Q4 2023 Silicon Motion Technology Corp Earnings Call
Operator: Subs by www.zeoranger.co.uk Good day, and thank you for standing by. Welcome to Silicon Motion Technology Corporation's Q4 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Okay.
Yeah.
Good day, and thank you for standing by and welcome to Silicon Motion Technology Corporation Q4, 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation that will be a question and answer session to ask a question. During the session you will need to press star one one just having fun.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements include, without limitations, statements regarding trends in the semiconductor industry and our future results. Financial Conditions and Business Prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them.
This conference call contains forward looking statements within the meaning of section 27% E of the Securities Act of 1933 and section 21 E of the Securities Exchange Act of 1934 as amended and such.
Such forward looking statements include without limitation statements regarding trends in the semiconductor industry and all future results of operations.
Financial conditions and business prospects are there.
Such statements are based on our own information that information from other sources, we believe to be reliable you should not place undue reliance on them.
Operator: These statements involve risks and uncertainties and actual market trends, and our results may differ materially from those expressed or implied in these four location statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of, and any change in our relations with our major customers, and changes in political, economic, legal, and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the document we file from time to time with the Securities and Exchange Commission.
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.
Risks and uncertainties include but are not limited to continued competitive competitive pressure in the semiconductor industry and the effect of such pressure on prices.
It's about changes in technology and consumer demand for multimedia consumer electronics the state of.
And any change in our relations with our major customers and changes in political economic legal and social conditions in Taiwan.
Additional discussions of these recent uncertainties and other factors. Please see the documents we file from time to time with Securities and Exchange Commission.
Jason Chai: We assume no obligation to update any forward-looking statements which apply only as of the date of this conference. Please be advised that today's call is being recorded. I would now like to hand the call over to Mr. Jason Chai, Vice President of IR and Finance. Please go ahead.
We assume no obligations to update any forward looking statements, which apply only as of the date of this conference call. Please.
Please be advised that today's call is being recorded.
I'd now like to hand, the call over to Mr. Jason Tsai, Vice President of IR and Finance. Please go ahead.
Jason Chai: Thank you, and good morning everyone, and welcome to Silicon Motion's fourth quarter of 2023 financial results conference call and webcast. Joining me today is Wallace Ko, our president and CEO. Wallace will first provide a review of our key business developments, and then I will discuss our fourth quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. 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 risk involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission.
Thank you and good morning, everyone and welcome to Silicon motions fourth quarter of 2023 financial results conference call and webcast joining me today as well as co our president and CEO wireless will first provide a key a review of our key business developments and then I will discuss our fourth quarter results and outlook following our prepared.
Remarks, we will conclude with Q&A session.
Before we get started I'd like to remind you of our safe Harbor policy, which was right 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 market yet.
Jason Chai: 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 on the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday.
Sturdy this webcast will be available.
Available for replay on the Investor Relations section of our website for a limited time.
To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information. During this call we use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results.
The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday, we ask that you review it in conjunction with this call as we have previously shared silicon motion filed a notice of arbitration against Max linear for the wilful material breaches of the merger agreement that was signed on May five 2000.
Jason Chai: We ask that you review it in conjunction with this call. As we have previously shared, SiliconMotion filed its notice of arbitration against MaxLinear for willful and material breaches of the merger agreement that was signed on May 5, 2022. The company is seeking payment of the termination fee of $160 million, substantial damages, interest, and costs. The company filed its notice of arbitration claim against MaxLinear at the Singapore International Arbitration Center on October 5, 2023. The arbitration process is confidential, and we will therefore not be commenting further on this matter today. With that, I will turn the call over to Wallace.
2022, the company is seeking payment of a termination fee of $160 million substantial damages interest and costs. The company filed its notice of arbitration claim against Max linear in the Singapore International Arbitration Center on October five 2023, the arbitration process is confidential and we will therefore not be comp.
Anything further on this matter today.
With that I will turn the call over to Wallace.
Wallace Ko: Thank you, Jason. Hello, everyone, and thank you for joining us today. We are pleased by the steady recovery across our business throughout 2023, with fourth-quarter revenue and gross margin exceeding expectations. We benefited in the quarter from stronger demand from both our S&D and EMC plus UFX controllers and saw pricing and mix improve to drive stronger gross margin improvement for our business than originally expected. More importantly, our technology leadership in controllers and unwavering engagement with our customers, both flash makers and multi makers, has laid a foundation for strong 2024 growth, despite only modest growth expected in the PC and smartphone device market, driven largely by our ongoing shared gains with our customers. Over the past six months, we have been busy making organizational changes to better position Silicon Motion for the future. We restructured our business to better engage with a new opportunity in the market and spent a lot of time re-engaging with customers to win back their confidence in us as a long-term partner.
Thank you Jason.
Hello, everyone and thank you for joining US today, we are pleased by the steady recovery across our business throughout 2023 with.
We the fourth quarter revenue and gross margin exceeding expectation.
When you're benefiting the quarter found stronger demand from both our ACD and EMC per user controllers, and soft pricing and mix improved to drive stronger gross margin improvement for our business and our Genuity expected.
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During engagement with our customers both fast maker and module makers has laid the foundation for strong 2024 growth despite only modest growth expanding the PC and smartphone device market.
Driven largely by our ongoing share gains with our customers.
Over the past six months, we have been busy making organizational changes to better position us to take a motion for the future.
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We structured our business to better engage and a new opportunity in the market and spend a lot of time re engaging with customers to win back their confidence in us as a long term partner.
And you saw we formed two new business unit.
Wallace Ko: As you saw, we formed two new business units, Client and Automotive Storage, CAS, and our Enterprise Storage and Display Interface Solution, ESDI Group. Our new organizational structure allows us to be more focused on each segment, to have dedicated industry veterans as leaders to enable our team to be more agile and responsive to the market and to better engage with customers and anticipate their needs. We truly differentiated high performance and cost-effective solutions. We are seeing the success of this already as our CAST group has been increasing its share as our customer by winning significant new designs with both FlashMaker and MultiMaker for the PC, smartphone, automotive, industrial, and other markets. Our AES-DI group has also made incredible progress with our Mount Titan product in a short amount of time, securing more than a dozen assembly customers already.
