Q3 2021 Silicon Motion Technology Corp Earnings Call
Good day and thank you for standing by welcome to the Silicon Motion Technology Corp, Q3, 2021 earnings conference call.
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Kindly note that this conference call contains forward looking statements within the meaning of section 27 of the Securities Act of 1933 and section 21 E of the Securities Exchange Act of 1934 as amended such forward looking statements include without limitation statements regarding trends in.
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Statements involve risks and uncertainties and actual market trends and our 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 pressure in the semiconductor industry.
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Any forward looking statements, which apply only as of the date of this conference call I would now like to hand, the gone central what do our first speaker today, Mr. Chris Shady director of Investor Relations and strategy Yugo.
Thank you Rohit.
Good morning, everyone and welcome to Silicon motions third quarter 2021 financial results conference call and webcast.
As Rohit mentioned my name is Chris trainee I'm, the director of Investor Relations in Silicon motion.
Joining me today on the call are Wallace Cole, our president and CEO and Riyadh Lai, our Chief Financial Officer.
Following my comments Wallace will provide a review of our key business developments and then Riyadh will discuss our third quarter results and our outlook will then conclude with a question and answer period.
Before we get started I'd 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 the filings with the U S Securities and Exchange Commission.
For more details on our financial results. Please refer to our press release, which was filed on form 6K after the close of market yesterday.
This webcast will be available for replay in the Investor Relations section of our website for a limited time.
To enhance our investors.
Understanding of our ongoing economic performance, we will discuss non-GAAP information during this call.
We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a matter of similar to how we analyze our results.
The reconciliation of 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 with that I'd like to turn the call over to Wallace.
Thank you Chris.
Hello, everyone and thank you for joining us today.
In the third quarter sales and earnings reach another quarterly company record.
Revenue grew 15% sequentially and over how many percent year over year to $254 million.
Very ingrained is more than double from 76 cents a year ago to $1 70.
Our sequential revenue growth last quarter and this quarter were driven by upselling of reach of Pollo mix.
And even more products to higher margin accounts and repricing powder to cover higher manufacturing cost.
But as previously communicated we.
Now receive any incremental foundry wafer supply seems early this year.
Demand for our customer for our products continue to outstrip, our ability to supply because of foundry wafer allocation limitations.
Our business has not being exposed to end market seasonality patterns and others.
Other changes in the market condition for example, learning to smartphone all P C.
We expect this situation of domain access those supply to continue through next year seeing the foundry capacity will likely only start improving in 2023.
Our order book remains strong and continues to be well in excess of $1 $5 billion for next year.
We are seeing however is some adjustment in our order book with a softening of I'll do put channel market product and struggling.
For OEM customers.
For example, we are seeing demand caused by global PC OEM continued to strengthen.
While clients a day for retail market, especially in China softening.
So we are supply constrained.
I've been looking at a revenue run rate will annualize cell targeting.
In the third quarter, we deliver $1 billion in revenue run rate a quarter ahead of when we had previously communicated and expand our revenue run rate to increase further in the fourth quarter, because we focus on managing our product mix customer.
Allocation and pricing.
We have already received foundry wafer application for 2022 that.
Is it incremental to while we have this year and we are confident we can grow ourselves next year toward our $1 5 billion dollar order book.
We believe demand will continue to exceed supply next year, but even under this scenario.
Revenue growth next year will still be very strong.
Now, let me talk about major part of the lines.
He said he controls yourselves were approximately flat sequentially in the third quarter as we had allocated more production toward E. M. A C in Europe as controllers for sales in the third quarter.
This well received in this will reverse in the fourth quarter production and sell shift back toward SSD controllers.
Year to day, obviously decontrol itself grew about 70% to 75% year over year.
So you can evenly faster than market growth. So we have been gaining share.
In the third quarter.
They control the cell tow in more than double year over year.
We are tracking toward gaining five to 10 percentage points of the market share this year.
We believe it is important to maintain diversified exposure to different customers and end market and have a good balance between our OEM and channel markets.
