Q4 2021 Silicon Motion Technology Corp Earnings Call

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[music].

Good day, and thank you for standing by welcome to the Silicon motion fourth quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To answer questions. 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, a of the securities of $19 33, and section 21 E of the Securities Exchange Act of 1934 as amended.

Forward looking statements include without limitation statements regarding trends in the semiconductor industry and our future results of operations financial condition has been.

Prospects, although such statements are based on our own information and information from other sources, we believe to be reliable, we you should not place undue reliance on them.

The statements involve risks and uncertainties and actual market trends and all of these up may differ materially from those expressed or implied in this fault looking statements for a variety of reasons Patel.

Potential risks and uncertainties include but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressure on prices unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change.

Our relationship with all major customers and changes in political.

Economic legal and social conditions in Taiwan for additional discussion of this risen uncertainties and other factors. Please see the documents we file from time to time with the Securities and Exchange Commission.

We assume no obligation to update any forward looking statements, which apply only as of the date of this conference call.

But please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero.

And I'd like to hand, the conference over to your first speaker today, Mr. Christiani director of Investor Relations and strategy. Please go ahead Sir.

Thank you Amber.

Good morning, everyone and welcome to Silicon motions fourth quarter 2021 financial results conference call and webcast.

As mentioned my name is cross training on the director of Investor Relations here at Silicon motion.

Joining me today on this call are Wallace co president and CEO , and Riyadh Lai Chief Financial Officer.

Following my comments well it'll provide a review of our key business developments and then Riyadh will discuss our fourth quarter and full year results and our outlook for the upcoming year.

Well, then conclude with a question and answer period.

Before we get started I'd like to remind you of our safe Harbor policy, which ever read at the start of this call.

For a comprehensive overview of the risks involved in investing in our securities.

Please refer to our filings with the U S Securities and Exchange Commission.

For more details of our financial results. Please review or refer to our press release, which was filed on form 6K. After the close of the market yesterday.

This webcast will be available for replay in the Investor Relations section of our website for a limited time.

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

We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of operating results in a matter of similar to how we analyze our own operating 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 now with that I'd like to turn the call over to Wallace.

Thank you Chris.

Hello, everyone and welcome to our earnings call.

So you can just.

Just wrapped up a stellar year and we believe we are now gearing up for another great year of course.

Sales were up 84% year over year, and our full year sales grew 71%.

Our fourth quarter earnings per ideas, well up over 120% year over year.

We're earning grew over 90%.

Our 2021 business activities were extremely strong and we are seeing much of this momentum continuing into 'twenty, you're pointing to.

The demand for is it the controllers using OEM programs for PC and other client devices as well as our EMC and Europe is embedded is salary controllers using smartphones automotive Iot and smart devices.

Was tremendous and demand for OEM continued to be very strong.

Last year, we delivered cooperating record sales.

Very strong sales, we cannot meet the food demand of customers, who are building F&B and other storage devices in many categories of applications.

We are now able to meet their full demand because our business was supply constrained.

Driven by a limited the ability of foundry wafer supply necessary for fabricating our Ics.

Today as supply continues to be very tight and we don't expect this situation to change this year.

As previously discussed.

Ill did book, we're seeing even the backlog last year.

This backlog remain significant.

Early last year, we communicated, but 20% to 30% sales growth guidance for full year 2021.

This revenue guidance was based on both meaningful incremental foundry wafer supply allocated to us.

Well as existing product mix and pricing arrangements.

From that starting point, our operation team was able to meaningfully upsize cell growth to 71% for full year 2021 optimizing.

Optimizing our product mix customer allocation and pricing.

Now turning to this year.

Full year 2022.

We had again, we see meaningful incremental wafer supply for our primary foundry partners.

Based on this incremental wafer supply, we will be able to grow full year sales, 20% to 30%.

We believe however.

Is there opportunity for us to grow even faster than this baseline range and our operation team has already begun implementing strategic initiative.

With the end of delivering upside to baseline.

Upside opportunity improve battery product optimization.

As you know wafer supply and pricing.

I look forward to sharing with you more.

Is it in the following quarters as we can successfully execute husky cute.

So with both our ease of decontrol.

AMC per USL controller were similarly strong now let me talk about each each one of these two key product lines.

Full year sell a voice city controller grew 75% to 80%.

Significantly faster than the market in 2020 , one we likely again close to 10% points of market share.

Full year clients, a day controller market share today that is roughly in that 35% to 40% range.

Our SSD controller growth were driven by extensive adoption of SSD by PC OEM using our controllers.

So almost every one of our key customers involving OEM program, whether NAND flash makers module makers.

Grew strongly and we expect the significance of ourselves to Oems to continue to increase.

So a portion of our SSD controller using OEM program grew to account for well over half of all our SSD controller sales in the second half of 2021.

Significantly higher than one year before.

To address our controller for channel market.

In terms of a.

Signet because of OEM programs to grow further and account for close to two thirds of our overall SSD controller sale this year.

Last year, we saw the continue ramp up in sales of our Pcie Gen. Three SSD controller.

Which have been widely adopted by PC Oems and.

And in the second half of this year, we launched the first generation of raw Pcie Gen four serious.

Okay Decontrol, there also to Oems.

So rule of Gen four with OEM lack our initial launch for our Gen four into the China market by well over a year.

Because of the extensive verification and testing by both our direct customers and the PC Oems.

We are now initiating the launch of our second generation Pcie Gen. Four controllers and expect June four to account for a majority of ICT controller sales this year.

Coincide with our rating broad based adoption of <unk> by.

By PC Oems.

We believe that we will continue to gain market share this year.

Based on the design win and sales projection, we expect our controller to be in half of all our pcie Gen. Four socket at <unk> by the end of this year or early next year when our Gen four program skilled.

Additionally, our <unk>.

<unk> customers continue to work with Ken Council Oems for the adoption of our SSD controller in their next major device upgrade cycle next year.

It is likely that <unk> four will last a few years since the Intel AMD, both continue to bring new upgrade parent of CPU with Pcie Gen four to the market.

Emily we are.

Preparing for the <unk>.

Launch of our search generation Pcie Gen. Four controller next year before transitioning to Pcie Gen five in the following year.

Before moving to our EMC plus USA control the let me provide an update.

Our enterprise SSD controllers.

Yes.

As many of you know we have been investing actually for several years in enterprise class SSD controller R&D, we have been investing in our understanding of the large complex and fragmented market.

And the technology necessary for bringing <unk>.

Iran shade and compelling solution to customers.

The design cycle in the enterprise market also much longer than declined and mobile OEM markets.

Current quarter before the upcoming launch of our flagship enterprise class Pcie Gen. Five controller finally, completing final customer testing and qualification and moving to production and sales this year.

We are currently rolling out our enterprise class SATA SSD controller for the large volume low tail will establish enterprise market and separately our turnkey Pcie Gen. Four is the decontrol there.

These robust somewhere that has performed performing tune for certain enterprise data center applications and Additionally, we're on track to begin sampling our flagship <unk> Pcie Gen. Five SSD controller in the second half of this year we.

Only our Gen. Five is uniquely positioned with both very competitive operation performance and robust architecture and is also compounding the differentiated with feature designed desired by Hyperscale and enterprise customers such as a highly cause.

<unk> somewhere performing shaping capability and optimize data placement technologies.

We believe we are well positioned to repeat.

We have achieving clients of decontrol, there in the enterprise or to control the area as well.

Now, let me turn to our C plus USA controllers.

Last years sale of both EMC controllers, and yogurt controller, roughly doubled with growth coming primarily from market share gain.

<unk>.

So the user control grew strongly as our U S. NAND flash customer continuing to expand aggressively to build its market position with smartphone Oems our USB controller sales also benefited from growing sell to other customers.

We are seeing renewed growth in sell overall pathic EMC controller funds, the proliferation of new applications, such as automotive with Adas Telematics and entertainment system that <unk>, but also from the opportunity query us.

Many of the NAND flash makers began to exit some of this older load capacity salary technology.

We have benefited from supplying controller to module maker staffing to the market.

Additionally.

NAND flash makers, who are facing foundry wafer supply issues also outsourcing EMC controllers on less.

This is attractive market for us because we are the only meaningful merchant supplier of AUC controllers, and the UMC market relative big with annual market sales volume of our <unk>.

Ultimately $1 5 billion units.

Now I will turn the call over to Ray to discuss financial results and our outlook.

Thank you all and good morning, everyone.

