Q2 2025 Silicon Motion Technology Corp Earnings Call

July 31, 2025

Operator: Good day. Thank you for standing by. Welcome to the Silicon Motion Technology Corporation's Q2 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You will hear automated message advising your hand is raised. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industries, and our future results of operations, financial condition, and business prospects.

For a standing by welcome to the Silicon motion Technology Corporation Q2 2025 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.

To ask a question during the session. You need to press star 1. 1 on your telephone. You will then hear automated message advising your hand is raised.

This conference call contains forward-looking statements within the meaning of Section 278 of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.

Operator: 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 our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of any change in our relationship with our major customers, and changes in political, economic, legal, and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities Exchange Commission.

Operator: 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 our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry 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 discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission.

Such for okay, statements include without limitations statements regarding Trends in the semiconductor industry and our future results of operations Financial conditions and business prospects. Although such statements are based on our own information that information from other sources. We believed to be reliable. You should not Place. Undue Reliance on them.

This statements involve risk and uncertainties and actual market trends, and our results May differ materially from those Express or imply in these 4 looking statements for a variety of reasons.

Potential risks and uncertainties include but are not limited to continue 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 n. Any change in our relationship with our major customers and changes in political economic legal and social conditions in Taiwan

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 call is being recorded. I will now like to hand the conference over to Mr. Tom Sepenzis, Senior Director of IR and Strategy. Thank you. Please go ahead.

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 call is being recorded. I will now let the conference over to Mr. Tom Sepenzis, Senior Director of IR and Strategy. Thank you. Please go ahead.

For additional discussions of these risks and uncertainties and other factors please see the documents. We file from time to time with the security sector Exchange Commission where some no obligation to update any default. Looking statements, which apply only as of the date of this conference call.

Tom Sepenzis: Good morning, everyone, welcome to Silicon Motion's Q2 2025 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO, and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments, then Jason will discuss our Q2 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. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the US Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of market yesterday.

Tom Sepenzis: Good morning, everyone, and welcome to Silicon Motion's second quarter 2025 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO, and Jason Tsai, our 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. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6K after the close of market yesterday.

Please be advised that today's call is being recorded. I would like to hand the conference over to Mr. Thomas Sepenzis, Senior Director of IR and Strategy. Thank you, please go ahead.

Good morning, everyone, and welcome to Silicon Motion's second quarter 2025 financial results conference call and webcast.

Joining me today as well as Co our president and CEO and Jason Tsai our 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. Please refer to our filings with the U.S. Securities and Exchange Commission for a comprehensive overview of the risks involved in investing in our securities.

Tom Sepenzis: 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 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.

Tom Sepenzis: 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 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.

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

This webcast will be available for replay and 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.

Wallace Kou: Thank you, Tom Sepenzis. Hello, everyone. Thank you for joining us today. I'm pleased to report that we exceeded our revenue and the operating margin guidance for Q2, that we further benefited from the introduction of new controller that drive higher market share and our continuing expansion and growth into new markets. As we further scale and ship to high-end UFS PCIe controllers and grow our automotive and MonTitan products in second half this year, we expect our revenue growth to remain strong and profitability to further improve. We are excited by the progress and foundation for growth we are building.

Wallace Kou: Thank you, Tom. Hello, everyone, and thank you for joining us today. I am pleased to report that we exceeded our revenue and operation margin guidance for the second quarter, that we further benefited from the introduction of new controllers that drive higher market shares and our continuing expansion and growth into new markets. As we further scale and shift to higher-end UFS PCIe controllers and grow our automotive and MonTitan SSD products in the second half of this year, we expect our revenue growth to remain strong and profitability to further improve. We are excited by the progress and foundation for growth we are building. Based on our backlog diversification strategy and design win momentum, we are well positioned for a strong second half and remain confident that we will exit the year with our target $1 billion revenue run rate.

The reconciliation of the gaap to non-gaap financial data can be found in our earnings release issued yesterday. We asked the review it and conjunction with this, call with that, I will turn the call over to Wallace.

Sing it down.

Hello, everyone, and thank you for joining us today.

I'm pleased to report that we exceeded our Revenue in the operation margin guidance. For the second quarter, that we further benefit from the introduction of new controller that drive higher market, share and are continuing expansion and growth into new markets.

As we further scale and ship to high-end ufs Pi controllers and grow our automotive and monitoring products in second house this year.

We expand our Revenue growth to remain strong and profitability to further improve.

Wallace Kou: Based on our backlog, diversification strategy, and design win momentum, we are well positioned for a strong second half and remain confident that we will exit the year as our target $1 billion revenue run rate. Let me start by discussing our view of a broader NAND flash environment and how it's positively affecting our business today and opening new opportunity longer term as well. The NAND industry experienced improvement in Q2 with flash prices increasing as inventory level in the PC and smartphone market declined further, given a modest, modestly better demand environment. Enterprise storage demand remained strong in the quarter as AI expanding into nearly every industry. NAND flash makers have reduced capital expenditures for big growth and continue to increase prices as enterprise and AI growth are limiting NAND supply.

