Q2 2024 Silicon Motion Technology Corp Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's second quarter 2020 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session, at which time, if you wish to ask a question, you will need to press star 11 on your telephone keypad. This conference call contains the following 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.
Operator: Good day, and thank you for standing by.
Speaker Change: Good day and thank you for standing by welcome to the Silicon Motion Technology Corporation second quarter 'twenty 'twenty four earnings conference call.
Operator: Welcome to the Silicon Motion Technology Corporation's second quarter 2020 for earnings conference call. At this time, all participants are in the listen-only mode. After this week's presentation, there would be a question-and-answer session.
Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be question and answer session at which time. If you wish you ask a question you will need to press star one one on your telephone keypad.
Operator: At which time, if you wish to ask a question, you would need to press star 1-1 on your telephone keypad.
Operator: This conference call contains full 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. Such full looking statements include, without limitations, statements regarding trends in the semi-conductor industry, and all future results of operations, financial condition, and this is prospect. Although such statements are based on our own information and information from other sources, we believe to be reliable.
Speaker Change: This conference call contains forward looking statements within the meaning of section 27, a off the Securities Act of 1933 and section 21 E of the Securities Exchange Act of 19th 34 as amended.
Operator: Such forelooking statements include, without limitation, statements regarding trends in the semiconductor industry and all future results of operations, 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. These statements involve risks and uncertainties, and actual market trends and results may differ materially from those expressed or implied in these foregoing statements for a variety of reasons.
Speaker Change: Such forward looking statements include without limitation statements regarding trends in the semiconductor industry and all future results of operations financial condition and business prospects.
Speaker Change: Although such statements are based on our own information and information from other sources, we believe to be reliable you should not place undue reliance on them. These.
Operator: You should not please and do reliance on them. These statements involve risk and uncertainties, and actual market trends in our results may differ materially from those expressed or implied in this following statement for a variety of reasons. Potential risks and uncertainties include, but are not limited to continued competitive pressure in the semiconductor industry, and the effect of such pressure on prices, unpredictable changes in technology, and consumer demand for multi-media consumer electronics. The state of and any change in our relationship with our major customers and changes in political, economic, legal, and social conditions in Taiwan.
Speaker Change: Eight minutes involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in this forward looking statements for a variety of reasons.
Operator: Potential risks and uncertainties include, but are not limited to, 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 in our relationship with our major customers; and Changes in Political, Economic, Legal, and Social Conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission.
Speaker Change: Potential risks and uncertainties include but are not limited to continued competitive pressure in the semiconductor industry.
Speaker Change: And the effect of such pressure on prices unpredictable.
Speaker Change: Unpredictable changes in technology, and consumer demand for multimedia consumer electronics, the states of and any change in our relationship with all major customers.
Speaker Change: Changes in Polyptychial, economic legal and social conditions in Taiwan.
Operator: For addition, the discretion of this risk and uncertainties, and other factors, please see the documents we filed from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, which apply only as a state of this campaign call.
Speaker Change: For additional discussion of this risk and uncertainties and other factors. Please see the documents we file from time to time with the Securities and Exchange Commission.
Operator: 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. It is now my pleasure to hand you over to Mr. Tom Sebensis, Senior Director of IR and Strategy of the company. Please go ahead, sir.
Speaker Change: We assume no obligation to update any forward looking statements, which apply only as of the date of this conference call.
Operator: Please be advised today's conference is being recorded.
Speaker Change: Please be advised that today's conference is being recorded.
Tom: It is not my pleasure to hand you over to Mr. Tom, Mr. Benz's senior director of IR and strategy of the company. Please go ahead, sir.
Tom <unk>: It is now my pleasure to hand, you over to Mr. Tom <unk> Senior director of IR and strategy of the company. Please go ahead Sir.
Tom Sebensis: Good morning, everyone, and welcome to Silicon Motion's second quarter 2024 financial results conference call and webcast. Joining me today is Wallace Koh, our President and CEO, and Jason Tsai, our Interim CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our second quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our Safe Harbor Policy, which was read at the start of this call.
Wallace Co: Good morning, everyone, and welcome to Silicon Motion's second quarter 2024 financial results conference call and webcast. Joining me today is Wallace Co, our president and CEO, and Jason Sai, our interim CEO. Wallace will first provide a review of our key business developments, and then Jason will discuss our second quarter results and outlook.
Speaker Change: Good morning, everyone and welcome to Silicon motions second quarter 2024 financial results conference call and webcast joining me today as well as co president and CEO and Jason Tsai, our interim CFO.
Speaker Change: <unk> will first provide a review of our key business developments and.
Speaker Change: And then Jason will discuss our second quarter results and outlook.
Wallace Co: Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission.
Speaker Change: Following our prepared remarks, we will conclude with a Q&A session.
Speaker Change: Before we get started I would like to remind you of our safe Harbor policy, which was read at the start of this call for a comprehensive overview of the risks involved with investing in our securities. Please refer to our filings with the U S Securities and Exchange Commission.
Tom Sebensis: For a comprehensive overview of the risks involved with 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.
Wallace Co: For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday.
Speaker Change: 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.
Wallace Co: 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 our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the gap 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.
Speaker Change: This webcast will be available for replay in the Investor Relations section of our website for a limited time.
Speaker Change: 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 consistent.
Tom Sebensis: 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 consistent with 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. With that, I will turn the call over to Wallace.
With 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 with that I will turn the call over to Wallace.
Wallace Co: With that, I will turn the call over to Wallace. Thank you, Tom. Hi, everyone, and thank you for joining us today.
Wallace Koh: Hi everyone, and thank you for joining us today. We had a strong start to 2024, building on the momentum that began in the second half of calendar 2023. We deliver sequential revenue growth ahead of expectation and achieve gross margin at the high end of our guidance range, as better mix and pricing continue to steadily improve our profitability. The revenue upside was driven by our continuous strength as a non-flat customer. Demand from PC and smartphone OEMs increased in anticipation of seasonally stronger second-half demand.
Wallace: Thank you Tom.
Wallace: Hi, everyone and thank you for joining us today.
Wallace Co: We had a strong sigh to 2024. Beauty on the moment and that begins in second half of calendar 2023. We deliver sequential revenue growth ahead of expectation and achieve growth margin at the high end of our guidance range. The better mix and pricing continue to study improve our profitability. The revenue upside was driven by our continuous trends is our non-frighted customer, a demand from PCN smartphone OEN, increased in anticipation of significantly stronger second half demand. Additionally, we benefited from increased market share at the top NAND Flash makers that they continue to source controllers externally rather than develop them in-house.
Wallace: We had a strong sorry to 2024 building on the momentum that began in the second half of calendar 'twenty to 'twenty three.
Wallace: We delivered sequential revenue growth ahead of expectation and achieved gross margin at the high end, so probably guided range as the bedroom mix and pricing continue to steadily improve our profitability.
Wallace: The revenue upside was driven by our continuous trend.
Speaker Change: NAND flash customer.
Speaker Change: Demand from PC and smartphone OEM increase in anticipation of seasonally stronger second half demand.
Wallace Koh: Additionally, we benefited from increased market share at the top NAND flash makers as they continue to source controllers externally rather than develop them in-house. Over the past few quarters, our team has been working hard towards deepening our partnership with our NANDFASTMAKER customers. We are winning more and more sockets, from mainstream to high-end SD, and EMC, and UFS controllers for PC, smartphones, automotive, and other markets. Our success with our flash maker partner has helped improve our visibility and is crucial to our strong growth this year, despite market uncertainty, especially in the retail aftermarket. This quarter, our revenue from NAM Flashmaker grew by nearly 15% sequentially, accounting for more than 60% of our total revenue.
Speaker Change: Additionally.
Speaker Change: We benefited from increased market share at a top NAND flash makers as they continue to source control their externally rather than developing them in house.
Wallace Co: Over the past few quarters, our team have been working hard toward deepening our partnership with our NAND flash maker customers. We are mainstreamed to high NSD and EMC and UFN controller for PC, smartphones, automotive, and other markets. Our success with our Flash maker partners has helped improve our visibility and is crucial to our strong growth this year, despite market uncertainty, especially in the retail aftermarket. This quarter, our revenue for our NAND Flash maker grew nearly 15 percent sequentially, accounting for more than 60 percent of our total revenue. Both as a D and EMC UFN controller, strengths found new programs more than offset emerging softness in the retail market.
Speaker Change: Over the past few quarters, our teams have been working hard towards deepening our partnership with NAND Flash maker customers, we are winning more and more sockets.
Speaker Change: Mainstream to high honesty, and UMC in Europe will control the four PC smartphones automotive and other markets.
Speaker Change: SaaS without fashion make upon here as how we improve our visibility and crucial to our strong growth this year, despite market uncertainty, especially in the retail aftermarket.
Speaker Change: This quarter, our revenue from NAND Flash maker grew nearly 15% sequentially accounting for more than 60% for both total revenue.
Wallace Koh: Both SAD and EMCUF controller strands found new programs that more than offset emerging softness in the retail market, which is our module maker customer. Demand for our product is rising, and manufacturing makers increasingly outsource controller solutions. And we are in the best position to benefit from this growing trend. We have unmatched technical and financial resources to build next-generation controllers, and we intend to enhance our position through the introduction of multiple new products in the coming year, including our enterprise-class Titan family, new PCIe 5.0, and UFS 4.0 controllers. I am pleased with our team's execution in the first half of the year and the momentum going into the second half of this year.
Speaker Change: Both ACD and EMC you have come to a theres trends found new program more than offset emerging softness in the retail market is a module maker customers.
Wallace Co: It is our module maker customers. Demand for our product is rising; a NAND Flash maker is increasingly all-source controller solutions, and we are in the best position to benefit from growing trend. We have a match technical and financial resources to build next generation controllers, and we intend to enhance our position to show the introduction of multiple new products in the coming year. Including our enterprise customers, Titan family, new PCIe 5.0, and UFN 4.0 controllers. I am pleased with our team's execution in their first half of the year and the momentum going to second half of this year.
Speaker Change: Demand for our products is rising NAND flash makers increasingly also our controller solutions and we are in the best position to benefit from this growing trend, we have unmatched technical and financial resources to build a next generation controllers, and we intend to enhance hub.
Speaker Change: Edition shoes, the introduction of medical with new products in the coming year, including our enterprise class <unk> tightened family <unk> five zero in your first quarter zero controllers.
Speaker Change: I am pleased with our team's execution in the first half was a year and the momentum going into second half of this year. We have significant opportunities ahead of us as we deliver product and solution.
Wallace Co: We have significant opportunities ahead of us as we deliver product and solutions our customers need and remain focused on driving additional revenue growth and proving profitability across our platform of leading NAND controller solutions.
Wallace Koh: We have significant opportunities ahead of us as we deliver products and solutions our customers need and remain focused on driving additional revenue growth and improving profitability across our platform of leading land control solutions. I would now like to provide you with an overview of the NAMM market dynamics. Land pricing is increasing and is expected to move higher throughout the remainder of the year and early 2025, primarily driven by demand from data center and enterprise storage applications.
Speaker Change: Some need and remain focus on driving additional revenue growth improving profitability. The cross sell platform of leading NAND controller solutions.