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Enterprise storage and display interface solution USDA groups.
Our new organization only structure.
Allow us to be more focus on each segment to have a dedicated industry veterans as Elisa enable our team to be more.
Joe and responsive to the market and to better engage with customers and anticipate their needs with truly differentiated high performance and cost effective solutions.
We're seeing the successes of this already.
Cash group have been increasing share.
Customer by winning significant new designs with both flash makers and module maker for the PC smartphone automotive industrial and other markets.
Our <unk> group has also made incredible progress with some on Titan product in a short amount of time, securing more than a dozen assembling customer already.
Wallace Ko: With these changes, we are in a better position than ever before and look forward to demonstrating the ongoing strengths of our business to our investors each quarter. Now, let me move into our business and give you an update on the NAN market dynamics we are seeing today and what we are expecting for 2024. Pricing for NetFlash has been steadily increasing and is expected to continue to improve throughout 2024 and into 2025. Landmakers are being disciplined in their production and limiting output, resulting in higher land refresh prices.
With these changes we are better positioned than ever before and look forward to demonstrating the ongoing trends Rob this into our investor each quarter.
Now, let me move into our business and give you an update on the NAND market dynamic we are seeing to date and while we are expecting for 2024.
Pricing for nano size has been steadily increasing and expected to continue to improve throughout 2024 and into 2025.
NAND makers are being disciplined in their production and limiting output, resulting in higher NAND flash prices.
Wallace Ko: Demand is also expected to pick up this year, as both the smartphone and PC markets will grow modestly after two years of meaningful decline in unit shipments. While higher pricing may limit the activity we typically see from our margin maker, many have pre-bought low-cost land in the second half of last year, and we have secured significant wins with them for upcoming products this year.
Demand is also expected to pick up this year as both the smartphone and PC market will grow modestly after two years of meaningful decline in unit shipment.
While higher pricing may limit to activity, we typically see our module maker customers.
Many have pre bought low cost NAND in the second half of last year, and we have secured significant wins within Florida.
So upcoming product this year.
Wallace Ko: We believe our business with Multimaker will grow this year despite the headwinds created by higher end fresh prices. For flash makers, higher flash prices over the past few months have improved their profitability. Most are still facing negative or very low margins, and this is why we are seeing them increasingly focus on profitability. Fashion makers need to prioritize their focus and investment, from developing a new generation of NAND to developing a storage solution to satisfy a wide range of end market requirements. These solutions range from high performance to value-oriented, using DRAM and DRAMless, as well as utilizing TLC or TLC-based flash memory to serve a broad range of end market needs in EMC per UFS.
We believe our business with module maker will grow this year, despite the headwinds created by higher NIM fair prices.
So fashion makers, while higher <unk> prices over the past few months have improved their profitability most.
Most are still facing negative or very low margin and this is why we are seeing them increasingly focus on profitability.
Flash makers need to prioritize their focus investment from developing new generation of NAND to developing storage solution to satisfy a wide range of end market requirement.
<unk> solutions range from our high performing to value oriented using DRAM and DRAM as well as utilizing TLC all of Trc to serve broad range of end market need in EMC <unk> client.
Wallace Ko: Client S&D, Embedded, Enterprise, and Industrial applications. We are seeing flash makers focus on their own effort on leading edge, high performance solutions, where margin and profitability tend to be highest. And they are turning to us as a partner of choice to help bolster their portfolio with high-performance, lower-cost solutions, utilizing their latest generation of high-performance, high-density NAND to serve a broader range of market requirements. Our progress with our flash maker partner over the past year has resulted in a strong backlog of new wings across all our product groups that will drive meaningfully higher share and faster growth this year and lay the We continue to grow our customer relationships and are on track to grow our business with every non-fat customer we have this year.
Client SSD embedded enterprise and industrial applications.
We're seeing flash maker focus on the only assay on leading edge high performance solution, we're marching in profitability tend to be highest.
And they are turning to us as a partner of choice to help bolster the portfolio with high performance lower cost solution utilizing the latest generation of high performance high density NAND to serve a broader range of market requirement.
Our progress with our flash maker partner over the past year has resulting strong backlog of new wins across all our product groups that will drive meaningfully highest year and faster growth this year and lay the foundation for strong long term growth.
We continue to grow our customer relationships.
And are on track to grow our business with every night in fact customer we have this year.
Wallace Ko: Our revenue from FlashMaker is expected to grow approximately 50% this year. The design win across our controller program ramped meaningfully throughout 2024. Turning to RSD controllers, we taped our first PCIe Gen5 8-channel controller last quarter and have already secured three FlashMaker Wings and this product, as well as several Multimaker Wings. This is the first time that Flash Memory adopts our controller for high-end notebook models.
Revenue fell in flash maker are expected to grow approximately 30% this year as design wins across our controller program ramp meaningfully throughout 2024.
Turning to our SSD controllers, we tape out our first pcie Gen. Five eight channel controller last quarter and have already secured three flash maker when and this product is.
Well as several module maker wings.
This is the first time that such maker adopt our controller for high end notebook models.
Wallace Ko: We expect the sale of this high performance controller to begin late this year. We are engaging with other flash makers as well as numerous other multi makers expect to win more designs through 2024. Our second PCIe Gen 5 controller will be taped out early in the third quarter this year, and we already have significant interest from both FlashMaker and Multimaker for the mainstream Gen 5 solution that is expected to run in late 2025. While we are excited by our progress with PCIe Gen 5, it's important to point out that we continue to win significant new programs with several flash makers with older generation interfaces as well, including two new SATA SD programs, several PCIe Gen 4 SD, including one using next generation QLC flash from the value of the PCOE-M market, and several USB 3.2 portable SD projects.