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

Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted.

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

In the fourth quarter sales were $264 million growing 4% sequentially, earning.

Earnings per ads were $1 91.

Which was 12% higher sequentially.

For the full year sales were $922 million up 71% versus the prior year.

Earnings per ads were $6 21.

92% from the prior year.

Yes.

Now I'll review the performance of our three key products.

SSD controller sales grew 15% to 20% sequentially in the fourth quarter reversing third quarters approximate.

Flat sequential.

Fourth quarter, approximately flat sequentially as we allocated production back to SSD controllers for.

Full year SSD controller sales grew 75% to 80% far exceeding the market growth rate as we gained significant market share.

For your SSD controller sales accounted for approximately 55% to 60% of our total sales.

UMC plus Uff's controller sales declined 5% to 10% sequentially reversing third quarter sharp sequential growth as we coordinate our production with our SSD controllers.

<unk> sales grew 105%.

Yes.

105, and 110% far exceeding market growth as we gained significant market share.

Full year, EMC, plus <unk> sales accounted for approximately 32% to 35% of our total sales.

SSD solution sales in the fourth quarter grew 5% to 10% sequentially for the full year SSD solution sales declined 5% to 10% and accounted for approximately 5% to 10% of our total sales.

Gross margin in the fourth quarter were 49, 9% consistent with the prior quarter for.

For the full year gross margin was 54% one three percentage points higher than the prior year's 49, 2% as we focus on optimizing our product mix and customer allocation and re pricing our products to account for higher costs.

Operating expenses in the fourth quarter were $50 3 million.

$2 $7 million lower than the prior quarter, primarily due to sequentially lower tape out expenses.

Operating expenses for the full year were $195 5 million up $47 8 million from.

From the prior year, primarily due to higher bonuses tape out expenses were also higher as were salaries as we expanded our head count mainly R&D engineers and implemented routine wage increases.

Operating expenses as a percentage of revenue for the full year were 21% for the full year down from 27% in the prior year.

Operating margin increased from 29, 4% in the prior quarter to 39% in the fourth quarter the highest in our recent corporate history.

Full year operating margin was 29, 2% up significantly from 21, 8% in the prior year as we benefited from significant operating leverage and a slightly higher gross margin.

Our effective tax rate in the fourth quarter was temporarily lower at 70% for the full year, our effective tax rate was 19% close to our 20% mobile tax rate.

Stock based compensation and offering expenses, which we exclude from our non-GAAP results was $9 million in the fourth quarter at the low end of our $9 million to $10 million guidance.

We had 405 point.

$5 million of cash cash equivalent restricted cash and short term investments at the end of the fourth quarter copper.

Comparable to the $419 4 million at the end of the third quarter.

Our inventory levels remain extremely lean as foundry capacity continues to be very tight and demand remains robust in.

In the fourth quarter, we had 110 days of inventory two days less than the prior quarter and 18 days less than a year ago.

Our controller inventory is even leaner at 30% of our inventory at the end of December .

Our leaner at the end of December for a.

30% of our inventory at the end of December our four SSD solution and SSD solutions are less than 10% of total sales.

We currently only have a couple of weeks of controller finished products and inventory to sell.

We provide.

We paid $17 $4 million in dividend to shareholders. The first quarterly installment of our $2 per <unk> annual dividend that was declared last October .

We are aggressively repurchasing our shares in the fourth quarter, we spent $50 million repurchasing repurchasing our shares we expect to repurchase another $50 million in January and the remaining $100 million by June of this year.

In terms of other major uses of cash we also had $11 $2 million or capex.

Now, let me turn to our guidance and forward looking business trends, starting with our revenue guidance.

For the full year, we are expecting revenue to grow 22% to 30%.

This is revenue growth forecast. This revenue growth forecast is based entirely on incremental foundry wafer supply.

Also note we received more.

More incremental wafer supply allocation in the second half of this year versus in the first half and the timing of this is an important factor for driving our sequential growth through the rest of this year.

As well as had mentioned this is our baseline target range and we are undertaking initiatives to deliver upside to this.

<unk> of our revenue guidance is dependent on the successful execution of certain operating initiatives.

First quarter revenue is expected to decline, 10% to 15% sequentially.

This sequential decline is primarily the result of two factors tie.

Timing of our wafer supply in China channel market inventory cleanup.

We received meaningful incremental wafer supply this year, but the timing of the availability of supply is not linear.

And will impact us in Q1.

Rafer supply for certain key nodes in Q1 will be less than in Q4, which means we will have fewer high demand parts to sell.

As I have said a few minutes ago. We are currently operating at very low inventory levels with just a couple of weeks of finished goods of controllers.

Furthermore, for parts with better supply.

Availability.

Joe makers operating in China's channel market have reduced procurement to clean up the inventory before the long Chinese new year holiday.

We believe this action is temporary as module makers are trying to reduce their inventory holding risk before the long holiday.

Positively we are seeking we are seeing recovery of the China market. Both in terms of sentiment as well as business activity as module makers are now more willing to build products than a quarter ago.

Our module maker customers targeting the China market are now actively discussing with us.

Controllers to support their upcoming NAND flash procurement.

Fortunately, our new OEM programs are not affected as these programs.

These new programs only beginning and we will pick up and accelerate over the next few quarters.

We are already a third of the way through the first quarter and see good improvement in sales next quarter, we expect sequential growth through the rest of the year with growth coming from the scheduled ramp of new OEM programs, which will be supported by the timing of incremental wafer supply already allocated to us.

Let me now turn to our gross margin guidance.

For the full year, we are expecting gross margin in the 49% to 51% range. We believe we can continue to manage our products around our 50% target gross margin.

First quarter gross margin should be in the 49, 5% to 51, 5% range.

Turning to our operating margin guidance.

For the full year, we're expecting operating margin in the 29% to 31% range.

We are delighted that we are now delivering towards our 30% target operating margin.

First quarter operating margin should be in the range of 27, 5% to 29, 5% lower than in the fourth quarter because of higher tape out expenses.

And for our other key modeling assumptions.

For the full year, we expect stock based compensation to be in the $22 million to $24 million range.

First quarter stock based compensation should be in the $5 million to $6 million range.

We expect our effective tax rate for 2022 to be approximately 20%.

For the full year, we expect approximately $45 million of Capex.

Which $18 million will be for the <unk>.

Our routine capex and $27 million for <unk>, two in Taipei office building construction.

First quarter Capex should be approximately 14 million of which 6 million will be for routine capex and $8 million for office buildings.

This concludes our prepared remarks, we will now open the call to your questions.

Thank you we will now begin the question and answer session.

As a reminder, if you wish to ask a question. Please press star one on your telephone and Mike for your name to be announced.

You wish to withdraw your request please press the pound.

Key.

Our first question comes from the line of Craig Ellis from B Riley Securities. Please go ahead.

Yes, thanks for taking the question and team congratulations on the very strong performance in calendar 'twenty one.

While it's I wanted to start off with maybe a bigger picture longer term question. So as I look back at 2021.

Had strong share gain and growth in really all of your markets and it looks like.

That demand strength in that order strength is persistent in 2022, and then it sounds like SSD solutions has a new product ramp but could.

Argument.

Your product mix and growth in 2020 through so the question is this as you look at the business.

And the share gain potential across SSD controllers.

EMC and U S. Putting context when you last saw this type of growth for the company and your confidence today and the ability to execute against that growth. The way that you did last year.

Great seeing you asked very good questions and if you look at the Big picture, we can secure in our wafer supply. We believe the growth momentum will continue for next five three to five years and we do see we have a lot of headroom to grow.

Particularly in clients a D EMC in Europe as controller for clients a D. We believe by 'twenty two 'twenty three we should have at least one major clients. He project for <unk> NAND makers, and we have confidence to achieve that and we believe <unk> controller will continue to grow we've been.

Fitting from NAND maker.

Or sourcing some odd NAMIC also into us and we grow with incremental all the new application for Iot devices, and smart devices, including low end smartphone Usa's. We also gained market share with additional customer. We believe the momentum will continue to grow when you have it become will.

In the smartphone market. So I seeing if we can keep execution for all of our major project program and we can recruit talent R&D in time, and we get a sufficient wafer the <unk> momentum will continue for the next three to five years.

That's helpful and for my follow up question I'll switch it over to Riyadh.

One of the things that characterizes last year.

Was the poor different initiatives that the company was executing on regarding cost management fulfillment et cetera too.