Wallace Kou: Let me start by discussing our view of a broader NAND flash environment and how it is positively affecting our business today and opening new opportunities longer term as well. The NAND industry experienced improvement in the second quarter with the flash crisis increasing as the inventory level in the PC and smartphone market declined further, given a modestly better demand environment. Enterprise storage demand remains strong in the quarter, with AI expanding into nearly every industry. NAND flash makers have reduced capital expenditures for big growth and continue to increase prices as enterprise and AI growth are limiting NAND supply. Our module maker partners continue to build inventory ahead, with an expected increase in NAND prices in the second half of 2025. We will remain flexible and are well positioned with both NAND flash makers and module makers to fulfill their growing requirements.

We are excited by the progress and foundation for growth. We are building and based on our backlog diversification strategy and design Wei momentum, we are well positioned for strong, second, half, and remain confident that we will assess. The year, is our Target 1 billion dollar Revenue, run rate,

Well.

The name District experience Improvement in the second quarter with the flash prices increasing as the inventory level in the PC. And smartphone market declined further, given a modest monthly budget in Maine environments.

Enterprise storage demand remains strong in the quarter of the AI, expanding into nearly every industry.

Wallace Kou: Our module maker partners continue to build inventory ahead as unexpected, increasing NAND prices in the second half of 2025. We will remain flexible, well-positioned with both NAND flash makers and module makers to fulfill their growing requirements. With NAND prices expected to increase, demand for more cost-effective QLC NAND expanding in clients D, smartphone, and enterprise storage, increasing QLC production is a lower cost way to rapidly growing big growth for flash maker. While QLC-based solution deliver high-density storage at a significantly lower cost. We are the only controller company partnered with all flash makers, giving us significant advantage and insight into current and future NAND technologies. We believe these partnerships and our unmatched experience in managing QLC NAND will allow us to maintain our industry leadership and drive long-term sustainable revenue and earning growth for many years.

Then fresh makers have reduced Capital expenditures for big growth and continued to increase prices as the Enterprise and AI growth are limiting land Supply.

Our module maker partner, continue to build inventory ahead, as an expected increase in land prices in the second half of 2025.

we will remain flexible, and that's our very and, uh,

Wallace Kou: With NAND prices expected to increase, demand for more cost-effective QLC NAND expanding increases deep. Smartphone and enterprise storage increasing QLC production is a lower-cost way to rapidly grow big growth for flash makers, while QLC-based solutions deliver high-density storage at a significantly lower cost. We are the only controller company partnered with all flash makers, giving us significant advantage and insight into current and future NAND technologies. We believe this partnership and our unmatched experience in managing QLC NAND will allow us to maintain our industry leadership and drive long-term sustainable revenue and earning growth for many years. In addition, the demand for memory and storage solutions expanding to new end markets in consumer, commercial, industrial, automotive, and enterprise. Memory makers are constrained in where they allocate R&D resources and capital resources between NAND, HBM, and DRAM.

As a well positioned with both Nan, flash maker and model maker to fulfill their growing requirements.

We will then price that expanded to increase demand for more cost, effective kosin and expanding inclines, the D smartphone, and Enterprise storage including currency production.

Is a lower cost way to rapidly growing. Big growth for fast maker while. KLC based solution delivery high density storage. It is simply lower cost.

We are the only controlled company partnered with all flash makers, giving us significant advantage and insight.

Into current and future land technologies.

Wallace Kou: In addition, the demand for memory and storage solution expanding to new end markets in consumer, commercial, industrial, automotive, and enterprise. Memory makers are constraining where they allocate RD resources and capital resource between NAND, HBM, and DRAM. The demand from each of these markets continue to rise and new generation of NAND evolves, the need for next generation controllers for these different applications expanding. Our flash maker partners are turning to Silicon Motion as their primary merchant supplier to help build comprehensive portfolios, expanding our market share and building the foundation for strong multiyear growth with an increasingly diversified range of products and end markets. Let me share some updates for each of our business segments, beginning with eMMC and UFS. Our mobile business significantly outperformed our expectation in Q2 as we benefited from several positive trends for our eMMC and UFS controllers.

We believe this partnership in our unmatched experience. In management will allow us to maintain our industry leadership and drive long-term sustainable revenue, and earning growth for many years.

Wallace Kou: The demand from each of these markets continues to rise, and new generations of NAND evolve, the need for next-generation controllers for these different applications expanding. Our flash maker partners are turning to Silicon Motion as their primary merchant supplier to help build comprehensive portfolios, expanding our market share and building the foundation for strong multi-year growth with an increasingly diversified range of products and end markets. Let me share some updates for each of our business segments, beginning with eMMC and UFS. Our mobile business significantly outperformed our expectations in the second quarter, as we benefited from several positive trends for our eMMC and UFS controllers. We continue to see strong booking momentum from both flash makers and module maker customers entering the second half of the year.

