Q4 2024 Silicon Motion Technology Corp Earnings Call
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Speaker Change: It is now my pleasure to hand, you over to Mr. Tom Spencers Senior director of IR and strategy. Please go ahead Sir.
Speaker Change: Thank you operator, and good morning, everyone and welcome to Silicon motions fourth quarter 2024 financial results conference call and webcast joining.
Speaker Change: Joining me today as well as co president.
Jason: And Jason <unk>, our CFO.
Jason: Wallace will first provide a review of our key business developments and then Jason will discuss our fourth quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session.
Jason: 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.
Jason: For more details on our financial results. Please refer to our press release, which was filed on form 6K after the close of market yesterday.
Jason: This webcast will be available for replay in the Investor Relations section of our website for a limited time.
Jason: 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.
Jason: We analyze our own operating results.
Jason: A 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.
Wallace: With that I will turn the call over to Wallace.
Wallace: Thank you Tom.
Wallace: Hello, everyone and thank you for joining us today.
Wallace: Plenty of any flaw was an exceptional year for silicon motion across multiple fronts, we delivered over 25% revenue growth year over year.
Wallace: Facing an evenly outperforming to end market we serve.
Wallace: Gross margin improved from 43% to over 46% and then we deliver operating margin of 15, 3%.
Wallace: From 11, 9% in 2023, while you're investing heavily in next generation solution that it will expand our opportunities.
Wallace: So I'd love to share gains and sustainable revenue growth.
Wallace: 2024 was not without challenges however, as a consumer market saw increasing pressure in the second half of the year.
Wallace: <unk> end user demand that began in the third quarter of 2024 persisted through the fourth quarter, creating an unseasonably weak holiday season for PC and smartphones.
Wallace: Despite this we remain focus on execution and table a number of advanced controller is place a D and use this.
Wallace: Leading to significant new project wins, with our flash makers and module maker customers.
Wallace: We successfully entered the enterprise the D market, adding six customers and beginning initial shipment of our first new monetize them.
Wallace: In second half of 'twenty 'twenty. Four. Additionally, we further grew our automotive business to over 5% of sales and delivering strong backlog as we enter 2025.
Wallace: Well, the smartphone and PC market will always be important our strategy to diversify and significantly grow our enterprise and automotive business off to a strong start with many new projects customers and Prada expanded to scale over the next few years.
Wallace: <unk>.
Wallace: So that makes it all sourcing more and becoming increasingly relying on silicon motion.
Wallace: They are being forced to rationalize spending given the increasing development cost for our memory technology to support DRAM HPN in enterprise storage needs.
Wallace: Does it cost for development of a NAND controller has rapidly increased with the necessary migration toward events posit geometries solution like a six nanometer.
Wallace: <unk> and USS.
Wallace: We're actually making a decision on controller development.
Come increasingly align with silicon motion as their preferred partner.
Wallace: We are working with every NAND maker and the winning multiple projects that range from EMC and USAID controller to SSD controller for SATA Pcie, four and five star solution.
Wallace: Portfolio of breast breast enable them to scale in multiple markets faster and more cost effectively.
Wallace: We have already built a strong pipeline of new wins and expect more this year to further with our share gains in 2026 and beyond.
Wallace: Now let me give you an update on while we are seeing in the NAND industry.
Wallace: With consumer demand.
Wallace: A typically weak in the second half of last year, we are seeing consumer grade NAND pricing continue to decline, while NAND makers, starting to limit supply and scaled back production given the ongoing weakness in the consumer market.
Wallace: In the global economy uncertainty surrounding tariffs.
Wallace: We do not expect NAND prices to recover until the second half of this year when demand for both smartphone and PC I expect it to rebound.
Wallace: Will production cut underway at most NAND makers the focus it to limited supply of consumer grade NAND, while still growing supply of the high end enterprise grade NAND, where demand for enterprise and data centers.
Wallace: Remained healthy.
Wallace: For Silicon motion.
Wallace: Means that we must focus our resources on NAND makers strategic partners and customers who have asset to NIM.
Wallace: We must align our product cycles with our customers roadmap and their steady progression toward each new generation of NAND.
Wallace: This is critical to our long term success and we are investing to ensure that we remain a leading merchant controller vendors across all such makers and end markets and applications.
Wallace: And then continue to involve and that the adoption of low cost <unk> NAND drive higher densities Trc is becoming a bigger growth driver for NIMBY grows as they enable NAND maker to increase density result purchasing.
Wallace: New manufacturing equipment and enabled device makers to offer higher density cost effectively.
Wallace: We have more experience.
Wallace: Meaning to ask any other controller makers.
Wallace: Whether that's a merchant of captives.
Wallace: So as the consumer market begin to rebound mid year.