And they're diversified balance of NAND flash and module maker customers.
Currently we are seeing very strong sell to Oems through both NAND flash and module maker customer.
General market has been soft.
Well being shipping our PCI each employee's decontrol, there seem to third quarter of 'twenty 'twenty four is a deep so in the channel market.
And this recent third quarter, we started a ramping our chimp controller for PC Oems with two customers.
And are on track to extending from two to eight customers beginning early next year.
Much longer time is required to being OEM project to production.
Versus channel market.
For us because of extensive OEM qualification and testing.
When our pcie Gen four OEM budget fully ramp towards the end of 2022 are in the first half of 2020 three we expect to be in approximately half of all PC OEM P. J H and poised to D socket.
Unchanged from what we had previously communicated.
Next year, we will likely pick up 5% to 10% additional points of market share on the top of this gain this year.
And your name work.
Our upcoming flagship tens of like class PCI agents buyers of Decontrol. There remain on track. We continue to expect pilot production to begin in the second half of next year in volume production in second half of 2023.
No I would just because I am C plus Europe as controllers.
Oh sure quarter of M. A C plus <unk> controller sales grew 62% to 65% sequentially.
Because we focus production and sales of both our classic E. M C and next generation in Europe is controllers.
Scelzo EMC controller approximately doubled sequentially.
Our module maker customers continue expanding their opportunities with Oems in low cost smartphones and the large perfect amended Iot and smart devices market.
However, UMC com children are benefiting from NAND flash maker beginning to exit this low density segment of storage market.
Additionally, our primary USS NAND flash customer continues to be very aggressive in the mobile storage market and we are benefiting from their strong procurement momentum.
We believe the mobile story industry is about to enter another major major technological shift.
<unk> to Waller, we experienced almost a decade ago, we they're transitioning found to be for sale MLC to lower cost higher density, but it's much more difficult to manage three bits per cell TLC NAND flash technology.
We are working with both NAND flash makers and smartphone OEM to begin to transition from TLC to four bit per cell TLC NAND flash.
To push to use kill Siemens stems from the ongoing focus of smartphone Oems to reduce cost and size and increased features.
Performance and capacity.
For the same small short storage footprint inside a smartphone.
You got a bit capacity from their use of kill C can be much larger than TLC.
Also.
For that same footprint. So you saw it kills sea is much cheaper than TLC or dollar per gigabit basis.
So the tradeoff is Kelsey technology is much harder to manage than TLC because of worse endurance was ray and Brendan rewrite speed and data integrity issues.
Much more sophisticated control their technology necessary to overcome these issues and provide consumer with the same level of trust and user experience.
We have a clear controller technology leadership and more experience in the managing kelcey NAND technology than any other company in our industry.
Several years ago.
Develops a controller that enables the first commercialized it's a D building <unk> Nan and today, we continue to supply all the control, they're using PCR units at the building with the kill see NIM.
Because of our kiosk control their leadership, we have also been working extensively with both NAND flash makers and smartphone OEM.
This embedded storage data enables the use of lower cost high density Causey NIM and then we spec product introduction in the 2020 three to 'twenty four timeframe.
Generally to smartphone industry adoption of new NAND technology lags, the PC industry by several years to.
The adoption of <unk> technology in use this solution using smartphone and other vacation will further strengthen and expand our position in mobile salary controller market.
To recap we have already received our purchase order for 2022 cells and are busy working with TSMC and other suppliers to plan and schedule production for next year's sales.
The emphasis of our business development and R&D effort is now for beyond 2022.
We are working to further expand our clients a D market share introduce and scale, our innovated enterprise class Pcie Gen. Five is the decontrol there so.
Solicit by our merchant market share leadership in class of UMC.
Bringing <unk> technology to Europe as mobile storage.
And expand our growing presence in the automotive storage market, which I had discussed last quarter.
Now I would turn the call over to Ria to discuss our financial results and our outlook.
Thank you Wallace and good morning, everyone.
I will discuss additional details of our third quarter results and then provide our guidance. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted.
A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday.