In addition the demand for memory and storage solution, expanding to new and markets in consumer commercial, commercial industrial automotive and Enterprise memory makers are constrained in where they allocate are the resources and capital resource between Nan hpn and DM.

The demand from each of these markets, continue to rise and new generation of men. Evolved the need for Next Generation controller for these different application expanding

Our cash makeup honor are turning into second motion as their primary Merchant supplier to help build comprehensive portfolios, expanding our market, share and building the foundation for strong. Multi-year growth with an increasingly Diversified range of products and end markets.

Now, let me share some update for each of our business segments, beginning with EMC and ufs.

Wallace Kou: We continue to see strong booking momentum from both flash maker and module maker customers entering the second half of the year. Module makers in particular are experiencing strong growth in mobile as they are benefiting from the trend toward discrete eMMC and UFS solution, driven by the increasing availability of low-cost mobile DRAM. Flash makers have also adopted our controllers as they continue to embrace outsourcing to stay competitive, improve their time to market, and prioritize their own internal R&D resources for other technologies and end markets. Our family of UFS controller for smartphone and other mobile and IoT devices grew meaningfully in the quarter as demand from both our flash maker and module maker customers accelerated, driven by strong end market demand. The increasing share of UFS in smartphone is driving stronger demand for our new high ASP UFS controller in mainstream and high-end devices.

Our mobile business is going to be outperformed our expectation. In the second quarter as we benefited from several policy, trends for our EMC, Us controllers.

Wallace Kou: Module makers, in particular, are experiencing strong growth in mobile, as they are benefiting from the trend toward discrete eMMC and UFS solutions, driven by the increasing availability of low-cost mobile DRAM. Flash makers have also adopted our controllers, as they continue to embrace outsourcing to stay competitive, improve their time-to-market, and prioritize their own internal R&D resources for other technologies and end markets. Our family of UFS controllers for smartphone and other mobile and IoT devices grew meaningfully in the quarter, as demand from both our flash maker and module maker customers accelerated, driven by strong end-market demand. The increasing share of UFS in smartphones is driving stronger demand for our new high-access UFS controllers in mainstream and high-end devices. In addition, our new engagement with handset OEM for QLC UFS solutions is also expanding and diversifying our market penetration.

We continue to see strong booking momentum from both flash maker and model maker customers. Entering the second half of the year.

Model makers, in particular, are experiencing strong growth in mobile, as they are benefiting from the trend toward discrete, EMC, and US solutions.

Driven by the increasing availability of low-cost mobile Deere.

Flash maker have also adopted our controller as they continue to embrace all sourcing to stay competitive, improve their time to market, and prioritize their own internal R&D resources for other tech.

Technologies in in markets.

Our family of us have controlled it for smartphone and other mobile and iot devices. Grow meaningfully in the quarter as demand from both our flash maker and model maker, customer saturated

Driven by strong and market demand.

Wallace Kou: In addition, our new engagement with handset OEMs for QLC UFS solution are also expanding and diversifying our market penetration. We expect this trend to continue in the second half this year. For eMMC, our increasing share and robust demand in the quarter also delivered strong sequential growth for our controllers. Demand is accelerating in multiple existing and emerging markets, including IoT, smartwatches, smart TV, set-top box, and emerging consumer products such as AI glasses. The market for eMMC accounts for over 800 million units per year, and the non-smartphone accounts for much of this market. We believe our eMMC business will remain a strong contributor for many years to come as these additional markets further scale. Now I would like to move on to our SSD business. The PC market appeared to be bottoming out in Q1 2025 and stabilized in Q2.

Wallace Kou: We expect this trend to continue in the second half of this year. For eMMC, our increasing share and robust demand in the quarter also delivered strong sequential growth for our controllers. Demand is accelerating in multiple existing and emerging markets, including IoT, smartwatches, smart TVs, set-top boxes, and emerging consumer products such as AI glasses. The market for eMMC accounts for over 800 million units per year, and the non-smartphone accounts for much of this market. We believe our eMMC business will remain a strong contributor for many years to come as these additional markets further scale. Now, I would like to move on to our SSD business. The PC market appeared to be bottomed out in the first quarter of 2025 and stabilized in the second quarter.

The increasing share of ufs in smartphone is driving stronger, demand for our new higher ASV, ufs controller in Main Street and high-end devices. In addition, our new engagement with handset OEM for Casey us solution are also expanding and diversifying our Market penetration.

We expect this trend to continue in the second half of this year.

For EMC, our increasing shared and robust demand in the quarter. Also delivered strong sequential growth for our controllers.

In multiple existing and emerging market.

Including iot smart watches, Smart TV setup box and emerging consumer product such as AI glasses.

The market for EMC accounts for over 800 million units per year, and the non-smartphone segment accounts for much of this market. We believe our EMC business will remain a strong contributor for many years to come because these additional markets will first scale.

Now, I would like to move on to our SD business.