Wallace: And then with the ongoing strength in the enterprise and AI server market, we expect <unk> will become an increasing part of the conversation in 2025 and beyond.
And so the promotion in the best position to capitalize on the growth of the new technology.
Wallace: Let me now because each of our major product segment, beginning with our clients will be controllers.
Wallace: For 2024 are AC controller business grew approximately 20% as compared to 2023.
Wallace: And our clients see controller market share increased to over 30% as we continue to grow our share with flash makers and the wing additional sockets.
Wallace: Culinary expect the PC market to grow by nearly 5% this year.
Wallace: We the second half of the year much stronger than the first.
Wallace: Driven by the sunsetting of Windows 10.
Wallace: Approaching Kobe corporate PC refresh cycle and bolstered by the increasing demand for <unk>.
Wallace: We are successfully gaining market share and then we saw new project wins and backlog for high performance TLC and high reliability, Kelsey controller with flash makers and module makers.
Wallace: We introduced our high end six nanometer channel Pcie SSD controller last year.
Wallace: And have secure a dominant position in the market.
Wallace: Winning design wing with four NAND makers.
Wallace: As well as virtually every module makers.
Wallace: This controller delivered best in class performance and substantially lower power consumption.
Wallace: Any other solution in the market.
Wallace: We are gaining share in the high end PC market with channel controller and with the win we have amassed already.
Wallace: We believe we are on track to capture at least half of the market over the next couple years.
Wallace: Driving additional share gain opportunity for us.
Wallace: We also received back the initial sample for Paypal last year.
Wallace: Mainstream six nanometer four channel Pcie controller.
Wallace: And haven't made exceptional progress in securing additional wins for this product with the flash makers and module makers alike.
Wallace: We anticipate this solution to be introduced later this year and begin ramping in 2026 as pcie SSD adoption entered the mainstream PC market.
Wallace: The complexity of PCI Fi controller has increased significantly not just in terms of process geometry, but also in engineering firmware resources.
Wallace: They are required more complex field engineer support.
Wallace: As our customers and the booths PC OEM.
Wallace: We are developing closer collaboration with our customers to deliver unmatched support and reliability to ensure long term success.
In addition, our existing portfolio of <unk>, four and the southern controller ensure that we have the right combination of solution to serve the needs of the high end to mainstream to cost sensitive market.
Wallace: Beyond <unk>, our solution for the growing portable as the market.
Wallace: So taking a dominant position.
Wallace: We have a wing and shipping with several NAND makers as well as us.
Wallace: Virtually every module maker in the market.
Wallace: Portable ASD are becoming increasingly popular for data backup and our portfolio of controller enabled both high speed and high density solution that are cost effective for our customers.
Wallace: With our broad range of product customer and the wins, we are well positioned for growth later this year these wins skill and the overall market demand recovers.
Wallace: Now turning to our AMC and <unk> business.
Wallace: Smartphone demand like the PC market remained weak as we enter 2025. However, despite this we grew our <unk> controller business by approximately 70% in 2024, as we rebound from a very weak 2023 and with <unk>.
Wallace: Well with our flash maker customers expanded share with module makers engaged with our first U S smartphone OEM for Kelsey USS.
Wallace: We expect our customer ramp to scale in the second half of this year in line with garnered current annual smartphone forecast of approximately 5% with a strong emphasis on second half growth after a weaker start to this year.
Wallace: Our team has been steadily developing new solution and winning additional projects to market are shifting away from the integrated <unk> CP.
Wallace: <unk> solution in the smartphone and moving toward discrete mobile DRAM.
Wallace: This is creating a significant opportunity for us as module maker, taking great share of the EMC in European market.
Wallace: With an improving our position given there is a significant less competition discrete controllers.
Wallace: With a lower cost involved in using discrete LP DDR for mobile DRAM, there is greater competition, which in turn lead to flash makers, all sourcing third party controller like as in mind to compete in value line mobile storage solution, such as EMC EMC.
Wallace: In Europe at $2, two and reduced R&D development cost.
Wallace: In addition to our existing <unk>, one controllers supporting the latest generation NIM, we extended our portfolio with multiple new product introduction.
Wallace: These include our new EMC by the one four low end smartphone.
Wallace: <unk> devices, Iot and automotive.
Wallace: Our new cost effective USS two <unk>, two controller to catheter in mainstream market and the new six nanometer <unk> $4. One controller that we tape out last year, which are currently sampling expanded to picking became an initial ramp in the second half of this year.
Wallace: <unk> remained about half of that $1 8 billion annual union market for MSC in USA today, 70% of EMC market as announced smartphone application like setup box smart TV automotive and Iot.
Wallace: Smartphones will continue to account for less and less of the EMC market of the USA adoption increase.