We expect sale of this high performance controller to begin later this year, we are engaging with other flash maker as well as module numerous other module maker and expect to win more designs through 2024.
Our second Pcie Gen five controller will be tape out early in the third quarter. This year and we already have significant interest from <unk>.
Both flash makers and module maker for the mainstream <unk> solution that I expect it to ramp in late 2025.
While we are excited.
Our progress with Pcie Gen. Five is important to point out that we continue to win significant new program with several SaaS maker with older generation interface, well, including two new SATA SSD program. Several pcie Gen <unk>, including one using next generation <unk>.
C fresh on the value of PC OEM market and several USB C dot to affordable ACD projects.
Wallace Ko: Our KLC controller with our proprietary 3D array and more advanced LDPC for battery error correction and data protection and recovery offer a no compromise solution that maintains high performance and reliability by utilizing the most cost-effective flash to further improve affordability. We are seeing strong traction for QLC controllers with both our FlashMakers and ModuleMakers customers, and more widespread adoption by PCOEM as well. Moving on to our EMC plus UFA controller solution.
C controller with a proprietary three D ray and more advanced our DPC for error correction and data protection and recovering offer.
No compromise solution set and maintain high performance and reliability by utilizing the most cost effective fashion to further improve affordability.
We are seeing strong traction with Trc controller with both our SaaS makers and module maker customer and more widespread adoption by PC Oems as well.
Yes.
Moving onto our EMC per European controller solution.
Wallace Ko: We are tapping out our UFS 4.0 solution this quarter and remain on track to ramp with a FlashMaker customer later this year, as well as several margin makers targeting the smartphone market. UFS4 remains a flagship and premium solution this year, expected to expand into the high-end mainstream handset market in 2024 and after, aligning with when our solution with our FlashMaker and Multimaker customers is expected to run. UFS 3.1 and 2.2 remain the primary solution for mainstream smartphones this year.
Taking all our USA <unk> solutions this quarter and remain on track to ramp with a flash maker customer later this year as well as several module maker targeting the smartphone market.
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Back to expanding to high end mainstream handset market in 2024 and <unk>.
Align with when our solution with our flash makers and module maker customer expected to rent.
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Wallace Ko: And we are seeing continuing strong demand for our current UFS controller from additional flash makers and module makers. We see flash makers focusing on their own internal controller development for the latest flagship generation of UFS, where they get the highest premium for their high-performance solution. As each of your generation moved from factory to mainstream, we are seeing FlashMaker turn to us to utilize our controller paired with their newest NAND that offers high performance and lower cost, ideal for the mainstream smartphone market.
And we are seeing continuing strong demand for our current <unk> controller with additional flash makers and module makers, we've seen flash makers focusing on their own Nintendo controller development on the latest flagship generation of Usa's, whereas they get the highest premium.
For the higher performance solution.
Each of you for generation mood from factory to mainstream.
Being flash maker turned to us to rely our controller paired with their newest NIM that ultra high performance and lower <unk>.
Cost.
Ideal for.
The mainstream smartphone market.
There is a symbolic relays relationship that has driven our strong partnership with flash maker and driving move more wing and long term growth for our <unk> controller business.
Wallace Ko: It is a symbolic relationship that has driven our strong partnership with Slashmaker and driven more wins and long-term growth for our EMC plus UFA controller business. Now, let me give you an update on the progress of our Mt. Titan Enterprise-D development platform. We started sampling Mtn Titan to customers at the end of last year. And we are excited to announce that more than a dozen customers, many of them tier one and company, ranging from nanoflash makers, hyperscaler storage solution providers, enablers, as well as module makers, are in the process of evaluating the solution. Mount Titan is a highly differentiated storage solution providing support for both high-performance TLC-ZD as well as high-capacity QLC-ZD.
Now let me give it give you an update on the progress of Titan Enterprise State development platforms.
We started sampling <unk> tightened to customer at the end of last year, and we are excited to announce that more than a dozen customers many of them tier one companies.
<unk> NAND flash makers Hyperscale storage.
<unk> solution provider enabler as well as module makers are in the process of evaluating the solution.
<unk> tightened the highly differentiated storage solution provides support of those high performing TLC SSD as well as the high capacity <unk>.
Wallace Ko: We are finding that this idea of balance of performance and features is appealing to customers across all enterprise and data center makers like market sector, based on our ability to support a wide range of customer engagement, model from the turnkey to layer firmware stack development. Mount Titan accelerates the asset to an extensive amount of data, HM5. Speed is ideal for a variety of applications, including high-performance edge computing and AI, interference, and machine learning.
We are finding that.
This idea of balance of performance and features.
Peering to customer across all enterprise and data center and makers sack market segment.
Based on our ability to support a wide range of customer engagement.
Model founded turnkey to layer firmware stack development.
Non Titan our salaries that asset.
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Interference and machine learning.
Wallace Ko: We are confident that we will continue to make a run during the Gen 5 transition into the AI era. We expect to secure a first design win in the next few months and generate clearly revenue by the end of this year. Overall, I'm excited by the opportunity ahead of us in 2024. Our team's dedication to maintaining our technology leadership and our unwavering commitment to our customers have enabled us to continue to win socket after socket and position us for strong share growth this year, NBA.
We are confident that we will continue to make in ROE during the June <unk> transition into the AI era and expect to secure our first design win in the next few months and generate clearly revenue by the end of this year.
Overall I am excited by the opportunity ahead of us in 2024, our team dedicating to maintaining our technology leadership, and our and wearing committeeman.
Two our customer had enable us to continue to win socket after socket and positioning us.
Strong share growth this year and beyond.
Wallace Ko: Our position with our FlashMaker customers has never been stronger than the new design wing expected to ramp significantly this year. Our ModuleMaker customers are coming into 2024 with a strong inventory of low-cost NAND and choosing us to help them bring competitive SED and embedded solutions to the market. We are well positioned to continue to further strengthen our design pipeline in 2024 to drive growth in 2025. Now, let me turn the call over to Jason to go over our financial results and outlook. Thank you, Wallace, and good morning, everyone.