In the third quarter, we grew sales, 15% sequentially to $254 million.
SSD controller sales were approximately flat sequentially as we temporarily allocated more wafer supply towards MMC, plus uff's controllers for third quarter sales.
In the fourth quarter. This will change as more wafer supply will be directed towards SSD controller sales.
Yeah, MMC, plus <unk> controller sales grew 60% to 65% sequentially because of temporary quarter by quarter supply planning decisions.
SSD solution sales increase zero to 5% sequentially.
Gross margin in the third quarter declined slightly to 52% from 51%. This slight sequential decline is primarily caused by a significant decline in the gross margins of our SSD solutions.
Operating expenses in the third quarter were $53 million $4 $5 million higher than the prior quarter, primarily from higher R&D expenses.
Operating margin in the third quarter was 29, 4% a slight increase from 29, 2% in the second quarter and up significantly from 23% a year ago.
Our effective tax rate in the third quarter was 19, 6% in line with our 20% tax rate guidance.
Earnings per ads were $1 seven $1 70.
13% higher sequentially and 124% higher year over year.
Stock based compensation in our operating expenses, which we exclude from our non-GAAP results was $5 $1 million in the third quarter within our guidance of four five to $5 $5 million.
We had $419 $5 million of cash cash equivalents restricted cash and short term investments at the end of the third quarter compared to $412 $3 million at the end of the second quarter.
We paid $12 2 million in dividends.
Two shareholders, the fourth and final quarterly installment of our $1 40 per annum.
Annual dividend that was declared last October.
Earlier this week, our board declared a new annual dividend of $2 per <unk>, 43% higher than the prior one the.
The first 50.
The installment will be paid in November.
Now, let me turn to our fourth quarter guidance and forward looking business trends.
For the fourth quarter, we expect revenue to be flat to up 5% sequentially to approximately $254 million to $267 million.
Due to production scheduling SSD controller sales will increase in the fourth quarter, while EMC plus <unk> controller sales will decline.
Fourth quarter gross margin is expected to be in the range of $48, 5% to 55%.
Fourth quarter operating margins should be in the range of 28, 5% to 35%.
In the fourth quarter, we expect stock based compensation in the range of nine to $10 $2 million.
In summary, we are quickly approaching the close of the best year in our corporate history from a revenue growth.
And cash flow perspective.
We expect to gain five to 10 percentage points of market share gain in client Ssds. This year, which continue which should continue to expand next year as we ramp pcie Gen. Four shipments two more NAND, our module maker customers for Oems.
By improving our product sales and customer mix. We have reached our goal of $1 billion in revenue run rate earlier than plan without any incremental wafers from our foundry partners.
And next year with healthy storage market demand and continued market share gains by us and our customers. We expect to continue our growth we have already secured incremental wafers for 2022 necessary for us to deliver higher volume across our three key product lines SSD controllers, MMC plus uff's controllers.
And SSD solutions.
We will continue to add R&D resources to develop high value controller technology for the computing mobile data center and automotive markets.
Maintain stable gross margin and deliver operating leverage.
While we have.
Already have our foundry wafer supply allocation for next year, which is materially more than this year and have already received customer purchase orders for next year. We are unable to provide 2022 revenue guidance at this time, because we still need to perform product mix customer allocation and prices confirm product.
Customer allocation and prices and plant and detailed the scheduling of our product fabrication based on current estimates we believe demand for our products will continue to exceed our ability to supply through 2022.
This concludes our prepared remarks, we will now open the call to your questions.
Once again as a reminder, the star followed by one on your telephone keypad to ask a question.
We have a question from the line of <unk> Gill from Needham. Please go ahead.
Yes, Thank you and congratulations on great momentum and success this year.
Wallace Riyadh a question on the.
The capacity that you are being allocated for 2022 and the purchase orders.
Wanted to talk about.
Those negotiations that you're having with TSMC.
In terms of getting the capacity.
And how secure that is.
The one 5 billion kind of purchase orders that you have in hand could you maybe elaborate a little bit further on kind of the makeup of those.