Wallace Co: I would now like to provide you with an overview of the NAND market dynamics. NAND pricing is increasing and expected to move higher throughout the remainder of the year and early 2025. Primarily driven by demand, found data centers and enterprise story of cases. But the pricing continued to increase from the lowest experience last year. Nam maker are beginning to bring some capacity back on line and invest in new generation NEM productions. But we do not expect NEM supply and demand to come back into balance until mid-2025. Higher NEM pricing and the weaker global economy environment caused by higher inflation has softened retail demand for our modular maker customers.
Speaker Change: I would now like to provide you with an overview of the NAND market dynamics.
Speaker Change: NAND pricing is increasing and expected to move higher throughout the remainder of the year and early 2025.
Speaker Change: Similarly, driven by demand from data center and enterprise storage applications.
Wallace Koh: But the price continues to increase from the lowest experienced last year. Landmakers are beginning to bring some capacity back online and invest in new generation land production. But we do not expect land supply and demand to come back into balance until the middle of 2025.
Speaker Change: Pricing continued to increase from the lows experienced last year NAND maker, beginning to bring some capacity back online and you invest in new generation NIM productions.
Speaker Change: But we do not expect NAND supply and demand to come back into balance until middle of 2025.
Wallace Koh: Higher name pricing and the weaker global economic environment caused by higher inflation have softened retail demand for our module maker customers. We'll continue inflationary pressure, expecting NAM price increases for the remainder of the year. We expect muted back-to-school and holiday retail sales after March 18.
Patti: Higher NAND pricing and a weaker global economy environment caused by higher inflation has softer retail demand for our module maker customers will continue inflationary pressure. Thanks, Patti NAND price increase for the remainder of the year, we expect muted back to school in <unk>.
Wallace Co: We continue in visionary pressure and fattening NEM price increase for the remainder of the year. We expect new debt back to school and holiday sales of retail after market SD. Despite the having, the overall PC demand appears stable and we also continue to see incremental improvement in the smartphone market. With a unique sales expected to grow modestly year-over-year. OEM and QLCNN continue to increase in both the data center and the ad team PC, smartphone, and other devices. This is being driven by device OEM, anticipating the need to support AI and other vacation that requires higher performance and higher density, solid state storage solutions.
Speaker Change: Holiday sales at retail after market yesterday.
Wallace Koh: Despite the headwind, overall PC demand appears stable, and we also continue to see incremental improvement in the smartphone market, with unit sales expected to grow modestly year over year. OEM entry in QLC9 continues to increase in both the data center and the edge in PCs, smartphones, and other devices. This is being driven by device OEMs anticipating the need to support AI and other applications that require higher performance and higher density solid state storage solutions.
Speaker Change: Despite having the overall PC demand appears stable and we also continue to see incremental improvement in the smartphone market with a unique sales expected to grow modestly year over year.
Speaker Change: <unk> seen and continue to increase in both the data center and the asking PC smartphone and other devices.
Speaker Change: Is it being driven by devise Oems anticipating the need to support AI and other application that require higher performance and higher density solid state storage solutions.
Wallace Co: A become clear each day that our experience and expertise with QLCNN is a defining defenitor that has resulting significant wings with a fashion maker and other customers across a major product category. The treating and layer continue to increase, managing QLCNN become even more challenging as they require more sophisticated controller technology, such as our proprietary advanced LDPC and 3D RAID technology and advanced firmware algorithm to ensure data retention and reduce re-ride intervention. We expect QLCNN will increasingly be deployed across all major market categories that we serve, given its ability to deliver a high-density low cost, and we believe we are best positioned to benefit from the trend in the coming years.
Wallace Koh: It becomes clear each day that our experience and expertise with QLCNAN is a defining differentiator that has resulted in significant wins with fashion makers and other customers across a major product category. As the 3D NAND layer continues to increase, Managing QRC NANDs becomes even more challenging.
Bill: Hey, Bill Hey, become clear each day that our experience and expertise with <unk> NAND is a defining differentiator data has resulting significant wings with the flash makers and other customer across our major product categories.
Bill: So the three D. NAND layer continued to increase managing <unk> seen them become even more challenging because they require more sophisticated controller technology, such as our proprietary event, our DPC and three D Ray technology and events firmware algorithm to ensure data retention.
Wallace Koh: They require more sophisticated controller technology, such as our proprietary advanced LDPC and 3D array technology and advanced firmware algorithm to ensure data retention and reduce rewrite-deterring issues. We expect TLC-9 will increasingly be deployed across all major market categories that we serve given its ability to deliver high density at low cost, and we believe we are best positioned to differentiate it from the trend in the coming years. Now I would like to discuss each of our major product segments, beginning with RACD controller. We experienced strong demand in the June quarter from our FlashMaker customers driven by PCOEM.
Bill: And reduce rewrite your turbine issue.
Speaker Change: We expect Q I see NIM will increasingly be deployed across all major market category data, we serve given its ability to deliver high density low cost and we believe we are best position to benefit from the trend in the coming years.
Wallace Co: Now I would like to discuss each of our major product segments, beginning with RACD controllers. We experience strong demand in June quarter by our fashion maker customer driven by PCOEMs. PCOEMs D-controller sells represent approximately 80% of our clients D-controller sells. It is a high end of our historical range, as the high-nan prices are putting pressure on channel and multi-makers. We continue to generate strong interest in our new PCIe Gen5 A-channel controller that we tabled last year. This is a premium product that will be ideally suited for high-end notebook and that's our AIPC, as well as for gaming and workstation PC that offer a parallel performance with ultra-low power consumption.
Speaker Change: Now I would like to discuss each of our major part of the segment beginning with our SSD controllers.
Speaker Change: We experienced strong demand in June quarter power on a SaaS maker customer driven by PC Oems.
Wallace Koh: PCoE and SD controller cells represent approximately 80% of our clients' SD controller cells, which is the high end of our historical range, as high NAND prices are putting pressure on channels and multimakers. We continue to generate strong interest in our new PCIe Gen5 8-channel controller that we took out last year. This is a premium product that will be ideally suited for high-end notebook and desktop AI PCs, as well as for gaming and workstation PCs that offer unparalleled performance with ultra-low power consumption.
Speaker Change: PC Oems decontrol, there yourselves represent approximately 80% of our clients <unk> controller sales.
Speaker Change: The high end of our historical range.
Speaker Change: Hi, NAND prices are putting pressure on channel and module makers.
Speaker Change: We are continuing to generate strong interest in our new Pcie Gen. Five eight channel controller that we tape out last year.
Speaker Change: It's a premium product that it will be ideally suited for high end notebook and desktop <unk> as well as for gaming and workstation PC.
Speaker Change: Offer unparallel performance with ultra low power consumption.
Wallace Co: The controller offers passing clock power to performance, offers 20 to 30 percent lower power consumption than competitive controllers, including those internally developed by NAND makers. These are first 6.0 meters 8 channel PCIe 5 controller, a variable in the market, which has led to significant wing, including a forced NAND maker, which I am pleased to announce we won this quarter in addition to nearly every major multimakers. Re-email on track to the initial units of the new PCIe 5 controller with our customer later this year. Additionally, we have a strong pipeline of design activity with several flash makers of a PCIe 4 SD using next generation TLC and KLC NAND.
Wallace Koh: The controller offers best-in-class power to performance, offers 20% to 30% lower power consumption than competing controllers, including those internally developed by NAND makers. This is the first 6nm 8-channel PCIe 5 controller available in the market, which has led to significant wins, including our fourth NAMM Maker, which I'm pleased to announce we won this quarter, in addition to nearly every major multi-maker. We remain on track to ship initial units of the new PCI-E5 controller with our customers later this year.
Speaker Change: Controller alterative, passing cloud power to performance offer 20% to 30% lower power consumption than competitive controllers.
Speaker Change: Including zales internally developed by NAND makers.
Speaker Change: These are first six nanometers, a channel piece, how you fly control they are variable in the market.
Speaker Change: Which has led to significant wing, including all enforced NAND maker, which I am pleased to announce we all we won this quarter.
Speaker Change: Dishing to nearly every major module makers.
Speaker Change: <unk> remain on track to ramp initial initial units of the new Pcie controller with a customer in later this year.
Wallace Koh: Additionally, we have a strong pipeline of design activity with several flash makers of a PCIe4 SED using next-generation TLC and QLC NAND. These new SEDs deliver high performance and high density at a lower cost, ideal for a rapidly growing AIPC market that is searching for lower cost solutions. While the PCE market remains a top priority and will continue to drive significant growth and revenue, we are seeing emerging opportunities with our automotive, commercial, and industrial-grade decontrollers. This includes our automotive-grade PCIe4 controllers, as well as multiple controllers targeting industrial and commercial applications.
Speaker Change: Additionally, we have a strong pipeline of design activity with several flash maker of our Pcie SSD using next generation TLC and <unk> NAND recent.
Wallace Co: This new SD deliver high performance and high density at the lower cost, ideal for rapidly growing AIPC market that is searching for lower cost solutions.
Speaker Change: This new <unk> deliver high performance and high density at a lower cost ideal for rapidly growing AI PC market that is searching for lower cost solutions.
Wallace Co: While the PC market remains a top priority and will continue to try significantly to increase growth and revenue, we are seeing emerging opportunities with our automotive commercial industrial-grace de-controllers. This includes our automotive grade PCIe 4 controller, as well as multiple controllers targeting industrial and commercial vacation. We intend to expand our leadership through the introduction of our upcoming dual port PCIe 5 controller without multi-market next year, and we expect to continue adding meaningful growth opportunities in 2025 and beyond, with a more diversified customer and M market base.
Speaker Change: While the PC market remain.
Speaker Change: Top priority and well continue to drive significant growth in revenue.
Speaker Change: We are seeing emerging opportunity with our automotive commercial industrial grades of D controllers.
Speaker Change: This includes our automotive grade pcie four controllers as well as multiple controller targeting industrial and commercial application, we intend to expand our leadership through the introduction of our upcoming dual port Pcie controller for the automotive market.
Wallace Koh: We intend to expand our leadership through the introduction of our upcoming DuPort PCIe5 controller for the automotive market next year, and we expect to continue adding meaningful growth opportunities in 2025 and beyond with a more diversified customer and end market base. Now I would like to move to our EMC in Europe business.
Speaker Change: Next year.
Speaker Change: And we expect to continue adding meaningful growth opportunity in 2025 and beyond with a more diversified customer and end market base.
Wallace Co: Now I would like to move to our EMC in Europe's business. We continue to benefit from improving smartphone market doing the June quarter, as well as we strengthen with our two EMC and Europe NAND customers. We successfully tap out our first Europe's 4.0 controller early this year, and the response has been positive. We are beginning qualification, and we are targeting production ramp in the second half of calendar 2025. Europe's 3.1 and 2.2 continue to account for most of the smartphone market volume today, and I expected to stay relevant in the coming years. While Fashion Maker allocated more resources to the next generation, Europe's products in support a new generation NAND, we are seeing greater opportunity in high volume application as Fashion Maker looked to all-source mainstream controllers so that they can more effectively compete in leading edge.
Speaker Change: Now I would like to move to our EMC in Europe is business.