Positioning with our flash maker customer has never been strong stronger with new design win I expect it to ramp significantly this year.
Our module maker customers coming into 2024 with strong inventory of low cost NAND and choosing to help then bringing competitive SSD and embedded solution to the market.
We are well positioned to continue to further strengthen our design pipeline in 2024 to drive growth in 2025.
Ill turn the call over to Jason to go over our financial results and outlook.
Thank you Wallace and good morning, everyone I will discuss additional details of our fourth 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 fourth quarter.
Jason Chai: I will discuss additional details of our fourth 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. The reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday.
Jason Chai: In the fourth quarter, we grew sales 17% sequentially to $202 million. SSD controller sales grew 15% to 20% sequentially. EMMC and UFS controller sales grew 25% to 30% sequentially, and SSD solution sales decreased 5% to 10%. Gross margins in the fourth quarter increased to 44.1%, reflecting both better mix and higher ASPs. Operating expenses in the fourth quarter were $61.5 million, $12 million higher than the prior quarter due to higher R&D expenses to support our technology leadership. Operating margin in the fourth quarter was 13.8 percent, flat from the third. The effective tax rate in the fourth quarter was 2.3%, a decrease from the 22.8% tax rate in the third quarter, primarily due to a tax reversal in the quarter. Excluding this, the effective tax rate would have been $28,000.
We grew sales, 17% sequentially $202 million SSD controller sales grew 15% to 20% sequentially MMC and Uff's controller sales grew 25% to 30% sequentially and SSD solution sales decreased 5% to 10% sequentially gross margins in the fourth quarter increased to 44, 1% reflecting.
<unk> better mix and higher Asp's.
Operating expenses in the fourth quarter were 61, 5 million $12 million higher than the prior quarter due to higher R&D expenses to support our technology leadership.
Operating margin in the fourth quarter was 13, 8% flat from the third quarter effective tax rate in the fourth quarters, two 3% a decrease from the 28% tax rate in the third quarter, primarily due to a tax reversal in the quarter. Excluding this tax rate would've been 28%.
Jason Chai: Earnings per ADS were $0.93, 48% higher than stock-based compensation, and our operating expense, which we exclude from our non-GAAP results, was $5.7 million. And we had $369 million in cash, cash equivalents, restricted cash, and short-term equivalents, and short-term investments at the end of the fourth quarter compared to $350.3 million at the end of the third quarter. Inventory increased sequentially in the fourth quarter to $217M from $199M in the third quarter. Now let me turn to our first quarter and full year 2024 guidance and forward-looking business. For the first quarter, we expect revenue to be down 10% to 15% sequentially to approximately 172% to 182%. We expect SSE controller sales will decline slightly in the first quarter, and EMMC and UFS controller sales will also decline.
Earnings per ads were <unk> 93.
48% higher sequentially stock.
Stock based compensation in our operating expense, which we exclude from our non-GAAP results was $5 7 million and we had $369 million in cash cash equivalents restricted cash and short term equivalents and short term investments at the end of the fourth quarter compared to $350 3 million at the end of the third quarter.
Inventory increased sequentially in the fourth quarter to $217 million from $199 million in the third quarter.
Now, let me turn to our first quarter and full year 2020 for guidance and forward looking business trends for the first quarter, we expect revenue to be down 10% to 15% sequentially to approximately $172 million to $182 million. We expect SSD controller sales will decline slightly in the first quarter and EMC and Uff's control shelves will decrease.
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First quarter gross margins is expected to be in the range of 40% to 45% first quarter operating margin will be in the range of 10, five to 11, 5% first quarter effective tax rate to be approximately 19% in.
Jason Chai: First quarter gross margins are expected to be in the range of 44% to 45%. First quarter operating margin will be in the range of 10.5% to 11.5%. First quarter effective tax rate is expected to be approximately 19%.
Jason Chai: And in the first quarter, we expect stock-based compensation and dispute-related expenses to be in the range of six. For the full year 2024, revenue will increase 20% to 25%, to $765 million to $800 million. Gross margin is expected to be in the range of 45% to 47%, and operating margin should be in the range of 14.7% to 16.7%. And our effective tax rate for the year is expected to be approximately $19, while your stock-based compensation dispute and related expenses will be in the range of $31 to $33 million.
In the first quarter, we expect stock based compensation dispute related expenses to be in the range of $6 million to $7 million.
For the full year 2020 for revenue will increase 20% to 25% to $765 million to $800 million gross margin is expected to be in the range of 45% to 47% operating margins should be in the range of 14, 7% to 16, 7% and our effective tax rate for the year is expected to be approximately 90.
14%.
Our stock based compensation and dispute and related expenses will be in the range of 31% to $33 million.
Jason Chai: Let me provide some additional color on our first quarter and full year expectations. As Wallace mentioned, we are making strong progress with our FlashMaker customers. We have a strong pipeline of design wins, and are positioned to gain meaningful share this year.
Provide some additional color on our first quarter and full year expectations as Wallace mentioned, we're making strong progress with our flash maker customers. We have a strong pipeline of design wins and are positioned to gain meaningful share. This year, we expect our revenue from all of our flash maker customers will grow in 2024 and to increase approximately 50%.
Jason Chai: We expect our revenue from all of our FlashMaker customers will grow in 2024 and to increase approximately 50% this year. In addition, we have high visibility that two additional flash makers will be ramping new projects with us this year in eMMC and UFS and in SSD controllers, and we will be able to grow revenue from each of these flash makers very much.
Here. In addition, we have high visibility the two additional flash makers will be ramping new projects with us this year in <unk> and in SSD controllers, and we will be able to grow revenue from each of these flash makers very meaningfully.