Execute gross margin, which played out very well through the year.

As we look at the first quarter's guidance and the poll for your guidance. It does imply some gross margin decrease through the year. The question is this.

What is the momentum that you have operationally on things that benefited gross margin last year and what are some of the potential pressures on gross margin as you look through the year and what levers do you have to offset those.

Craig.

Are you continuing to look at our business and look for ways to improve that similar to what we were doing with our business.

A year ago.

We are there are certain initiatives relating to product mix pricing wafers and other costs that we are looking into which we plan to execute and so well.

The growth the baseline remains the same the baseline is what we had communicated there potentially opportunities where we can deliver better results in terms of top line and also better results in gross margin relating to the upselling of a richer mix of products that we did last year and optimization of our product mix allocation to cut.

<unk>, which again, we also did quite nicely last year and also.

Better pricing dispatch, which we will continue to press ahead this year and Furthermore, on on the cost of sales side.

We also continue to look very carefully about our manufacturing processes.

Where there are opportunities to tune, our our yields to inflect.

Costing we will certainly be pressing on that so this is in turns to in terms of.

Both the fabrication of products as well as the backend and other elements of our manufacturing processes. There there are opportunities that we're continuing to look into in order to improve our profitability.

Yes.

That's helpful and if I can just sneak in one more before hopping back in the queue.

Congratulations on the strong start on the share buyback program and I appreciate all the visibility into how you execute the program.

Through the first half of the year.

And at the risk of putting the cart a little bit before the horse can you just talk about the executive teams and the board's view on what could happen. After the first half of the year share buyback something that companies would entertain in the back half given the level of operating cash flow and the degree to which free cash.

Cash flow was well above capex needs for the new building that's underway in the <unk>.

Dividend program, that's been nicely enhanced of life. Thank you.

Craig that is that's a great question, we have a business that is highly cash generative. If you will look to look at our fourth quarter, our cash balance at <unk>.

At quarter end of quarter is little changed despite.

$50 million of share repurchase.

Over $17 million of dividends paid to shareholders plus capex and other elements. So we clearly have the cash flow to continue to do a lot of.

Attractive initiatives to boost our shareholder value.

As far as complete our current shareholder program share buyback program and we can certainly look into other initiatives are continuation of this type of initiatives later this year.

Fair enough. Thanks, Scott.

Thank you. Our next question comes from the line of Rajiv Gill from Needham <unk> Company. Please ask your question.

Yes, Thank you and I Echo my congratulations on the stellar results.

One.

Wallace and Riyadh when you look to calendar 'twenty, two and you were very clear about saying that the 2020% outlook.

Baseline target.

It will be based on.

And the upside could be driven by variable incremental wafer supply product optimization et cetera.

I'm wondering how you're thinking about the timing of that.

You mentioned in Q1.

Is that the <unk>.

Sequential decline in revenue is driven because of the time.

Capacity not happening.

So my question is how confident are you.

That.

You will get incremental.

The at the timing that you need.

What reinsurance.

TSMC, providing you that gives you that confidence not only to maintain.

Provided 23 person outlook, but essentially say that could be upside to that.

If we get more supply throughout the year.

So I think you raised a very good crushing so how come then we are regarding from a baseline guidance to move to the upside I think see the primary rely LLC.

Additional wafer supply volunteers.

As well as how we can pulling so wafer allocation to us from second half to first half.

I think as we mentioned we are we are in severe shortages of certain technology nodes, including.

55 nanometer and all of that event technology node 16 nanometer Intel nanometers.

I think we are comfortable in 28 nanometer wafer supply, we're just battling a fortinet.

So we cannot get any additional wafer supply from TSMC is all depend on how we can fully utilize 20 nanometer with a better product mix and pricing with the customer, but so far we believe.

We could we could benefiting from some potential wafer supply with a primary foundries supplier.

Just because almost every week and we.

See there is positive.

Positive momentum in addition.

Primary customer also helping us to get our wafer supply from TSMC seems add momentum and <unk> will be very helpful and positive.

Yeah.

Okay, Great that's helpful to understand.

Starting on Q1.

Channel inventory cleanup.

China.

Leading to a decline in Q1.

Do you.

You mentioned that.

Module makers are starting to build more inventory.

Our indications that they will do that post the holiday season to support the NAND Flash procurement I'm wondering if you kind of elaborate a little bit further on how the module makers are thinking about new products. This year.

The OEM programs are very strong.

It's great to hear that.

Represent two thirds of the controller Phil.

But trying to get a better understanding of the module maker progressed.

Okay, Let me try to clarify regarding the situation for Q1, we face I've seen module makers, they all opportunity takers and because of the Chinese new year is coming so most of them are customer tried to reduce inventory to redo the risk because there's a niche.

And pricing is still a lot of uncertainty, although theres CN fab.

Lockdown impact of Samsung the production output.

I'll see module maker, they are expecting NAND price declines continually so hesitate to really capture very large volume of the NIM. So they don't need the controller.

Controlling inventory, however, lately, we do see all of the module customers from China.

Lee discussed above.

New procurement program, which we see from the backlog from our Q2 and Q3.

This really.

Very very actually across all our major customer in China in <unk>.

In Taiwan, So we see this as a very good momentum and we check with the channel it looks like the channel inventory now I also very low in China and the activity is it become very is.

As a very actually so this is a very positive move and we see the backlog moving up very strong even with the mature technologies, particularly in C. Legacy note. This is a helpful for us to increase our confident China market will recover strongly finally Q1 200.

Q2.

Okay. Thank you.

Thank you. Our next question comes from the line of Karl Ackerman from Cowen <unk> Company. Please ask your question.

Yes, Thank you gentlemen.

Two questions if I may.

I was hoping you could help me bridge the outlook for March and the full year guide by discussing whether customers have signed or cemented volume orders.

For these pcie four controllers that gives you the confidence in a big snapback in revenue beyond the March quarter.

And as you address that question is there a way to quantify the impact in March.

From a moderation or pushout of client ssds, given these supply chain supply chain disruptions impacting PC Assembly.

Call. It for your question relating to Pcie Gen. Four purchase orders from our customer I'll defer that question to Wallace, who provide better insight into the into this.

I think our.

<unk> full program.

We have.

Multiple pcie Chin full program with PC Oems phone side, even NAND maker and affordable module makers.

Lee So so you ramp up is based on their own internal.

<unk> process. So this is a very intensive qualification and testing also NIM procurement.

C. We now see the schedule for some of the Oems They are on track for some others.

Push out due to the delay from both our <unk>, our internal resource issue and then they'll make their own decision. So I cannot comment the detail, but backlog is very very strong we do not see any impact from the backlog frankly speaking all of the major new PGA tour.

<unk> nanometer technology node.

We just don't have enough wafer to support the demand to fill if we have a sufficient seam we will revise guidance immediately.

In addition is our.

Usa's controllers <unk> one that's used at TSMC 16 nanometer. We also have a severe shortage even TSMC increase.

The increase.

Among compared with 2021 plus year not enough to meet the customer demand in 2022. So we will continue to work with our customer with TSMC together to gain additional wafer supply, but so.

But thats.

Our baseline guidance, 20% to 30% growth based on current wafer allocate to us.

That's very helpful. I appreciate that.

For my follow up.

I gave them want to touch on your Pcie five enterprise controllers, you indicated that you are moving into production.

This year.

Could you also discuss the design engagements you have.

On enterprise controllers broadly both for.

PCI five as well as PCI for products that you have available today.

And I guess as you.

You addressed that question is the growth of enterprise controllers.

A big driver a small driver.

What sort of driver to your full year outlook. Thank you very much.

Seeing Pablo denounce be clearly, we're going to assembling our pcie Gen five and my controller in the second half. This year there will be production in second half of next year 2023.

So the <unk> flagship enterprise <unk> jewelry, we believe that'll be uniquely position for very high end high performance performance driver for enterprise customers, especially the hyperscale customer.

Designed for high end enterprise server as well as data center providers and we believe this product will win quite a lot of the major design we are in.

Frequently discuss potential major customer currently this year, we are ramping our SASSA and apply controller with a high volume and our Pcie Gen. Four controller with another leading controller, but we also win some incremental customer and we're going to ramp up in second half this year.

Thank you.

Thank you. Our next question comes from the line of Tsuji D Silva from Roth Capital. Please go ahead.

Hi, Wallace Riyadh, congrats on the strong year there.