Those purchase orders next year relative to.
This year how is it different how is it the same what what are the customers asking in terms of product lines any color. There in terms of the makeup of the of the demand funnel and then also some additional details on the supply funnel.
Yeah.
And based on the third quarter revenue in the fourth quarter guidance, we already at a $1 billion sell revenue rate with our current wafer supply.
We have already received foundry wafer fabrication for 2020 two because we use state that is incremental to what we have this year and we are confident we can grow ourselves next year to where our $1 5 billion.
We believe the demand will continue to exceed supply next year.
I think we we Devin will continue negotiate with TSMC to gain more wafer supply.
Regarding the $1 $5 billion backlog has.
I assume we are back all remain very solid.
The purchase order of 2017 to continue to be well in excess of $1 5 billion.
Most of this backlog consists of D and EMC per user controller powder for yes.
As OEM orders strong because our customers have been gaining share and we have been gaining share of wallet. As these customers. We believe we have secure above 50% of all PC OEM PCI Gen. Four socket for next year.
But we have seen however, some adjustment in our order book with the softening of.
Mulder for channel market product and.
Strengthening our product for OEM customer for example, we're seeing demand, whereas D by global PC OEM continue to strengthen our current client SSD for retail market, especially in China softening.
Got it so.
Given those dynamics that are happening in the PC market, the retail versus the OEM, but could you remind us.
Kind of your split.
This quarter between OEM and retail slash module maker and how are you adjusting your order book in your capacity.
To reflect this dynamic next year I think thats one of the main concerns that folks have just broadly is that.
More capacity comes online next year, but the growth rates start to decelerate order patterns start to decelerate.
Get into kind of a <unk>.
Potential overbuild situation I'm, not saying that's going to happen.
But that's that's the concern if im wondering how youre adjusting to.
These changes in your order book with some aspects of the business start to soften a bit.
Let me start with the numbers and then I'll hand over to Wallace.
For the more qualitative stuff in terms of.
Our split between our sales of SSD controllers to two.
To the China market versus versus the.
The OEM market last year, it was roughly a third for Oems and the rest for the China market by next year, we're going to be well in excess of 50% more than half of our products are going to be going into OEM and so we are right now in the process of crossing over to more 222, Oems and with that let me hand over to Wallace.
What more color I.
We also just cope with TSMC and our customers constantly.
I think TSMC has them you also recognize there's also over booking from the end customer, but they just don't know where they are so were booking in the semiconductor supply chain, but prevent overbooking, we not only check with our customers also check with our customers and customers, we will make sure to <unk>.
Using the application specific and customer and market sector. That's why we tend to allocation carefully we want to make sure all of the product will sell through because really.
Really demand.
<unk> larger than the wafer allocation to us so really things there.
There will be a room for us to make the better judgment and we really feel very comfortable for our next year backlog and sell revenue targets.
Let me also add that right now we have very lean extremely lean inventory on our hands and on our customer side. We are customers are also operating at very lean inventory levels and so from a perspective of what we see at least on our side of the business our customer side of the business there doesn't seem to be the.
Overbuilding as far as we can see.
That is great to hear and last question.
For me in terms of the gross margins you mentioned kind of holding steady there.
50, 550% in Q4.
How are you thinking about the gross margins next year I know you're still.
Determining the allocation and the mix of business.
But how are you thinking about the gross margins at a high level given your the purchase orders that you have in hand in your backlog.
It will be expecting a similar kind of range.
Is there potential upside to that number if we get a more of a mix shift to client a higher margin pcie Gen. Four product any color on the gross margins would be helpful. Thank you.
Right now we are.
Based on what we see with our business going into next year, we're very confident we should be able to maintain our gross margin around 50%.
Yes, I think it's a very complicated question because.
As you all know TSMC has increased wafer price, 30% in all technology nodes UMC and SMIC also increase we provide twice so far for this year and we dove and you have to manage how to pass should see manufactured come to the end customers.
But it's.
Pretty complicated and challenging work, but we are confident to achieve average about 50% gross margin next year.