Wallace: For us the vast majority for smartphone today, while non smartphone vacation primary going into automotive applications are growing much faster right.
So while the overall smartphone market, maybe matures, we see tremendous opportunity as we expand with a flash makers and module maker partners into these additional opportunities.
Wallace: Our portfolio allow us to deliver a solution to our customer set address the expanding need of the market and gain further this year.
Wallace: Now turning to our enterprise months' items platform.
Wallace: We may remarkable progress in 2024 and are well positioned for strong growth in the enterprise storage market for us long term.
Wallace: When we started 2024, we had target winning two tier one customers we wound those two customers in the first quarter of 2024 and increase our target to four customer for the year.
Wallace: I am happy to report that we.
Wallace: We added four additional customers and now expect this sick customers to ramp later this year.
So for new customers have a long history of supporting tier one and tier two enterprise and CSP in the U S Europe and Asia.
Wallace: Further expanding to reach and adoption of Mont Titan family.
Wallace: The enterprise controllers.
Wallace: We began early shipment and generate revenue in second half 2024, and we remain confident that with our current mix of customers and our expanding family of my tenants, Montana solution, we can achieve our target of 5% to 10% of our total revenue by the <unk>.
Wallace: 26 2007 timeframe.
Wallace: Montana and represent one of the largest greenfield growth opportunity for silicon motion in the coming years, given the large addressable market for TLC and TLC NAND within that AI servers enterprise and data center storage markets.
Wallace: Growing interest in our unique bond Titan platform, driven by our leading experience in Kelsey and TLC NAND, our dominant position in the merchant controller market and our ability to deliver a wide range of thunberg capability to meet the unique needs of deferred.
Wallace: Customers fabrication and use cases.
Wallace: We are expanding our capability with Mont title family of solution in 2020 fly through the development of additional controller and more comprehensive.
Wallace: Great.
Wallace: Somewhere in the software to address a broader range of opportunity for our customer.
Wallace: We plan to offer more compete complete family of solution to customer, including controller for SATA and Pcie server pool drives higher performance and higher density switching channel and channel Pcie controller for enterprise storage and servers and.
Wallace: And we are already engaged with new customer and developing next generation Pcie controller.
Wallace: Okay.
Wallace: This combined with our existing advantage, including our flexible software stack options.
Wallace: Unique AC architecture high capacity, leading performers and pro forma shape technology delivers a compelling enterprise class portfolio that is unmatched by our competition.
Wallace: With the Montana and supporting the upcoming two terabyte mono di <unk> NAND, we will be able to deliver high density high performance 128, terabyte deep with a best in class Brendan Reed of $3 5 million eye ops that will be ideally suited for AI.
Wallace: Implications this combination of capacity and performance well deliver faster training in AI application safe power and lowers the total cost of ownership.
Wallace: Lastly, let me give you an update of the progress we are making in the automotive market.
Wallace: We use a automotive market across all of our product category.
We have wins for our SATA Pcie, <unk> SSD controller or <unk>.
Wallace: <unk> and <unk> controllers, as well as software embedded solution across a variety of use cases in vehicle.
Wallace: Found traditional cars to new generation software defined vehicle. There is a significant increase in processing capability sensors cameras Cpus and Gpus.
Wallace: With this new capability the need of a more memory is growing rapidly.
Wallace: Mature overall automotive market.
Wallace: As our capacity increases.
Wallace: Need for more robust capability significantly increases and Thats why a spice certification is becoming more critical and more of a differentiator.
Wallace: We are proud to be the only supplier with a pcie four zero controller to achieve ace by level three certification.
Wallace: Significantly increasing our lead over the competition.
Wallace: Already shipping into all major tier one.
Wallace: Automotive customers, including Mercedes Tesla Jenna.
Wallace: General Motors.
Wallace: Xiaomi, Toyota Honda and several other including the leading automotive service in the world.
Wallace: While we haven't been growing automotive wins for the past several years is now beginning to scale meaningfully and reached 5% of our revenue in the third quarter of last year. We are confident 8-K Ram approximately 10% of our revenue by 2027.
Wallace: Given our current.
Wallace: Rate of customers and win and expected ramp of new products.
In conclusion as we enter 2025.
Wallace: Despite the near term broader end market headwinds, we remain chimney well position for future growth.
Wallace: We are growing share within our existing markets and expanding into new high growth markets, including enterprise D controller, automotive Iot and others.
Wallace: We have an incredible strong portfolio of new products in our pipeline.
Wallace: Will help drive long term share gains and through our product diversification, including our pcie Gen side Europe is $4, one <unk> certified automotive grade Pcie Gen four and of course mountain tightened.
Wallace: As a man tightened in automotive business continued to scale for the next several years and our broad portfolio.
Wallace: Folio of solution for Iot industrial commercial and smart device application continue to gain share.