Looking ahead to calendar 'twenty two it sounds like you are kind of setting it up the same way as the beginning of calendar 'twenty. One the guide and then the potential for upside with wafer allocation. How does the beginning of 'twenty two feel different perhaps than the set up in 'twenty, one where you did upside the numbers just in terms of our supply.

Supply chain and capacity just be curious to know the differences.

I've seen that.

We mentioned from the early 20th any one we start to what we TSMC for 2022 wafer supply and we understand.

Turning to wafer supply in particular technology know there are more severe than 2021.

So we are seeing tears excuse me recognize the importance of our position.

Technology provider for a major customer in certain market sector. So we do get incremental wafer, especially in <unk> Intel nanometer technology node.

We this year is a different major dividend as we have much broader OEM base customers and much stronger market, leading position from both clients a D and.

And UMC plus <unk> controller, because we have multiple <unk> controller will go production this year.

Now we do face see.

Even.

The wafer allocation.

We got.

Can only grow as our guidance, 20% to 30%. However, this opportunity which is that we set a model like last year, our major customer will also helping us to.

Two asking additional wafer supply from TSMC. So if there is any customer cancellation any opportunity ive seen we might be able to get the incremental wafer.

<unk>.

In second half this year, so I think we just.

Keep a focus while we are doing and try to maximize see wafer we are using for product mix as I mentioned 28 nanometer. We are comfortable with Q2, a better location in 20 nanometer to gain incremental sale revenue.

And <unk>.

Even without the addition location in advanced technology nodes.

Great. Thank you. It's helpful to have that contrast versus 12 months ago, and then I think next growth opportunity is really this high end enterprise SSD controller or just enterprise SSD controllers in general can you talk about how if any way the competitive landscape. There is different from the SSD controller business, where you've been.

Strong again, 10% sure. This year just understand it understand the competitive dynamics have any subtle differences that we should note.

Yes.

As you know well, we spending investment for enterprise controller for almost four years right now.

We do gain tremendous lessons, we also again technology in it.

And then experience from previous two generation no I think so.

From the architecture wise, our second generation device that the controller spheres behind so leading the leader in the market. However, the pcie Gen five and broken jewelry is our search iteration, we real lesson how to really to create really enterprise.

Type.

Control of the architecture to meet customer demand and the expectation, particularly in latency and also see rewrite combination performance and other key features and cosmas, we deliver into the Silicon and in addition, we also spend a great great effort to do that.

Muddling foresee computer architecture, and ICD and also to the performance tuning algorithm with dedicated Filmer teams now we believe our firmware technology Enterprise D will.

Will it be similar same logo with a leader in the market today and that's why we have a pretty good confidence when we launch and apply our pcie Gen. Five C controller, we should have a pretty decent positioning the market.

It sounds like a good a good setup best of luck for that thanks, guys.

Thank you. Your next question comes from the line of Anthony Stoss from Craig Hallum. Please go ahead.

I also wanted to follow up a little bit on the enterprise controller side wallets.

Head of shipping too.

Samples in the second half of this calendar year, you are exhibiting a ton of confidence entering that market. Just like you did the PC OEM side.

Is it just based on conversations since you haven't sampled solutions yet and then also maybe two quickie is for Riyadh just upped.

Update on kind of the order book size and then also maybe for you on this as well the Q1 limitation that you're getting now from TSM. When did you learn of this change is something that you've known for a while or is it more recent.

I've seen that.

<unk>.

Probably to us really been crashing, let's just try the enterprise side the enterprise I think we.

We do start to as we said, we do start to have a bond and shipment for Sunshine Enterprise controller this year.

Our pcie Gen. Four controller is the incrementals cells, although we understand thats another leading controller today, but we are able to secure few customer to sell that pcie Gen. Four as a vehicle to introduce our pcie Gen five <unk>, which will be some billing.

In second half this year and production in second half next year.

Regarding the wafer application and discussion with our primary foundry maker.

Cannot be as good detail, but I seem to see.

TSMC as a W with based on the market need and also to our volumes.

Sure XI and loan showed site imbalance of supply right. So automotive is probably most critical sector. There are several other market sector to always a breakdown. So they will based on the market survey and the feedback based on and customers need and to do the allocation I think.

We do have a very very strong design win special Pcie Gen. Four we believe our program will occupy probably 50% of all piece ATM forgone PC OEM. So that's significant.

And Dominique.

So we have to consider because they have to all of our shortage may cause a certain problem for the major supply chain for the notebook shipments. In addition, I think same thing for smartphone all the USPS from major smartphone customer and so this is very important.

For the foundry maker I believe they are some discussion going on we cannot comment the detail hopefully we can get incremental wafer supply.

Half of this year.

Tony.

Ill try to address your other question your third question relating to the.

The sizing of our order book, our order book has continued to grow while this add briefly touch upon that.

In his comments a little while ago. So our order books continue to grow and one way to look at this is.

Is to look at our order book versus our actual sales.

This ratio last year versus today. It has remained just as just as broader the ratio remains similar to what it was.

A year ago, So our order book.

The strength of our order book has remained.

Quite strong and quite sizable.

But bear in mind, when we look at our when we talk about our order, but we're also talking about our adjusted order book.

Were discounting.

The orders from our module makers that are more opportunistic.

With more limited visibility and focusing more on the higher quality stuff, but even with a higher quality.

Our visibility.

It still remains very significant to what we're able to deliver this year comparable to what it was a year ago.

Thanks, guys great execution. Thank you.

Thank you.

Hudson comes from Donnie Teng from Nomura. Please go ahead.

Hi, Good evening, CEO and CFO Congress on the very strong Q1 results.

Two questions. So first one is I'm interested in.

Game console business opportunity for us.

Let me see if I.

Her correctly so.

Because you're currently in.

Deborah and more on these opportunities for OEM or aftermarket.

And also are you, replacing the existing.

Suppliers or it's like you all the additional suppliers to this game console opportunity. Thank you.

So as I mentioned this year's no the new generation it will be 'twenty two 'twenty three launch this huge refresh. So we are now in the refresh cycle.

<unk> customer and want to play you want to maintain the same solution continually.

We will go through two NAND makers to Windsor came come so.

Bucket next year I cannot comment on whether we replace existing players additional controller maker.

Got it.

You see that.

OEM.

Business or aftermarket business.

OEM.

Ian.

<unk>.

Okay. Thank you.

And my second question is regarding too.

The USA so.

I think so far we have a very powerful to 705 for USB three one controller right just curious.

Do we have any new.

Generation or new upgrade for this IC, maybe beyond second half.

<unk> with our leading us customer.

Also considering USS has been also replacing humans, you're comfortable with or quickly D. C. It right. So just curious regarding to your full year sales growth guidance, 20% to 30%.

How would you think about the growth momentum in between SSD controllers, and the USA is comfortable with us. Thank you.

Okay, Let me just.

Probably not probably to give you the whole product roadmap.

I would tell you our USA is still going to have two more new products coming for this second half. This year. One is C. Also feed on one see others for Das zero.

The <unk> one is really is to support.

The new generation of NAND, because new Jersey of NAND. The DDR go to 2100 DDR over 3000, So you don't need as many channels for NIM. So in order to be more cost effective and also high performance, especially in <unk> and we have a new architecture designed for this.

New controller and costs will be cheaper than 2784 performance could be even better and because of that but more suitable for the 176 layers beyond especially above 200 layer.

<unk> as well as the <unk> NAND and for US for the <unk> is really designed for very high end and we want to be ahead of even some NAND makers. So we can provide value add to the NAND maker customers.

Regarding C.

<unk> sell.

Revenue I cannot come in for that because I just cannot I can just tell you the demand much more than I can support.

So even our customers try very hard to concern additional wafer soon enough to support demand.

Let me also add this year our growth is not only a quite strong but its also very balance we have very strong growth from our client SSD controllers. We also have very strong growth from our E. MMC plus uff's controllers and when you were when you look into that one layer below growth is not coming.

Just because of one of the two legs of Uff's, plus EMC, but rather growth is coming from both legs of MMC. So strong growth from our E. MMC controllers as well as strong growth from our Uff's controls and we believe this will carryover into into next year.

Got it very helpful. Thank you Wallace and Riyadh Congress.

Great. Thank you.

No further questions I'll now turn the call back to CEO for closing remarks.

Thank you everyone for joining us today and for your continuing interest in Silicon motion, we will be attending several virtual investor conferences over the next few months to the schedule of these events will be posted on the investor relationship section of our corporate website.