Jason Chai: We expect normal seasonality to impact our business in the first quarter but are confident that we are well positioned to grow sequentially throughout the rest of the year based upon our strong backlog of wins and projects. We expect to see consistent improvement in our gross margins this year, driven by a better mix towards newer generation interfaces in our EMMC and UFS and SSD controller sales, a number of new projects ramping up, and overall pricing just starting to normalize and improve. For operating expenses, we'll continue to invest in maintaining our technology leadership in the market, including the tape out of two 6-nanometer controllers, one in Q1 for UFS-4, and one in Q3 for a second PCIe Gen 5 SSD. This will lead to elevated offering expenses and, 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. If you would like to ask a question, please press star 11 and wait for your name to be announced. If you would like to cancel your request, please press the power or hash button. One moment for the first question.
We expect normal seasonality impact our business in the first quarter, but are confident that we are well positioned to grow sequentially throughout the rest of the year based upon our strong backlog of wins and project ramps, we expect to see consistent improvement in our gross margins this year driven by better mix towards newer agenda.
Lower generation interfaces, and our MMC in USS and SSD controller sales.
A number of new projects ramping and overall pricing starting to normalize and improve.
For operating expenses, we will continue to invest in maintaining our technology leadership in the market, including the tape out of $2 six nanometer controllers. One in Q1 for <unk> four and one in Q3 for a second pcie Gen five SSD controller.
This will lead to elevated operating expenses in those quarters.
This concludes our prepared remarks, we will now open the call for your questions.
Thank you.
You May now begin the question and answer session, if you'd like to ask a question. Please press star one one and wait for a name to be announced.
If you'd like to cancel your request please press the powerful husky.
Okay.
One moment for your first question.
Mehdi Hosseini: The first question comes from the line of Mehdi Hosseini from Saski HANA International Group. Please ask your question. Yes, thanks for taking my question. I have two.
First question is comes from the line Mehdi Hosseini from Susquehanna International Group. Please ask your question.
Yes, Thanks for taking my question I have two.
Wallace Ko: Wallace, can you help me understand what you're seeing in the SSD solution business segment? I understand your continued traction with FlashMakers and the new product RAMs that are more focused on the SSD controller and the smartphone, but could you give us a feel for the SSD solution and whether you would be able to actually slow down the decline of revenues here and have a follow-up? I think our basic solution, Fairlight, has been stable, and we are seeing a strong pipeline of wings. I think for Q4, revenue declined due to some of our automotive customers seeing their inventory pile up.
Well, let's say.
You can understand.
What you see.
Solution Beckman I understand your continued traction with flash makers and a new project ramps that are more focused on SSD controller and smartphones, but.
If you could give us.
<unk> <unk> solution, and whether you would be able to actually.
Lower down the declining revenues here and I have a follow up.
I think so.
<unk> fair value has been stable and we are seeing a strong pipeline of wing I've seen for Q4 revenue declined due to some of our automotive customers see the inventory pile up and we do see 2024, we have accumulate more design, but we see we have a stronger growth in <unk>.
Wallace Ko: And we do see 2024; we have accumulated more designs. But we see we have stronger growth in 2025 from automotive customers for our Fairlight product. Okay, great, and your 2024 guide is very encouraging. You're also ramping 6nm takeout. I understand what's driving the OPEX increase. I also look at your cash.
<unk> hundred 95.
The multi customer for that product.
Okay great.
Your 2024.
Guide is very encouraging you also.
Ramping 16 nanometer tape out I understand what's driving the Opex increase I also look at your cash you have.
$10 of net cash per share.
Jason Chai: You have almost $10 of net cash per share. Your operation should help with additional cash generated. You sound very confident. Why not revisit the capital return, especially with the buyback, especially with investors that have been patient? Any thoughts, any color here would be appreciated.
Your.
Yeah.
Operation should.
Help with additional cash generated.
You sound very confident why not.
Visit the capital return, especially with the buyback, especially with investors that have been patient.
Any thoughts any any color here would be appreciated.
Yes, thanks for the question Matt look.
Jason Chai: Yeah, thanks for the question, Mehdi. Look, it's a good question. You know, we look at our capital allocation program constantly, right? That's something we review with our board regularly. You know, we have the dividend policy that we've been paying for a very long number of years, with the exception of when we were in the acquisition process. The strategy behind the dividend, as you know, has always been to set it at a level that's comfortably affordable.
It's a good question.
If we look at our capital allocation program constantly right. That's something we review with our board regularly.
We have the dividend policy that we've been paying for a very long number of years with the exception of when we were in the acquisition process.
<unk> behind the dividend as you know has been always to set it at a level that is comfortably affordable and we will continue to evaluate going forward whether to increase the dividend at a future time as business continues to scale and cash flow increases longer term in terms of things like share repurchase as you know our share repurchase program in the past has been opportunistic.
Jason Chai: And we'll continue to evaluate going forward whether to increase the dividend in a future time as business continues to scale and cash flow increases longer term. In terms of things like share repurchases, as you know, our share repurchase program in the past has been opportunistic. We do not have a program in place today, but the board is always evaluating ways of returning cash to shareholders, and share repurchase is something they'll continue to look at.
Do not have a program in place today, but the board is always evaluating ways of returning cash to shareholders in share repurchases something that will continue to look at.
Quinn Bolton: Thank you. Thank you for the questions. One moment for the next question. The next question comes from the line of Quinn Bolton from Newham. Please go ahead.
Okay. Thank you.
Thank you for the questions one moment for the next questions.
Next question comes from Quinn Bolton from Needham. Please go ahead.
Wallace Ko: Hey guys, congratulations on the results and outlook. Thanks for taking my question. I wanted to follow up on your comments. Very encouraging to hear that you'll grow with every NAND manufacturer in 2024. But I think one of the concerns we've heard from investors is that as UFS 4.0 becomes mainstream, one of your customers that's insourced UFS 4.0, you know, that may be a headwind more in 2025 than in 2024. And so, you know, I'm not trying to get you to give guidance for 2025. But overall, would you expect your business in aggregate with NAND vendors to continue to grow in 2025 as UFS 4.0 becomes more mainstream? And then I got a follow-up call.
