USB controllers.

Patting ourselves to more than double by 'twenty and 'twenty three.

Driven by a combination of our market share reverting to about quarter from mid teens last year.

Well as you have this adoption and smartphone and other devices, increasing from 45% to 50% last year to at least 80 per cent in three years' time.

Again, we are also expanding to deliver on our UMC for U S and control their growth objectives, just based on sales to existing NAND flash and module maker customers.

Separately, we are also expecting meaningful sales growth from our fair I S. A D a.

Part of ICT solutions.

In past years.

Most of it there is a D was sewing too diversified set of industrial and commercial equipment and data and networking applications and.

More recently, we also started selling to automotive component supplier building infotainment system, and dashboards for Japanese and German car brands.

And and expand meaningful growth over the next three years from sell to these customers.

To summarize we have high confidence in delivering to our strategic plan not only because our bra and NAND flash and module maker customer base and the extensive pipeline of business and engagement.

But also because our order book that is not limited by foundry supplier.

And we're already take us two accounts suitable way toward our $1 billion objective.

I would like to thank TSMC for their continued support without which our ability to support our broad customer base.

And the extensive NAND flash ecosystem and this year will be in jeopardy.

And our customary for the understanding of their child and there is supply constrained.

We are temporary facing.

Now I would turn the call over to <unk> to discuss our financial results and our outlook.

Thank you all and Hello, everyone.

I will discuss additional details of our fourth quarter results and then provide our guidance Mike.

My comments today will focus primarily on our non-GAAP results less STI, unless otherwise specifically noted and.

A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday.

In the fourth quarter revenue was 144 million 14%.

Higher sequentially and 6% lower year over year.

For the full year revenue of $540 million was 20% higher than a year ago.

And the fourth quarter earnings per ads for 86 cents.

12% higher sequentially and 11% lower year over year.

For the full year earnings for a debt $3, 40, and 24 or 25% higher than a year ago.

Now for some detail starting with performance of our three key products.

<unk> controller sales increased 5% to 10% sequentially in line with our sales plan.

Full year sales were up 15% to 20% meaningfully faster than client SSD controller market revenue growth.

SSD controller sales remains 50 to 60 per cent of total revenue sitting there similar to the prior year.

EMC price Uff's controller sales rebounded, 65% to 70% sequentially. After a sharp decline in the prior quarter as our large NAND customer and worked down its inventory and started actively restocking.

Full year sales grew 35% to 40% sequentially faster substantially faster than market revenue growth.

Plus you have price controller sales increased to 25% to 30% of total revenue from 20% to 25% and the prior year.

SSD solution sales were seasonally soft and declined 30% to 35%.

Full year sales grew and grew 35% to 40% with positive contributions from both Shannon and fair on.

SSD solution sales increase to 10% to 15% of total revenue from roughly 10% and the prior year.

Gross margin in Q4 increased slightly to 49, 3% from 49, 1% in the prior quarter.

For the full year gross margin decreased to 49, 2% from 51% in the prior year due to a higher mix of lower gross margin and SSD solution sales as well as a slight decrease and control their gross margin.

Operating expenses in Q4 were $39 5 million.

$6 $6 million higher than the prior quarter, primarily due to higher R&D tape out related expenses.

And also Opex was roughly four 5% higher because of.

NT dollar and renminbi foreign exchange appreciation.

For the full year operating expenses were $147 $7 million.

14% higher than the prior year, primarily due to higher head count and compensation related expenses, but also due to higher R&D tape outs.

60%, 65% of our operating expense is head count related and roughly half of the remainder is relating to is related to R&D tape out IP and other project related expenses.

And last year over 80% of our R&D project expenses were for SSD controllers, and roughly a quarter of this was for enterprise SSD controllers.

For the full year operating expenses were roughly one 7% higher because of the NT dollar and renminbi foreign exchange appreciation.

Operating margin in Q4 was 21, 9% slightly lower when compared to 23% in the prior quarter due to higher operating expenses full year operating margin was 21, 8% up from 21, 2% and the prior.

Prior year.

Our effective tax rate in Q4 was seven 5% below our 15% to 20% tax rate guidance due to certain onetime benefits and timing differences.

Stock based compensation and our operating expenses expenses, which we exclude from our non-GAAP results.

$8 $7 million and Q4 within our eight 4% to $9 4 million guidance range.

Yes.

We had $369 $2 million of cash cash equivalents restricted cash and short term investments at the end of Q4.

Compared to the $368 $4 million at the end of the prior quarter.

We paid $12 1 million and dividends to shareholders. The first quarterly installment of our $1 40.

For 80 per annual dividend that was announced last October.

Let me update everyone about our Shannon and product line, which has continued to underperform in terms of sales profitability and cash flow.

And as Shannon was and acquire asset we are required to test for asset impairment at least annually.

Assessment, we determined that our assay was impaired and wrote off the remaining $17 $5 million of Shannon goodwill on our balance sheet.

Additionally, we wrote down for $9 million of inventory, primarily NAND flash components to fair market value and Shannon Ssds for obsolescence.

Although sales of our Shannon and datacenter SSD grew last year sales significantly underperformed internal plans.

Gross profitability was also significantly lower and excluding the inventory write down our Shannon product line incurred an operating loss of about $5 million.

Sales of differentiate open channel ssds to Alibaba or in line with expectations, but sales of standard Nvme Ssds to other data center customers were off considerably because of the soft demand environment in China for enterprise Ssds and brutal competition from the NAND Flash makers.

We continue to restructure our Shannon and operating team, which included the departure of many senior managers of last year.

And are working to restore this product line for growth and profitability.

We expect channel sales in 2021, and two contract meaningfully as our large customer worked down its elevated inventory of ssds procured from us and other suppliers last year before restocking.

And we focus on fewer but higher margin sales.

With lower levels of sales. We are also expecting our Shannon operating losses to widen further this year.

Now, let me turn to our first quarter and for your guidance and forward looking business trends.

For the first quarter, we expect revenue to increase 7% to 12% sequentially to approximately 100 for $154 million to $161 million for.

For full year 'twenty 'twenty, one we expect revenue to increase 20% to 30% to $650 million to $700 million.

As well as had discussed we already have purchase orders for significantly more than our revenue guidance range, but are limited by foundry capacity available to us.

If more foundry capacity were made available to us we could grow even faster.

The guidance range that I just provided is based on current uncertainties, primarily relating to foundry capacity allocation.

In the first quarter, we are expecting strong SSD and E MMC, plus <unk> controller sales growth and more modest SSD solution sales growth.

For the full year as well as had highlighted we are expecting both our SSD controllers and E MMC, plus and <unk> controller sales to grow much faster than last year and.

And our SSD solution sales to be flat.

First quarter gross margin should be and the range of 48% to 50%.

For the full year.

Based on certain assumptions, we are expecting gross margin and a 47% to 49% range.

<unk> is our substrate and packaging costs are increasing.

And we expect to hold prices flat unless they are subject to contractual pricing arrangements and supply agreements.

However, our gross margins could be higher if we're able to negotiate higher prices and separately successfully execute initiatives to reduce product costs.

And if we're able to increase our prices and lower our costs, our gross margin could be higher than guidance.

We expect first quarter operating margin to be and a range on 21 to 23 per cent.

For the full year, we expect operating margin in the 24% to 26% range.

As many of you know the NT dollar and renminbi had strengthened considerably, especially in the second half of last year.

If exchange rates are maintained at year end rates for the rest of the year, which we are assuming we estimate that the impact to our operating expenses compared to last year is approximately two to two 5%.

And the first quarter, we expect stock based compensation in the range for $3 123.

And $3 $3 million amounts consistent with the seasonal and timing of RSV grants in past years.