Wallace Koh: We continue to benefit from the improving smartphone market during the June quarter, as well as strengthen our relationships with our two EMC and U of N customers. We successfully taped our first UFS 4.0 controller early this year, and the response has been positive. We are beginning qualification, and we are targeting production ramp-up in the second half of calendar 2025. UFS 3.1 and 2.2 continue to account for most of the smartphone market volume today, and I expect it to stay relevant in the coming years.
Speaker Change: We continue to benefit from the improving smartphone market during the June quarter.
Speaker Change: Well as we have strengths.
Speaker Change: These are two UMC in yogurt NAND customers, we successfully taped out our first.
As part of your controller early this year and the response has been positive.
Speaker Change: We are beginning qualification and we are targeting production ramp in the second half of calendar 2020 five.
Speaker Change: Your fifth Street, all one and two to continue to account for most of the smartphone market volume today and I expect it to stay relevant in the coming years.
Wallace Koh: While FlashMaker allocates more resources to next-generation UFS products in support of a new generation NAND, we are seeing greater opportunity in high-volume applications as FlashMaker looks to outsource mainstream controllers so that they can more effectively compete at the leading edge. As with our leading PCIe product, we are generating strong inbound activity in our QRC controller technology in UFS and EMC. With a growing interest in edge AI, smartphone OEMs are looking for cost-effective ways to increase their own device memory density.
Speaker Change: Wildfires maker allocating more resources to a next generation U S peers.
Speaker Change: Progress in support of new generation now.
Speaker Change: We're seeing greater opportunity in high volume application. This flash maker look to all sourced mainstream control there so that they can.
Speaker Change: More effectively compete and leading edge.
Wallace Co: As with our leading PCIe product, we are generating strong inbound activity in our QLC controller technology in Europe's and EMC. with a growing interest in H.A.I. Smartphone OEMs are looking for costly, factory ways to increase own device memory density. Our leadership in QLC and controller technology plays the commotion as a forefront of QLC adoption. A smartphone manufacturer are looking to deploy QLC with the UFS for me to high-end devices and QLC with EMC in low-end handsets for AI in other starting intensification over the next few years. Our first handset OEM partner that will deploy QLC on UFS is expected to ramp later this year.
Speaker Change: As with our leading pcie product, we are generating strong inbound activity.
Speaker Change: Q O C controller technology in USA and UMC.
Speaker Change: With a growing interest in etch AI smartphone Oems are looking for cost effective way to increase only by memory density.
Wallace Koh: Our leadership in QLC NAND controller technology plays a commotion at the forefront of QLC adoption. A smartphone manufacturer looking to deploy QLC with UFS for mid- to high-end devices and QLC with EMC in low-end handsets for AI, and other intensification over the next few years. Our first handset OEM partner that will deploy QLC on UFS is expected to ramp later this year. What is more, I'm pleased to report to you today that this customer expects to expand production of this new KLC US solution into additional smartphone models next year. Looking beyond the smartphone market, OEMs are interested in adopting UFS-EMC for smart connected devices and other consumer applications.
Speaker Change: Our leadership in <unk> NAND controller technology plays like the emotion.
Speaker Change: Forefront of Chelsea adoption of smartphone manufacturers are looking to deploy a <unk> with the USPS for me two high end devices and Kelsey with EMC in low end handset boy I and others started intensification over the next few years.
Speaker Change: Our first handset OEM partners that are well deploy trc on USA is expected to ramp later this year.
Wallace Co: What is more, I'm pleased to report to you today that this customer expects to expand protection of this new QLC UFS solution into additional smartphone models next year. Looking beyond the smartphone market, OEM are interested in adoption UFS EMC for smart connected devices and other consumer applications. Our growing list of wing and customer in this additional area will further diversify our end-markly growth opportunity. Given the increasing opportunity to capture share without flash maker partners and shoot the introduction of new EMC and UFS QLC solution, we believe we are well positioned for continued growth.
Speaker Change: It's more I am pleased to report to you today that this customer and expect to expand production of this new Kelsey your solution into additional smartphone models next year.
Speaker Change: Looking beyond the smartphone market Oems are interested in adoption USA is EMC for smart connected devices and other consumer application our growing list of the wing and customary in these additional area will further diversify our end market growth.
Wallace Koh: Our growing list of Wings and customers in this additional area will further diversify our end market growth opportunity. Given the increasing opportunity to capture share with our fast-maker partners and through the introduction of new EMC and European QRC solutions, we believe we are well-positioned for continued growth. Now, let me turn to our Muntitan platform.
Speaker Change: Opportunity.
Speaker Change: Given the increasing opportunity to capture share without flash maker partners and shoe the introduction of new EMC and USA <unk> solution. We believe we are well positioned for continued growth.
Wallace Co: Now let me turn to our Mtn Tec and platform. But we have mentioned before, Enterprise and Data Center's story, Alchristic Emotion, a tremendous new revenue opportunity combined with a meaningful E, high ASP and Martian profile over the median to loan term. We continue to see more inbound inches in our Muntaiton solution given our unique differentiation. We believe we are well positioned to scale with a flash maker and storage solution enabler, as well as directly with data center and enterprise customers in the coming years. Our first Mtaiton PCIe 5 controller managed TLC and QLCNN on a single platform.
Speaker Change: Now, let me turn to our <unk> platform.
Wallace Koh: As we have mentioned before, enterprise and data center storage offers Slicomotion a tremendous new revenue opportunity combined with a meaningfully high ASP and margin profile over the medium to long term. We continue to see more inbound interest in our Mtn Titan solution. Given our unique differentiation, we believe we are well-positioned to scale with a flash maker and storage solution enabler, as well as directly with data center and enterprise customers in the coming years. Our first-run Titan PCIe 5 controller managed TLC and QLC NAND on a single platform. Enabling the seamless transition and adoption of QRCNAN with enterprise and data center storage applications.
Speaker Change: As we have mentioned before and to Brian Datacenters story office take emotion achieve Mendes new revenue opportunity combined with a meaningfully high ASP and margin profile over the medium to long term.
Speaker Change: We continue to see more inbound interest in our main tightened solution given our unique differentiation. We believe we are well position to scale with the flash maker and storage solution enabler as well as directly with data center and enterprise customers in the coming years.
Speaker Change: First of all entitled <unk> control, the managing TLC and <unk> NAND on a single platform.
Wallace Co: Enabling the seamless transition and adoption of QLCNN with enterprise and data center story applications. As we announced last quarter, we have won two TLCNN customers for our new Mtaiton PCIe 5 controller. Win the U.S. and win the China and expect to secure two additional TLCNN wins later this year. We are on track to begin early mass production later this year and run more meaningfully next year. Our early success has been driven through differentiation with our controller offering high performance and greater power efficiency. We support for more than that any other platform in the market today.
Speaker Change: Enabling the seamless transition and adoption of Trc Nguyen with enterprise and data center storage applications.
Wallace Koh: As we announced last quarter, we have won two tier one customers for our new Mount Titan PCIe5 controller, one in the US and one in China, and expect to secure two additional tier one wins later this year. We are on track to begin early mass production later this year and run more meaningfully next year. Our early success has been driven by differentiation, with our controller offering high performance and greater power efficiency.
Speaker Change: We announced last quarter, we have won two tier one customer for our new among tightened Pcie controller.
The U S and winds of China and expect to secure two additional tier one wins later this year.
Speaker Change: We are on track to begin early mass production later this year and then more meaningfully next year.
Speaker Change: Our early success has been driven through differentiation with our controller offering high performance and power efficiency with support for more NAND than any other platform in the market today.
Wallace Koh: We support more NANDs than any other platform in the market today. PlanTitan delivers two key technologies, zone and space, and flexible data placement with QLC, which is combined to improve latency and throughput speed while lowering overall cost should reduce DRAM demand.
Wallace Co: Mtaiton delivered two key technology, zone and space and flexible data placement with QLC, which combined with to improve latency and throughput speed while lowering. Additionally, our proprietary power and performance shaping technology enable our customers to dynamically adjust their storage to meet rapidly changing data center performance requirements. This includes, in the upcoming two terabyte model die KLCNM, the ability to deliver 128 terabyte SSD. These high-capacity SSD have the highest sequential re-performance and lower cost to meet every increasing AI compute and star requirements. It is becoming increasingly clear for our customers that our multi-dance solutions will be essential for the next generation data center and storage build plan, especially for delivering faster and more accurate AI capability to the market.
Speaker Change: <unk> delivered two key technology domain space and flexible data placement with kiosk.
Speaker Change: <unk> combined with <unk> to improve latency and shippers speed, while lowering overall cost she'll redo DRAM demand. Additionally.
Wallace Koh: Additionally, our proprietary power and performance shaping technology enables our customers to dynamically adjust their storage to meet rapidly changing data center performance requirements. This includes, in the upcoming 2TB MonoDyQLC NAND, the ability to deliver 120TB SSD. These high-capacity SEDs have the highest sequential read performance and lower cost to meet ever-increasing AI compute and storage requirements.
Speaker Change: Additionally, our proprietary power and performance sharing technology enable our customers to dynamically adjust their salaries to meet rapidly changing data center performance requirement.
Speaker Change: This include in the upcoming two tera bit mono di <unk> NAND.
Speaker Change: Alrighty too deep to lever 128 terabyte SSD.
Speaker Change: These high capacity is a D have the higher sequential re performing and lower cost to meet.
Speaker Change: Increasing AI compute and salary requirement.
Wallace Koh: It is becoming increasingly clear for our customers that our Mtn Titan solutions will be essential for the next-generation data center and storage build plan, especially for delivering faster and more accurate AI. As we have mentioned on previous calls, given our record of managing our QLC NAND more than anyone over the past decade. We believe that this new product platform will drive a multiple-year growth cycle for SiliconMotion as we enter a greenfield market opportunity for our company with leading technology.
Speaker Change: It is becoming increasingly clear for our customers at our Montana and solutions will be essential for their next generation data center and storage build out plan, especially for delivering faster and more accurate AI capability to the market.
Wallace Co: But we have mentioned on previous calls, given our record of managing our QLCNM, than anyone over the past decade. We believe that this new product platform will drive multiple-year growth cycle for Silicon Motion as we enter a greenfield market opportunity for our company with leading technology. Given the early-month item performance and widespread interest in our products, we expect the platform to grow to 5 to 10% of our total revenue in the 2026 to 2027 time trends.
Speaker Change: But we have mentioned on previous calls given our record of managing our <unk> NAND than anyone over the past decade.
Speaker Change: We believe that this new product platform will drive multiple year growth cycle for silicon motion as we.
Speaker Change: We enter a greenfield market opportunity for our company with leading technology given the early months item performers and widespread interest in our products. We expect the platform to grow two 5%, 10% of our total revenue in the 2020 six to 27.
Wallace Koh: Given the early Muntitan performance and widespread interest in our products, we expect the platform to grow to 5 to 10 percent of our total revenue in the 2026 to 2027 time frame. Overall, I'm excited by our strong start to 2024 and our outlook for the remainder of the year. I'm especially pleased that we continue to target year-over-year revenue growth of 25 to 30%. Despite the challenges in the near term from the increased land price crisis, in the sum of our, Looking ahead, we are confident that our technology leadership and diversified portfolio of our controllers across a wide range of the market and applications will accelerate and drive the substantial long-term growth of our business.