Wallace Kou: We believe that the market will grow in the low single digits in 2025, and we are expecting a stronger second half given typical seasonality, which benefits from the back-to-school and holiday sales. This year, we will also see further benefits from the sunsetting of Windows 10 in October, and we are beginning to see more widespread adoption of AI at the edge in consumer and commercial PC, which is increasing in demand of high-performance solutions, including SSD powered by our PCIe 5 controllers. As we have discussed previously, we expect to drive significant market share gains in client SSD over the next few years, especially in the high end, driven by our leading position in PCIe 5.

Wallace Kou: We believe that market will grow in the low single digit in 2025. We are expecting a stronger second half given typical seasonality, which benefit from the back-to-school and holiday sales. This year will also see further benefit from adding of Windows 10 in October. We are beginning to see more widespread adoption of AI at the edge in consumer and commercial PC, which is increasing demand of higher performance solution, including SSD, powered by our PCIe 5 controllers. As we have discussed previously, we expect to drive significant market share gains in client SSD over the next few years, especially in the high-end, driven by our leading position in PCIe 5.

The PC market appear to be part and out in the first quarter of 2025 and stabilize. In the second quarter, we believe that market will grow in the low single digit in 2025.

And we are expecting a stronger second half given typically, seasonality.

When you benefit from the back-to-school and holiday sales, this year we'll also see the first benefits from some setting of Windows 10 in October. We are beginning to see more widespread adoption of AI as the ash in consumer and commercial PCs, which is increasing the demand for higher performance solutions, including those powered by our PCIe fee controllers.

Wallace Kou: Sales for our 8-channel controller, launched in December of last year, continued to grow quickly in Q2, increasing by more than 75% sequentially and already account for more than 10% of our client SSD controller revenue, driven by strong share gains and higher ASP. We expect additional momentum with our PCIe 5 controllers throughout this year as OEM increase sales at the high-end. Additionally, we will start initial ramp of our 4-channel DRAM-less PCIe 5 controller at the end of this year, and have already won designs with 4 of 6 flash makers and nearly all the module makers. This new controller will target the broader segment of PC and aftermarket SSD sales, and we believe that this introduction will help us achieve 40% of the SSD market by 2028, up from 30% today.

Wallace Kou: Sales for our eight-channel controller, launched in December of last year, continued to grow quickly in the second quarter, increasing by more than 75% sequentially and already accounts for more than 10% of our client SSD controller revenue, driven by strong share gains and high ASP. We expect additional momentum with our PCIe 5 controllers throughout this year as OEMs increase sales at the high end. Additionally, we will start the initial ramp of our four-channel DRAMless PCIe 5 controller at the end of this year and have already won designs with four of six flash makers and nearly all the module makers. This new controller will target the broader segment of PC and aftermarket SSD sales, and we believe that this introduction will help us achieve 40% of the SSD market by 2028, up from 30% today. I will now provide an update to our automotive and other business.

So, that we have to discuss previously, we expect to drive significant market share gains in the D over the next few years, especially in the high end, driven by our leading position in PCIe 5.

So, from 8 channel controller bouncing December of last year continued to grow quickly in the second quarter increasing, by more than 75% sequentially and already account for more than 10% of our clients speaking controlling Revenue.

Driven by strong, share gains and higher ASV.

We explain additional momentum with our PI controller throughout this year, although increased sales is a high-end

Additionally, we will start initial ramp for 4 channel. Dmers pci5 controller is the end of this year and have already won design with 4 of 6, fresh makers, and nearly all the makers.

This new controller. We're talking to broke.

Wallace Kou: I will now provide an update to our automotive and other business. As I mentioned earlier, we continue to experience tremendous design win activity in our automotive segment. Vehicle capacity is increasing with the growing demand of high speed and low latency storage. We support automotive storage needs across nearly all our product lines, including PCIe, eMMC, UFS, and increasingly, our Ferri embedded solution. We were the first company to achieve ASIL level three certification for our PCIe four solution, and we are on track to tape out our new automotive PCIe 5 controller in 2026. Demand of more storage solution is increasing in conventional cars, as well as with next-generation electrical vehicle makers. Our controller power increase storage density, speed, and reliability for diverse needs, including smart cockpits, data centers, cameras, navigation, and other applications.

The broader segment of PC and aftermarket is the DC sales, and we believe that this introduction will help us achieve 40% of the SAD market by 2028, up from 30% today.

Wallace Kou: As I mentioned earlier, we continue to experience tremendous design win activity in our automotive segment. Vehicle capacity is increasing with a growing demand of high-speed and low-latency storage. We support automotive storage needed across nearly all our product lines, including PCIe, eMMC, UFS, and increasingly our ferrite embedded solutions. We were the first company to achieve ASPEN Level 3 certification for our PCIe 4 solution, and we are on track to sample a new automotive PCIe 5 controller in 2026. Demand for more storage solutions is increasing in conventional cars as well as with next-generation electrical vehicle makers. Our controller power increases storage density, speed, and reliability for diverse applications, including smart cockpits, ADAS sensors, cameras, navigation, and other applications. We are now seeing increased demand for storage solutions to support AI and multi-screen integration to help automakers drive differentiation and customer loyalty.