For the full year, and we expect stock based compensation in the range of $14 million to $16 million consistent with the prior year.

We expect our effective tax rate for the year in the 15 to 20 per cent range with tax rate and the first quarter and the lower half of the range.

On February 24, we will break ground for the construction of our <unk> office building.

We spent $59 million in 2018 for the purchase of land.

Construction is budgeted to cost $77 million with 7 million spent this year and.

And $34 million spent next year.

We expect to complete construction in 'twenty and 'twenty for upon completion, we plan on our sales.

Hello, and leaseback of the building.

This concludes our prepared prepared remarks and now the open the call to your questions.

And you said for me.

Ladies and gentlemen, and we will not big and the question and answer session. If you wish to ask a question. Please just well I'm on your telephone keypad and wait for me to be nonsense.

We have the first strength and from the line and it's called me from current police Covid.

And good good evening, gentlemen, and and good morning on on the West Coast.

First question for me I appreciate the full your outlook you provided and you know and your prepared remarks Wallace spoke about how competitors are facing challenges with supply, enabling you to bring some new customers on your platform and and you also spoke about how some NAND Oems are easing on their willingness to move to internal some.

<unk> and so my question is you know are these volumes AD hoc and opportunistic well what sort of volume commitments are you able to secure that would help support both your for your guide and you through 2023.

So we stayed on current communist waivers supply and follow foundry makers. We are can fulfill our for your guidance planes on your day 230 per cent, there's no grass and if we have additional incremental away for the kitchen for a thumb.

Jamaica, or a geyser and will be higher.

Ah Ah Ah Okay I appreciate that.

I guess, then you know relative to your SSE solution business could you discuss how the shifts in the consignment model and.

Will will you know impact at least qualitatively your revenue and profitability and 2021 for just 20 and 20 I guess the is the widened operating loss expectation coming only from enterprises to see.

That's my question and thank you.

Yes, that's that's related to the operating loss Ah and the consignment and that that relates specifically to our Shannon a.

Datacenter SSD a product line. So as we we talked about the and the call. The are Shannon and product line had under delivered in terms of our revenue growth profitability and casual generation and so we and it's part of our our our regular testing.

Of our acquisition the valuation of our acquisition, we had determined that the assets were impaired and so took a for right down to the remaining goodwill. So in terms of the profitability of our business.

Our our gross margins have been below our corporate average five significant amount because of the the products that we were building requiring the the purchase of man. So as part of that that on this issue last year, we started for for.

One specific customer for Alibaba moving to a consignment and business model, where alibaba precarious and and and we built the ssds built based on what they are and and and they they give us. So so our margins are gross margins are significantly improved because of this but we also have a lot of other customers. Most of the majority of our sales for it and Oh bar Shannon products are and back.

Standard and we and he ssds to non Audi customers and for these customers whereby nan and so our gross margins are a lot more.

Thank you.

And cute we have our next question coming from the line.

Rover and drinking from need him and company is go ahead.

And thank you and congratulations on on on the momentum very impressive.

Well, it's on reality when you're putting up this this billion dollar sales target, which is very ambitious and.

I just wanted to get a sense in terms of how to think about the cadence of that and if you look at your your for your guidance and and 2021 $675 million, a nickel and I believe that's the highest and recent history for you for.

For your company.

In terms of overall revenue correctly from on there, but it's extremely high and that could be higher and get more wait for allocation. So one day would have sent from from and working on that day to get to a billion and that's about 50 per cent growth. How do you think about the cadence on on and then a year over year basis and.

And.

And it just really being driven by the combination and kind of higher attached range and you're seeing other adjacent markets outside of D C and.

Is it being driven by you know consistent and sustainable market share games, and just curious and turn book from the color there.

And you have a very good question and we definitely and prepare to answer the questions. We have a very strong home and then to achieve our financial objective $1 billion within three years and I assume.

You are major design and pipeline from clients decontrolled or as well as mobile you M C for your for control there.

Things are we.

And we start to really Cook the design and we can pyrolize seems a two two years ago, and we really gaming moment and market share focusing on technology for a new product development moving to 16 and tell nanometer mobile we're going to move to seven nanometer so you're from now.

But I think for a log R&D investment and that's why you'll see are increased R&D expense and the last two years year by year I think from the current design pipeline founded backlogs and a hand peeling on hand ourselves and no restriction comes trend for Weibo's supply will be.

And much higher and all current full year guidance 20 to 30 per cent, that's why they give us signals and confidence and we can continue carries a moment and from this year to next year.

Yes, that's why we start to walk with tears and see right now for 2020 and to Waco supply for.

All of that dividend technology know verify and 40 millimeter 220, a 16 trail nanometer and make sure we can get us for your supply to meet major we and customer requirements for planes Ain't too.

Course, I think to see we have a long term relationship is M. C and we have a cigarette and good support from them and the past 10 years, and we probably can get a more allocation second and have this year, there's no commitment and right now so we can only based on that come either way for supply and make a full year guidance.

To the Investor for the for three years for 1 billion dollar target, we have a much better confidence so itchy that go maybe it will be earlier.

And thank you for the that's excellent news and.

I know it might be hard to quantify.

And you could give us some sense, if you get more way for allocation from tests and see which you have a great relationship with to begin with.

Any way to think about what the potential upside would be on that 675 target.

Alrighty and I'd say, that's another excellent question.

Way to think about this is a R. R operating infrastructure has.

The ability to have considerable operating leverage the the operating expense infrastructure that we have built our our our R&D teams or sales and marketing team and the rest of our operating infrastructure. It's a it's a infrastructure that we can load a lot more revenue on and so for what we have today.

And if we're able to achieve a much higher levels of revenue this year.

And the event were able to secure additional way for there's no be.

Beyond what we have have guidance, if we're able to to secure additional way for this would just flow through our P&L and Ah and deliver the incremental profitability on our board on line.

Thank you.

Thank you very much and the next question.

And the next question comes from the line ish, Craig from the radio Securities piece Covid.

Hi, guys. This is current on Lynch on for Craig Congrats and I just wanted to drill down on something that was said and the last question.

Question did Wow, when you said the 20 to 30 per cent.

Is that the amount of supply constraint that you're currently scene right now so in theory, if there were no supply constraints the guidance would've been 20th and 30 per cent higher did I understand that right.

No.

What I'm, saying is we got it and 20% to 30% growth zone 20, and 20 based on on current Oh, Oh wait for come eat it, but we can grow much higher and guy much higher if we can get an incremental wait for the allocation on foundry supplier.

Got it okay, sorry about the miscommunication. So my second question is on the New you mentioned that a bunch of smaller suppliers or a bunch of customers have kind of come your way due to the supply constraints. What are you guys doing and how confident are you that you can hold on to.

This new these new customers as they come towards you given that you're already supply and street.

And most of the these new demand really another major customer and cause you know some of our customer maybe 80 per cent and use our controllers and presenting is Audrey comes from the maker being older two bunk and the probably with in the past and years, but and now because wait for us shortly.

Globally. So many small player comes other player they even probably cannot get.

Even worse and wait for supply 22223 other demands that's why a lot of other customer before so maybe 80 per cent come to us and I will give us a 90 per cent 95 per cent all day to us but.

That is and now are really mango I think sounds existing already nor estimation for our business is stronger than sorry for them grow year over year, but with additional C.

So you demand and just to make our application and you've been worse than what are we can offer to the customers.

Got it okay, and and one last quick one for me, obviously I understand what's going on with gross margin and given the higher kind of input this year and not wanting to provide any insight about price increases at this point, but as I look out to physical 22, and you know you mentioned the 50 per cent gross margin target.

With Shannon now kind of a much smaller percentage of sales expected moving forward would it be fair to say that gross margin in the calendar twenty-two can get back to the 50 per cent you know may be quicker than expected beyond all assuming that all of the you know the things that are impacting gross.