Speaker Change: Even timeframes.
Wallace Co: Overall, I'm excited by our strong start to 2024, and now I'll look for the remainder of the year. I mean, especially please, that we continue to talk the year-of-year revenue growth of 25 to 30%. Despite the challenging in the near-term increased non-fragile prices in the sum of our customers. Looking ahead, we are confident that our technology leadership and diversified portfolio of our controllers across a wide range of market and application. We all accelerate and drive the substantial long-term growth of our business. We continue to push beyond PC and smartphone into new opportunity, including the enterprise, automotive, industrial, commercial, and consumer markets.
Speaker Change: Overall I am excited by our strong start to 2024 and I'll look for the remainder of the year.
Speaker Change: Especially pleased that we continue to target year over year revenue growth over 25% to 30%. Despite the challenging in the near term increased nine NAND flash prices.
Speaker Change: Some of our customers.
Speaker Change: Looking ahead, we are confident that our technology leadership and diversified portfolio of our controller across a wide range of the market and application well our salary and Jai the substantial long term growth of our business.
Wallace Koh: We continue to push beyond PC and smartphone into new opportunities, including the enterprise, automotive, industrial, commercial, and consumer markets. I'm especially excited about the emerging Mount Titan opportunity, and Y-Expat will have a significantly positive impact on our revenue, growth, and operating margins over the next few years as we capture share in the enterprise market. I look forward to detailing more about our progress in the area in a future update. Now, let me turn the call over to Jason to go over our financial results and all of that.
Speaker Change: We continue to push beyond PC and smartphone into new opportunity, including the enterprise automotive industrial commercial and consumer market.
Wallace Co: I'm especially excited about emerging mountainous opportunities. And why expect will be a significantly positive impact on our revenue growth and operation margins over the next few years? As we capture share in the enterprise market, I look forward to detailing more about our progress in the area in the future update.
Speaker Change: Especially excited about emerging non Titan opportunity.
Speaker Change: And then while I expect that will be a significantly positive impact on our revenue growth and operating margins over the next few years.
Speaker Change: As we capture share in the enterprise market.
Speaker Change: Look forward to detailing more about our progress in the area in the future update.
Jason Tsai: Now, let me turn the call over to Jason to go over financial results, and I'll look. Thank you, Wallace, and good morning, everyone joining us today. I will discuss additional details of our second 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 gap to non-gap data is included in the earnings release issued yesterday, as well as the presentation that was uploaded to our website a little while. In the second quarter, sales increase of 11% sequentially to 211 million.
Speaker Change: Let me turn the call over to Jason to go over our financial results and outlook.
Jason Tsai: Thank you, Wallace, and good morning, everyone, joining us today. I will discuss additional details of our second 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 in the earnings release issued yesterday, as well as the presentation that was uploaded to our website a little while ago.
Speaker Change: Yes.
Jason: Thank you Walter.
Jason: And good morning, everyone joining us today.
Jason: I will discuss additional details of our second 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 in the earnings release issued yesterday as well as the presentation that was uploaded to our website.
Speaker Change: A little a while ago.
Jason Tsai: In the second quarter, sales increased 11% sequentially to $211 million. SSD sales increased modestly sequentially, representing our fifth consecutive quarter of growth. Our strong share gains among flash makers continues to deliver outstanding results, despite some market uncertainties from continued inflationary pressure and higher NAN flash prices contributing to weaker aftermarket SSD demand. EMMC and UFS controllers increased 25% to 30% sequentially as demand increased in the second quarter from increased smartphone builds in anticipation of demand growth in the second half of this year.
Speaker Change: In the second quarter sales increased 11% sequentially to $211 million SSD sales increase increased modestly sequentially, representing our fifth consecutive quarter of growth our strong share gains or flash makers continues to deliver outstanding results. Despite some market uncertainties from continued inflationary pressure in <unk>.
Jason Tsai: SSD sales increase modestly sequentially, representing our fifth consecutive quarter of growth. Our strong share gains of flash makers continues to deliver outstanding results despite some market uncertainties from continued inflationary pressure and higher-nan flash prices contributing to weaker aftermarket SSD demand. EMMC and UFS controllers increased 25 to 30% sequentially as demand inflected in the second quarter from increased smartphone builds in anticipation of demand growth in the second half of this year. SSD solution sales increased 20 to 25% sequentially. Gross margin in the second quarter increased to 46%, primarily from better mixed-tenure products. Operating expenses in the second quarter were 62.1 million, a slight decrease from the first quarter.
Speaker Change: Higher NAND flash prices contributing to weaker aftermarket SSD demand.
Speaker Change: I am seeing Europe as controllers increased 25% to 30% sequentially as demand inflect in the second quarter from increased smartphone builds in anticipation of demand growth in the second half of this year.
Jason Tsai: SSD solution sales increased 20 to 25 percent. Gross margin in the second quarter increased to 46%, primarily from better mixed orders to newer products. Operating expenses in the second quarter were $62.1 million, a slight decrease from the first quarter.
Speaker Change: <unk> solution sales increased 20% to 25% sequentially gross margin in the second quarter increased to 46% primarily from better mix to newer products operating expenses in the second quarter were $62 1 million a slight decrease from the first quarter.
Jason Tsai: Operating expenses, specifically R&D project expense, were higher than expected in the second quarter as we made the decision to re-tape out our upcoming high-performance 8-channel PCIe5 client SSD controller to deliver superior yields when we enter mass production later this year. This will result in higher overall gross margins for this product in the long term. Operating margins increased to 16.5% in the quarter, up from 12% in the first quarter. Our effective tax rate in the second quarter was 16.5%, a modest increase from the 16.1% tax rate in the first quarter.
Jason Tsai: Operating expenses, specifically R&D project expense, was higher than expected in the second quarter as we made the decision to retap out our upcoming high-performance H-channel PCIe 5 client SSD controller to deliver superior yields when we enter mass production later this year. This will result in higher overall growth margins for this product in the long term. Operating margins increased to 16.5% in the quarter, up from 12% in the first quarter. Our effective tax rate in the second quarter is 16.5%, a modest increase from the 16.1% tax rate in the first quarter. Arrings per ADS were 96 cents and increased from the 64 cents in the first quarter.
Speaker Change: Operating expenses, specifically R&D project expense was higher than expected in the second quarter as we made the decision to re tape out our upcoming high performance E Channel Pcie five client SSD controller to deliver superior yields when we enter mass production. Later this year. This will result in higher overall gross margin.
For this product in the long term.
Speaker Change: Operating margins increased to 16, 5% in the quarter up from 12% in the first quarter.
Speaker Change: Our effective tax rate in the second quarter of 16, 5% a modest increase from the 16, 1% a tax rate in the first quarter earnings per ads for 96 cents an increase from the 64 cents in the first quarter total stock based compensation, which we include exclude from our non-GAAP results was 385.
Jason Tsai: Earnings per ADS were $0.96, an increase from the $0.64 in the first quarter. Total stock-based compensation, which we exclude from our non-GAAP results, was $385,000 in the second quarter. We had $343.6 million of cash, cash equivalents, restricted cash, and short-term investments at the end of the second quarter, compared to $349.3 million at the end of the first quarter. Inventory decreased sequentially in the second quarter to $241 million from $253 million in the first quarter.
Jason Tsai: Total stock-based compensation, which we exclude from our non-DAP results, was 385,000 in the second quarter. We had 343.6 million of cash, cash equivalents, restricted cash, and short-term investments at the end of the second quarter compared to 349.3 million at the end of the first quarter. Inventory decrease sequentially in the second quarter to 241 million from 253 million in the first quarter.
Speaker Change: <unk> thousand in the second quarter.
Speaker Change: We have $343 6 million of cash cash equivalents restricted cash and short term investments at the end of the second quarter compared to $349 3 million at the end of the first quarter inventory decreased sequentially in the second quarter to $241 million from 253 million in the first quarter.
Jason Tsai: Before I turn to Outlook, I'd like to talk a bit more about our higher R&D investments that we are making this year. As the industry adopts new high-performance standards that doubles the performance from previous standards, power consumption needs to remain at the same or lower to assure the same battery life or smartphones and notebooks that consumers demand. The only way to balance both significantly higher performance and lower power is to move to lower process geometry production, and that means building these next generation PCIe and UFS controllers on 6 nanometer. In addition, we need to develop new SOC architecture, new firmware architecture, and customized mixed signal capabilities that collaborate closely with our NAND partners to achieve these goals.
Jason Tsai: Before I turn to Outlook, I'd like to talk a bit more about our higher R&D investments that we are making this year. As the industry adopts new, high-performance standards that double the performance from previous standards, power consumption needs to remain at the same or lower to assure the same battery life for smartphones and notebooks that consumers demand. The only way to balance both significantly higher performance and lower power is to move to lower process geometry production, and that means building these next-generation PCIe and UFS controllers on 6nm.
Speaker Change: Before I turn to outlook I'd like to talk a bit more about our higher R&D investments that we're making this year as the industry adopts new high performance standards that doubles the performance from previous standards power consumption needs to remain at the same or lower to assure the same battery life for smartphones and notebooks that consumers demand.
Speaker Change: The only way to balance both significantly higher performance and lower power is to move to lower process geometry production and that means building. These next generation Pcie and Uff's controllers on 16 nanometer. In addition, we need to develop new <unk> architecture, new firmware architecture and customer.
Jason Tsai: In addition, we need to develop new SoC architecture, new firmware architecture, and customized mixed signal capabilities that collaborate closely with our NAND partners to achieve these goals. While all of this does result in higher R&D expenses in the near term, we do see significant benefits including higher ASPs, more outsourcing, and a bigger moat around our product leadership than ever before. We have unmatched technical and financial resources and intend to make this essential investment in order for us to continue to grow faster and increase our market share and to drive higher growth and better profitability over the long term.
Speaker Change: Highest mixed signal capabilities that collaborate closely with our NAND partners to achieve these goals.
Jason Tsai: While all of this does result in higher R&D expenses in the near term, we do see significant benefits, including higher ASPs, more outsourcing, and a bigger amount around our product leadership than ever before. We have unmatched technical and financial resources and intent to make this essential investment in order for us to continue to grow faster and increase your market share and to drive higher growth and better profitability over the long term.
Speaker Change: All of this does result in higher R&D expenses in the near term, we do see significant benefits, including hiring sp's more outsourcing and a bigger moat around our product leadership than ever before we have unmatched technical and financial resources and intend to make this a central investment in order for us to continue to grow faster and increase our <unk>.
Speaker Change: Market share and to drive higher growth and better profitability over the long term.
Jason Tsai: Let me now turn to our outlook. As Wallace talked about earlier this year, due to the ongoing higher NAND prices of weaker retail consumer electronics demand, our customers, especially module makers, are seeing demands softened in the retail aftermarket. As a result, they're anticipating a much more muted seasonal pattern for retail demand for the second half of this year. year. Despite this, our ongoing success with flashmakers, customers, and the increased outsourcing we have won over the past year gives us confidence that we'll be able to achieve our full-year revenue outlook. For the third quarter, we expect revenue to be flat plus or minus 2.5% sequentially to approximately 205 to 216 million, due to the expected weaker than seasonal aftermarket SSD demand.