I will now provide an update on our automotive and other business.

For the managing earlier.

We continue to experience, tremendous design Wing activity in our Automotive segment.

Vehicle capacity is increasing with a growing demand for high speed and low latency storage. We support multi-storage needs across nearly our product line, including PCIe EMC, UFS, and increasingly.

Our fee invest solution.

We were the first company to achieve a level 3 certification for PCI 4 solution and we are on track to take about a new Automotive PCI fee controller in 2026.

Demand of more storage solution is increasing in conventional cars as well as with Next Generation electrical vehicle makers.

Our controller power increased. Sorry,

Density, speed and reliability for diverse need. Including smart carpets.

Wallace Kou: We are now seeing increased demand for storage solution to support AI and multi-screen integration to help automaker drive differentiation and customer loyalty. We are currently shipping to many of the largest automotive brands in the business, including Mercedes, Tesla, BYD, Xiaomi, Toyota, Honda, and many others. As we enter the second half, we are seeing greater than expected demand from our partners in China as brands are successfully taking worldwide market share for low-cost automobiles and leading electrical vehicles. Given the strength in China and increasing design win activity globally, we are increasingly confident that automotive will account for at least 10% of our revenue by 2026 to 2027. During the Q2, we also experienced strong growth in our memory card business due to the highly successful launch of Nintendo Switch 2.

Data sensors, cameras, navigation, and other applications are now seeing increased demand for storage solutions.

Wallace Kou: We are currently shipping to many of the largest automotive brands in the business, including Mercedes, Tesla, BYD, Xiaomi, Toyota, Honda, and many others. As we enter the second half, we are seeing greater than expected demand from our partners in China. These brands are successfully taking worldwide market share for low-cost automobiles and leading electrical vehicles. Given the strength in China and increasing design win activity globally, we are increasingly confident that automotive will account for at least 10% of our revenue by 2026 to 2027. During the second quarter, we also experienced strong growth in our memory card business due to the highly successful launch of Nintendo Switch 2.

To support Ai and multi-screen integration to help automaker Drive differentiation and customer loyalty.

We are currently shipping to many of the larger, the multi-brand.

In the business, including Mercedes, Tesla, byd xiaomi, Toyota, Honda and many others. So that we enter the second half, we are seeing greater than expected demand from our partner in China. But brand are successfully taking World worldwide market, share for low cost of the auto mobiles and leading electrical vehicles.

By 2026 to 27.

Wallace Kou: We start ramping with the leading South Korea flash maker with direct attach to the 3-2 games, as well as partnering with leading brands like ADATA and Lexar for retail expandable storage with PCIe SSD level performance in a microSD form factor. For the first half of 2025, our memory card revenue more than doubled year-over-year, we expect to see continued success in the second half of the year as the Switch 2 demand remain robust and as we enter the holiday season. The SM2708 delivers a high density, high speed, required by modern portable gaming devices, we are pursuing other opportunity with this exceptional controller to drive diversified long-term growth. Finally, I would like to provide highlights on our enterprise business. Both memory and storage needs are evolving rapidly in the AI era, the opportunity for Silicon Motion are expanding.

Wallace Kou: We started ramping with the leading South Korea flash maker with direct attach to the Switch 2 games, as well as partnering with leading brands like AData and Lowes for retail expandable storage with PCIe SD level performance in a microSD form factor. For the first half of 2025, our memory card revenue more than doubled year over year, and we expect to see continued success in the second half of the year as the Switch 2 demand remains robust. As we enter the holiday season, the SM2700A delivers the high-density, high-speed required by modern portable gaming devices, and we are pursuing other opportunities with this exceptional controller to drive diversified long-term growth. Finally, I would like to provide a highlight on our enterprise business. Both memory and storage needs are evolving rapidly in the AI era, and the opportunities for Silicon Motion are expanding.

During the second quarter, we also experienced strong growth in our memory card business due to the highly successful launch of Nintendo Switch 2.

We start ramping with the leading South Korean flash maker, with direct attachments to the 32 games, as well as partners pinging with leading brands like data and loans for retail expandable storage with PCIe SD level performance in a micro SD form factor.

For the first half of 2025, our memory card, Revenue more than double year-over-year. And we expect to see continued success in the second half of the year as a switch to demand remain robust.

And as we enter the holiday season,

the SM 2708 delivered, the high density high speed required by modern portable gaming devices and we are pursuing other opportunity with this exceptional, controller to drive diversify, building growth.

Finally, I would like to provide highlight.

On our Enterprise business.

Wallace Kou: AI application requires access to data more quickly, driving increased adoption of SSD throughout the data center. The current infrastructure comprise high-performance memory, near-GPU storage, compute storage, warm storage, and cold storage. Our MonTitan platform is ideally suited to manage high-density, high-performance SSDs that are both cost-effective and power-efficient to serve the warm storage market with our leading controller when paired with QLC NAND. The warm storage market has traditionally been served by HDD. Storage performance requirements have increased due to AI application. The price disparity between HDD and QLC SSD converge. We expect more hyperscalers and CSPs will adopt high-capacity QLC SSD for warm storage, while nearline HDD move to support the growing cold storage need. Recently, we have been receiving interest from customers to expand beyond warm storage into compute storage market with our MonTitan.