That's helpful. Thank you.
Yeah.
Thank you. The next question is coming from the line of Craig Ellis from B Riley. Please go ahead.
Yes, thanks for taking the questions.
Guys congratulations on the strong execution in the business.
Wallace I wanted to start off with a question that goes back to your prepared remarks.
On Q L C versus TLC.
These transitions whether from two bit per cell TLC or now TLC to <unk>. So you have been significant for industry and so the question is as you look at what's playing out in the smartphone market as it gets ready to go to <unk> for all its IND.
Increased.
Density advantages and and the advantages you can bring with them much more sophisticated controller is the proper analogy.
For us as observers and investors.
Something like the transition from Pcie Gen. Three to Gen four where we're the QL see transition should lead to higher Asp's for Simo and if that's so can you give us some color on how that might play out as we look for this <unk> transition and your Uff's in M C.
Business.
Okay.
Cannot share more detail, but I can give you a pretty.
Clear example, understand where's the trigger point.
When iPhone 13 Pro announced C. One terabyte.
Integrated.
And then Dusty a motto I assume that really drive quite a lot of us see play.
Player to looking for how to provide similar.
<unk> model as well as how do we do the cost.
As you know.
Everybody know well one terabyte density into the one BJ package, you'll need to around 16, five <unk> founded 12 gigabit mono die stacked together.
And that is a very expensive and with lower yield and so that's a much better. If you can stack eight one terabyte <unk> Monday, which would give you better yield and also a much lower cost. So this is what started for almost for a couple of months.
In the past because we believe some leading smartphone player and start to survey and driving the momentum and we will explore all different solution.
We are the leading in the market for <unk> development in the industry.
We work with a.
Couple of NIM lender in smartphone maker to explore all kind of deepen approach solution.
Not just by controlling maker also need a smartphone maker certain software is.
Enhancement, but this will become very exciting.
<unk> approach in technology, because this is going to reduce storage.
Our storage solution cost dramatically and also increase the capacity for consumer to use.
To embrace all the new application and for the <unk>. So this is very important but also expand the opportunity not just a one terabyte it could be even go lower to fly 12 gigabyte. So this is a very very important projects was and we've put a pretty decent.
R&D team to work together and looking forward to see features foundation.
2023 to $27 four time timeframe, we're going to see the solution in the market.
That's really helpful Wallace.
The second question I had is.
As related to the E M C market and it seems that there are some very encouraging supply side dynamics, taking places as silicon motion really takes advantage of a situation, where samsung and hynix or exiting the market. So the question is.
If the company is able to provide us with market share data on the <unk>.
SSD controller side, and 5% to 10 percentage points of gains this year and expected next year is there. Some similar color that you can provide on the E. M. C market. So we can get a better grasp of of the magnitude of share that you are picking up there is.
The supply side consolidates to your favor.
Okay. Let me just put some color. So you understand where we where we are and our position is in EMC controller.
For 2021 this year. Unfortunately, we have.
Wafer application.
Our <unk> backlog is much bigger allocate wafer we can supply because in the past EMC controllers are designed with the legacy technology No primary with the 55 nanometer and 40 nanometer these mature technology.
Of note we have a <unk>.
Les we felt location from TSMC and other foundry supplier.
So this year, we are busy to putting new products into 28 nanometer.
So to expand our EMC criteria, because our backlog.
Speaking for UMC is even higher than 500 million units to date.
But I'll sue the wafer allocating to us we can probably only supports 60% of the backlog that we do see increasing demand from the multiple customer not just China, Taiwan Korea also falling U S and Europe, and really very very strong demand and multi market.
<unk> application not just low end smartphone, but also in all the small families by smart TV Smart speakers smart launch all the Iot devices automotive and chromebook. So so this is very very strong demand, even some NAND maker because they exit from EMC, but there.
Still willing to provide solution all of these field come to SMA. So we we really have obligation into two to expand our wafer supply to support to these customers to avoid any potential market second breakdown. So this is our obligation and tried to really.