Jason Tsai: Let me now turn to our outlook. As Wallace talked about earlier this year, earlier, due to the ongoing higher NAN prices and weaker retail consumer electronics demand, our customers, especially module makers, are seeing demand soften in the retail aftermarket. As a result, they're anticipating a much more muted seasonal pattern for retail demand for the second half of this year.
Speaker Change: Let me now turn to our outlook as well as talked about earlier this year.
Speaker Change: Earlier due to their ongoing higher NAND prices are weaker retail consumer electronics demand our customers, especially module makers are seeing demand softened in the retail aftermarket as a result, they are anticipating a much more muted seasonal pattern for retail demand for the second half of this year. Despite this our.
Jason Tsai: Despite this, our ongoing success with flash makers, customers, and the increased outsourcing we have won over the past year gives us confidence that we'll be able to achieve our full year revenue outlook. For the third quarter, we expect revenue to be flat, plus or minus 2.5% sequentially to approximately $205 to $216 million due to the expected weaker-than-seasonal aftermarket SSD demand. We expect eMMC and SSD controller sales to be stable sequentially. Third quarter gross margins are expected to continue to improve and be in the range of 46 to 47%.
Speaker Change: Ongoing success with flash makers customers and the increased outsourcing we have won over the past year gives us confidence that we'll be able to achieve our full year revenue outlook for.
Speaker Change: For the third quarter, we expect revenue to be flat plus or minus two 5% sequentially to approximately $205 million to $216 million due to the expected weaker than seasonal aftermarket SSD demand, we expect MMC in SSD controller sales to be stable sequentially.
Jason Tsai: We expect EMMC and SSD controller sales to be stable sequentially. Third quarter gross margins is expected to continue to improve and be in the range of 46 to 47%. Are improving mix of sales towards newer products should lead to sustained gross margin improvements. Third quarter operating margin will experience a one-quarter decline driven by the expected tape out of our new 6 nanometer 4 channel mainstream client PCIe 5 SSD controller. We expect this new controllable under mass production early 2026 as PCIe 5 SSDs expand into the mainstream market. Operating margin is expected to be in the range of 14.3 to 15.3 in the September quarter and then return to more normalized levels.
Speaker Change: Third quarter gross margin is expected to continue to improve and be in the range of 46 or 47%, our improving mix of sales towards newer products should lead to sustained gross margin improvements.
Jason Tsai: Our improving mix of sales towards newer products should lead to sustained gross margin improvement. However, third quarter operating margin will experience a one-quarter decline driven by the expected tape out of our new six nanometer four channel mainstream client PCIe 5 SSD controller. We expect this new controller will enter mass production early 2026 as PCIe 5 SSDs expand into the mainstream market. Operating margin is expected to be in the range of 14.3 to 15.3 in the September quarter and then return to more normalized levels.
Speaker Change: Third quarter operating margin will experience, a one quarter decline driven by the expected tape out of our new six nanometer for channel mainstream client Pcie <unk> SSD controller, we expect this new controller will enter mass production in early 2026 as PCI ssds expand into the mainstream market operating margin is expected to.
Speaker Change: To be in the range of $14 three to $15 three in the September quarter, and then returned to more normalized levels third quarter effective tax rate should be 18% and third quarter stock based compensation and dispute related expenses to be in the range of six 4% to $7 4 million for the full year, we are maintaining our revenue outlook given the continuing strong.
Jason Tsai: The third quarter effective tax rate should be 18%, and third quarter stock-based compensation and dispute-related expenses should be in the range of 6.4 to 7.4 million. For the full year, we are maintaining our revenue outlook given the continually strong demand from our NAND maker customers, but improving our profitability. Revenue is expected to increase 25% to 30% this year to approximately $800 million to $830 million. We're tightening our gross margin range given the strength of our margin improvement this year already.
Jason Tsai: Third quarter effective tax rate should be 18%, and third quarter stock-based compensation and dispute-related expenses to be in the range of 6.4 to 7.4 million. For the full year, we are maintaining our revenue outlook given the continuing strong demand from our nan maker customers, but improving our profitability. Revenue is expected to increase 25 to 30% this year to approximately 800 to 830 million. We are tightening our gross margin range given the strength of our margin improvement this year already. Full year gross margins is expected to be in the 46 to 47% range. Operating margin is expected to improve modestly, given the better gross margin performance in the first half this year and is expected to be in the range of 14.8 to 16.8%, despite accelerate investment in our technology leadership and the new product introductions that should lead to revenue growth in 2025 and beyond.
Speaker Change: Demand from our NAND maker customers, but improving our profitability.
Speaker Change: <unk> is expected to increase 25% to 30% this year to approximately $800 million to $830 million, we're tightening our gross margin range given the strength of our margin improvement this year already full year gross margins.
Jason Tsai: Full-year gross margins are expected to be in the 46% to 47% range. Operating margin is expected to improve modestly given the better gross margin performance in the first half of this year and is expected to be in the range of 14.8% to 16.8% despite accelerated investment in our technology leadership and the new product introductions that should lead to revenue growth in 2025 and beyond. Our 2024 effective tax rate is expected to come down slightly and be now approximately 18%.
Speaker Change: <unk> expect it to be in the 46% to 47% range.
Speaker Change: Operating margin is expected to improve modestly given the better gross margin performance in the first half this year and is expected to be in the range of 14, 8% to 16, 8%. Despite accelerated investments in our technology leadership and the new product introductions that should lead to revenue growth in 2025 and beyond our 2024.
Jason Tsai: Our 2024 effective tax rate is expected to come down slightly and be now approximately 18%. 2024 stock-based compensation dispute-related expenses and loss from settlement of litigation should be in the range of 29 to 31 million.
Speaker Change: <unk> effective tax rate is expected to come down slightly.
Speaker Change: We now have approximately 18%.
Jason Tsai: 2024 Stock-based compensation, Dispute-related Expenses, and loss from settlement of litigation should be in the range of 29 to 31. With the dedication of our team over the past year, we have been able to develop and deliver cutting-edge controller solutions that will power AI applications in PCs, smartphones, and soon data centers and enterprises. Our wide range of controller solutions is gaining significant traction in other markets, such as automotive, industrial, and commercial applications, further diversifying our long-term growth driver.
Speaker Change: 24 stock based compensation dispute related expenses and loss from settlement of litigation should be in the range of 29% to $31 million.
Jason Tsai: With the dedication of our team over the past year, we have been able to develop and deliver cutting-edge controller solutions that will power AI applications and PCs, smartphones, and soon data centers and enterprises. Our wide range of controller solutions are gaining significant traction in other markets such as automotive, industrial, commercial applications, further diversifying our long-term growth drivers. Our efforts to collaborate more with flashmakers have allowed us to benefit from the recent trend; the more outsourcing driving more predictable growth and better visibility despite near-term market volatility. While we will continue to invest in growing our R&D capabilities and building more leading edge controllers, we are seeing these investments begin to pay dividends, and we expect these products to scale meaningfully next year, driving additional revenue growth and profitability, further extending our technology and market share leadership in the flash controller market.
Speaker Change: With the dedication of our team over the past year, we have been able to develop and deliver cutting edge controller solutions that will power AI applications in Pcs smartphones and soon Datacenters are enterprises are wide range of controller solutions are gaining significant traction in other markets such as automotive industrial and commercial applications further diversifying our long.
Speaker Change: Term growth drivers our efforts to collaborate more with flash makers have allowed us to benefit from the recent trend, but more outsourcing driving more predictable growth and better visibility despite near term market volatility, while we will continue to invest in growing our R&D capabilities and building more leading edge controllers. We're seeing these investments begin to pay dividends.
Jason Tsai: Our efforts to collaborate more with flash makers have allowed us to benefit from the recent trend of more outsourcing driving more predictable growth and better visibility despite near-term market volatility. While we will continue to invest in growing our R&D capabilities and building more leading-edge controllers, we are seeing these investments begin to pay dividends, and we expect these products to scale meaningfully next year, driving additional revenue growth and profitability and further extending our technology and market share leadership in the flash controller market.
Speaker Change: We expect these products to scale meaningfully next year, driving additional revenue growth and profitability and further extending our technology and market share leadership in the flash controller market. This concludes our prepared remarks, we will now open the call for your questions.
Operator: This concludes our prepared remarks. We will now open the call for your questions. Thank you.
Operator: This concludes our prayer remarks.
Operator: We will now open the call for your questions. Thank you. We will now begin the question and answer session. Do I have a question? Please press star 11 on your telephone keypad.
Operator: We will now begin the question-and-answer session. To ask a question, please press star 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 once again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Craig Ellis from B. Reilly Securities. Please ask your question.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Ask a question. Please press star one on your telephone keypad.
Operator: You would end here in all the media message. Revising your hand is raised. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.
Yohan: You would an automated message advising yohan is raised to.
Speaker Change: To withdraw your question. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Craig Ellis from B Riley Securities. Please ask your question.
Craig Ellis: Yeah, thanks for taking the question. Wallace, I wanted to start off with one that was high level and followed up on some of your comments regarding execution with NAND OEM share gain. At the beginning of the year, we were intending to see 500 basis points of share gain this year. Can you talk about where you think you stand at mid-year against that objective and any positive or negative variances versus what you were hoping for six months ago?
Craig Ellis: Yes, thanks for taking the question well, let's I wanted to just start off with one that was high level and followed up on some of your comments regarding execution with NAND OEM share gains at the beginning of the year we were.
Unnamed: While I wanted to start off with one that was high level and followed up on some of your comments regarding execution with Nando EM Shargain. At the beginning of the year, we were intending to see 500 basis points of Shargain this year. Can you talk about where you think you stand at mid-year against that objective and any positive or negative variances versus what you were hoping for six months ago? So far, I think we're on track for all the projects we aiming and plan to do. We maintain very close relationship with all the NAND makers, and we capture all the variable socket open to us.
Speaker Change: We were intending to see 500 basis points of share gain. This year can you just talk about where you think you stand at midyear against that objective and in any positive or negative variances versus what you were.
Speaker Change: Hoping for six months ago.
Wallace Koh: So far, I think we're on track for all the projects we're aiming for and plan to do. We maintain a very, very close relationship with all the network makers, and we capture all the variable sockets open to us.
Speaker Change: So far I've seen we're on track for all of the project.
Speaker Change: And plan to do we maintain very very close relationship with all the NAND makers and we captured all of the variables socket.
Unnamed: And so our share last year was about 25 to 30%, and we believe we'll continue to gain share with this is the forecast in Didan Wing. And we believe the mobile portion we're also gaining around 20% to 25% range by year end. So we cautionally monitor all the opportunity to capture all source to serve party specialistic emotion.
Wallace Koh: And so, see, our share last year was about... For S&D, about 25% to 30%. And we believe we'll continue to gain share. This is a forecast and design win. And we believe the mobile portion, we're also gaining around 20% to 25% range by year end. So we cautiously monitor all the opportunity to capture all the resources from third parties, especially Silicon Motors.
Speaker Change: And to us and so C.
Speaker Change: Sure last year was above.
Speaker Change: <unk>, 25% to 30% and we believe we'll continue gain share.