Thank you everyone for joining Tonight.

Bye for now.

Thank you that does conclude our conference for today. Thank you for participating you may all disconnect.

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Good day, and thank you for standing by welcome to the Silicon motion fourth quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To answer a question 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, a of the securities 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 the semiconductor industry and our future results of operations and financial condition.

Business prospects.

Such statements are based on our own information and information from other sources, we believe to be reliable, we you should not place undue reliance on them.

These statements involve risks and uncertainties and actual market trends and all of these apps may differ materially from those expressed or implied in this fault looking statements for a variety of reasons.

Actual risks and uncertainties include but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressure on prices.

Predictable changes in technology, and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with all major customers and changes in political.

Cannot make legal and social conditions in Taiwan for additional discussion of this risen uncertainties and other factors. Please see the documents we file from time to time with the Securities and Exchange Commission we.

We assume no obligation to update any forward looking statements, which apply only as of the date of this conference call.

Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero.

Now I'd like to hand, the conference over to your first speaker today, Mr. Christiani director of Investor Relations and strategy. Please go ahead Sir.

Thank you Amber.

Good morning, everyone and welcome to Silicon motions fourth quarter 2021 financial results conference call and webcast.

As mentioned my name is cross training on the director of Investor Relations here at Silicon motion.

Joining me today on this call are Wallace co president and CEO and Riyadh Lai.

<unk> financial officer.

Following my comments, while it'll provide a review of our key business developments and then Riyadh will discuss our fourth quarter and full year results and our outlook for the upcoming year.

Well, then conclude with a question and answer period.

Before we get started I'd like to remind you of our safe Harbor policy, which ever read at the start of this call.

For a comprehensive overview of the risks involved in investing in our securities. Please refer to our filings with the U S Securities and Exchange Commission.

For more details on our financial results. Please.

Refer to our press release, which was filed on form 6K after the close of the market yesterday.

This webcast will be available for replay in the Investor Relations section of our website for a limited time.

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

We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of operating results in a manner similar to how we analyze our own operating 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 now with that I'd like to turn the call over to Wallace.

[laughter].

Hey, Chris.

Hello, everyone and welcome to our earnings call.

So <unk> just wrapped up a stellar year and we believe we are now gearing up for another great year.

Fourth quarter sales were up 84% year over year and the full year sales grew 71%.

Fourth quarter earnings per ideas, well up over 120% year over year and full year earnings grew over 90%.

Our 2021 business activities.

Kimberly is strong and we are seeing much of this momentum continuing into 'twenty, you're pointing to.

Das here demand for is it the controllers using OEM program for PC and other client devices as well as our EMC and Europe is embedded salary controllers, using smartphones automotive Iot and smart devices.

Tremendous.

And demand for OEM continues to be very strong.

Last year, we delivered cooperating record sales.

Despite very strong sales, we cannot meet the food demand of customers, who are building SSD and other storage devices in many categories of applications.

We are now able to amazing food demand because our business was supply constrained.

That was driven by a limited the ability of foundry wafer supply necessary for fabricating our Ics.

Today as supply continues to be very tight and we don't expect this situation to change this year.

As previously discussed.

Al did book, we're seeing even the backlog last year and today this backlog remain significant.

Early last year, we always generally communicated a 20% to 30% sales growth guidance for full year 'twenty to 'twenty one.

This revenue guidance was based on both meaningful incremental foundry wafer supply allocated to us as well as existing product mix and pricing arrangement.

From that starting point.

<unk> team was able to meaningfully upsize cell growth to 71% for full year 2021.

Optimizing our product mix customer allocation and pricing.

Now turning to this year.

For full year 'twenty to 'twenty two.

We had again, we see meaningful incremental wafer supply for all of our primary foundry upon here.

Based on this incremental wafer supply, we will be able to grow full year sales, 20% to 30%.

We believe however that there are opportunities for us to grow even faster than this baseline range and our operations team has already begun implementing strategic initiative.

We as of end of delivering upside to baseline.

Upside opportunity in crew battery product optimization, additional wafer supply and pricing.

I look forward to sharing with you more on this in the following quarters as we can successfully execute execute.

So with both our SSD controller and EMC per user to control their weight.

Similarly strong now let me talk about each each one of these two key private lines.

Full year sell a voice city controller grew 75% to 80%.

Significantly faster than the market.

In 2020 , one, we likely again close to 10% points of market share.

With full year clients that they control their market share today that is roughly in that 35% to 40% range.

Our SSD controller growth were driven by extensive adoption of <unk> in using our controllers.

So almost every one of our key customers involving OEM program.

And NAND Flash makers module makers grew strongly and then we expect the significance of our sell to Oems to continue to increase.

It's a portion of our SSD controller using OEM program grew to account for well over half of all our SSD controller sales in the second half of 2021.

Significantly higher than one through the year before.

To address our control the four channel market.

In terms of a.

The significance of OEM program to grow further and account for close to two thirds of our overall SSD controllers sale this year.

Last year, we saw the continue ramp up in sales of our Pcie Gen. Three SSD controller.

Which have been widely adopted by PC Oems.

And in the second half of this year, we launched the first generation of raw Pcie Gen four serious.

<unk> contributed also to OEM.

So rule of Gen four with OEM lack our initial launch for our Gen four into the channel market by well over a year because of the extensive verification and testing by both our direct customers and the PC Oems.

We are now initiating the launch of our second generation Pcie Gen. Four controllers and expect June four to account for a majority of IFC controller sales this year.

Coincide with our rating broad based adoption of Pcie Gen. Four is the D by PC Oems.

We believe that we will continue to gain market share this year.

Based on the design win and sales projections, we expect our controller to be in half of all our pcie Gen. Four socket at the PC Oems by the end of this year or early next year when our Gen <unk> program skilled.

Additionally, our <unk>.

<unk> customers continue to work with Ken Council Oems for the adoption of our SSD controller in their next major device upgrade cycle next year.

It is likely that pcie Gen. Four will last a few years since the Intel AMD, both continue to bring new upgraded variant of CPU with Pcie Gen four to the market.

We are preparing for.

The launch of our search generation Pcie Gen four controller next year.

Before transitioning to Pcie Gen five in the following year.

Before moving to our EMC plus <unk> controller, let me provide an update on our enterprise SSD controllers.

As many of you know we have been investing actually for several years in enterprise class SSD controller R&D, we have been investing in our understanding of the large complex.

Recommended market.

And the technology necessary for bringing.

Differentiated and compelling solution to customers.

The design cycle in the enterprise market also much longer than declined and mobile OEM markets.

Current quarter before the upcoming launch of our flagship enterprise class Pcie Gen. Five controller finally, completing final customer testing and qualification and moving to production and sell this year.

We are currently rolling out our <unk> class SATA SSD controller for the large volume long tail will establish enterprise market and as separately.

Our turnkey Pcie Gen. Four is the decontrol there.

With robust somewhere that has performed performance tune for certain enterprise data center applications and Additionally, we're on track to begin sampling our flagship <unk> Pcie Gen. Five SSD controller in the second half of this year.

We believe our Gen. Five is uniquely position with both very competitive operation performance and robust architecture and is also compounding the differentiated with feature design desired by Hyperscale and enterprise customers such as a highly.

Customization somewhere performance shaping capability and optimize data placement technologies.

We believe we are well positioned to repeat the success, we have achieving clients of <unk> jewelry in the antibodies that are controlling area as well.

Now, let me turn to our <unk> C plus USA controllers.

Not here sell of both EMC controllers, and yoga controller, roughly double with growth coming primarily from market share gains.

So the user control grew strongly as our U S. NAND flash customer continuing to expand aggressively to build its market position with smartphone Oems.

The controller sales also benefited from growing sell to other customers.

We are seeing renewed growth in sales overall pathic EMC controller from the proliferation of new applications, such as automotive with Adas.

<unk> and entertainment system that <unk>, but also from the opportunity query as many of the NAND Flash makers began to exit some of this older load capacity salary technology.

We have benefited from supplying controller to module maker staffing to the market. Additionally.

<unk> NAND flash makers, who are facing foundry wafer supply issues also all sourcing EMC controllers on us.

This is attractive market for us because we are the only meaningful merchant supplier of ABC controllers, and the UMC market relative big with annual market sales volume of our <unk>.

<unk>, one 5 billion units.

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

Thank you Walter and good morning, everyone.

I will discuss additional details of our fourth quarter and full year result, 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 fourth quarter sales were $264 million.