And this year come out of the model and it just seems to me that and then ultimately why isn't that number why couldn't and number would be higher you know, we saw 50.1% and calendar and 19 I'm just trying to get the sense of upside gross margin from the 48 per cent guided too and counter 21.

I think you are correct theoretically, we Daphne and show improve our gross margin in plenty of 22 I think this is all to go we looking for however, I think we all have some major program with his contract price is all depend on our boundaries provider whether they will.

Continue some regularly and wait for it is kind of annually.

Because of the C V a shortage, there and not going to redo the way for price and staff inquiries away for price. So we have to prepare and all the different scenario to play Conservative model and seen that's our obligation to the shareholder to make sure. We give you a conservative guidance and then we can have a better result.

Other than expectation.

Got it okay. Thank god.

Thank you and we have the next credit isn't it from the line ish.

Goku Hardihood from J P Morgan Quiche Covid.

Yeah, Hi, Thanks for taking my question and bad from the wait for assault.

And then do you think about that one.

1 billion revenue target do you think that the product mix is going to be reasonably similar to what we have right now and I think right and that'll be it probably about 55 and 60% and he can do.

Nothing about I think for any type of and mobile on 30 for them on violent about 10% to 15%.

Solution and for me.

<unk> going to be fairly simple that when we get there could you talk a little bit about how we think about back and then I had a follow up with them.

I've seen roughly and makes will be maintained this N I.

I said king or a statement, we don't come to new customer customer and we don't have the day, we based on existing 'nam maker, and Mark and make a customer and we are able to achieve C. 1 billion dollar target within two years. So we have enough he's on my line.

From Pcie and three two p's age and for some E. M. C. Two U S. S 2000, and will street on one we don't even come and if like on Solaris. We don't count on you. Then you are for the 4000 <unk>. What are you seeing we can achieve $1 billion target with them for years.

And go call and let me also add a while when we achieve a billion dollars sales the product makes should be quite similar to what it is today, but I would also add that our our our mobile controllers R. E. M. M C plus GFS, we're expecting to go a little bit faster than our SSE controls over the next few years.

Got it and just related questions. What gives you the visibility and pardon me for asking but revenues of it's actually been and that by and they're devices human and range for probably three to four together right. So just wanted to understand what gives us the visibility you learn the business neater, especially for the mobile side and.

That makes sense for the Morgan make up also and.

And can do mud housing family and all of that what what is the confidence interval on this and what gives you. The the other day for them to change that they can and then we have on day. So I'd I'd just like this and the boss and that's a 2017 and I'm pretty for being barely had a lot of kind of Ah concerns about.

In order for them and get some.

Especially like the theme on you and got the Muslim and pick up and like I said.

How do you try and for the backpack and you would think about a yard and.

Book Us and your appeals from customer.

Okay. Let me just give you answer for us for the first question.

The reason, we have high confidence to achieve a 1 billion dollar target by 20th on your story is based on current C booking backlog appealing on hand for 20 and 21 does that.

We set already.

We face on a variable way for come either way for supply we have 100 per cent and call me then to reach 20% to 30% growth.

On the 20th Wendy.

But ER are backlog and so appealing hand on much bigger than this number.

So they just go and carry continue to 2022 and.

And because that is a major jeeze on pipeline very hard to customer and major cause them to change the design and we also continue while it was TSMC.

Hopefully they can provide more way for for those you know very well is a very difficult it's moment.

And Siouxsie do we have to ask your second question, Yes, we saw for one of the major and then makers for E. M C business from.

From the peak of 20th 16, and they you start to use internal control there and then we suffer so you sell revenue decline it down to very very slow and last year and zap bacteria will become for you and fish.

203 zero I think there's going to stay for next three years. You have is for does deal will start to picking up from 2024. So we have a very high confidence our business and model and growing R. M. C customer are very very strong we.

Dominated AMC.

Provider.

All sides and and makers, so we probably on 80% of the market share.

If you don't count on name.

And and make a customer and that's why we have accomplished and to grow mobile control the visit and as well and plans for the business would you have very strong to day and that gave us to come with and to show public and reach see all line for billion dollar sell target.

Got it could you also tell us like and.

And then are you, taking some discount or something for the people that you'd get from you on what you and make their customers and William even and.

And like this when we had a ball truck and across the board and.

That is some some degree of and played that order books that as usual and so could you talk a little bit about how you think about the.

The appeal and.

The book or the book and how do you think about the held up the other book.

I've seen some margin make appeal, that's a very small portion for two does that kind of vision and for our revenue for major visibility is R. O E and because they also worry that cannot get a supply that's why they gave us visibility and much better because normally they only give us three months P O and.

Six months forecast now they give us a full year and P. O. That's why we can see through the 20th on your one demand for our major and customer.

Got it thank you.

And here.

We have the next question from the line and stuff and.

And J and.

Okay.

Hi, guys boy and the 10 years of covering Silicon Moshe and I've never seen that kind of visibility from you guys and excitement and maybe you could talk about it if you've scrubbed the pipe line for 2021, and if you think there's a chance that that the double ordering and that pipe line or could just mainly market share.

And strength from you guys and then also.

And.

Not including the enterprise controller and the 20th twenty-three revenue growth period, maybe you can give us more detail as that behind plan.

Or any more color would be helpful. And then lastly, maybe for re on it shattered confused the underperform why not just walk away from channel why do we still keep it and operational thing.

So let me comment for you for sure question I've seen from and loft here. We have so many major design for P show, you and not just on there and make her but also thumb on Jamaica and they all start to ramp up in funds on your what.

That's why we we see we we can and market share for global current speed controllers, and we expect to ship much more for this year, however, due to see wafers shortish.

Found the phone makers.

We can only.

Provide such a guidance, but we.

Originally expense as I, even much stronger moment and if we can get a full supply from our TSMC major panic on this.

C C. This isn't depending on how we see the.

<unk> and from the technology, you know from South how the peace age and street from Pizza and she industry two-piece age and for I seem where we will continue the momentum pipeline for crying and see.

Regarding the mobile controllers on E M C and do this and we cause I states, we have a more than 80 per cent of a global design all sides and night makers.

And a lot of other these small Jamaica has been prepared and practice and the past five to six years. Now finally, they are enter designed to smartphone and low value lies smartphone and from from book and crew setup bought and smart T V. They are gaining market share.

And please understand these mall, Jamaica and mobile come children revenue and together.

Close to see Nan maker so revenue.

So it's not like a very big gap between small Jamaica, and and maker. So we see so translations very very strong and some on Jamaica are you and she customer and also Chinese to try and get into youth as they give us a much broader.

Walter NGO looking for the pipeline not just 20 and 21 also be young and this year 2022 and trying to industry.

We also have a civil major program, which we cannot common right now and when he has become materialized we were.

Talk to the our cars from our our investors.

And I'll tell you know what me and also address your your third question about about Shannon and.

Shannon clearly has and they are and disappointment to us.

And where it's it's also a strategically important piece of business to us and so we're actively working to restore this product lines growth and profitability and.

What I mean by searching and important is because without Shannon and we will not be able to sell SSD controllers enterprise, great and says he controls directly to to Chinese hyperscale as as they do not have the engineering capabilities to develop their own.

He's using merchant controllers.

So Shannon designs and he says these using our controllers and therefore.

Helps facilitate our our salad into into this market and also provide street credibility to our enterprise, great controls and whereas you know where where needed to the enterprise and city Comptroller market and so it's important to develop street credibility and Shannon.

Who are experienced exposure at Shannon was the Chinese hyperscale as we're also getting a lot of street credibility.

So it's important for us to our strategic important to us we're working to fix the financial profiles of Shannon, but eventually if we cannot.