Hey, guys. Congratulations on the results and outlook. Thanks for taking my question I wanted to follow up Wallace on your comment is very encouraging to hear that you will grow with every NAND manufacturer in 2024, but I think one of the concerns we've heard from investors is that as <unk> becomes mainstream that.
One of your customers that's in stores Uff's Oro.
That may be a headwind more in 25% and 24, and so I'm not trying to get you to give guidance for 'twenty five but overall would you expect your business in aggregate with NAND vendors to continue to grow in 2025 as U S. Uff's Morrow becomes more mainstream and then.
I've got a follow up.
Yes, so equally.
Wallace Ko: Yes, we believe we can definitely continue to grow our mobile controller for both UFS and EMC. As you know very well, UFS 4.0 still remains a high-end solution for 2024 and 2025 and probably will go mainstream up to the second half of 2026. And we have a very strong UFS 3.1, 2.2 today, not only for existing NAND partners but also winning one to two additional NAND maker business and going to RAM in 2024 and 2025. In addition, and we also see, NAND makers are focusing on the new development. So when UFS 4.0 becomes mainstream, their R&D focus will be on the UFS 5.0 development. And sometimes they're outsourcing the new UFS 4.0 project to Silicon Motion. Because our new laser controller can capture the latest, the new generation, higher performance I.O. NAND with a higher density NAND.
We domine weekend continued growth of our mobile controller for both Europe as the EMC.
As you know very well the USPS put out.
Oh, yes.
Remains of high end for 2024, and 2025 and probably will go to mainstream up to second half of 2026, and we have a very strong Europe is you don't want to do today not only for existing named partners, but also.
Turning one to two additional NAND maker business and going to ramp in 2024 and 2025.
<unk> and we also see.
Sure.
NAND maker, they focus on the new development Sofa and USAID for Das will become the mainstream.
<unk> focus on the U F is <unk> development and sometimes all sourcing the new USA sport I'll do a project to silicon motion.
Our new Navy controller can capture the Lady is a new generation high performing <unk> NAND with the higher density NAND, so that will become much more attractive and value add to their two aro named partner extended part of the lifecycle. So we see our position very well with NAND maker as well as growing.
Wallace Ko: So that will become much more attractive, and that will add to our NAND partner extended product lifecycle. So we see our position very well with NAND makers, as well as growing module makers who are moving from EMC to UFS. And I think one thing to point out, also, that it's becoming a much more diversified business. It's no longer really driven by one customer. We have a multitude of flash makers and module makers that address the smartphone market all very effectively. And so as we ramp up with these new flash makers and module makers, we're confident that we can continue to grow this. Great. My second question is more a clarification about the two new NAND vendors that emerged this year. Can you give us any color?
Module maker, who moving from <unk> to <unk>.
And I think you pointed out.
So it's.
It's becoming a much more diversified business, that's no longer really driven by one customer we have a multitude of flash makers and module makers that address the smartphone market all very effectively and so as we ramp up with these new flash makers and module makers.
We're confident that we can continue to grow this business long term.
Great. My second question is more of a clarification about the two new NAND vendors that ramp this year can.
Wallace Ko: Is that specifically for the EMMC UFS business? Is it across both mobile as well as the SSD business? Just any color.
Can you give us any color or is that is that specifically on the <unk> business is it across both.
Jason Chai: And then, Jason, just a quick, looks like OPEX for the full year probably comes in at about $240 million, or on average, about $60 million a quarter. I know there's some tapering off in Q1 and Q3 that will probably increase R&D in those quarters, but is that sort of $240 million about the right range to be thinking about for OPEX in calendar 24? Thank you. The two NETMAKERS, I think, really, one is for U.F.S.
Mobile as well as.
The SSD business, just any any color and then Jason just a quick it looks like Opex for the full year probably comes in at about <unk> 40, or on average about $60 million a quarter I know there were some tape outs in Q1, and Q3 that will probably increase R&D in that.
In those quarters, but is that sort of $240 million about the right range to be thinking about for opex in calendar 'twenty four thank you.
Wallace Ko: and one is the EMC, but we continue looking for engagement with the NETMAKERS. Yeah, and for OpEx, I think, yeah, I think it's in that range, 230 to 240 is probably the way to look at it. Perfect. Thank you. Thank you for the questions. One moment for the next question. The next question comes from the line of Goku Hariharan from JP Morgan Chase. Please go ahead.
Yes, the two NAND makers ive seen so really it's the one answer for USA one of the EMC, but we continue looking for engagement with the NAND makers.
Yes for Opex I think yes, I think it's in that range $2 30 to $2 40 is probably the way to look at it.
Perfect. Thank you.
Thank you for the questions one moment for the next question.
Next question comes from the line of Cocoa, how rehearing from Jpmorgan Chase. Please go ahead.
Goku Hariharan: Yeah, hi, thanks for taking my question. My first question is about enterprise. Given that you are getting pretty good traction with your new product, and you have also reorganized the organization to focus more on enterprise, Wallace, could you give us a little bit more color on how big the enterprise addressable market is for Silicon Motion? What is something that you can really achieve over the next maybe three, four years in terms of enterprise traction? And could you also give us a little bit of color in terms of what kind of design wins are you getting? Are you getting more design wins on core storage products? Or are you not?
Yeah, Hi, Thanks for taking my question.
On enterprise.
Given that you have got some pretty.
Pretty good.
If you are a new product and also.
The organization to focus more on enterprise I Wonder could you give us a little bit more.
Color on how big the enterprise market.
Silicon motion.
What does what.
Something that you can really achieve over the next maybe three four years in terms of the enterprise boxes and could you also give us a little bit of color in terms of what kind of design wins that you're getting.
More design win on the core storage broad egg.