Wallace: Dividends that our strategy to diversify beyond the maturing PC and smartphone market will be successful and believe we could see 20% of our business in 2027 coming from this new opportunity.
Wallace: Given the strength of this thing customer wins and the expected second half recovery in the PC and smartphone market. We expect to exit 2025 with an annual revenue run rate of close to $1 billion in the fourth quarter.
Wallace: I look forward to sharing more about our success success with these products and new market true throughout this year.
Wallace: Now, let me turn the call over to Jason to go over our financial results and outlook.
Jason: Thank you Walter and good morning, everyone for joining us today.
Jason: I'll discuss additional details of our fourth quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted a reconciliation of our GAAP to non-GAAP data is included with our earnings release issued yesterday.
Jason: The December quarter sales decreased 10% sequentially to $191 2 million and within our guidance range. Despite weaker end user demand for Pcs and smartphones gross margins increased for the seventh consecutive quarter to 47% as we are benefiting from improved product mix as we shift continue our shift towards customers.
Your solutions.
Jason: Operating expenses declined by over 10% sequentially to $58 3 million in the December quarter due to the timing of tape out costs.
Jason: Elevated our September quarter, R&D expenses, and operating margin improved sequentially to six from 16, 1% to 16, 5% in December quarter at the high end of the guided range.
Jason: Earnings per share was <unk> 91 down slightly from the 92 cents in the third quarter total stock based comp, which we excluded from non-GAAP results was $9 7 million and <unk> 24, we had $334 3 million in cash cash equivalents and restricted cash at the end of the fourth quarter compared to 300 <unk>.
Jason: $68 6 million at the end of the third quarter cash decline in the quarter, primarily due to changes in working capital driven by higher accounts receivable that typically trend higher in the fourth quarter and lower accounts payable due to timing of payments in the quarter.
Jason: We see these short term impacts we see these are short term impacts to our cash balance.
Jason: Inventories decreased again to $201 2 million in the fourth quarter.
Jason: From $214 six at the end of the third quarter as we continue to work down our inventory levels.
Jason: Our end markets grew in low single digit range last year, we increased revenue by 26% we were.
Jason: We were able to significantly improve profitability driving gross margins 300 basis points higher for the year exiting the year at 47%.
Jason: Operating margins increased by more than 300 basis points as well despite our significant investments in two new six nanometer controllers increased R&D head count and continued development for our Mon tightened business as we enter 2025.
Jason: Ongoing consumer weakness remains compounded by global economic uncertainty driven by potential tariffs and other challenges, which are limited near term demand growth and visibility.
Mike: Mike This our teams have been steadily developing new solutions, winning new customers and expand our end market reach. Additionally, our teams have been extremely effective in delivering new products driving the expansion of our opportunities in new and emerging markets within the enterprise automotive industrial and commercial markets.
Mike: We're optimistic that despite the near term environment with through the combination of our strong customer pipeline new product introductions.
Mike: And expect a second half recovery in the consumer markets, we're well positioned for a strong second half of the year.
Mike: Now, let me discuss our first quarter outlook revenue is expected to declined 12, five to 17, 5% in line with the near term expectations for the PC and smartphone end markets gross margins should continue to expand as we continue to transition customers and your products and I expect gross margins to be in the range of 40%.
Mike: 747, 5% in the March quarter.
Mike: Operating margin is expected to be in the range of seven 7% to nine 7% given the seasonal revenue impactful. We expect this will rebound quickly throughout the year.
Mike: Our effective tax rate is expected to be 16% and stock based comp and dispute related expenses is expected to be in the range of seven five to $8 5 million.
Mike: Right.
Mike: Moving forward to remain consistent with our semiconductor peers, we will no longer released preliminary results at the end of each quarter, we'll only pre announce results. When they are expected to differ significantly from our outlook. We will however continue to provide qualitative view of our full year, but will not be providing specific guidance.
Mike: <unk>.
Mike: To that end, while the PC and smartphone end markets are expected to grow in the low mid single digits. This year demand is expected to be significantly second half weighted with our first half expectations more muted than normal.
Mike: We believe that our business in 2025 will reflect a broader industry dynamics with significant growth expected in the second half of the year should allow revenue to grow in the mid single digit range for 2025 as demand rebounds, and our new products begin to scale as Wallace mentioned, we believe our revenue for the fourth quarter. This year will approach.
Wallace: So the $1 billion annual run rate.
Wallace: As we saw through 2024, we expect to continue to steadily improve our gross margins throughout this year as new projects and new product scale gross margins have historically been in the 48% to 50% range and we are confident that we will exit the year towards the higher end of that range.