Growing 4% sequentially.

Earnings per ads were $1 90.

Which was 12% higher sequentially.

For the full year sales were $922 million up 71% versus the prior year.

Earnings per ads were $6 21.

Up 92% from the prior year.

Yes.

Now I'll review the performance of our three key products.

SSD controller sales grew 15% to 20% sequentially in the fourth quarter reversing third quarters approximate flat.

Flat sequential fourth.

Fourth quarter, approximately flat sequentially as we allocated production back to SSD controllers.

Full year SSD controller sales grew 75% to 80% far exceeding the market growth rates as we gained significant market share.

For your SSD controller sales accounted for approximately 55% to 60% of our total sales.

EMC plus <unk> controller sales declined 5% to 10% sequentially reversing third quarter sharp sequential growth as we coordinate production with our SSD controllers.

<unk> sales grew 105%.

Between 105, and 110% far exceeding market growth as we gained significant market share.

Full year, EMC, plus <unk> sales accounted for approximately 32% to 35% of our total sales.

SSD solution sales in the fourth quarter grew 5% to 10% sequentially for the full year SSD solution sales declined 5% to 10% and accounted for approximately 5% to 10% of our total sales.

Gross margin in the fourth quarter were 49, 9% consistent with the prior quarter.

For the full year gross margin was 54% one three percentage points higher than the prior year's 49, 2% as we focus on optimizing our product mix and customer allocation and re pricing our products to account for higher costs.

Operating expenses in the fourth quarter were $50 3 million.

$2 $7 million lower than the prior quarter, primarily due to sequentially lower tape out expenses.

Operating expenses for the full year were $195 5 million up $47 8 million from the prior year, primarily due to higher bonuses paid.

<unk> expenses were also higher as were salaries as we expanded our head count mainly R&D engineers and implemented routine wage increases.

Operating expenses as a percentage of revenue for the full year were 21% for the full year down from 27% in the prior year.

Sure.

Operating margin increased from 29, 4% in the prior quarter to 39% in the fourth quarter the highest in our recent corporate history.

Full year operating margin was 29, 2% up significantly from 21, 8% in the prior year as we benefited from significant operating leverage and a slightly higher gross margin.

Our effective tax rate in the fourth quarter was temporarily lower at 70% for the full year, our effective tax rate was 19% close to our 20% mobile tax rate.

Okay.

Stock based compensation and offering expenses, which we exclude from our non-GAAP results was $9 million in the fourth quarter at the low end of our 9% to $10 million guidance.

We had 405 point.

$5 million of cash cash equivalents restricted cash and short term investments at the end of the fourth quarter copper.

Comparable to the $419 4 million at the end of the third quarter.

Our inventory levels remain extremely lean as foundry capacity continues to be very tight and demand remains robust.

In the fourth quarter, we had 110 days of inventory two days less than the prior quarter and 18 days less than a year ago.

Our control of our inventory is even leaner at 30% of our inventory at the end of December .

Yeah.

Our leaner at the end of December 30.

30% of our inventory at the end of December our four SSD solution and SSD solutions are less than 10% of total sales.

We currently only have a couple of weeks of controller finished products and inventory to sell.

We provide.

We paid $17 4 million in dividend to shareholders. The first quarterly installment of our $2 per <unk> annual dividend that was declared last October .

We are aggressively repurchasing our shares in the fourth quarter, we spent $50 million repurchasing repurchasing our shares we expect to repurchase another $50 million in January and the remaining $100 million by June of this year.

In terms of other major uses of cash we also had 11 $2 million of Capex.

Now, let me turn to our guidance and forward looking business trends, starting with our revenue guidance.

For the full year, we are expecting revenue to grow 22% to 30%.

This is revenue growth forecast. This revenue growth forecast is based entirely on incremental foundry wafer supply.

Also note we received more incremental wafer supply allocation in the second half of this year versus in the first half and the timing of this is an important factor for driving our sequential growth through the rest of this year.

As well as had mentioned this is our baseline target range and we are undertaking in edge initiatives to deliver upside to this.

<unk> of our revenue guidance is dependent on the successful execution of certain operating initiatives.

First quarter revenue is expected to decline, 10% to 15% sequentially.

This sequential decline is primarily the result of two factors.

<unk> of our wafer supply in China channel market inventory cleanup.

We received meaningful incremental wafer supply this year, but the timing of the availability of supply is not linear and will impact us in Q1 wafer supply for certain key nodes in Q1 will be less than in Q4, which means we will have fewer high demand parts to sell.

As I have said a few minutes ago. We are currently operating at very low inventory levels with just a couple of weeks of finished goods of controllers.

Furthermore, for parts with better supply available availability module makers operating in China's channel market have reduced procurement to clean up the inventory before the long Chinese new year holiday.

We believe this action is temporary as module makers are trying to reduce their inventory holding risk before the long holiday.

Positively we are seeking we are seeing recovery of the China market. Both in terms of sentiment as well as business activity as module makers are now more willing to build products than a quarter ago.

Our module maker customers targeting the China market are not actively discussing with us.

Controllers to support their upcoming NAND flash procurement.

Fortunately, our new OEM programs are not affected as these programs.

These new programs, only beginning and will pick up and accelerate over the next few quarters.

We are already a third of the way through the first quarter and see good improvement in sales next quarter, we expect sequential growth through the rest of the year with growth coming from the scheduled ramp of new OEM programs, which will be supported by the timing of incremental wafer supply already allocated to us.

Let me now turn to our gross margin guidance for the full year, we are expecting gross margin in the 49% to 51% range. We believe we can continue to manage our products around our 50% target gross margin.

First quarter gross margin should be in the 49, 5% to 51, 5% range.

Turning to our operating margin guidance.

For the full year, we're expecting operating margin in the 29% to 31% range.

We are delighted that we are now delivering towards our 30% target operating margin.

First quarter operating margin should be in the range of 27, 5% to 29, 5% lower than in the fourth quarter because of higher tape out expenses.

And for our other key modeling assumptions.

For the full year, we expect stock based compensation to be in the $22 million to $24 million range.

First quarter stock based compensation should be in the $5 million to $6 million range.

We expect our effective tax rate for 2022 to be approximately 20%.

For the full year, we expect approximately $45 million of Capex.

Which $18 million will be for the report routine capex and $27 million for our sins UN Taipei office building construction.

First quarter, Capex should be approximately $14 million of which $6 million will be for routine capex and $8 million for office building.

This concludes our prepared remarks, we will now open the call to your questions.

Thank you we will now begin the question and answer session.

As a reminder, if you wish to ask a question. Please press star one on your telephone and light for your name to be announced.

If you wish to withdraw your request please press the pound.

Key.

Our first question comes from the line of Craig Ellis from B Riley Securities. Please go ahead.

Yes, thanks for taking the question and team congratulations on the very strong performance in calendar 'twenty one.

While it's I wanted to start off with maybe a bigger picture longer term question. So as I look back at 2021.

Had strong share gain and growth in really all of your markets and it looks like.

That demand strength in that order strength is persistent in 2022, and then it sounds like SSD solutions has a new product ramp but could.

Demand.

Your product mix and growth in 2020 through so the question is this as you look at the business.

And the share gain potential across SSD controllers.

EMC and U S. Putting context when you last saw this type of growth for the company and your confidence today and the ability to execute against that growth. The way that you did last year.

Great seeing you asked very good questions and if you look at the Big picture.

Can secure in our wafer supply we believe the growth momentum will continue for next by three to five years and we do see we have a lot of headroom to grow particularly in clients a D. EMC in Europe as controller for clients a D. We believe by 'twenty two 'twenty three we should have.

At least one major clients he project for all NAND makers, and we have confidence to achieve that and we believe <unk> controller will continue to grow we are benefiting from the NAND maker.

Or sourcing somewhat NAMIC also into us and we grow with incremental all the new application for Iot devices, and smart devices, including low end smartphone users. We also gained market share with additional customer. We believe the momentum will continue to grow when you have it become will.

Popular in the smartphone market. So I seeing if we can keep execution for all of our major project program and we can recruit talent R&D in time, and we get a sufficient wafer the <unk> momentum will continue for the next three to five years.

That's helpful and for my follow up question I'll switch it over to Riyadh.

One of the things that characterize last year was poor different initiatives that the company was executing on regarding cost management fulfillment et cetera to execute gross margin, which played out very well through the year.

As we look at the first quarter's guidance and Paul for your guidance. It does imply some gross margin decrease through the year. The question is this.