Cannot fix this and we may have to consider the strategic options, let me on.

On a common to re.

I've seen we underestimate to come Plasty for and if I can shoulder enterprise for the business.

Our competitors and and maker. They spent 20 years experience and just from and then they are leaving in the technology and product.

We are just about four to five years, and we only and focus on enterprise and shoulder just about two years.

So we learned so much townshend on customer, especially for Alibaba by do and by then and simple leading Hyperscale us and we understand see come plasty, almost find time and climbing as a D.

We are improving fix it and we are feeling the gap, we are gaining the confidence and continue improving somewhere else or and and AC architecture. That's why we're so exciting about enterprise sheepish age and fight on shoulder, which we will pay for out in hurting and next year and <unk>.

<unk> and the second half, but plenty and 22.

Really this will bring the big moment and and coming to enterprise cause you know well clients D and the next three to five years, who will be slowing down and saturated after five years from now so we are preparing for another and momentum to grill for anybody from children and it's very important for a company maintain and.

Gross woman's and continually and to the shareholder.

And thank you for that wallets, and if I'm not mistaken did you say that you're not including any revenue from the enterprise controller and your 1 billion 2023 for cats is that just to play conservative given what you just think about actually about exactly.

That's correct.

Alright, awesome, great job got cigarettes.

Mhm and cute we'd have our next question from the line.

I do have some.

From and Tai Chi. Please go ahead.

[noise] [noise], yes, there's a mini house for any from sick just to follow up and really did you say that and and he referred price increase is already dialed into your gross margin grants for 2021.

Maybe we're not expecting that way for a cost increase this year, we already however, expecting costs from substrates and and packaging and that's reflected and the gross margin guidance and we have provided.

Okay clear just curious if there is incremental capacity becoming available on at a higher cost would you be able to send them.

Depends is dependent upon the line for for very important and mobile mobile part of the line and high and we Daphne and need to because our customers desperate and need more supply.

Okay got it and then I joined the current a little bit late and so I apologize. If if the question is already being asked but when you think about mobile opportunities you have class and component to assist the control and for 2021 and which.

Ah Ah segment do you expect to off for higher growth.

And seeing a real had already mentioned for a total dollar amount and clients day is G. A bigger for for the grocery and mobile controller and it will be a little higher and faster because other base is smaller and we because I've seen for a mobile and major is there's only street and.

And and make it has a mobile deer, and so it's very easy to pay go that's why the momentum will grow stronger and you have design and the three major now and make it with the mobile Iran.

Great. Thank you and then would you expect your.

And your mobile mix, and especially from China or contribution from China to to to increase and then and capacity and it comes on line and then and capacity from domestic players.

When the China and and make her inquiry, they all but we'd Daphne and will benefit song resolved for it because I Love R module customer. We're also use your denin from the China and near makers.

But I'm not sure how much they're going back for the mobile business, because they're probably would be and value on line yeah and.

And see but now in the high and U N C. R U.

U S.

Got it okay. Thank you.

Thank you.

And so they're not for other questions I would like for him to call and Backstroker centers for and clothes and Vermont.

San cable line for joining us today and for your continuing and choosing silicon emotion I would like to leave you with some final thoughts.

Our business continues to be quiet and resilient and.

In spite of other volatility talk business caused by the pandemic. We continue to ask you well I have neighbors being more confident about business.

We look forward to a safer world free of devastation caused by the Corona virus.

We also look forward to sharing with you for it.

Expected rapid growth of our business this year and the progress toward Ah 20th on history 1 billion dollar revenue target.

We will be attending several virtual investor conferences and the next few months.

Schedule, a a quick will be posted on investor relationship website.

Thank you for continuing and just and for listening to our call Goodbye for now.

And cute Lady.

And gentlemen about completes the conference for today, Thank you for constipation.

And the whole disconnect now and.

Mhm.

[music].

[music].

[music].

And.

Ladies and gentlemen, and thank you for standing by and welcome and it's really cool and the motion Technology Club Q for 2020 earnings Conference calls and at this time, all participants and listen only mode. After speaker's presentation that won't be a question and answer session last question during the session.

It will lead you to start one on your telephone this conference call and contains forward looking statements within the meaning of session twenty-seven day of the Securities Act of 1933 and session and 21 E of Securities and Exchange Act of 1930 for as amended such forward looking statements and include without and.

Limitation statements regarding twins, and the semiconductor industry and on so.

For the results of operations non should condition and business prospects will just such statements are based on our own information and information from the sources, we believe to be really up and you should not place and you're relying on them and these statements and what risks and and sets in the teeth and action market trends.

And Ah results may differ materially from those expressed or implied in these forward looking statements for a variety of reasons.

Potential risks and uncertainties include but are not limited to continued competitive for sure and the semiconductor industry and the ethics of such pressure Apprises unpredictable changes and the technology and consumer demand of multimedia cause consumer electronics for the state off and change in our relationship with.

Major customers and change and political economic legal and social conditions and Taiwan for additional discussion of these risks and uncertainties and other factors. Please see the documents for your file from time to time with the security and Exchange Commission.

No obligation to update.

Any forward looking statements, which apply only and it's just the date of this conference call and.

I would not like to have the confidence and what's your first speech a two day, Mr. Christiani that occur of Investor Relations and.

And strategy. Thank you. Please go get Ya.

Thank you and Jay.

Good morning, everyone and walk and fucking notions for quarter 2020, and financial result conference call and webcast and.

And you mentioned my name is Chris Cheney director of Investor Relations and joining me today on this call and wallets co President and CEO and re on line, our Chief Financial Officer.

And my comments, while this will provide and review of our key business development.

And then we audible and discuss on fourth quarter results and our outlook.

And we will then conclude with a question and answer period.

Before we get started and I'd like to remind you of our safe Harbor policy and but she was just red at the beginning of this call and.

For a comprehensive overview of the risks involved and the best thing and our securities and you'd prefer to our filings with the Securities and Exchange Commission.

For more details on on financial results. Please refer to our press release, which was filed on on one 6K after the clothes and the market yesterday.

And it's webcast will be available for replay and Investor Relations section of our website for and limited time.

To enhance and best is understanding of our ongoing economic performance, we will discuss non-GAAP information during this call.

And now I've got financial measures internally to evaluate and manage our operations and therefore chosen and provide this information to enable you to perform comparisons of our operating results and a matter of similar and how we analyze our own operating and yourself.

For more consistent year over year comparison for this quarter and our upcoming fourth quarter.

We are internally measuring performance based on non-GAAP less F C I.

And May 2019.

And reconciliation of the gap and non-GAAP financial day that can be found and our earnings really and she'd yesterday.

We ask that you review it in conjunction with this call.

And I'm with that I'd like to turn the call over the walls.

Thank you Chris.

Hello, everyone and thank you for joining us today.

And the fourth quarter, and we'd be neighbor $144 million and sells about 4% more than.

The high end of Rhonchi done range compared to the third quarter revenue was up 14 per cent sequentially or.

And even Bray ideas for the fourth quarter and 86 cents.

Up from 76, and the third quarter.

For the full year for Avenue was $540 million per.

20 per cent and compared to last year and.

And even per ideas was $3 20 per cent.

25 per cent from a year ago.

For the fourth quarter results for stronger than expected and kind of assume or for Kim and continue to be robust.

Sales of R. M C plus you and says controller for a smartphone and Iot devices for especially strong and now it's decontrol, there and continue to benefit from strong busy day ma'am.

Sales of volume solution for however, suddenly stopped.

Based on purchases all day is receipts on on customers, we are expecting the strength of our fourth quarter to strengthen perjury through the first quarter and stay and robust through the rest of the 2021.

Purchase all day receipt for their first quota already see our first quarter sales guidance.