Wallace Kou: AI applications require access to data more quickly, driving increased adoption of SD throughout the data center. The current infrastructure comprises high-performance memory, near GPU storage, compute storage, warm storage, and cold storage. Our MonTitan platform is ideally suited to manage high-density, high-performance SSDs that are both cost-effective and power-efficient to serve the warm storage market with our leading controller when paired with QLC NAND. The warm storage market has traditionally been served by HDD, but storage performance requirements have increased due to AI applications and the price disparity between HDD and QLC SSD converge. We expect more hyperscalers and CSPs will adopt high-capacity QLC SSD for warm storage, while new HDD move to support the growing cold storage need. Recently, we have been receiving interest from customers to expand beyond warm storage into the compute storage market with our MonTitan.

Both memory and storage needs are involving rapidly in AI Iran, and the opportunity for silicon motion are expanding.

Are education requires set to data more quickly, driving increased adoption of SD, throughout the data center.

The current infrastructure comprised High performing memory near GPU storage compute storage, warm storage and coastal storage.

Harlem on the Titan platform is ideally suited to manage high-density, high-performance workloads that are both cost-effective and power-efficient to serve the world storage market with our leading controller when paired with QRC.

The 1 storage Market has traditionally been served by HDD but the story performance requirements have increased due to AI application and the price disparity between HDD and QR CSD converge wingspan. More hyperscalers and cfts will adopt high capacity. Currency is the for 1 storage. While near 19d move to support the growing Cold Storage need

Recently, we have been receiving.

Wallace Kou: The new product will pair MonTitan with up to 16 terabytes of TLC NAND to target the high-performance near CPU market, and it represents an exciting new opportunity for MonTitan. Longer term, we are also beginning to work with our industry and the flash maker partners to support the development of a new JEDEC standard for new line flash that will likely come to market in the next three to five years to further drive adoption of SSD in warm storage applications, especially as the need to access more data more quickly grows with AI. The new line flash requirements will allow for more relaxed specifications for QLC with lower costs driven by higher yield. This should drive even greater adoption of QLC NAND in warm storage and, by extension, should create a bigger market opportunity for MonTitan.

Wallace Kou: The new product will pair MonTitan with up to 16 TB of TLC NAND to target the high-performance near CPU market, and it represent an exciting new opportunity for MonTitan. Longer term, we are also beginning to work with our industry and the flash maker partner to support the development of a new JEDEC standard for nearline flash. That will likely come to market in the next 3 to 5 years to further drive adoption of SSD in warm storage application, especially as the need to access more data more quickly grow with AI. The nearline flash requirement will allow for more relaxed specification for QLC, with lower cost driven by higher yield. This should drive even greater adoption of QLC NAND in warm storage, and by extension, should create a bigger market opportunity for MonTitan.

Inches from customer to expand beyond 1 storage into the compute storage market with our monitor.

The new product will appear monitoring with up to 16 terabytes of TCN to cut it to target. The high-performance near CPU market represents an exciting new opportunity from Titan.

Longer term. We are also beginning to work with our industry and the Flash maker partner to support the development of a new Jedi standard for a new line fresh that will likely come to Mark in the next 3 to 5 years to further Drive adoption of SD in 1 storage application, especially as a need to access more data more quickly grow with AI.

The new life flash requirement will allow for more relaxed sophistication for QRC, with a lower cost driven by higher yield. This should drive even greater adoption of kerosene and.

Wallace Kou: At the upcoming FMS Conference next week, we will be co-hosting a demo with VAST Data to demonstrate how our MonTitan SSD can deliver a compelling solution for the insatiable growth in AI application. The collaboration will showcase the VAST Data storage class memory or SCM for its new Ceres V2 platform. Ceres V2 leverage the NVIDIA BlueField-3 DPU platform for AI storage. The Ceres intelligent storage platform is used by system integrator and architects, and deployed at hundreds of large enterprise around the world, including banks, data centers, retailers, multinational conglomerate, and other leading companies that are leveraging or are developing AI application. We invite you to join us at FMS to see how our MonTitan solution will drive the next wave of AI solution for the next several years.

Wallace Kou: At the upcoming FMS conference next week, we will be co-hosting a demo with the Vast Data to demonstrate how our MonTitan SSD can deliver a compelling solution for the insatiable growth in AI applications. The collaboration will showcase the Vast Data storage class memory, or SCM, for its new Ceres V2 platform. Ceres V2 leverages NVIDIA's BlueField-3 DPU platform for AI storage. The Ceres Intelligent Storage platform is used by Cisco Integrator and architects and deployed at hundreds of large enterprises around the world, including banks, data centers, retailers, multinational conglomerates, and other leading companies that are leveraging or are developing AI applications. We invite you to join us at FMS to see how our MonTitan solution will drive the next wave of AI solutions for the next several years.