Wallace: For operating expenses, we expect to continue to invest in advanced geometry products that will enable us to maintain and grow our share of longer term expand into new markets to diversify our business. We expect that with these investments in technology and R&D Engineers and resources are operating expenses should grow in line with our revenue picture.
Wallace: We expect effective tax rate for 2025 to be approximately 16% full.
Wallace: Full year stock based compensation and dispute related expenses should be in the range of $27 million to $29 million and for the full year, we expect $65 million in Capex of which 29 million will be routine capex and $36 million will be for the new office building construction.
Wallace: Finally, I'd like to spend a moment discussing our capital allocation strategy. Our business has always been one that generate significant amount of cash our capital allocation strategy for the excess cash our business generates is always consisted of three prongs, our dividends share repurchases and reinvestment for growth both organically and through acquisitions.
Wallace: Our dividend policy has been the cornerstone of our capital return strategy since we initiated our first dividend in 2013, our dividend has gradually increased over the past decade from 64.
Wallace: <unk> annually initially to now $2 per avs annually. We anticipate this will continue to be a significant part of our capital return strategy and we'll look for opportunities to further increase the dividend longer term as our business continues to scale.
Wallace: We have complemented our dividend with share repurchase programs from time to time and as you saw from our press release yesterday. The board has authorized a new six months $50 million share repurchase program. The near term challenges in the end markets do not reflect our views on our own long term opportunity and our board feels that this is a good time to authorized.
Wallace: The new share repurchase program.
Wallace: On the reimbursement front, we are occasionally acquired to expand.
Wallace: Our markets and this continues to be something that we look at consistently.
Wallace: The industry is highly focused on enterprise today, and our exposure to the enterprise for our internally developed Montana families.
Wallace: We're constantly evaluating additions to this segment through inorganic means to expand our breadth and scale in this rapidly growing market. It's too early to discuss potential targets, we do see ample opportunities to further diversify our business and growth longer term.
Wallace: All three prongs of our capital allocation strategy will remain important drivers for us to continue to increase our shareholder value and I look forward to regular updating you on our progress I would like to continue to conclude by saying that we're pleased by our backlog and wins for this year, our investments continue to deliver new opportunities and additional share that will drive long term revenue growth.
Wallace: We anticipate the current market weakness to be short lived and anticipate a strong rebound in the second half of the year. This concludes our prepared remarks, we will now open the call to your questions operator.
Wallace: Thank you.
Wallace: We'll now begin the question and answer session.
Wallace: To answer this question. Please press star one on your telephone keypad.
Speaker Change: Aldo Meda message advising Yohan is raised to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: We will now take our first question from the line of maybe Husseini from <unk>. Please ask your question maybe.
Speaker Change: Thanks for taking my question a couple of follow ups.
Speaker Change: Jason.
Speaker Change: How should we think about the opex.
Especially.
Speaker Change: Tony.
Speaker Change: And then to what extent youre going to increase R&D and what should.
Speaker Change: Should we assume for Capex in two sides I had one follow up for <unk>.
Speaker Change:
Speaker Change: Thanks for all the detail.
Speaker Change: Regarding your strategy, but.
Speaker Change: All of them and such was that has recorded over the past couple of months Diebold talked about.
Speaker Change: A secular trend.
Speaker Change: <unk>.
Speaker Change: Ben.
Speaker Change: Yes.
Speaker Change: The accelerated.
Speaker Change: Non market is no longer.
Speaker Change: The amount of elastic.
Speaker Change: Given that.
Speaker Change: Uh huh.
Speaker Change: In the enterprise as you highlighted would only be 10% of your revenue in 'twenty six 'twenty seven.
Speaker Change: What are some of these specific.
Speaker Change: The change in our strategy or other markers that you're evaluating I wanted to understand your options optionality here, especially at the NAND market.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: So to answer the first part of your question Murray from an Opex standpoint, we talked about revenue growing for us. This year in line with the end markets that we serve so youre looking at kind of low mid single digits. There opex should grow roughly in line with that the majority of our growth in Opex is going to come.
Speaker Change: On the R&D side, our sales and marketing G&A should remain.
Speaker Change: Relatively flat and so the increase in Opex is it really going to be driven by.
Speaker Change: Increased development costs higher head count on the engineering side et cetera from a total capex for the year, we're looking at about $65 million of which about $29 million for routine Capex, which is software our testing equipment et cetera and in <unk>.
Speaker Change: <unk> 6 million is to finish up our new office here in Chengdu.
Speaker Change: Okay. Manny let me answer your question first of all along just say it is we believe the NAND makers scaled back regarding the net investment, especially from a consumer product. It also gave us tremendous new opportunity to growth because we literally in the past six months, we have a mall.
Speaker Change: <unk> projects than we can develop for the NAND makers. So this is great opportunity for us continue to gain market share for clients, a D and mobile controller.