And purchase Alger for the full year already meaningfully exceed of for your guidance.

Our ability to me cause and I'll do is however limited by our product supply.

First quarter sales are limited by of the ability of products and inventory and a full year sales growth is limited by the current and foundries surprise shortage that is also affecting much of the overall semiconductor industry today.

Demand for.

Is a D N E M C plus viewers and controllers reman very strong.

We continue to see robust sales a P C to them, especially.

Need of working from home and online learning.

Additionally, Oh, yeah, and adoption University and P. C and other devices continue to grow more low cost and voices D for for these days the replacement of HDD and.

And Furthermore, and we spent always a D controller and market share again to a salary based on our pipeline of these on wings.

Those with Nancy Glassmakers and market makers for the Oh, yeah and market.

We are expecting strong day is decontrol the cell growth this here and compare to nausea.

Will you continue to see Oh, yeah, and smartphones build active team prove more meaningfully to transition from the legacy and fee mobile and that is salaries to niort youth as technology continues to increase rapidly cause Oh, yeah and pair you is this.

The new generation of vacation processors and highest act cameras.

Additionally sales.

Sales will be empty controllers to module maker, who are building calcium fact, his salary solution for a low cost smartphone chromebooks small speakers and other Iot devices remains strong.

Previously discussed now and flash maker and have been turning over legacy E. M C business module makers and and we benefit from this.

We are also expecting stronger U M C U S and controllers sales growth this year compared to last year.

We believe R. S. A D and E N C plus user control their market share again, whereas salary because about growing design, we and pipeline.

Clearly some day capacity shortage is also affecting and fetch makers with captain controller programs.

As well as other emerging controllers suppliers.

Because of the shortage and you show, we are seeing now and Glassmakers rationalize internal control their program and and seek to all sorts Moore.

We are we are also seeing merchant come shoulder competitors, who are on meaningful the smaller than us based more categories foundry suppliers, shortly and issues, which had last several of their customers to redirect isn't it to us.

Let me know share with the U T objected for see your strategic planning.

With a groan and strength of our business and better visibility for extending OEM program.

We are increasingly covered and that we can achieve a strategic plan of the leering one beating your style there you'll sales by 2023.

Stable 50 per cent gross margin so he for Zen Pocky operation margin and E b as growing meaningfully bastard and revenue.

I'll I'll just book today.

Unconstrained by is boundary and capacity elimination, well already take us too comfortable way beyond our phone your guidance toward us $1 billion, Texas.

We have cell growth, primarily for all kinds of D and E N C per views and controllers per.

Plus additional contribution figure I industrial is a day.

With a new piece age and probably ended by and see controllers assembling and the second half of next year, we on not expecting our and device decontrol, there to be a material country with it to a $1 billion. So objective.

We are planning on material ended by a C control themselves contribution only app to 2020th Street.

And the filing and plus meaning units a year client and he buys market.

Primarily it's a day supply two P C.

Schumer electronics, and industrial and as well as into aftermarket channel and.

It's a deal adoption has increased rapidly and will continue to increase rapidly is H a D D for a day replace.

With allergies on wing pipeline, we expect a roughly double or has it become until the sales in three years from a combination of as a day adoption and climbed devices and cuisines on the 16th 265 per cent last year 280 to 90 per cent by 2023.

And Ah overall market share increasing to about 40 per cent.

Our market share in smaller channel Seckman.

And is already high.

Oh sure and the larger and sector Seckman is low we expect to maintain and hi chairs of the channel market and drive faster growth with Oh, yeah, and they said.

And then where we have a large and growing pipeline of these on wings and rapidly and market share and though yeah and and segment.

We expect to deliver decontrol the growth objected just based on sales to the existing nine slash and module make our customers.

R. M C plus he was a controller is we are expecting ourselves to more than double by 20 and 23.

Driven by a combination of a market share reverting to about a quarter from maintain last year as.

As well as you and this adoption and smartphone and other devices, increasing found 45 to 50 per cent loft here to at least 80% and see years times.

Again, we're also expanding the Tv's are are you haven't seen for USAID control. It grows objected just based on cell to existing named crash and module make our customers.

Separately.

We are also expecting meaning for sales growth on their I S. A D.

A part of value city solution.

And in past years.

Most of them for your I S. A D was sewing too diversified set of industrial commercial equipment and day done and they're working on vacations.

More recently and we also saw selling two hour demoted component supplier building infotainment and system and dashboards for a Japanese and German comprehends and.

And and expand many pools gross over the next few years from sell to these customers.

To summarize we have high confidence and delivering to a strategic plan not only because of wrong, and slash and module and maker customer and face and they extensive pipeline of business engagement.

But also because our oldest book that is now limited by some day supply of the ability well already take us to come and see the way to work or $1 billion objective.

Oh and license and TSMC for their continued support resolve.

Resolve week, our ability to support broadcasting and days and the extensive nanfang ecosystem this year well being jeopardy.

And our customer and and for the understanding of the shopping and the rain supply comes to and the other we temporary facing.

Oh, I would turn the call over to re to the East Coast financial results and I'll I'll look.

Thank you all is and Hello, everyone.

I will discuss additional details of our fourth quarter results and then provide our guidance.

My comments today will focus primarily on our non-GAAP results less sci unless otherwise they typically noted and.

A reconsideration of our GAAP to non-GAAP data is included with the earnings for these issues yesterday.

And the fourth quarter revenue was 144 million 14%.

Higher sequentially and six per cent or you're over here.

For the for year revenue $540 million was 20% higher than a year ago.

And the fourth quarter earnings for a D S for 86 cents.

For percent higher sequentially, and 11 per cent door and year over year.

For the for your earnings for eight years, $3, and 40, and 24 cents or 25 per cent higher than a year ago.

Now for some details starting with performance of our three key products and.

The controller sales increase five to 10 per cent sequentially in line with our sales plan.

For your sales were up 15 to 20 per cent meaningfully faster than client and set the controller market revenue growth.

S. A D controller sales remain 50 to 60 per cent of total revenue similar similar to the prior year.

Yeah, messy price U F. As control sales rebounded 65 to 70 per cent sequentially. After a sharp decline in the prior quarter as our large NAND customer and work down its inventory and started actively restocking.

Full year sales group 35 to 40 per cent sequentially faster substantially faster than market revenue growth.

Plus you have had control and feel increased to 25 to 30 per cent of total revenue from 20 to 25 per cent and the prior year.

[noise] SSD solution sales were seasonally soft and be crying and 30 to 35 per cent.

For your sales grew and grew 35% to 40% with positive contributions from both Shannon and fair on.

S. A D solution sales increased to 10% to 15% of total revenue from roughly 10% and the prior year.

Gross margin and queue for increased slightly 249, three per cent from 49.1% and the prior quarter.

For the four year and gross margin decrease 249.2% from 51% in the prior year due to a higher mix of lower gross Margaret has a decent and sales as well as a slight increase and controller gross margin.

Operating expenses and queue for were.

39, $5 million $6.6 million higher than the prior quarter, primarily due to higher RMB tape out related expenses.

Also opex was roughly for 5% higher because of.

And T dollar and Reminbi foreign exchange I appreciation.

For the for your operating expenses were 147 $7 million.

14% higher than the prior year, primarily due to higher head count and compensation and related expenses, but also need to hire R&D pape out.

60, 65% of our operating expense his head count related and.

Roughly half of the remainder is relating to is related to orange tape out IP and other project related expenses and.

Last year over 80 per cent of our R&D project expenses were for SSD controllers, and roughly a quarter of this was for enterprise S E controllers.

For the for your operating expenses were roughly 1.7% higher because of the empty dollar and run and be foreign exchange appreciation.