What is the momentum that you have operationally on things that benefited gross margin last year and what are some of the potential pressures on gross margin as you look through the year and what levers do you have to offset those.

Craig.

Are you continuing to look at our business and look for ways to improve that similar to what we were doing with our business.

A year ago.

We are there are certain initiatives relating to product mix pricing wafers and other costs that we are looking into which we plan to execute and so.

Well.

The growth the baseline remains the same.

The baseline is what we had communicated there potentially opportunities where we can deliver better results in terms of top line and also a better results in <unk> and gross margin relating to the upselling of a richer mix of products that we did last year and optimization of our product mix allocation to customers, which again, we also did quite nicely last year.

And also.

Better pricing dispatch, which we will continue to press ahead this year.

And Furthermore, on on the cost of sales side.

Also continue to look very carefully about our manufacturing processes.

And where there are opportunities to tune our our yields to reflect.

Better costing will certainly be pressing on that so this is in turns to in terms of.

Both the fabrication of products as well as the backend and other elements of our manufacturing processes there.

Opportunities that we're continuing to look into in order to improve our profitability.

That's helpful and if I can just sneak in one more before hopping back in the queue.

Congratulations on the strong start on the share buyback program and I appreciate all the visibility into how you execute the program as you go through the first half of the year.

And at the risk of putting the cart a little bit before the horse can you just talk about the executive teams and the board's view on what could happen. After the first half of the year share buyback something that company would entertain in the back half given the level of operating cash flow and the degree to which <unk>.

Cash flow was well above capex needs for the new building, that's underway and the dividend program that's been nicely enhanced of life. Thank you.

Craig that is that's a great question, we have a business that is highly cash generative. If you will look to look at our fourth quarter, our cash balance at the start of quarter end of the quarter is little changes bite.

$50 million of share repurchase.

Over $70 million of dividends paid to shareholders plus capex and other elements. So we clearly have the cash flow to continue to do a lot of.

Attractive initiatives to boost our shareholder value, but let us first complete or our current shareholder programs your share buyback program and we can certainly look into other initiatives are continuation of this type of initiatives later this year.

Fair enough. Thanks, Scott.

Thank you. Our next question comes from the line of Rajiv Gill from Needham <unk> Company. Please ask your question.

Yes, Thank you and I Echo my congratulations on the stellar results.

One.

Wallace and Riyadh, when you look to calendar 'twenty two.

Clear about saying that the 2020% outlook as a baseline target.

It will be based on.

And the upside could be driven by certain variable incremental wafer supply product optimization et cetera.

I'm wondering how you're thinking about the timing of that.

You mentioned in Q1.

Does that.

Sequential decline in revenue is driven because of the tightening of capacity not happening.

So my question is how confident are you.

That.

You will get incremental capacity at the timing that you need.

Reinsurance.

TSMC.

Providing you that gives you that confidence not only to maintain.

Provided 20 outlook, but essentially say that could be upside to that.

If we get more supply throughout the year.

So I think you raised a very good question. So I'll come then we are regarding from a baseline guidance to move to the upside I think see the primary rely LLC.

Additional wafer supply von <unk> as well as how we can pulling so wafer allocation to us from second half to first half.

I think as we mentioned.

We are we are you can see very short using a certain technology nodes, including.

55 nanometer and all advanced technology node 16 nanometer and 12 nanometer.

I think we are comfortable in 28 nanometer wafer supply we're just following the fortinet.

So if we cannot get any additional wafer supply from TSMC is all depend on how we can fully utilize 20 nanometer with a better product mix and with the pricing with the customer, but so far we believe.

We could we could benefiting from some potential wafer supply with our primary foundry supplier.

Does because almost every week and we see there's a.

Positive momentum in addition.

Primary customer also helping us to get wafer supply from TSMC seems add momentum and <unk> will be very helpful and positive.

Yes.

Okay, Great that's helpful to understand.

Starting on Q1.

Channel inventory cleanup.

China, which is leading to a decline in Q1.

<unk>.

You mentioned that.

These module makers are starting to build more inventory.

Our indications that they will do that post the holiday season.

For the NAND Flash procurement I'm wondering if you kind of elaborate a little bit further on how the module makers are thinking about new products. This year.

OEM programs.

Very strong.

It's great to hear that.

And Ah represent two thirds of the control themselves.

But trying to get a better understanding of the module makers as we progress.

Okay, Let me try to clarify regarding the situation. So Q1, we face I've seen module makers, they all opportunity takers and because of the Chinese new year is coming so most of them are customer try to redo the inventory to redo the risk because there's an.

<unk> pricing is still a lot of uncertainty, although theres CN fab.

Lockdown.

Impact of Samsung.

<unk> output, but it icing Oc module maker.

<unk> NAND price declines continually.

Hesitate to really capture very large volume of the NIM. So they don't need to.

Controlling inventory, however, lately, we do see all of the module customers from China actually discuss about the new procurement program, which we see from the backlog from our Q2 and Q3 as these really.

Very very actually across all of our major customer in China, and Taiwan. So we see this as a very good momentum and we check with the channel it looks like the channel inventory now I also very low in China and the activity is it become very is actually so this is a very positive move and we.

See the backlog moving up very strong even with the mature technologies, particularly in C. Legacy note. This is a helpful for us to increase our confident China market will recover strongly finally Q1 to Q2.

Okay. Thank you.

Thank you. Our next question comes from the line of Karl Ackerman from Cowen <unk> Company. Please ask your question.

Yes, Thank you gentlemen.

Two questions if I may.

I was hoping you could help me bridge the outlook for March and the full year guide by discussing whether customers have signed or cemented volume orders for.

For these pcie four controllers that gives you the confidence in a big snapback in revenue beyond the March quarter.

And as you address that question is there a way to quantify the impact in March.

From a moderation or pushout of client ssds, given these supply chain supply chain disruptions impacting PC Assembly.

<unk> for your question relating to Pcie Gen. Four purchase orders from our customer I'll defer that question to Wallace, who provide better insight into the into this.

I think our.

<unk> full program.

We have.

Multiple pcie Chin full program with PC Oems phone side, even NAND maker and affordable module makers.

Simultaneously.

So you remember is based on and see their own internal program process. So there is a very intelligent qualification and testing also NIM procurement.

We do now see C C schedule for some of the OEM. They are on track for some others.

So there is a push out due to the delay from both our <unk>, our internal resource issue and then they'll make their own decision. So I cannot comment the detail, but backlog is very very strong we do not see any impact from the backlog frankly speaking all of the major new <unk> pool.

Our 10 nanometer technology node and we just don't have enough wafer to support the demand to feel if we have a sufficient seemingly revised guy they immediately.

In addition is our USS controllers <unk> one that's used at TSMC 16 nanometer. We also have a severe shortage even.

TSMC increase.

The increase.

Among compared with 2021 plus year not enough to meet our customer demand in 2022. So we will continue to work with our customer with TSMC together to gain additional wafer supply.

So, but that's our.

Our baseline guidance, 20% to 30% growth based on current wafer allocate to us.

That's very helpful. I appreciate that.

For my follow up.

I gave them want to touch on your Pcie five enterprise controllers, you indicated that you are moving into production.

This year.

Could you also discuss the design engagements you have.

On enterprise controllers broadly both for PCI.

<unk> five as well as PCI for products that you have available today.

And I guess just.

As you address that question is the growth of enterprise controllers are big driver a small driver.

What sort of driver to your full year outlook. Thank you very much.

<unk> clearly we are going to assembling our piece Adrienne find my controller in the second half. This year there will be production in second half of next year 2023, So the <unk> flagship enterprise <unk> jewelry, we believe that'll be uniquely position.

For very high end high performance performance driver for enterprise customers, especially the Hyperscale customer.

<unk> is designed for high end enterprise server as well as data center providers and we believe this product will win quite a lot of the major design we are in.

Frequently discuss potential major customer.

Currently this year, we are ramping our SASSA and apply controller with a high volume and our Pcie Gen. Four controller with another leading controller, but we also win some incremental customer and we're going to ramp up in second half this year.

Thank you.

Thank you. Our next question comes from the line of Tsuji de Silva from Roth Capital. Please go ahead.

Hi, Wallace Riyadh, congrats on the strong year there.

Looking ahead to calendar 'twenty two it sounds like you are kind of setting it up the same way at the beginning of calendar 'twenty. One the guide and then the potential for upside with wafer allocation how does the beginning of 'twenty two feel different perhaps on the set up in 'twenty, one where you did upside the numbers just in terms of supply.