The increase all of the variable technology wafer to us to make a more cost effective also prepare for upcoming new TLC NAND and then as well as the legacy NIM support.
I just really.
Cannot say what market share we have more than 30%, but it's just if we can have a sufficient wafer support we can easily achieve more than 50% of market share next year.
That's really helpful. Wallace and then I'll follow up with one.
Riyadh, so that I don't ignore you and then I'll hand, it off to others. So the question is this riad so.
Given that the company year to date, just talked about for drivers to two <unk>.
Executing on gross margin richer mix allocations to more profitable accounts recovering manufacturing costs, and then doing things on the backend.
And with things like our transition from a much more mature nodes to 28 nanometer for M C.
It seems there would be significant momentum to keep the trajectory on gross margin moving higher next year. So why would we not see gross margin moving up next year versus something that said, 50% admittedly a good point relative to the target range, but it seems there's momentum in the business for something that.
It would be higher.
Well, Unfortunately, because TSMC increased wafer price for 20% So I think.
As you know <unk> really should be lower cost.
Because of low density for consumer electronics, and automotive devices. So we carefully tried to transition see manufactured costs from wafer and tests to the end customers.
I'm guessing we says we state we are targeting we are confident to reach a 30% gross margin.
We cannot have upside so, but yes, so 50% is our target and commitment for 2022.
Craig, we're just leaving ourselves some cushion.
You're targeting 50%.
To us to do more.
Yeah, I understand and just given the sector's broader trailing 10 year trajectory I think if the company did more it would be very meaningful for the stock and with that I'll hand, it off to others. Thanks for all the help guys.
Thank you.
Yeah.
If you have the next question is coming from the line of maybe Husseini from Susquehanna International. Please go ahead.
Okay.
Yes, Thanks for taking my question a couple of follow ups.
Based on your guide for December quarter, It seems to me that too.
<unk> 21 revenues are targeted to increase by 70%.
Can you help me.
For.
How blended pricing has changed 'twenty one versus 'twenty.
And how unit shipment is tracking.
Thank you.
Is it important.
Important for us to understand that.
The mix and improving H b.
And any color you can provide would be great and just to extend that into 'twenty two how do you see.
A bit of mix improving your blended pricing.
Without even raising prices on your customer and how the funnel.
Well.
Our prices this year.
Our blended prices have been going up this year, which is.
Quite a good.
The momentum that we have this year, which is a little bit different I mean generally in the past we would keep our blended asps versus this year, our blended blended asps have been going up and this is coming from the <unk>.
Factors that we had previously talked about everything from from <unk>.
Selling a richer mix of products.
<unk> since our wafers are limited we are focusing on manufacturing products.
Allocating too.
<unk>.
Higher ASP higher margin products right and then it's also giving us the opportunity to be more focused about how we allocate products to customers and where possible. We're also.
Adjusting our prices and being more disciplined.
On the cost side.
Example, wafer costs in subsidy costs, those have been going up and so we need to recover those costs in order to preserve.
<unk>. So all these three factors as well as focusing on improving our manufacturing operations.
That's the fourth leg all of these are leading to two too strong.
Gross margins in <unk>.
Obviously, the first three factors are what's what's keeping our blended ASP.
Going up and we expect this trend likely to continue into next year since wafer supply will still be very tight next year.
So all of those four legs of four drivers were 70% revenue growth, which is which has the highest impact.
The impact is coming from all three elements from product mix from customer allocation and also from from increasing our prices to recover our costs, Yes, let me add a point.
<unk> from mathematically.
We will achieve a higher sell revenue growth, we should ship everything as a component with the packaging.
That's as each wafer we can maximize sell revenue terming have the best gross margin, but they have the best cell revenue am best profit. However, we cannot do that because we have obligation to support.
C four USS microsd Theres, some automotive business and we cannot.
Just for ourself to allow certain market segment breakdown. So we have obligation to go we are largest contributors supplier. So we have to be very cautiously to balance well wherever we can achieve the sell revenue and maximizing profit also a volume market sector breakdown.
Got it. Thank you. Thanks will determine just to look at look forward.