Offering margin and queue for was 21.9% slightly lower when compared to 23% and the prior quarter. He's a higher operating expenses for your operating margin was 21.8 per cent up from 21.2 per cent and the price.

Per year.

Are effective tax rate in queue for was 7.5 per cent below our 15 to 20 per cent tax rate guidance. He discerned, one time benefits and timing differences.

Stock based compensation and are operating expense expenses, which we exclude from our non-GAAP results was $8.7 million and queue for within our 842 9.4 million guidance range.

We had $369.2 million of cash cash equivalents restricted cash and short term investments at the end of queue for come.

Compared to $368.4 million at the end of the prior quarter.

We pay $12 $1 million and dividends to shareholders. The first quarterly installment of our $1.40 cents for a for a D S and you'll dividends and that was announced slash October.

Let me update everyone about our Shannon product line, which has continued on underperforming in terms of sales profitability and cash flow.

Shannon was and acquire asked that we are required to test for acid impairment at least annually.

And my recent assessment and we determined that are acid was impaired and wrote off the remaining $17.5 million of Shannon goodwill on our balance sheet.

Additionally, we wrote down for $9 million of inventory, primarily non flash components to fair market value and Shannon Sob's for obsolescence.

Although sales of our Shannon datacenter, SSD, who last year sales significantly underperformed internal plants.

Gross profitability was also significant lower and excluding the inventory right down on Shannon and product line incurred and operating loss of about $5 million.

Sales to differentiate open channel Ssb's Alibaba or in line with expectations, but sales the standard and the and E. As in these two other day to send our customers were off considerably because of the soft demand environment and China for enterprise that disease and brutal competition from the Nance Glassmakers.

We continue to restructure our Shannon operating team, which included the departure on many senior manager of last year and are working to restore this part of on line to growth and profitability.

We expect channel sales and 2021 and two contract meaningfully as our large customer work down and elevated inventory of Ssd's procured from us and other suppliers last year before restocking.

And we focus on fewer but higher margin sales.

With lower levels of sales, we are also expecting our Shannon operating losses White and further this year.

Now and let me turn to our first quarter and for your guidance and forward looking business trends.

For the first quarter, we expect revenue increased seven to 12 per cent sequentially to approximately 100 and for 154 two $161 million.

For for your 2021, and we expect rubbing and to increase 2030 per cent two 652 $700 million.

As well as that discuss we already have purchase orders for significantly more than our remedy and guidance range, but are limited by foundry capacity available to us.

If more foundry capacity were made available to us we could grow even faster.

The guidance range that I just provided is based on current uncertainties, primarily relating to foundry capacity allocation.

And the first quarter, we are expecting straw SSB and E. M. M C plus uff's controller sales growth and more modest and says the solution sales growth.

For the for year as well as had highlighted we are expecting both are SSD controllers and E. M. M C plus uff's control and sales to grow much faster than last year.

And our Ssd's foolish and sales to be black.

First quarter gross margin should be and the range of 48% to 50%.

For the for year.

Based on certain assumptions, we are expecting gross margin and the 47% to 49% range.

Assumptions are substrate and packaging costs are increasing.

And we expect a whole price is flat unless they are subject to contractual pricing arrangement and supply agreements.

However are gross margins could be higher if we're able to negotiate higher prices and separately successfully execute initiatives to reduce product costs.

If we're able to increase our prices and lower costs are gross margin could be higher than guidance.

We expect first quarter operating margin to be and arrange on 21 to 23 per cent.

For the four year, and we expect operating margin and the 24% to 26% range.

And then you know and T dollar and Rem M B had strength and considerably.

Especially in the second half of last year and it.

Exchange rates are maintained at your and rates for the rest of the year, which we are assuming we estimate that in for.

To our operating expenses compared to last year is approximately 222 and five per cent.

And the first quarter, we expect stock based compensation and the range of 312.

$3.3 million amounts consistent with a seasonal timing of ours, Hugh grant and past years.

For the four year, and we expect sock based compensation and the range of $14 million to $16 million consistent with a prior year.

We expect our effective tax rate for the you're in the 15 to 20 per cent range with tax rate and the first quarter and the lower half of the range.

On February 24th we will break ground for the construction of our Shinzu office building.

We spent $59 million and 2018 for the purchase of land.

Construction is budget the cost $77 million with 7 million spent this year and 34 million spent next year.

And we expect to complete construction and 2024 upon completion, we plan on our sales sale and leaseback for the building.

This concludes our prepared prepared remarks and now the open the call to your questions.

And you said suddenly.

Ladies and gentlemen, and we will not big and the question and answer session and if you wish to ask a question. Please for star woman and your telephone keypad and wait for name can be non stop.

We have the first strike and from the line is current.

Ah for me from killing police Covid.

And good good evening, gentlemen, and and good morning from the on the West Coast.

First question for me I appreciate the full your outlook you provided and you know and your prepared remarks Wallace spoke about how competitors are facing challenges with supply, enabling you to bring some new customers on your platform and and.

He also spoke about how some NAND Oems are easing on their willingness to move to internal solutions for my question is you know are these volumes ad hoc and opportunistic or what sort of volume commitments are you able to secure that would help support both your for your guide and do you through Twenty-twenty free.

So we stayed on current communist waiver supply power foundry makers, we are can fulfill our for your guidance putting it on the 20 to 30 per cent. There's no question. If we have additional incremental away for a kitchen for for.

Jamaica is our guys and will be higher.

Okay I appreciate that.

I guess, then you know relative to your SSE solution business could you discuss how the shifts and the consignment model.

Will will you know impact at least qualitatively your revenue and profitability and 2021 for just 2020.

I guess the.

The widened the operating loss expectation coming only from enterprises to see that's my question and thank you.

Yes, that's that's related to the operating loss and the consignment and that that relates specifically to our Shannon.

Ah datacenter SSD product line. So as we we talked about the and the call. The are Shannon and product line had under delivered in terms of revenue growth.

Possibility in cash flow generation, and so we and it's part of our our our regular testing of our acquisition the valuation of our acquisition. We had determined that the assets were impaired and so took a for right down to the remaining goodwill.

So in terms of the profitability of our business, our our gross margins have been below our corporate average price significant amount because of the the products that we were building requiring the purchase of Nan so as part of.

That this issue last year, we started for.

For for one specific customer for Alibaba moving to a consignment business model, where alibaba precarious and and and we built a S. As these big based on what they are and and and they they give us. So so our margins on gross margins are significantly improved because of this but we also have a lot on other customers and most of the majority of our sales for.

Shannon products aren't back standard and be and he ssds to non Audi customers and for these customers were buying and and so our gross margins are a lot nowhere.

And cute we have our next question coming from the line as well.

And what I've been drinking from need him and company. Please go ahead.

And thank you and congratulations on on the momentum very impressive.

Well, it's in Riyadh, we're putting up this this billion dollar sales target, which is very ambitious and.

And I just wanted to get a sense in terms of on how to think about the cadence of that if you look at your your for your guidance and 2021 675 million and the midpoint I believe that's the highest and recent history for Ya.

For your company.

In terms of overall revenue correctly from on there, but it's extremely high and that could be higher and get more wait for allocation. So one day gonna send from from working on that day to get to a billion and that's about 50 per cent growth. How do you think about the cadence on on and kind of year over year basis.

And.

Is this really being driven by the combination of kind of higher attached range and you're seeing other adjacent markets outside of P. C. As it being driven by you know consistent and sustainable market share games, and just curious and turn books from the color there.

And you have a very good questions and we definitely and prepared to answer the questions. We have a very strong confident and to achieve our financial objective $1 billion within three years and.

He is shoe, our major design and pipeline from clients decontrolled or as well as mobile UMC for USA control there.

Seem to we.