Speaker Change: Beyond that we also want to grow heavily for enterprise and automotive business, so automotive because they take a longer term and so we won't see the immediately and strong rebound in this year, but we are confident we said will be double.
Speaker Change: From now to 2027, but for enterprise, we have is challenging I think we're growing.
Speaker Change: More R&D for enterprise storage now I'll cover our high performance high density.
Speaker Change: As well as a boost storage from both in U S and China market in the same time I think we evaluate because we are building a new team for service and mixing those development and this thing has developed for all of the high performance connectivity with the story together I cannot give a more.
Speaker Change: The detail certain development, we consider will be internally certainly we consider to do acquisition. So we could do the joint development with third party. So this is a big discussion and I think when the product is mature we're going to have a press release to the to our investors.
Speaker Change: Thanks, and also one more thing body in terms of tightened in automotive growing.
Speaker Change: Each roughly 5% to 10% of our business by 2027.
Speaker Change: It's not a final target rate, we do expect that to continue to grow longer term that is just the first wave point for you guys.
Speaker Change: And the relatively medium term.
Speaker Change: Just quickly I think you said that.
Speaker Change: The incremental revenue contribution from these new areas would be about 20%.
Speaker Change: Our revenue by 2027 did I hear that correct. That's correct that's correct.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
We'll now take our next question from the line of Craig Ellis from B Riley Securities. Please ask your question.
Speaker Change: Yes, thanks for taking the question good evening team and congratulations on the way you executed 24, and how Youre starting 'twenty.
Speaker Change: Well, let's have wanted to start going back to some of your.
Speaker Change: Comments on <unk>.
Speaker Change: Enterprise SSD area, great to see customer expansion to six customers, but I'm, hoping you can do is share with some color on what you would expect in the back half of this year on a couple of parameters one.
Speaker Change: Give us some color around which of the customers maybe not by name, but just characterize who we're going to be the leaders in wynwood early shipments start.
Speaker Change: And when would the ladder of the fixed customers start to ship in.
Speaker Change: And maybe help us understand how you see the volume potential across those customers and how that plays out just enrich the view of what's coming with enterprise SSD.
Speaker Change: So we do have a chimera this is <unk>.
Speaker Change: As opportunity and currently we secured six customers to tier one and one U S and China, the others really enabling to supporting tier one tier two customers in both the U S and China now four tier one customers to film where development it really they need to tailor their own.
Speaker Change: Development, so they take time, but the initial production and we're bound later this year.
Speaker Change: US gradually ramping normally it takes about six months for new ramp to reach.
Speaker Change: High level. So we expect they will start to ramp up later this year and you're going to see the high volume reached more meaningful volume by mid of 2026, the same for the China customers I assume they also have a dedicated customer and for the phone development for others for.
Speaker Change: Customer some use our turnkey solution. Some user joined development format. So this we also have a very limited resources to support the end customer, but importantly for us to expand for the auto business is our turnkey solution needs to be full mature ready than we can.
The same solution and one or two dedicated NAND to spend to put as a business. We see many many customers, especially from U S and really demand high density <unk>, but China side majorities of TLC bouncer two terabytes per terabyte.
Speaker Change: The U S. All have high density.
Speaker Change: 64 to $1 eight terabyte. So this a need a tremendous time, but because we really don't see near term competition and we really need to need TV will result, each of the need of time deliveries, though we believe the ramping it could be much higher and faster than we planned right now, but just so we can.
Speaker Change: And to be patient and to see the proof of result next year.
Speaker Change: That's really helpful color.
Speaker Change: But certainly I appreciate if it was much higher and much faster I wanted to move on to another question that was really related to the back half of the year. So it's really helpful to get the color that in the calendar for Q the business could be operating at a 1 billion annual revenue run rate the question.
Speaker Change: Is this from first half levels as we work through soft PC and smartphone demand et cetera, how would you force rank the.
Speaker Change: Growth drivers tapan have within the business either client SSD.
Speaker Change: Yes.
Speaker Change: Eitan et cetera help us understand how we get from where we are now to that bill.
Speaker Change: Billion run rate.
Speaker Change: Yes see major growth driver.
Speaker Change: While our business this year it depends pcie side a channel.
Speaker Change: Channel High end part of the line.
Speaker Change: Currently we're just in the very small volume and then we will start to ramp from second quarter and I believe in Q3 will be meaningful volume because this is including for NAND maker and almost a half dozen module maker and has a higher ASP.
Speaker Change: I can only tell you some more than $10 per <unk>.
Speaker Change: So they were driving were much stronger.
Speaker Change: Our mobile controller and also going very fast and because we are engaged.
Speaker Change: Multiple NAND maker as well as module maker, the primary phone Oems EMC Europe at $2, two and moving to <unk>. Our high end users. So that one also will start to ramp in the fourth quarter.