Wallace Ko: Is it like making OEMs and hyperscalers? Is there any mix in terms of Suri Choudhury, KuruvACT, Vijay Kedare, Sadi Peepal Padukone, MentorNetworkCorp, Gupta Chaudhary, Mohan Santhosh, Shai Sugaram, Ruma Sarwan, Jaya Kapoor, istoomiya.com? So it's I think that we are seeing very good traction today as we continue to sample and go through the qualification process with these tier one customers and about a dozen customers from the US and Taiwan, China. And then see, I cannot give you the quantity, the number. I think by the end of 2020, we'll have it, the board will have meaningful revenue, and we'll have much bigger revenue in 2025 and 2026. The reason we get traction, not only the standard MV&E, we're gaining momentum because the high performance and other number index exceed expectations. But also, we get traction due to the QLC SAD coming into the data center. And then this is two fold. One is the FDP standard for QLC, also known as zone-in safe QLC in China.
Is it.
Thank you.
Oems and Hyperscale or was there any mix in terms of.
Maybe youre getting deployment maybe that now.
Little bit more color on the enterprise market.
Market.
So it was a very good question that I've seen that we are seeing very good traction today as we continue to sample and go through the qualification costs.
These are tier one customers and spell a dozen customer from <unk>.
And Taiwan, China and Nancy.
I cannot give you the quantified a number I think by end of <unk>.
Four will have meaningful revenue we have much.
Bigger revenue in 2025 and 2026 the reason we get traction not only the scanned Anda, we are gaining momentum because of high performing in all of the number of index and exceed expectation, but also we get a.
Traction due to the qol b coming into the data Center and then see this as a four two fold one is.
Is FTP standard for <unk> LLC also donated staple TLC in China I think you asked the one customer had also a very interest for donated space. So that makes us a big differentiator compared with conventional <unk> solution due to the AI server demand in AI demand I didn't chin Tsai.
Wallace Ko: I think US one customer is also very interested in zone-in space. So that makes us a big differentiator compared with conventional SAD solutions. Due to the AI server demand and AI demand, I think Gen5 SAD will become much more attractive. So this is how we simulate all the demand. And that's why many customers are interested in qualifying our Gen5 solution. All right, thank you very much.
<unk> become much more attractive. So this is a assimilate all the demand and that's why many customer manger flow quantify our gen five solution.
Alright, Thank you very much.
Wallace Ko: My next question is more near term. For 2024, you have 20 to 25% revenue guidance. Could you give us some color on how you expect client SSP to grow and mobile to grow? And within mobile, recently, we've been hearing some concerns about the end of restocking for some of the Chinese customers. Are you seeing smartphone customers being a little bit more conservative in terms of procurement in the near term? I think for Client ASD, last year, our market share, the global market share, was around 25-26%.
My next question is more near term what can you do any for do you have a 20% to 25% revenue guidance.
Could you give us some color on how you expect client SSD to grow and more.
Mobile to grow and within mobile recently, we're hearing some concerns about the end of restocking or some of the Chinese customers.
Are you seeing.
The China.
Smartphone customers being a little bit more conservative in terms of procurement.
In the near term.
Yes, I think for clients of D.
Last year, our market share took global market share is around 25%, 26%. We believe this year will grow to 30% to 32% range.
Wallace Ko: We believe this year it will grow to a 30-32% range because the total overall ASD number overall will grow another probably 10-20 million for global unit shipment. For mobile, we will grow faster and stronger because we have more customers in the pipeline. And not only the existing NAND maker that continues to grow compared with last year, but we also have two additional NAND makers that will join the group to grow. And multi-maker, we see they will grow even stronger.
We got total overall ACD number overall will grow another probably 10 to 20 million for global unit shipment for mobile, we will grow faster and stronger because we have more customers in the pipeline and not only the existing NAND maker they continued growth.
Compared with last year, but also we have two additional NAND maker with join join the group to grow and module maker, we see they will grow even stronger and we also have our platform development with both Qualcomm and Mediatek. We also have.
Wallace Ko: And we also have platform development with both Qualcomm and MediaTek. We also have direct engagement with smartphone makers to strengthen our position in technology and pace for 2025 growth. Okay, got it. Thank you.
The rapid engagement with smartphone maker to strengthening our position in technology.
Pacing for 2025 growth.
Okay got it thank you.
Operator: Thank you for the questions. One moment for the next question. Our next question comes from the line of Anthony Stoss from Craig Island. Please ask your question. Thank you, Jason. I was trying to write as fast as I could on the taped commentary.
Thank you for the questions one moment for the next questions.
Our next question comes from the line of Anthony Stoss from Craig Hallum. Please ask your question.
Thank you Jason I was trying to write as fast as I could on the tape out commentary could you just break that out again by quarter and kind of the cost that you expect per quarter, and then I had a follow up for Wallace.
Anthony Joseph Stoss: Could you just break that out, again, by quarter and kind of the cost that you expect per quarter and then add a follow up for the wallet? Yeah, so we're expecting to tape out our UFS-4 6 nanometer controller here in the first quarter. And then we'll tape out our second PCIe Gen 5 controller early in the third quarter. So that's going to result in more elevated OpEx, kind of similar to what you saw here in the fourth quarter for each of those two quarters. And then, you know, Q2 and Q4, that should revert back down to a more normalized level because those pairs don't have the tape out.
Yes, so we're expecting to tape out our uff's four six nanometer controller here in the first quarter and then we will tape out our second Pcie Gen. Five controller early in the third quarter. So thats going to result in more elevated opex kind of similar to what you saw here in the fourth quarter for each of those two quarters and then.
Q2, and Q4 that should revert back down to a more normalized level because of those.
Because those peers don't have the tape outs those tape outs as we have said in the past are typically north of $15 million in terms of total development and investment cost for us. So during the quarter, where they were they are taping out is certainly a big step up on the Opex.