Supply chain and capacity just be curious to know the differences.

I've seen.

We mentioned from the early 20th any one we start to work with TSMC for 2022 wafer supply and we understand.

Turning to wafer supply in particular technology know there are more severe than 2021.

So we are seeing tears excuse me recognize the importance of our position as a technology provider for a major customer in certain market sector. So we do get incremental wafer, especially in <unk> Intel nanometer technology node.

We this year is a different major dividend as we have much broader OEM base customers and much stronger market, leading position from both clients a D.

And <unk> controller, because we have multiple <unk> controller will go production this year.

Now we do face see.

Even.

The wafer allocation.

We got.

Can only grow as our guidance, 20% to 30%. However, this opportunity which is that we set a model like last year, our major customer will also helping us to.

Two asking additional wafer supply from TSMC. So if there is any customer cancellation or any of.

But unity.

We might be able to get the incremental wafer in in.

In second half this year.

I think we just keep a focus while we are doing and try to maximize the wafer we are using for product mix as I mentioned 28 nanometer.

Comfortable with Q2 of <unk>.

<unk> in 20 nanometer to gain incremental sale revenue.

Even without the additional location in advanced technology nodes.

Great. Thank you. It's helpful to have that contrast versus 12 months ago, and then I think <unk> growth opportunity is really this high end enterprise SSD controller or just enterprise SSD controllers in general can you talk about how if any way as the competitive landscape. There is different from the SSD controller business, where you are.

<unk> been so strong and gained 10% share this year just understand that understand the competitive dynamics, how many subtle differences that we should note.

Yes.

No well, we spending investment for enterprise controller for almost four years right now.

We do gain tremendous lessons. We also again technology in and then experience from previous two generation now is things that we found from the architecture wise, our second generation device the controller spheres behind so leading the leader in the March.

However, the <unk> and the broken the jewelry is our search generation, we really learned lesson how to really to create really enterprise type.

The architecture to meet the customer demand and the expectation, particularly in latency and also C.

<unk> combination performance and all of the key features and Cosmas, we all deliver into the silicon.

In addition, we also spend a great great.

To do the modeling for C computer architecture, and ACD and also due to the performance tuning algorithm with dedicated Filmer teams now we believe our firmware technology enterprise D will be.

Similar same logo with a leader in the market today and that's why we have a pretty good confidence when we launch and apply our pcie Gen. Five C controller, we should have a pretty decent positioning the market.

It sounds like a good a good setup best of luck for that thanks, guys.

Thank you. Your next question comes from the line of Anthony Stoss from Craig Hallum. Please go ahead.

I also wanted to follow up a little bit on the enterprise controller side wallets.

Head of shipping too.

Samples in the second half of this calendar year, you are exhibiting a ton of confidence entering that market. Just like you did the PC OEM side.

Is it just based on conversations since you haven't sampled solutions yet and then also maybe two quickie is for Riyadh just upped.

Updating kind of the order book size and then also maybe for you on this as well the Q1 limitation that you're getting now from TSM. When did you learn of this this changes something that you've known for a while or is it more recent.

So you have that.

Probably two or three different crashing, let's just try the enterprise side the enterprise are things we.

We do start to as we said, we do start to have a bond and shipment for Sunshine that Brian controller this year.

And our Pcie Gen. Four controller is the incrementals cells, although we understand this another leading controller today below we are able to secure few customer to sell the pcie Gen. Four as a vehicle to introduce our pcie Gen five <unk>, which will be some billing.

In second half this year and production in second half of next year.

Regarding the wafer allocation and discussing with it with our primary foundry maker I cannot is good detail, but I seem to see.

<unk>.

TSMC as a W or based on the market need and also to our volume.

Sure XI and loan showed site imbalance of supply right. So automotive is probably most critical sector. There are several other market sector to always a breakdown. So they were based on the market survey feedback basal and customers need and to do the allocation or things.

We we do have a very very strong design win special Pcie Gen. Four we believe our program will occupy probably 50% of all piece ATM forgone PC OEM, So thats significant.

And Dominique.

Excuse me, we have to consider because they have two hours shortage may cause a certain problem for the major supply chain for the notebook shipments. In addition, I think same thing for smartphone all the USPS from major smartphone customer and so this is very important.

For the foundry maker I believe they are some discussion going on we cannot comment the detail hopefully we can get incremental wafer supply.

Half of this year.

Tony I'll try to address your other question your third question relating to our <unk>.

The sizing of our order book, our order book has continued to grow while this add briefly touch upon that.

In his comments a little while ago. So our order books continue to grow and one way to look at this is it.

Is to look at our order book versus our actual sales.

This ratio last year versus today. It has remained just as just as broader the ratio remains similar to what it was.

A year ago, So our order book.

Strength of our order book has remained.

Quite strong and quite sizable.

But bear in mind, when we look at our when we talk about our order, but we're also talking about our adjusted order book.

We are discounting.

The orders from our module makers that are more opportunistic.

With more limited visibility and focusing more on the higher quality stuff, but even with a higher quality.

Our visibility.

It still remains very significant to what we're able to deliver this year comparable to what it was a year ago.

Thanks, guys great execution. Thank you.

Thank you.

Hudson Kim from Donnie Teng from Nomura. Please go ahead.

Hi, Good evening, CEO and CFO Congress owns very strong Q1 results.

Two questions. So first one is I'm interested in.

Game console business opportunity for us.

Let me see if I.

Her correctly so.

Because you're currently in.

Deborah and more.

This opportunity is this for OEM or aftermarket.

And also are you, replacing the existing.

Suppliers or it's like you all the additional suppliers to this game console opportunity. Thank you.

So as I mentioned this year's no the new generation it will be 'twenty two 'twenty three launch this huge refresh. So we are now in the refresh cycle.

Income so customer want to play you want to maintain the same solution continually.

We will go through two NAND makers to win the game console.

And next year I cannot comment whether we replace existing.

Player.

Additional controller maker.

Got it.

Is it a.

OEM.

Business or aftermarket business.

OEM.

Ian.

<unk>.

Okay. Thank you.

And my second question is regarding too.

The USA so.

I think so far we have a very powerful to 705 for USB three one controller right just curious.

Hmm.

Do we have any new.

Generation or new upgrade for this IC, maybe beyond second half.

This year with our leading us customer.

And also considering USS has been also replacing humans to be comfortable with a quickly D. C. It right. So just curious regarding to your full year sales growth guidance, 20% to 30%.

How would you think about the growth momentum in between SSD controllers, and the USA is comfortable with us. Thank you.

Okay, Let me just.

Probably not probably to give you the whole product roadmap.

To tell you our USPS will going to have two more new products coming for this second half. This year. One is C. Also feed on one see others for Das zero.

The <unk> one is really is to support.

The new generation of NAND, because a new generation of NAND. The DDR go to 2400 <unk> DDR over 3000, So you don't need as many channels for NAND. So in order to be more cost effective and also high performance, especially in <unk> and we have a new architecture designed for this.

New controller and costs will be cheaper than 2784 performance could be even better and because of that but demand more suitable for the 176 layers beyond especially above 200 layer.

<unk> as well as the <unk> NAND and for <unk> is really designed for very high end and we want to be ahead of even some NAND makers. So we can provide value add to the NAND maker customers.

Regarding C.

<unk> <unk>.

Revenue I cannot comment for that because I just cannot I can just tell you the demand much more than I can support.

So even our customers try very hard to concern additional wafer soon enough to support demand.

Let me also add this year our growth is not only a quite strong but its also very balance we have very strong growth from our client SSD controllers. We also have very strong growth from our E. MMC plus uff's controllers and when you were when you look into that one layer below growth is not coming.

Just because of one of the two legs of Uff's, plus EMC, but rather growth is coming from both legs of MMC. So strong growth from our MMC controllers as well as strong growth from our Uff's controls and we believe this will carryover into into next year.

Got it very helpful. Thank you Wallace and Riyadh Congress.

Great. Thank you there are no further questions I'll now turn the call back to CEO for closing remarks.

Thank you everyone for joining us today and for your continuing interest in Silicon motion, we will be attending several virtual investor conferences over the next few months to the schedule of these events will be posted on the investor relationship section overall corporate website.

Thank you everyone for joining Tonight Goodbye for now.

Thank you that does conclude our conference for today. Thank you for participating you may all disconnect.