So I think the.
Speaker Change: Meanwhile, we have a multiple major program and just so we really as I said timing project transition I hopefully.
Speaker Change: We have not suffered see really seasonality, but we do have many many multiple major project pipeline. Our hand, that's why we're confident have a $1 billion run rate by Q4 this year.
Tim: That's very helpful. Thanks, Tim.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Quinn Bolton from Needham and company. Please ask your question.
Speaker Change: Hi, This is Nick Doyle on for Colin and thanks for taking our questions.
Speaker Change: How are you thinking about the gross margin target of 48% to 50% through the year. It sounds like this pcie.
Speaker Change: A channel will really be a big driver there.
Speaker Change: So is that the main.
Speaker Change: Tailwind.
Speaker Change: Any other end market expansions.
Speaker Change: Getting to that higher end of that range like you mentioned.
Speaker Change: So pgi EFI channel, that's a new to the market.
Speaker Change: So for notebook this year, probably just above 5%.
Speaker Change: A majority of you also move to desktop and gaming PC and PC workstation, and we have confidence we can own more than 50% of the high end market for pcie Gen tie in with the momentum and I see next year Peach agent side high and will grow to 10% of the notebook.
Speaker Change: And so this is where our full channel for mainstream also will start to ramp up by late this year.
Speaker Change: In 2026, so I've seen the Pcie Gen 510, 26, we'll have roughly around 20% to 30% market share and this is a thing we see the pipeline transition and favorites like emotion with because we have a much more design pipeline in our hand, just a transition in some time.
Speaker Change: It depends on each of our NAND maker customers are now on location, sometimes they allocate more for enterprise for data center, sometimes they needed for the consumer for PC Oems, so, but when we have multiple NAND customer in the module maker. So both channel and the <unk>, we feel very comfortable.
Speaker Change: And to do that in addition, I seeing our USS even cellular <unk> controller and also new year slowdown one controller also marching us above our corporate average.
Speaker Change: Why this is a held for our average gross margin toward 248% to 50%.
Speaker Change: For the year.
Speaker Change: Thanks.
Speaker Change: Which of the NAND providers as the biggest competitor in the auto market and what's your geographic exposure. It was definitely helpful to hear some of those customers, but just wondering if you're more levered to the share gainers versus the share takers. Thanks.
We cannot comment our NIM partners, because we work with every NAND maker.
Speaker Change: For specific project development I've seen.
Speaker Change: Every every NAND maker habits, even strategy they have deep in planning.
They also have a R&D resource allocation, so I'll move to more to ESPN move more too.
Speaker Change: Devon category. So we cannot comment from time to time, however, we always want to be sure when they do all sourcing to third party Silicon motion is the best candidate there.
Speaker Change: Do you have follow ups real quick.
Speaker Change: No. Thank you.
Speaker Change: Okay.
Speaker Change: Now we will take our next question from <unk> de Silva from Roth Capital. Please ask your question.
Speaker Change: Hi, Wallace I Jason.
Speaker Change: Just expanding on the 25, our guidance of 1 billion run rate exiting the year, what's the what's a typical two H versus one <unk> sort of split for a year and this year. It sounds like it's more back end loaded I'm, just trying to get a sense of maybe.
Speaker Change: What how much more backend loaded this year versus the typical year and maybe you could touch on inventory in the channel inventories are in good shape or whether there are you starting to see any build there that'd be helpful.
Speaker Change: Yes, typically for us Youre looking at a roughly 45 55 split between first half second half is going to be much more second half loaded this year.
Speaker Change: Comparative.
Speaker Change: Previous.
Speaker Change: Normalized year from an inventory basis, we don't see really a whole lot of excess inventory in the channel we see our customers ordering roughly in line with end market demand. So we think.
Speaker Change: Inventory remains healthy.
Speaker Change: We don't see that as an issue as <unk>.
Speaker Change: Demand ramps up.
Speaker Change: Okay, great. Thanks, Jason and then maybe a longer term strategic question on the diversification strategy. The multiyear plan here, maybe what was the change that you can give us a framework of what areas you've been in areas you've divested you've acquired in the past what areas would be kind of makes sense from a strategic perspective any color there would be helpful.
Speaker Change: So I think we focus now you can see it.
Speaker Change: It makes signal.
Speaker Change: Design and also the related to enterprise, because we see the storage and connectivity there are very clear.
Speaker Change: Closely coupled so certain areas I assume we can share in terms of technology.
Speaker Change: Well as we tried to acquiring some new some important technology and we don't have in house, but we came to join development.
Speaker Change: <unk> acquired the poppy it to do so so this is the area we are seeing better all around see enterprise area.
Speaker Change: Okay. Thanks, Paul Thanks, Jason.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone keypad.