Jason Chai: Those tape outs, as we have said in the past, are typically north of $15 million in terms of total development and investment costs for us. So during the quarter where they where they're taping out, it's certainly a big step up on the OpEx. Okay, got it. And then Wallace, I'd love to hear a little bit more.
Okay got it and then wallets and love to hear a little bit more last quarterly conference call you talked about a new Korean NAND maker coming on as a customer.
Wallace Ko: Last quarterly conference call, you talked about a new Korean nand maker coming on as a customer. I'm curious your view on how quickly they can wrap, and could they be, let's say, a top three customer in 2025? We cannot comment on individual NAND maker customers about their revenue, but we are definitely looking forward to a stronger engagement and a broader product line and design wing. I think we are definitely looking forward to embracing the NAND makers who can really outsource more projects to Silicon Motion, and we add value to them. I think 2024-2025 is really a good time for us to show our technology and serve our NAND maker, select their R&D extension, and look forward to more exciting results, and we will definitely follow up this year. Okay, and if I could sneak in one more on your Mtn Titan.
I'm curious your view on how quickly they can ramp and could they be a let's say a top three customer in 2025.
We cannot comment individual NAND maker customers above the revenue.
<unk> been looking forward to stronger engagement and broader product line and design design win I think we are looking forward to embrace.
NAND maker, who really can all sorts of more project to silicon motion and we add value to them I have seen the 'twenty 'twenty four 'twenty five really.
Good timing for us to show our technology and serve.
NAND maker.
Our selected R&D extension.
And looking forward to more exciting results.
And we will accompany us got it.
Yeah.
Okay, and then if I could sneak in one more on your mind tightened. So you talked about having secured one design win can you give us any color on if it's a data center hyperscale or NAND maker and then how quickly do you think you can secure additional out of those 12 that have sampled.
Wallace Ko: So you talked about having secured one design when, can you give us any color on if it's a data center, hyperscaler, NAND maker, and then how quickly do you think you can secure additional designs out of those 12 that you have sampled? We cannot comment on the customer and the type, but I think we're a Tier 1 customer, and with that, we believe we will secure the second one in the second half of 2024, so I think we're confident we will win at least two Tier 1 customers by the end of 2024. Very good Thank you.
We cannot comment as a customer and type, but I feel with tier one customer and then we've done we believe we will secure the second one the second half of 2024, so I assume that would convert into weighing at least the two tier one customers by end of 'twenty 'twenty four.
Very good. Thank you. Thank you for the questions next question comes from Craig Ellis from B Riley <unk> Securities. Please ask your question.
Operator: Thank you for the questions. The next question comes from Craig Alice from B Rye League Securities. Please ask your question.
Craig Alice: Yeah, thanks for taking the question. Wallace, I wanted to start with you and follow up on some of the outsourcing questions from the call, but also really, you know, continue the conversation that you and I have had over the last couple years. So I think we both expected that there would be an increase in outsourcing from NAND customers. And the question is this, as you look across the increase in activity that you've observed over the last 12 months or so, can you characterize how extensive that is, from OEMs that are maybe just doing one or two new products to much more wholesale changes? What's happening on the continuum from a little bit to a lot? And how much of that is baked into the guidance that you and Jason have given for calendar 24? And then I had a couple of follow-ups. Thanks.
Yes, thanks for taking the question well, let's have wanted to start with you and follow up on some of the.
Outsourcing questions from the call, but also really hum.
Continue the conversation that you and I have had over the last couple of years. So I think we both expected.
There would be an increased outsourcing from NAND customers and the question is this as you look across the increase in activity that you've observed over the last.
Months or so can you characterize how extensive that is from Oems that are maybe just doing one or two new products to much more wholesale changes.
What's happening on the continuum, a little bit to a lot.
And how much of that is baked into the guidance that you and Jason have Kevin for calendar 'twenty four and then I had a couple of follow ups. Thank you.
Wallace Ko: I think, as you can see, it's true that 2023 is a difficult year for all the NAND makers because of weak demand and the oversupply. The NAND price has declined sharply, and nobody really causes any panic. Everybody's margin is negative, and we are able to gain shares because I think we are treated, viewed, and recognized as an extension of a NAND maker's own R&D. So that's why we have been developing such a relationship, recognition, trust, and respect for the past 15 years.
I've seen C. As you can see his shoe the 2020 three it was difficult year for all the NAND makers, because the weak demand and oversupply, the NAND price and declined sharply and nobody really make any panic everybody margin negative.
And we are able to gain share because I think.
We have treated view recognize becoming thing extension of our NAND makers so R&D.
So that's why we haven't been developed such relationship recognition trust and respect for the past.
15 years.
Wallace Ko: And we're capable of handling it. So NAND makers, their focus now is not focused on market share. They focus on profitability, so they are not eager to invest more KPAC in NAND capacity. They only invest in the technology they want to deliver. So their focus on development is on the high end, more value, and they can maximize the profitability they can get. And the mainstream value line; they will also try to go to third-party like Silicon Motion, which we can help them and diversify and bring a more portfolio offer to the end customer. So this is the value we bring to the table. And we see more and more an opportunity from NAND makers when they make a business decision; they can go to a third party like Silicon Motion. Got it. And then the follow-up question is just a continuation. What are the things that you're looking at that will indicate that this is not only a trough cycle reaction from Nando?
We are capable of handling.
NAND makers. They are focused now it's not focused on market share a focus on profitability. So they are not eager invest more K pack in the NAND capacity. They are owning that the technology they want to deliver so their focus on the development is trimmed the high end.
Value and can maximize profitability. They can they can they can get.
The mainstream that align they would try to also to serve RT lifecycle motion when should we can held in and diversify and bring on more portfolio offer to their end customer.
This is value we bring to the table and we're seeing more and more also an opportunity for NAND maker when they make a business decision they kind to go to the third party lifecycle motion.
Yes.
Got it and then the follow up question.
Just a continuation of what are the things that youre looking at.
That will indicate that this is not only a trough cycle reaction from them.