Speaker Change: This is a forecast and design win and we believe the mobile portion. We also gaining around 20% to 20 represent range by year end. So we.
Speaker Change: Cautiously monitoring all of the opportunity to capture all sourced to third party specialty silicon motion.
Unnamed: That's helpful.
Wallace Koh: That's helpful. And then the follow-up question, excuse me, relates to the PCIe Gen 5 transition. Can you just help us put that in context by providing a summary of where PCIe Gen 4 mix would be this year? And as we look to next year, when PCIe Gen 5 would ship in higher volumes, how much of the business on the SSB controller side shifts over to PCIe Gen 5 next year? Thank you.
Unnamed: And then the follow-up question, excuse me, relates to the PCIe Gen 5 transition. Can you just help us put that in context by providing a summary of where PCIe Gen 4 mix would be this year. And as we look to next year when PCIe Gen 5 would ship in higher volume, how much of the business on the SSB controller side shifts over to PCIe Gen 5 next year.
Speaker Change: That's helpful and then the follow up question.
Speaker Change: Excuse me relates to the Pcie Gen. Five transition can you just help us put that in context by providing.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change: A summary of where pcie Gen four mix would be this year and as we look to next year when pcie Gen. Five word shipping higher volume how much of the business.
Speaker Change: On the SSD controller side shifts over the Pcie Gen. Five next sure. Thank you.
Wallace Co: Thank you. Yeah, PCIe Gen 5 will start to run from early 2025, but the 205 will maintain the high-end premium line. So there will be the high end notebook in the high NPC for AIPC and gaming PC and workstation PC. So next year the volume probably will stay maintained very low, only about 5% transition, but for 2026 moving to the high volume and the mainstream PCIe Gen 5 coming. So next year, I think PCIe majority for SID will maintain in the PCIe Gen 4 in by 2026 and probably PCIe Gen 5 will occupy around 30% of total market.
Wallace Koh: Yeah, PCIe Gen 5 will start to run in early 2025, but 2025 will maintain the high-end premium line. So there will be the high-end notebook in the high-end PC for AIPC, and gaming PC, and workstation PC.
Speaker Change: Yes, peace HSI well start to ramp from early 2025, but 29, if I will are maintained.
Speaker Change: High end premium line, so that will be the high end notebook in the high <unk> and gaming PC and workstation PC. So next year, so volume probably will stay maintain very low rolling at about 5% transition, but for 2020 sick, they're moving.
Wallace Koh: So next year, the volume probably will still remain very low, only about 5% transition. But for 2026, we're moving to high volume, and the mainstream PCIe Gen 5 is coming. So next year, I think the majority of SSDs will remain in the PCIe Gen 4. And by 2026, probably PCIe Gen 5 will occupy around 30% of the total market.
Speaker Change: To the high volume and.
Speaker Change: Mainstream Pcie Gen VI coming so next year I assume <unk> majority.
Speaker Change: <unk> will maintain in the pcie Gen four and.
Speaker Change: By 2026, and probably Pcie Gen five will occupy around 30% or total market.
Unnamed: Very helpful Wallace.
Craig Ellis: Very helpful, Wallace. Thanks, and I'll hop back into the queue.
Speaker Change: Very helpful Wallets, Thanks, and I'll hop back into the queue.
Unnamed: Thanks, and I'll hop back into the queue.
Unnamed: Thank you.
Speaker Change: Thank you.
Tony Stahls: Next question comes from the line of Tony Stahls from Craig Holland. Please go ahead, Tony. Thank you. Good morning, guys. Maybe for you, Jason. Just want to fall up on the tape out commentary. Expect it for Q3. Can you maybe size that for ourselves? So do you expect any continued tape outs in Q4? And then I'd love to hear your thoughts. A lot of positive comments here related to increasing gross margins. Can you give us a sense of kind of what you think ballpark might be heading into 2025? I would assume it's higher than 2024.
Tony Stoss: Our next question comes from the line of Tony Stoss from Craig Holland. Please go ahead, Tony.
Speaker Change: Our next question comes from the line of Tony Stoss from Craig Hallum. Please go ahead Tony.
Tony Stoss: Thank you. Good morning, guys. Maybe for you, Jason, I just want to follow up on the tape-out commentary expected for Q3. Can you maybe size that for us?
Tony Stoss: Thank you good morning, guys.
Tony Stoss: Maybe for you Jason I just wanted to follow up on the <unk> commentary expected for Q3 can you maybe size that for US and also do you expect any continued tape outs in Q4, and then I'd love to hear your thoughts.
Speaker Change: Positive comments here related to increasing gross margins can you give us a sense of kind of what you think ballpark might be heading into $2025 two is higher than 2024.
Jason Tsai: Yeah, so for tape out clause, we talked about six nanometer tape out clause, typically running 15 to 20 million per controller. Obviously, that's over the entire production of the tape out in the given any given quarter where we do actually tape out. That's probably a five to ten million dollar charge in that quarter.
Jason Tsai: And also, do you expect any continued tape-outs in Q4? And then, I'd love to hear your thoughts, a lot of positive commentary related to increasing gross margins. Can you give us a sense of kind of where you think Ballpark might be heading into 2025? I would assume it's higher than 2025.
Speaker Change: Yes, so for our tape out costs, yes, we talked about six nanometer tape out cost typically running $15 million to $20 million per controller, obviously thats over the entire production of the tape out and given any given quarter, where we do actually tape out that's probably a $5 million to $10 million charge in the quarter. So that's what.
Jason Tsai: Yeah, so for tape out costs, you know, we talked about six nanometer tape out costs, typically running 15 to 20 million per controller. Obviously, that's over the entire production of the tape out in any given quarter where we do actually tape out, that's probably a five to $10 million charge in that quarter. So that's what we're talking about here from an incremental perspective in Q3, given the new six nanometer four channel PCI five controller we're typing on. Going into Q4, we do not expect any additional tape outs for PCI at 6 nanometers. So you should see our op-eds come down in the fourth quarter.
Jason Tsai: So that's what we're, that's the ballpark that we're talking about here from an incremental perspective in Q3, given the new six nanometer for channel PCI 5 controller. We're taking out this quarter. Going into Q4, we do not expect any additional tape-outs for PCI for six nanometer. So you should see our opets come down in the fourth quarter. In terms of gross margins, you know, we've been steadily progressing over the last year or so, improving our gross margins due to better mix, and we expect that to continue as more and more of our products come from newer generation products.
Speaker Change: That's the ballpark that we're talking about here from an incremental perspective in Q3, given the new six nanometer four channel PCI five control, we're taking out this quarter.
Speaker Change: Going into Q4, we do not expect.
Speaker Change: Any additional tape outs for PCI first six nanometer. So you should see our opex come down in the fourth quarter in terms of gross margins, we've been steadily progressing over the last year or so improving our gross margins due to better mix and we expect that to continue as more and more of our products come from newer generation products.
Jason Tsai: In terms of gross margins, you know, we've been steadily progressing over the last year or so, improving our gross margins due to a better mix. And we expect that to continue as more and more of our products come from newer generation products. Next year, we'll also have PCI 5 as well as Mt. Titan starting to ramp up a little more meaningfully, so those should be positive and additive for us as well.
Jason Tsai: Next year we'll also have PCI 5 as well as Montiton starting to ramp along our meaningfully, so those should be positive and additive for us as well. Historically, we've been at 48% to 50% gross margins. I think we're going to get pretty close to that this year, and then going into next year, we should be in that range. Got it.
Speaker Change: Next year, we'll also have PCI five as well as one Titan starting to ramp a little more meaningfully so those should be positive and additive for us as well historically, we've been at 48% to 50% gross margins I think we're going to get pretty close to that this year and then going into next year, we should be in that range.
Jason Tsai: Historically, we've been at 48 to 50% gross margins. I think we're going to get pretty close to that this year. And then going into next year, we should be in that range.
Wallace Koh: Got it. Ethan Wallace, maybe a follow-up for you on the Mtn Titan and your addition of two additional customers to make it four at the end of this year. I think in the last quarterly conference call you talked about the number of customers that you could handle. Can you update us, and do you think you could take on even more customers and maybe give us a sense of how many additional ones you think you can take on in 2025?
Jason Tsai: And then while it's making fall off for you on the Montiton, then in your adding of two additional customers to make it for at the end of the year, I think in the last quarterly conference call you talked about a number of customers that you can handle. Can you update us and do you think you can take on even more customers and maybe give us a sense of how many additional do you think you can take on in 2025? Yeah, so we have a roughly our R&D resource can handle maximum around four tier one customers simultaneously.
Speaker Change: Got it and then just maybe a follow up for you on the mine tightened and Youre, adding of two additional customers to make it for at the end of this year I think in the last quarterly conference call you talked about.
Speaker Change: A number of customers that you can handle can you update us when do you think you could take on even more customers in and maybe give us a sense of how many additional ones. You think you can take on in 2025.
Speaker Change: Yes so.
Wallace Koh: We, we have roughly our R&D resource can handle a maximum of around four tier one customers simultaneously. But the As of today, we're winning two Tier 1 customers.
Speaker Change: Well, we have a roughly our R&D resource can handle maxima around four tier one customer simultaneously, but see.
Jason Tsai: But as of today, we're winning two tier one customers. One of a customer in what developed the firmware themselves with RSTK so that will help us off those resources. We provide complete documentation, just about technology, and by the way, help them to porting their firmware into our platform. So once it gets down, I think that will be the golden basis for the complete SDK and documentation we can offer to other OEM customers. We look forward to expand more resources, and we try to expand a wider range of customers in 2025 because they have customers decide to use our standard turnkey solution with both firmware and our ASIC.
Speaker Change: As of today, we are winning two tier one customers.
Wallace Koh: One of the customers would develop the firmware themselves with our SDK, so that will help us offload resources. We provide complete documentation, just about technology, and, by the way, help them to port their firmware into our platform. So once it gets done, I think that will be the golden basis for the complete SDK and documentation we can offer to other OEM customers. We're looking forward to expanding more resources, and we will try to expand a wider range of customers in 2025. Because if customers decide to use our standard turnkey solution with both firmware and our ASIC, I think we are able to support more than four Tier 1 customers.
Speaker Change: One of our customers develop the phone where themselves with our SDK. So that will help US also is the resources. We provide complete documentation, it's about technology and by the way held into putting their phone waiting to our platform. So once it gets down I think that will be the golden basis for the complete SDK and Doug.
Speaker Change: Station, we go over to other OEM customer were looking forward to expand more resources and we tried to expand and wider range of a customer in 2025, because they are customer decided to use our standard turnkey solution with both firmware and our ASIC I assume we are able to.
Jason Tsai: I think we are able to support more than for tier one customer.
Speaker Change: Support.
Speaker Change: More than four tier one customer.
Unnamed: Great, thanks, guys. Appreciate it. Thank you.
Tony Stoss: Great. Thanks, guys. I appreciate it.
Speaker Change: Great. Thanks, guys I appreciate it.
Speaker Change: Thank you.
Quinn Bowden: Our next question comes from a line from Quinn Bowden from Neatherman Company. Please ask your question, Quinn.