In one storage and by extension show, create a bigger market opportunity for Titan.

And the upcoming FMS Conference. Next week, we will be co-hosting a demo with the vast data to demonstrate how our man Titan is D. Can deliver a compelling solution for the insatiable growth in a application.

The collaboration will showcase the vast data storage class memory or sem for its new service, V2 platform, serious V2, leverage and media, both View Street dpu platform. For AI storage, the serious intelligent story platform that used by certain greater and architects.

And deploy at hundreds of large, Enterprise around the world, including Banks, data centers, retailers multinational, conglomerate and other leading companies that are leveraging.

Or uh, developing AI application.

Wallace Kou: In conclusion, the Q2 of 2025 has delivered a significant rebound in our business, and we are beginning to see return on the investment we have made over the past few years. This include our leading signal meter product, our new UFS and PCIe 5 controllers, our new MonTitan ESD and the Boost Storage solutions, our market-leading automotive portfolio, and our new microSD product for multiple application, including Nintendo Switch 2. We are in a better position to expand our market share across each of our markets in 2025 than ever before, as we continue to capture additional shares with the flash maker across our product portfolio.

Wallace Kou: In conclusion, the second quarter of 2025 has delivered a significant rebound in our business, and we are beginning to see a return on the investment we have made over the past few years. This includes our leading signal meter product, our new UFS and PCIe 5 controllers, our new MonTitan SSD, and the BlueField-3 DPU storage solutions, our market-leading automotive portfolio, and our new microSD product for multiple applications, including Nintendo Switch 2. We are in a better position to expand our market share across each of our markets in 2025 than ever before, as we continue to capture additional share with the flash maker across our product portfolio.

We invite you to join us at AZOMS to see how our M Titan solution will shape the next era of AI solutions for the coming years.

Cushion. The second quarter of 2025 had delivered a significant Rebound in our business and we are beginning to see return on the investment. We have made over the past few years, this include our dating signal meter product of new ufs, and pcie fee controllers.

Our new man, Titan ESD, and the booster solutions.

Our Market leading automotive portfolio and our new MicroSD product for multiple application including Nintendo switch 2.

Wallace Kou: Given the current customer demand in our legacy business and the growing success with our new product, I am increasingly confident that we will achieve our goal of exiting 2025 at a $1 billion revenue run rate and grow further in 2026. Now, let me turn the call over to Jason to go over our financial results and outlook.

Wallace Kou: Given the current customer demand in our legacy business and the growing success with our new product, I'm increasingly confident that we will achieve our goal of exiting 2025 at a $1 billion revenue run rate and then grow further in 2026. Now let me turn the call over to Jason to go over our financial results and outlook.

We're in a better position to expand our market share across each of our markets in 2025 than ever before. But we continue to capture additional shares with the flash maker across our product portfolio.

Given the current customer demands in our Legacy business and the growing success with our new product, I'm increasingly confident that we will achieve a goal of accessing 2025 is a 1 billion dollar Revenue, run rate and then grow filter in 2026.

Jason Tsai: Thank you, Wallace. Good morning everyone for joining us today. I will discuss additional details of our Q2 results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results, unless specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the Q2, our sales increased 19.3 sequentially to $198.7 million, coming in well above the high end of our guided range as we experienced a strong rebound in mobile demand and strong growth in our PCIe 5 client SSD business. Gross margin was at the higher end of our guidance range and increased again in the quarter to 47.7 as we continue to capitalize on new product introductions and improving mix.

Jason Tsai: Thank you, Wallace, and good morning, everyone, for joining us today. I will discuss additional details of our Q2 results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the June quarter, sales increased 19.3% sequentially to $198.7 million, coming in well above the high end of our guided range as we experienced a strong rebound in mobile demand and strong growth in our PCIe 5 client SSD business. Gross margin was at the higher end of our guidance range and increased again in the quarter to 47.7% as we continue to capitalize on new product introductions and improving mix.

Now, let me turn the call over to Jason to go over our financial results. And now look.

Thank you, Wallace, and good morning everyone for joining us today.

I'll discuss additional details of our second quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless specifically noted.

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

In the June quarter sales increased 19, 3% sequentially to $198 7 million coming in well above the high end of our guided range as we experienced a strong rebound in mobile demand and strong growth in our pcie client SSD business.

Gross margin was at the higher end of our guidance range and increased again in the quarter to 47, 7% as we continue to capitalize on new product introductions and improving mix.

Jason Tsai: Operating expenses increased sequentially to $69.3 million as we continue to invest in new enterprise storage products and as additional resources to support our significant pipeline of new projects. Higher operating expenses in the Q2 were also impacted by the stronger Taiwan dollar as most of our compensation expenses are paid in Taiwan dollars. Operating margin increased sequentially to 12.8%, well above our guided range, resulting from improved gross margins and higher than expected revenues during the quarter. Our earnings per ADS was $0.69. Total stock-based compensation, which we exclude from non-GAAP results, was $0.2 million in the Q2. We had $282.3 million cash, cash equivalents, and restricted cash at the end of the Q2 compared to $331.7 million at the end of the Q1 2025.