Could the.
Mix continued to improve richer mix, so even with.
A weak channel richer mix, and therefore higher blended H b.
Would be another.
Hum.
Another year of double digit revenue growth is that Richard mixed sustainable into 'twenty two.
Absolutely.
Our wafer capacity is still going to be very tight next year, we don't expect.
Foundry wafer supply to loosen up until 2023, and so with with wafer capacity being limited we're going to be working to optimize our scares resources, where we can deliver the strongest revenue and profitability.
Okay.
And one last item.
The enterprise contribution is still more of the Tony's to retarget or.
Is there chance that you can actually pull down here.
Benefit earlier.
And then Brian can surely we're already to start have a cell revenue about although the volume is still very small, but we will continue to grow both the four are really flagship product is a PCI Gen five controller, which will be commercialized in second half next year, but a moon too Matt.
Production in second half of 2023.
Thank you.
We have the next question is coming from the line of Karl Ackerman from Cowen. Please go ahead.
Yes. Thank you.
Thank you.
For me as well.
Hum.
Maybe first off Riyadh, you indicated that orders for client Ssds.
At retail across retail markets are softening in China.
But my understanding was that business is more opportunistic versus.
NAND Oems and was incremental to.
To your $1 5 billion order backlog.
And so my question is.
For NAND Oems do you have quarterly commitments from them that would limit risk for.
Order moderation or push outs.
We're talking more about about the current situation right now looking at.
Our current sales in.
In Q3 as well as in Q4, what we're seeing is on.
Our client SSD business.
Strengthening of sales to two.
Two Oems into the OEM market versus a softening of demand in the channel markets, specifically the retail market in China.
So the demand we have from PC, OEM and NAND maker the program.
Really it's a rock solid because we get a full year PEO phone see major OEM customer.
Understood.
Helpful.
Sure.
I guess in your prepared in your prepared comments I'm not sure I heard much update on the progress Youre seeing four or Pcie Gen four enterprise controllers.
So then to your China Hyperscale providers.
And so I'm wondering what sort of market adoption are you seeing from them today.
I realize it in partnership that Gen. Five appears to be the primary product opportunity for you for enterprise.
But if you could just kind of bridge that.
Timeline with what Youre seeing with Pcie Gen four enterprise skins for once a day that'd be very helpful. Thank you.
Okay. So.
<unk> the Pcie Gen. Four controller, we ours, we are assembling and developing really solutions suite C. Susie schenone product solution as well as through the Kingston now because we have a wafer allocation and our enterprise <unk>.
Solution that gross margin is lower much lower than our corporate average so we only folks so.
Two to three major customer demand and we do not want see Shannon Pcie Gen. Four <unk> solution really dilute our corporate gross margin, but we are focused on the quality firmware development make sure while are all forward capability.
Performance me does the industry our customer expectation.
The reason, we put a focus on PCI Gen tie is a P of our PCI Gen. Four controller was late come there with other leading NAND makers, such as from Samsung and Intel, but our PCI Gen. Five will be ahead of many.
NAND makers solution and we believe our PCI Gen five will be a flagship and the.
All in the industry. So that's why we will put more focus and preparing <unk> for training to Gen. Five and we can really ramp with with.
He has a better position and with a better selling price because we can charge premiums in 2023.
Understood. Thank you I'll hop back in queue.
Do you have the next question is coming from Anthony Stoss from Chp's go ahead.
Good morning, guys.
I wanted to follow up just so I'm crystal clear on on your comments as well as Wallace is so if you have followed 1 billion five in an order book and I think Wallace alluded to this but again I want to be clear based on your materially more wafers that tsmc's committed.
Could you get close to generating $1 $5 billion in revenues in 2022, and then I had a follow up.
Yeah.
We are working to to get towards that goal.
<unk> to negotiate for more wafers.
But based on the wafer supply commitment that we have today, it's very likely that supply.
Supply demand will continue.
<unk> to be well will be in excess of.
Supply demand and excess of supply, but even with that scenario, we are still going to be generating very strong growth for 2022.