We start to really Cook the design and we can pipe line seems a two two years ago, and we really gaining momentum and muggy share focusing on technology for a new product development moving to 16 and tell nanometer mobile we're going to move to seven nanometer so you're from now.

And I sing for a log R&D investment and that's why you'll see are increased R&D expense and the last two years year by year I think found the current design pipeline founded backlogs and our hands peeling on hand ourselves they have and.

No restriction comes trend for Weibo's supply will be much higher and all current full year guidance 20 to 30 per cent.

Why they give us a signal and confidence and we can continue carries a moment and from this year to next year.

Yes, that's why we start to walk with tears and see right now for 2020 and two way for supply.

All the different and technology, no and Fidget 540 nanometer 220, a 16 trail millimeter and make sure. We can get his opinion and supply to meet major we and customer requirements for planes and I Ain't too of course, I think to see we have a long term relationship is M C and we have a cigarette and goose.

And for calling them and the past 10 years, and we probably can get a more allocation second and have this year, there's no commitment and right now so we can only based on sitcom either way for supply and make a full year guidance to the investor for for three years for 1 billion dollar target we have a much better.

It is so itchy that go maybe it will be earlier.

And thank you for that that's excellent news on.

And Riyadh and no it might be hard to quantify.

And you could give us some sense if you get more wait for allocation from T. S and see what you have a great relationship with to begin with.

Any way to think about what the potential upside would be on that 675 target.

Alrighty that day, that's another excellent question.

Way to think about this is a R. R operating infrastructure has.

The ability to have considerable operating leverage the the operating expense infrastructure that we have built our our on R&D teams or sales and marketing teams. The rest of our operating infrastructure. It's a it's a infrastructure that we can load a lot more revenue on and so for what we have today.

And if we're able to achieve a much higher levels of revenue this year.

And event, we were able to secure additional way for there's no be.

Beyond what we have have guidance, if we're able to to secure additional way for this would just flow through our P&L and Ah and deliver the incremental profitability on our board on line.

Thank you.

And she can we mentioned the next question.

And the next question comes from the line ish quake from be weighted security <unk> Covid.

Hi, guys. This is current on Lynch on for Craig Congrats and I, just wanted to drill down on something that while this that and the last question.

Question did Wow, when you said the 20 to 30 per cent.

Is that the amount of supply and street that you're currently seeing right now so in theory. If there were no supply constraints the guidance would've been 20th and 30 per cent higher did I understand that right.

No I'm.

What I'm, saying is we've got it and 20% to 30% growth town 2020 based on on current Oh, Oh wait for come eat it, but we can grow much higher and guy much higher if we can get an incremental wait for the allocation.

Allocations on foundries supplier.

Got it okay, sorry about the miscommunication. So my second question is on the New you mentioned that a bunch of smaller suppliers or a bunch of customers have kind of come your way due to the supply constraints. What are you guys doing and how confident and argue that you can hold on to.

This new these new customers as they come towards you given that you're already supply and street.

And most of the these new demand really another major customers cause you know some of our customer maybe 80 per cent and use our controllers and presenting as other control the maker.

Older to bump into probably with in the past many years, but and now because wafers shortish globally. So many small player comes other player they even probably cannot get.

Even worse wait for supply 22223 other demands that's why a lot of our customer and before so maybe 80 per cent come to us and I will give us a 90 per cent 95 per cent of all day to us but.

That is and now are really mango I think from the existing Orange Norris nation and for our business, it's a stronger than sorry for them grill it over here, but with additional C.

So you demand and just to make our application and even worse than what are we can all for it to the customers.

Got it okay, and and one last quick one for me, obviously I understand what's going on with gross margin and given the higher kind of input for this year and not wanting to provide any insight about price increases at this point, but as I look out to physical twenty-two and you know you mentioned the 50 per cent gross margin target.

With Shannon now kind of a much smaller percentage of sales expected moving forward would it be fair to say that gross margin in the calendar twenty-two can get back to the 50 per cent you know may be quicker than expected and beyond all assuming that all of the you know the things that are impacting grow.

Margin this year come out of the model and it just seems to me that and then ultimately why isn't that number why couldn't and number would be higher and we saw 51% and COVID-19, just trying to get the sense of upside gross margin from the 48 per cent guided too and counter 21.

And thank you are correct theoretically, we daphne's show and pull out because my margin in plenty of 22 I think just allowed to go we looking for how I agree I think we all have some major program with his contract price is all depend on our boundaries provider whether they.

And we'll continue some regular and wait for it is kind of annually.

Because of the C V a shortage, there and not going to redo the way for price and staff. They increase away for price. So we have to prepare and all the different scenario to play conservative motto and I've seen that's our obligation to the shareholders to make sure. We give you a conservative guidance and then we can have a better result.

Other than expectation.

Got it okay. Thank god.

And Keith we have the next credit from the line ish.

Goku Hardihood from J P. Morgan.

Go ahead.

Yeah, Hi, Thanks for taking my question and that's on the wait for so.

And then do you think about that.

1 billion revenue target do you think that the product mix is going to be reasonably thing and that's what we have right now and I think right and that we are probably about 55 and 60% and then he can.

Nothing about I think for any type of and mobile on 30 for them on violent and about 10% to 15% and somebody solution and the mix going to be fairly simple. It when we get there could you talk a little bit about how we think about back and then I had to put up with them.

I've seen roughly and makes will be maintained to San.

I said hang on.

Statement, we don't come to new customer customer and we don't have the day, we based on existing 'nam maker, and MOG and make a customer and we are able to achieve C. 1 billion dollar target within two years. So we have enough he's on timeline from beech age and three two.

Peace age and for some E. M C. Two U S. S 2000 deals trees on one we don't even come ended up like on soldiers. We don't count on you then you in for $4. You know what are you seeing we can achieve $1 billion target with them for years.

And go call and let me also add a while when we achieve a billion dollars sales the product and makes should be quite similar to what it is today, but I would also add that are are are mobile and controllers R. E. M. M C plus he F. As we're expecting to go a little bit faster than our SSE controls over the next few years.

Got it and just related questions. What gives you the visibility and pardon me for asking but revenues and it's actually been and that by and because I can see him and and range for probably three to four together right. So just wanted to understand what gives us the visibility and.

And the nature, especially for and about mobile side and does that make sense for the Morgan may cause also and.

And can do but have been Saturday and all of that what what is the confidence interval on this and what gives you. The the other day suddenly to change that they can and then we have on because I just like this and the boss and that's a 2017 and I'm pretty for being barely had a lot of Ah Ah kind of Ah concerns and.

About in order for them customer, especially like P. C module and got the Muslim and he got there and like I said.

How do you try and for that fact, when you would think about a yard.

For costs, and then B R. A appeals from customer.

Okay. Let me just give you answer first for the first question.

The reason, we have high confidence to achieve a 1 billion dollar target by 2020 is free it's based on current C booking backlog appealing on hand for 20 and 21.

Although we set already.

We face on a variable wait for come either way for supply we have 100 per cent and call me then to reach 20 to 30 per cent growth for.

On the 20th Wendy.

But ER are backlog and so appealing hand on much bigger than this number so.

So they just go and carry continue to 2022.

And because that is a major design type of line very hard to customer major cause them to change the design and we also continue while with T. S. M C.

Hopefully they can provide more way for but it was you know very well he says very difficult it's moment.

And Siouxsie do we have to ask your second question, Yes, we saw for one of the major named makers for E. M C business from.

From the peak of 20th 16, and they start to using journal on Joe There and then we suffered so you sell revenue decline a down to very very slow and locked here and that back to you it will become for.

U S S.

$203 zero I think there's going to stay for next three years. You have is for Dalziel will start to picking up from 2020th for so we had a very high confidence our business and model and growing R. U M. C customer are very very strong we.