Next question comes from the line of Matt <unk> from Wedbush. Please ask your question Max.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Just starting off with one more on 2025.
Speaker Change: I know it's back half loaded.
Speaker Change: But typically.
Speaker Change: You tend to see seasonality lead to a pick up in Q2 Q3 Q4 can we assume that the Q1 should represent the bottom.
Speaker Change: In terms of revenue for the year.
Speaker Change: Yeah, Yeah, we certainly believe so Q2, we do expect to see sequential growth throughout the year and obviously that sequential growth is going to be much stronger in the back half of the year relative to.
Speaker Change: Q1 Q2.
Speaker Change: Okay, and then I guess my second questions.
Speaker Change: Both.
Speaker Change: Future M&A strategy, if there happens to be on M&A.
Speaker Change: I guess the question.
Speaker Change: Would be.
Speaker Change: Can you give us any idea.
Speaker Change: What you'd be looking for in terms of.
Kind of necessary metrics around returns or opportunity to pull the trigger on M&A versus.
Speaker Change: It seems like.
Speaker Change: Silicon motion has so many opportunities moving forward and so undervalued.
Speaker Change: <unk>.
Speaker Change: I guess.
Speaker Change: It seems that you have a pretty high bar to go out and acquire a company versus buying back your own stock given where the valuation is today I guess.
Speaker Change: I want some comfort.
Speaker Change: M&A in the past doesn't necessarily quite worked out as well as you'd hoped that we might not see another Shannon for instance.
Speaker Change: I assume we are MMA is a focus on core technology and the folks who are our core business to grow. So this is not something which is wanted to buy the company to grow the revenue, we really want to build around the enterprise enterprise a deep so because we are sorry to win design.
Speaker Change: Major customer. We also found out there is a several key component around and we are able to do to also make a similar product, but we are lacking some.
Some key element.
Speaker Change: Although this area, we have evaluate whether we're able to win and grow faster than the.
Speaker Change: <unk> had a big enough and we have a value to do so so this is Emma will have been more strategic to expand our core technology and key product for our customer.
Speaker Change: And we do have have and customer committed and we will move to that direction.
Speaker Change: And also keep in mind, Matt as I said are our capital allocation strategy is three pronged REIT dividend will still continue to be the primary part of that and then.
Speaker Change: The dividend share repurchase is something that we have done from time to time in <unk>.
Speaker Change: The press release yesterday, certainly being one of those times.
Speaker Change: Got it so it sounds like though if you step forward with acquisitions, you'll have pretty youll have certainty in some sense around there's this additional opportunity.
Speaker Change: This is the right way to go versus partnering or.
Speaker Change: Building internally.
Speaker Change: And so.
Speaker Change: Youll see the ROI will be relatively clear to us on the investment community.
Speaker Change: So assuming you move in that direction.
Speaker Change: Yes.
Speaker Change: Look we're always evaluating the best ways in which we can use a large amount of cash that we generate to generate shareholder value right acquiring complementary technologies or businesses that offer additional growth or technologies that Wallace pointed out to our existing products has always been part of our strategy and we'll also be looking at it but there are.
Speaker Change: Our rate targets, but nothing imminent nothing particular specific right now, it's obviously something that we continue to evaluate but in the meantime, the dividend in time to time repurchases are going to be.
Speaker Change: The primary ways of returning capital to shareholders.
Speaker Change: Awesome.
Speaker Change: One more so great to hear that you guys signed four new customers versus the <unk> pumps.
Speaker Change: You talked to you on Tom.
Speaker Change: Titan exiting Q4.
Speaker Change: I guess you were also talking previously about monetizing being 10% of revenue roughly in 2027.
Speaker Change: I guess, what would what would you need to see to.
Speaker Change: Be able to lift.
Speaker Change: That metric given it does sound like.
Things are moving really well.
Speaker Change: Yes look I mean, we're still early in the process here right. I mean, we're beginning to scale. We started shipping last quarter. We're obviously very optimistic about the wins that we have and the interest that we've generated until we start seeing this scale more meaningfully we'll stick with the 10% target in 2027 for now and as we have more.
Speaker Change: Data points.
Speaker Change: At this point, we can scale that faster and larger and we have the data points to support that will obviously want to bring that to your attention sooner rather later when that's available.
Speaker Change: Awesome. Thanks again.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: I'm showing no further questions I'll now turn the conference back to Mr. Wallace Cope for closing comments.
Speaker Change: Thanks, everyone for joining us today and for your continued interest in Silicon motion, we will be attending several investor conferences over the next few months.
Speaker Change: These events will be posted on the investor relationship section of our corporate website and look forward to speaking with you.
Speaker Change: These events. Thank you everyone for joining us today bye bye.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.