Quinn Bowden: Elnick's question comes from a line of Quinn Bowden from Meet Him and Company.
Speaker Change: Our next question comes from the line of Quinn Bolton from Needham <unk> Company. Please ask your question Quinn.
Unnamed: Please ask your question, Quinn. Hey guys, I just wanted to follow up, sort of similar question to what Craig asked, except this time maybe on the mix of QLC. Where do you hear QLC is percent of both SSDs and the smartphone business as you get into 25 and 26, and then I've got a couple of follow-ups. So, it's a very good question. I think the QLC today in the PC, that's about around 10-15% in the very low, single-digit, very low, low side. But all the names make a roughly driving into the QLC opposite. So, in 2005, for kinds of D, what should be minimum 20-25%?
Quinn Bowden: Hey guys, just wanted to follow up, sort of a similar question to what Craig asked, except this time maybe on the mix of QLC, where do you see QLC as a percent of both SSDs and the smartphone business as you get into 25 and 26, and then I've got a couple of follow-ups.
Quinn Bolton: Hey, guys just wanted to follow up sort of a similar question to what Craig asked except this time, maybe on the mix of QL see where do you see <unk> as a percent of both.
Speaker Change: Both ssds and.
Speaker Change: The smartphone business as you get into 'twenty five 'twenty six and then I've got a couple of follow ups.
Wallace Koh: So it's a very good question. I think the QLC today in the PC is about around 10 to 15 percent in the very low single digit, very low low site. But all the NAND makers are roughly driving into the QLC output size. In 2025, for clients with D, what should be a minimum 20 to 25 percent. For smartphones, because the majority of smartphone makers that are deploying the opportunity, they're in the trial mode. So for next year, the total percentage should be very, very low, single digit, probably less than 5 percent.
Speaker Change: So it's a very good crushing I seen that curiously today in <unk>.
Speaker Change: In the PC, that's about around 10 to 10% to 15% in the very low single digit very low low side, but all of the NIM make a roughly driving into the <unk> center identify for clients a D will should be should minimum 20% to 25%.
Wallace Co: For smartphones, because the majority smartphone makers are deploying the opportunity, they are in the trial mode. So, for next year, the total percentage should be very, very low, single-digit, probably less than 5%, but after they deploy a very successful, they will expand to multiple model. We see the UFS adoption initially comes from the mid-range, but after the mid-range, they will try to fill into the high end. In same time, we see two smartphone makers going to try QLC into the EMSC for vital line. So, this is a tremendous opportunity and momentum, but they have to try to fill, try and make sure it's really transparent to end users and consumers.
Speaker Change: For smartphone because majority of smartphone maker.
Speaker Change: Deploying the opportunity <unk>.
Speaker Change: Prior Moe so for next year, the total percentages should be very very low single digit probably less than 5%, but after they deploy a very successful that we spend to multiple more model, we see the USS.
Wallace Koh: But after they deploy and are very successful, they will expand to multiple more models. We see UFS adoption initially come from the mid-range. But after the mid-range is down, they will try to fill the high-end. At the same time, we see two smartphone makers going to try QLC into the EMSC provider line. So this is a tremendous opportunity and momentum, but they have to try the field trial and make sure it's really transparent to the end-user and consumer. They probably won't see the difference between TLC and QLC, but it has a higher density than traditional TLC.
Speaker Change: <unk> initially come funds may.
Speaker Change: <unk> range, but after the major need down they would try to.
Tried to fill into the high end at the same time, we see two smartphone maker of going try <unk> seen to the <unk> full value line. So this is <unk>.
Speaker Change: Tremendous opportunity and momentum, but they have to try the field try and make sure. It's really transparent to end user and consumer they probably won't see the differences between TLC and <unk>, but with the higher density than traditional TLC.
Unnamed: They probably won't see the difference between TLC and QLC, but if we the higher-density, then traditional TLC. Got it.
Quinn Bowden: Got it. Thank you for that, Wallace.
Unnamed: Thank you for that.
Speaker Change: Got it. Thank you for that and then follow up question on on one Titan.
Unnamed: Well, also a follow-up question on Montiton. You know, as you ramp that solution, you mentioned it carries premium margins. Wondering if that ramp takes and it hits that 5% to 10% target in 2627, do you think that that carries enough, you know, lift on margins that it puts you to the higher end of your, you know, kind of target range of 48% to 50%? Could it push you above the 50% level, just, you know, any sense on how additive Montiton could be to the margin profile? Yeah, it's a little too early for us to comment about 26, 27 margin profile at this point, Clint.
Quinn Bowden: And then a follow-up question on Montiton. You know, as you ramp up that solution, you mentioned it carries premium margins. I'm wondering if that ramp takes and it hits that 5% to 10% target in 2026-2027; do you think that that carries enough, you know, lift on margins that it puts you to the higher end of your, you know, kind of target range of 48% to 50%? Could it push you above the 50% level? Just, you know, any sense on how additive Montiton could be to the margin profile?
Speaker Change: As you ramp that solution.
Speaker Change: You mentioned it carries premium margins wondering if that ramp takes and it hits that 5% to 10% target in 'twenty six 'twenty seven do you think that that carries enough lift on margins that it puts you to the higher end of your kind of target range of 48 to 50 could it push you above the 50.
Speaker Change: 2% level, just any any sense on how additive one title can be to the margin profile.
Jason Tsai: Yeah, it's a little too early for us to comment about 26-27 margin profiles at this point, Quinn. But you know, I think historically, we've been able to achieve that 48 to 50% based upon, you know, what we have today and the products that we have today versus, you know, Montaigne, which is a greenfield opportunity like Wallace had pointed out. So I think that could be additive to that, maybe potentially lifting us up longer term, but it's a little too early to say how additive that is in 26-27.
Speaker Change: Yes, it's a little too early for us to comment about 'twenty six 'twenty seven margin profile at this point.
Jason Tsai: But, you know, I think historically, we've been able to achieve that 48 to 50% based upon, you know, what we have today and what the products that we have today versus, you know, Montiton is a green field opportunity, like Wallis have pointed out. So, I think that could be additive to that, maybe potentially lift us up longer term, but it's a little too early to say how additive that is in the 2627 timeframe. Yeah, no, I know it's a long way to add. And then lastly, Jason, just, you know, you look at, you know, the expenses you're spending today on the PCHN5 products, the UFS4 controllers, you know, wondering if you expect, you know, another heavy investment year in 25. You guys have done a great job of citing revenue this year, but obviously, expenses are, you know, increasing as well.
Speaker Change: But I think historically, we've been able to achieve that 48% to 50% based upon what we have today and what the products that we have today versus monetizing as a greenfield opportunity like Wallace I pointed out so I think that could be additive to that maybe potentially lift us up longer term, but it's all too early to say how additive that.
Speaker Change: It is in that 'twenty six 'twenty seven timeframe.
Quinn Bowden: Yeah, I know it's a long way out.
Speaker Change: Yes, I know.
Speaker Change: Long ways out and then lastly, Jason just as you look at that.
Speaker Change: The expenses you are spending today on the Pcie Gen five products the USS four controllers wondering if you expect.
Jason Tsai: And then lastly, Jason, just as you look at the expenses you're spending today on the PCA Gen 5 products, the UFS 4 controllers, wondering if you expect another heavy investment year in 2025. You guys have done a great job of citing revenue this year. But obviously, expenses are increasing as well, and so there's been less fall through to EPS. And I was wondering if you might expect additional operating leverage on revenue growth next year as perhaps some of those investments kind of maybe stabilize next year rather than continue to increase at a pretty fast pace.
Speaker Change: Another heavy investment year in 2005, you guys have done a great job upside in revenue this year, but obviously expenses are increasing.
Wallace Co: And so, there's been less fall through to EPS, and you're just wondering if you might expect additional operating leverage on revenue growth next year. Is perhaps some of those investments, you know, kind of maybe stabilize next year rather than continue to increase at a pretty fast pace. Yeah, that's exactly the way we look at it. We're going to start seeing the dividends pay off of these investments we're making this year. That'll lead to, you know, revenue growth, but you know, we do expect to, you know, I think it's a little early talk about off-backs for next year, but we wouldn't expect it to grow nearly as fast as we saw in Chrome this year, just given that kind of initial statement of the six nanometer tapers that we had to bear.
Speaker Change: Increasing as well and so theres been less fall through to EPS and just wondering if you might expect additional operating leverage on revenue growth next year as perhaps some of those investments.
Speaker Change: Kind of maybe stabilize next year, rather than continue to increase at a pretty fast pace.
Jason Tsai: Yeah, that's exactly the way we look at it. We're going to start seeing the dividends pay off for these investments we're making this year. That'll lead to revenue growth, but we do expect to, you know, I think it's a little early to talk about OPEX for next year, but we wouldn't expect it to grow nearly as fast as we saw it grow this year, just given the kind of initial sting of the six nanometer tape out that we had to bear this year.
Speaker Change: Yes, that's exactly the way we look at it we're going to start seeing the dividends pay off of these investments, we're making this year that will lead to.
Speaker Change: Revenue growth, but we do expect to.
Speaker Change: I think it's our lora talking about Opex for next year, but we wouldn't expect it to grow nearly as fast as we saw growth. This year just given the.
Speaker Change: Kind of initial stiffening of the six nanometer tape outs that we had to bear there sure.
Wallace Koh: Let me just add some comments. I think we will try to control our operating spend next year. However, we have very, very strong demand from NAND makers. Some even ask us to customize certain new UFS controllers.
Wallace Co: Let me just add some comment. I think we tried to control our opinions next year. However, we have a very, very strong demand from NAMM maker. Some you have asked to cut my certain new UFS controller. We have to base on the resource and finally return to do calculations. It would decide to do it. That will increase some of our operating events. But I think we will based on every major project. We will be cautiously review all the ROI to make decisions.
Speaker Change: Let me just add some comments I think we try to control our operating spend next year. However, we have a very very strong demand from NAND maker selling you've asked to customize certain new <unk> controller, we have the based on the resource and finally returned to do calculation. It would decide to do it that will increase some.
Wallace Koh: We have to rely on the resource and financial return to do the calculation. If we decide to do it, that will increase some of our operating expense. But I think we will base it on every major project. We will cautiously review all the ROI to make a decision. Thank you all.
Speaker Change: Our operating expense, but I think we were based on every every major project, we will be cautiously review all the ROI to make decision.
Quinn Bowden: Thank you all. Thank you, Jason.
Unnamed: Thank you, Ross. Thank you, Jason.
Speaker Change: Thank you Ross Thank you Joseph.
Suji DeSilva: Thank you.
Ross: Thank you.
Wallace Co: Our next question comes from the line of Suji DeSilva from Ross Capital. Please ask your question, Suji. Hi, Wallace. I, Jason, congrats on the progress here. The AI PC, I'm just wondering, what is the content uplift there for the SSDs? You know, in terms of product or ASP versus the non-AI PC, just to be clarified, that would be helpful.
Suji DeSilva: Our next question comes from the line of Suji DeSilva from Rawls Capital. Please ask your question, Suji.
Speaker Change: Our next question comes from the line of <unk> Desilva.
Speaker Change: Roth capital. Please ask your question Suzie.