Dominated AMC.

Provider.

All sides and and makers, so we probably on 80% of the market share.

If you don't count on name.

And and make a customer and that's why we have a cowboys and to grow mobile control the visit and as well and plans for the business very strong the day and now that gave us to tell me the and to show how we can reach so you're all line for billion dollar sell target.

Got it could you also tell and like.

Are you, taking some discount or something for the people that you'd get from you on what you and make that got some other liam even and.

And like this when we hit a ball truck bench across the board and leave that has some some degree of inflated other books that as usual and so pretty it up a little bit about how you think about the.

The Bill and.

And the book or the book and how do you think about held up the other book.

I think some module make appeal, that's a very small portion for too as a contribution and for our revenue for major visibility is R. O yet because they also worry that cannot get a supply that's a lie to give his visibility much better because normally they only give us free months P O and.

Six months forecast now they give us a full year and P. O. That's why we can see through the 20th on your one demand for our and major league and customer.

Got it thank you.

And cute.

We have the next question from the line and.

And J.

And so.

Hi, guys boy and the 10 years of covering Silicon Moshe and I've never seen that kind of visibility from you guys and excitement and maybe you could talk about it if you scrub the pipe line for 2021, and if you think there's a chance that that the double ordering and that pipe line or if it's just mainly market share.

And strength from you guys and then also.

Not including the enterprise controller, and the 2023 revenue growth and serious maybe you can give us more detail at that behind plan.

Or any more color would be helpful. And then lastly, maybe for Riyadh, if she had to confuse the underperform why not just walk away from channel why do we still keep it and operational thing.

So let me comment for Ya.

And I seen from loft here, we have a so many major design for P show, Yeah, and not just on there and maker, but also some on to make here and they all start to rent them up in funds on your what that's why are we we see we we can market share.

Sure for global client's fee controllers, and we expect to ship much more and for this year. However, due to see wafers shortish.

Sounds a thumbs and makers.

We can only.

Provide such a guidance, but we.

Originally expense as I, even much stronger moment and and.

And we can get a full supply from our TSMC major panic.

See this is that depending on how we see the migration.

Migration from the technology know from South other piece Aegean Street from Pizza, Itchy and Street, two p's age and for I seem where we will continue the moment and pipe line for clients and see.

Regarding the mobile controllers on E M C and do this and we cause I stayed and we have more than 80 per cent of a global design all sides and then makers.

And a lot of other the smog and make it has been prepare and practice and the past five to six years now finally, they enter designed to smartphone and low value life smartphone and from from book and crew setup bought and Smart T V. They are guinea market share.

And please understand these mall, Jamaica and mobile come children revenue and together.

Close to see Nan maker so revenue.

So it's not like a very big gap between small Jamaica and and make it. So we see so translations very very strong and some art, Jamaica already and she customer and also try and needed to try and getting to you and says they give us much at blogger.

Blogger NGO looking and for the pipeline not just plenty of 21 also be young and this year 2022 and 2000 for industry.

We also have several major program, which we cannot common right now and when he has become materialized we were.

Talk to the our cars from our our investors.

And I was told me and I'm Gonna also address your your third question about about Shannon and ER.

Shannon clearly has been a disappointment to us and.

And where it's it's also a strategically important piece of business to us and so we're actually working to restore this product lines growth and profitability and.

What I mean by searching and pointed because without Shannon and we will not be able to sell SSD controllers enterprise, great and says he controls directly to two Chinese hyperscale as as they do not have the engineering capabilities to develop their own.

He's using merchant controllers.

And so Shannon designs and he says these using our controllers and therefore.

Helps facilitate our our cell it into into this market and also provide street credibility to our enterprise, great controls and whereas you know where where needed to the enterprise S. A D control the market and so it's important to develop street credibility and Shannon suit.

Who are experienced exposure at Shannon was the Chinese hyperscale as we're also getting a lot of street credibility.

So it's important for us to Ah switching important to us we're working to fix the financial profiles of Shannon, but eventually if we cannot.

Cannot fix this and we may have to consider the strategic options, let me on.

And a common to re.

I see and we you asked me to come Plasty, but ended up like on shoulder and devices business.

Our competitors and and naked they spend 20 years experience in just from hand, and they are leaving in the technology and products and we are just about four to five years, and we only and focus on and a break and shoulder just about two years. So we learn so much townshend on.

Customer, especially for Alibaba by do and by Dan and simple, leading Hyperscale letters and we understand see come plasty, almost find time and climbing as a D.

We are improving fix it and we are feeling the gap, we are gaining the confidence and continue improving all stoneware Eldred and AC architecture. That's why we're so exciting about enterprise sheepish age and fight on shoulder, which we will pay for out in.

And 30 next year and suddenly and it's taking habit plunge on your June.

We believe this will bring the big moment and and coming to enterprise cause you know well clients D and the next three to five years, who will be slowing down and saturated after five years from now so we were preparing for another and momentum to grill for anybody from children is very important for a company mainly.

And the gross woman's and continually and to the shareholder.

And thank you for that wallets, and if I'm not mistaken did you say that you're not including any revenue from the enterprise controller and your 1 billion 2023, or four cats and that just to play conservative given what you just think about actually about exactly.

That's correct.

Alright, awesome, great job guys two grand.

And cute we'd have our next question from the line of I.

And I'd be Hudson for.

It's high G. Please go ahead.

Yes, there's a mini house for any from sick just to follow up and really did you say that and and he re for price increase is already dialed into your gross margin guards for 2021.

Maybe we're not expecting that way for a cost increase this year, we already however, expecting costs from substrates and and packaging and that's reflected and the gross margin guidance and we have provided.

Okay clear just curious if there is incremental capacity becoming available at a higher cost would you be able to sit down and.

Depends dependent on the line for for very important and mobile mobile and part of the line and high and we Daphne and need to because our customers and that's really need and more supply.

Okay got it and then I joined a kind of a little bit late and so I apologize. If if the question has already been asked but when you think about mobile off on charities, you have class and component to assist the control and for 2021, which.

Segment do you expect to off for higher growth.

And seeing reality already mentioned for a total dollar amount and clients day is G. A bigger for for the grocery mobile controller and will be a little higher and faster because the base is smaller and we because I've seen for a mobile major is it's only street.

And and make it has a mobile DRAM. So it's very easy to pick go that's why the momentum will grow stronger and you have designing the three major and and make it with the mobile Iran.

Great. Thank you and then would you expect your.

Your mobile mix, and especially from China, what contribution from China to to to increase as and and capacity and it comes on line and then and capacity from domestic players.

When the China on there.

And make her inquiry, they all but we Daphne and will benefit from the solved for it because I love R module customer and we're also you see.

Didn't and so on the China and then makers.

But I'm not sure how much they're going in there for the mobile business, because they're probably would be and value on line year and.

And see but now in the high and U N C. R O U.

U S.

Got it okay. Thank you.

Thank you.

And some other questions I would like to have to call back to a per centers and clothes.

Clothes and Vermont's.

San Diego uncle, joining and today and for your continuing changes you can click on motion.

Like to leave you with some sinus out.

Our business continue to be quiet visit and.

And in spite of the volatility talk business caused by the pandemic. We continued to a few well I have neighbors being more confident about business.

We look forward to a safer world free of devastation caused by the Corona virus.

We also look forward to sharing with you and the expected rapid growth of our business this year and progress toward.

20th on the Street 1 billion dollar revenue and target.

We will be attending several virtually invested conferences and the next few months.

The schedule real quick and will be posted on investor relationship website.

Thank you for continuing just and for listening to our call Goodbye for now.

And cute Lady.

Ladies and gentlemen, without concludes the conference for today. Thank you for.

And the whole disconnected and.

And Q.