Okay, Let me ask it a different way do you think youll get at least 50% more wafers in 2022 over 2021.
This is possible because.
But you can see.
Tsmc's all taken anything don't know our overbooking.
So we domini.
Gotta confirmation, we have incremental waiver increase compared with 2021, but it is impossible for anyone to get a 50% increase but I seem to see so you've really increased sell revenue is not just by <unk>.
Wafer numbers by how you probably manage that product mix and especially we have a new product as PCI Gen four and USS <unk> online and ramping.
Sharply and so we can transition this portion of the high end product and two to driving the embedded profit embedded sell revenue. So its not exactly mathematically youre near 30% wafer to create a 50% sale revenue.
Got it and then shifting gears.
Hope you guys will have this at your fingertips, but what percentage of your total revenue right now is in call it consumer Iot and our auto and how quickly is this new market growing for you guys.
Well, we are seeing that.
We really cannot condom customers, there, but I think we're all pretty pretty lot of EMC controller business. So.
So customers everywhere.
We have creative decent smartwatch, smart speakers and smart TV and sell a box even cable modem and.
In U S.
So it's.
It's a very very fragmented market sector with a very large potential because loan we can continue to increase our wafer supply.
Foundry makers I assume will continue gaining the market share.
Let me also add that Wallace had earlier talked about.
That we already have about 500 million units of backlog relating to EMC for for our module maker customers 501 million units.
Right now we are not able to deliver all of that we are delivering maybe 60% of that because of wafer limitations, but if we can deliver 500, that's that's equivalent to about half of the market.
Got it thanks, guys nice job on the quarter.
Thank you.
Do you have the next question from the line of <unk> de Silva from Roth Capital. Please go ahead.
Hi, Wallace Riyadh I will echo my congratulations on what's it looking like a strong year.
Question on the transition to <unk> see from TLC are there any.
Which end markets or kiosk. Your most important point is there a share implication.
In terms of share gain opportunity as we transition to <unk> in terms of the technology advantage that might garner you of that.
I think for Chelsea to every enterprise enterprise SSD today the spheres.
Primary and preferred to TLC I'd, probably take couple of years to adopt <unk> into enterprise.
Klein is accounting is moving quickly, especially for second half next year in 2023.
We believe probably all of that alliance a D will transition to <unk>.
Sure for the consumer products I've seen there because if you are seeing is much more attractive.
Because of the cost advantage.
Now many many consumer and customer they are used to adopt and comfortable to use plc base product for the mobile as I said, we see the really trigger point has a higher density.
USS product, which they need to compete with iPhone and 13 pro but however, I think the technology is very challenging because of control they need a much more a battery.
The algorithm and also meet the performance Indurain dealers Tianjin integrity, everything you need to be similar like TLC, a user who feel the same user experience.
<unk> based solution, so probably take us two to three years to see the solution to happening so.
We see see <unk>.
Potential launch market sector will be around.
Second half on January two 2024, and we're going to see cost base USS product in the market.
Okay. Thank you that's very helpful. And then if you look at the calendar 'twenty. Two I'm curious are there any additional new NAND flash customers that you'll be ramping either an SSD or <unk>.
And if there are in light of tight wafer environment, how would you support additional customers coming online.
Yes, a very good question and I think we have assigned NIM customer today is poised to be our target is to try probably get one more in late next year or early 20th annual free, but we cannot we cannot.
As our target and we cannot comment too much right now.
Okay. Congrats again.
Pardon me, we do not have any further questions at this moment I would like to hand, the conference back to Mr. Wallace scope.
Ending remarks.
Thank you everyone for joining us today and for your continuing interest in Silicon motion next week, we will be featuring our leading edge technology and comprehensive enterprise solution in person as the oce.
<unk> Global summit in San Jose in.
In addition, we will be attending several investor conferences over the next few months.
<unk> of this event will be posted only investor <unk> section of our corporate website. Thank you everyone for joining today again goodbye for now.
Thank you that concludes our conference call for today. Thank you all for your participation you may disconnect now.
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