Suji DeSilva: Hi Wallace, hi Jason, congrats on the progress here. The AIPC, I'm just wondering what the content uplift there for the SSDs is in terms of product or ASP versus the non-AIPC? Clarify that, it'd be helpful. You asked a very good question.
Suzie: Hi, Wallace I, Jason Congrats on the progress here.
Speaker Change: AI PUC I'm just wondering what.
Suzie: What is the what is the content uplift there for the ssds.
Speaker Change: In terms of product or ESP versus the non AIP is just if you could clarify that'd be helpful.
Wallace Koh: You asked a very good question. I hope I can answer it.
Wallace Co: Yes, a very good question. I hope I can answer you. But I've seen the so far AI PC get a tremendous momentum. However, we did not see any meaningful impact. I'll increase the PC unit shipment so far. Besides the Microsoft compiler, I think the market really waiting for more meaningful application coming to add the practical application the purpose to make both the cooperate and the consumer feel comfortable. So I think there's a many different new platform coming, but it's also some bundle with PGOE and own AI application. So we have to wait to see the consumer feedback to see adoption.
Speaker Change: Yes, a very good question I hope I can answer you, but I have seen this so far AI PC get a tremendous momentum. However, we did not see any meaningful or.
Wallace Koh: But I think that so far, AI and PCs have gained tremendous momentum. However, we have not seen any meaningful impact or increase in PC unit shipment so far. Besides Microsoft compilers, I think the market is really waiting for more meaningful applications coming to add practical applications and purpose to make both the corporate and the consumer feel comfortable. So I think there are many, many different new platforms coming, but there's also some integration with PC OEM's own AI applications.
Speaker Change: In pad our inquiry the PC unit shipment so far.
Speaker Change: Beside the Microsoft <unk> I've seen the market Didnt really waiting for more meaningful application coming to add a practical application that prepares to make.
Speaker Change: Both.
Speaker Change: C cooperate and consumers feel comfortable so I think there is many many different new platform coming.
Speaker Change: But it's also some bundle with PC Oems own AI application. So we have to weigh foresee the consumer feedback to see adoption. So far I've seen the PC unit shipments for 2000 and for SM maintained the same that beginning of the year are single digit increase compared to 2023.
Wallace Koh: So we have to wait to see consumer feedback to see adoption. So far, I think the PC unit shipment for 2004 is to maintain the same at the beginning of the year, a single-digit increase compared to 2014.
Wallace Co: So far, I think the PC unit shipment for 24 is to maintain the same at the beginning of the year or single-digit increase compared to 2023. Okay.
Wallace Co: And then switching over to the infrastructure side. Sorry, we definitely see PC H and Fi SSD that become a plus because they have much better performance, provided better sequential read, provided much better short latency. So that's why this we do see potentially there will be high demand for PC H and Fi H and O SSD in 2025. Okay. That's a double 25. Great.
Suji DeSilva: And then switching over to the infrastructure side. Sorry, we definitely see PCIe Gen 5 SED. That becomes a plus because they have much better performance, provide a better sequential read, and provide a much better shorter latency. So that's why we do see potentially there'll be high demand for PCIe Gen 5 HNO SED in 2025. Switching over to the AI infrastructure side, can you give us some framework for these programs that are coming, the two you have, and the two you might be adding?
Speaker Change: Okay.
Speaker Change: Then.
Speaker Change: Switching over to the infrastructure side.
Dominique: Sorry, we Dominique <unk> that becomes a plus because it had much better performance provide a better sequential re preventative much better short term agency. So that's why this we do see potentially there'll be high demand for <unk> by a channel.
In 2025.
Dominique: Okay.
Speaker Change: That's available 25, great got it and then switching over relatively AI infrastructure side can you give us some framework for these programs that are on the call that you had the team might be adding.
Jason Tsai: And then switching over all to the AI infrastructure side. Can you give us some framework for these programs that are on the column that you have the team might be adding? How to think about the inter ASPs, maybe on a content for server content for a rack opportunity framework, maybe that that would be one way to kind of get a sense of these mon Titan programs and how big they can get you. Um, like, you know, we talk about it on a volume basis, right? Because we are we sell controllers. We don't sell density. You know, I think you may take a look at historically, you know, enterprise SSD controllers, you know, typically in the 50 to 75 plus range, in that ballpark.
Suji DeSilva: How do you think about the inner ASPs, maybe on a content per server, content per rack framework? Maybe that would be one way to get a sense of these Muntitan programs and how big they can get.
Speaker Change: How do you think about the inner asps, maybe on a content per server content for Iraq.
Speaker Change: A framework, maybe that that would be one way to kind of get a sense of these monetizing programs and how big they can get.
Speaker Change: Okay.
Jason Tsai: You know, we talk about it on a volume basis, right? Because we are, we sell controllers; we don't sell density. You know, I think if you take a look at the historical data, enterprise SSD controllers are typically in the 50 to 75 plus range in that ballpark. Obviously, Configurations for different servers, different applications can vary, so it's difficult for us to assess or to really say that there is any sort of real kind of algorithm you can use on that.
Speaker Change: We talk about it on a volume basis right. Because we are we sell controllers, we don't sell density.
Speaker Change: I think if you take a look at historically.
Enterprise SSD controllers are typically in the 50 to 75 plus range in that ballpark.
Speaker Change: Obviously.
Jason Tsai: Obviously, configurations for different servers, different applications can vary. So it's difficult for us to assess or to really say that there is any sort of real kind of algorithm you can use on that. So we can only give you the roughly range for the 16 channel mon Titan controller, the ASP, between $55 to $65 range. Uh, very meta TLC, TLC, how they met the density. Uh, the controller price is similar range for that we also have a virgin for each channel controller, which we have a new design, uh, probably a tape on me double next year.
Speaker Change: Configurations to for different servers different applications can vary so it's difficult for us to assess our to really say that there is any sort of real.
Speaker Change: I'm kind of algorithm you could use on that so we can only give you roughly range for the <unk> channel among tightened control there.
Jason Tsai: So we can only give you a roughly range for the 16-channel Muntitan controller; the ASP is between $55 to $65 range. Terrameter TLC, TLC, or Terrameter Density, the controller price is a similar range. We also have a version for the 8-channel controller, which we have a new design, probably will take about the mid of next year. And this will have a selling price between $42 to $50. So this is probably the ballpark for the Muntitan family controller price.
Speaker Change: Asps that between $35 to $65 range.
Speaker Change #100: <unk> TLC TLC automated density.
Speaker Change #100: There is too conservative prices similar range for that we also have the Virgin for <unk> channel controller of which we have a new design Pablo tape media over next year and this is the <unk>.
Jason Tsai: And this was the for each channel controller, the selling price between $40 42 to $50 range.
Speaker Change #100: Channel controller, the selling price of between 40 42 to $50 range. So this is by the ballpark for the Mon tightened family control their price.
Jason Tsai: So this is about the ballpark for the mon Titan family controller price. Thank you.
Jason Tsai: All right, very helpful. Jason, thanks. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone keypad. Our next question comes from...
Speaker Change #100: Okay.
Speaker Change #101: Very helpful.
Speaker Change #102: Okay. Thanks.
Robert Shui: As a reminder to ask a question, please press star 111 on your telephone keypad. Next question comes from the line of Robert Shui from JP Morgan. Please ask your question, Robert. Okay, thank you. I'm asking on behalf of Gokul Hariharan. So I have a quick question on the inventory level.
Speaker Change #102: Thank you.
Operator: As a reminder, to ask a question, please press star 1 1 on your telephone keypad. Our next question comes from the line of Robert Xu from JP Morgan. Please ask your question, Robert. Okay, thank you.
Speaker Change #103: As a reminder to ask a question. Please press star one on your telephone keypad.
Speaker Change #103: Our next question comes from the line of Robert <unk> from Jpmorgan. Please ask your question Robert.
Speaker Change #104: Okay. Thank you I'm asking on behalf of Goku her around.
Robert: So I have a quick question on the inventory level, how should we be thinking about that.
Robert Shui: How should we think about the inventory level for the client necessity or with the PCOEMs, as well as the mobile solutions with the OEM customers? Thank you. So at this moment, we see the inventory level in the channel naturally relative to Halsey, but however, just because the demand size varies very weak from the channel to retail. So most of our customers see the inventory level. I think it's largely Halsey and in line now. And for the name maker, I think they definitely have much less inventory for the client necessity. Do you have any follow-up questions, Robert?
Speaker Change #106: Inventory, all humans and reliable for them their kindness as the with the PC Oems as well.
Speaker Change #107: Mobile solutions.
Speaker Change #108: Customers. Thank you.
Robert Xu: So at this moment, we see the inventory level in the channel naturally is relatively healthy. But, just because the demand side is very, very weak from the channel in retail, so most of our customers, the inventory level, I think is largely healthy and in line now. And for the name maker, I think they definitely have a much smaller inventory for the clients.
Speaker Change #107: Good.
Speaker Change #109: At this moment, we see the inventory level in the channel naturally relatively healthy, but however, just because.
Speaker Change #110: <unk> sites very very weak funding channel new retail so most of our customers see.
Speaker Change #110: Inventory level I think is.
Speaker Change #110: Largely healthy and in line now and for the NAND maker I think they definitely have a much lesser inventory for the for the clients are deep.
Robert Xu: Do you have any follow-up questions, Robert? Yeah, that's it. All right, thank you. I'm not asking any further questions. I'll now turn the conference back to the President and CEO, Mr. Waliczko, for closing comments.
Speaker Change #110: Do you have any follow up question Robert.
Unnamed: Yeah, that's it. All right, thank you.
Robert: Yes, that's it.
Robert: Alright, thank you.
Unnamed: I'm showing no further questions.
Wallace <unk>: I am showing no further questions I'll now turn the conference back to the President and CEO, Mr. Wallace <unk> for closing comments.
Wallace Co: I'll now turn the conference back to the President and CEO Mr. Walisco for closing comments. Thank you, everyone, for joining today, and for your continued interest in the commotion. We'll be attending the Future of Memory and the Story Conference in Santa Clara next week, as well as several investor conferences coming months. The schedule of this event will be posted on the investor relationship section of our corporate website and look forward to speaking with you at this event. Thank you, everyone, for joining today.
Wallace Koh: Thank you, everyone, for joining us today and for your continued interest in Silicon Motion. We'll be attending the Future Memory and Story Conference in Santa Clara next week, as well as several investor conferences in the coming months. The schedule of this event will be posted on the investor relationship section of our corporate website, and we look forward to speaking with you at this event. Thank you, everyone, for joining us today. Goodbye for now.
Mr. Wallace: Thank you everyone for joining us today and for your continued interest in Silicon motion will be attending the future memory and a salary consecrating Santa Clara next week as well as several investor company in the coming months. The schedule of this event will be posted on the Investor Relations section of our call.
Mr. Wallace: Great website and look forward to speaking with you at this event. Thank you everyone for joining us today Goodbye for now.
Operator: Goodbye for now. Thank you.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: This concludes today's conference call. Thank you for participating.
Speaker Change #113: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Operator: You may now disconnect.
Speaker Change #113: Okay.
Speaker Change #113: [music].
Speaker Change #113: Okay.
Speaker Change #113: Okay.
Speaker Change #113: [music].