Jason Tsai: Operating expenses increased sequentially to $69.3 million as we continue to invest in new enterprise storage products and as additional resources to support our significant pipeline of new projects. Higher operating expenses in Q2 were also impacted by the stronger TWD as most of our compensation expenses are paid in TWD. Operating margin increased sequentially to 12.8%, well above our guided range, resulting from improved gross margins and higher than expected revenues during the quarter. Our earnings per ADS was $0.69. Total stock-based compensation, which we exclude from non-GAAP results, was $0.2 million in Q2. We had $282.3 million cash equivalents and restricted cash at the end of Q2, compared to $331.7 million at the end of Q1 2025.

Operating expenses increased sequentially to $69 3 million as we continue to invest in new enterprise storage products.

Additional resources.

To support our significant pipeline of new projects.

Higher operating expenses in the second quarter were also impacted by the stronger Taiwan dollar as most of our compensation expenses are paid at a time.

Operating margin increased sequentially to 12, 8% well above our guided range, resulting from improved gross margins and higher than expected revenues during the quarter.

Our earnings per ADR was 69 cents.

Total stock based compensation, which we exclude from non-GAAP results was <unk> 2 million in the second quarter.

We had $282 3 million cash cash equivalents and restricted cash at the end of the second quarter compared to $331 7 million at the end of the first quarter of 2025.

Jason Tsai: Cash declined in Q2 primarily from the combination of the dividend payout of $16.7 million and an increase in inventory to support our expected strong business ramp. We did not repurchase any shares in Q2. Our team executed well and delivered significant outperformance despite ongoing global macro uncertainty and continuing investments in new advanced geometry products and our MonTitan platform for the enterprise and AI markets. I'll discuss our Q3 outlook. Revenue is expected to increase 10% to 15% to $219 million to $228 million, driven by growth across all segments of our business as newer products continue to ramp in PCIe 5, UFS, eMMC, and the enterprise.

Jason Tsai: Cash declined in the Q2 primarily from the combination of the dividend payout of $16.7 million and an increase in inventory to support our expected strong business ramp. We did not repurchase any shares in the Q2. Our team executed well and delivered significant outperformance despite ongoing global macro uncertainty and continuing investments in new advanced geometry products and our MonTitan platform for the enterprise and AI markets. Now I'll discuss our Q3 outlook. Revenue is expected to increase 10% to 15% to $219 million to $228 million, driven by growth across all segments of our business as newer products continue to ramp in PCIe 5, UFS, eMMC, and the enterprise. Gross margins are expected to be in the range of 48% to 49% as we continue to transition customers to newer platforms and will return back to our historical range.

Cash declined in the second quarter, primarily from a combination of the dividend payout of $60 7 million and an increase in inventory to support our expected strong business ramp we did not repurchase any shares in the second quarter.

Our team executed well and delivered significant outperformance despite ongoing global macro uncertainty and continuing investments in new advanced geometry products in our <unk> platform for the enterprise and AI markets.

Now I'll discuss our third quarter outlook revenue is expected to increase 10% to 50% to $290 million to $222 million.

Driven by growth across all segments of our business is newer products continue to ramp and PCI five fast MMC and the enterprise.

Jason Tsai: Gross margins are expected to be in the range of 48% to 49% as we continue to transition customers to newer platforms, and we'll return back to our historical range. Operating margin is expected to be in the range of 12.3% to 14.3% as we benefit from higher revenue and gross margins, partially offset by higher operating expenses from higher R&D development and headcount expense and the continuing strength of the Taiwan dollar. Our effective tax rate is expected to be approximately 18%. Stock-based compensation and dispute-related expenses are expected to be in the range of $6.5 to 7.5 million. For the full year, PC and smartphone growth targets remain in the low to mid-single digit range with an above-average second half weighting.

Gross margins are expected to be in the range of 48% to 49% as we continue to transition customers to deal with.

Platforms and their current factory.

Our historical range.

Jason Tsai: Operating margin is expected to be in the range of 12.3% to 14.3% as we benefit from higher revenue and gross margins, partially offset by higher operating expenses from higher R&D development and headcount expense and the continuing strength of the Taiwan dollar. Our effective tax rate is expected to be approximately 18%. Stock-based compensation and dispute-related expenses are expected to be in the range of $6.5 million to $7.5 million. For the full year, PC and smartphone growth targets remain in the low to mid-single-digit range with an above-average second half waiting. We believe that our business will reflect the broader industry with significant growth expected in the second half, driven by the strong ramp of new products and project wins. We continue to target an annual revenue run rate of approximately $1 billion as we exit the year.

Operating margin is expected to be in the range of $12 three to 14, 3% as we benefit from higher revenue and gross margins, partially offset by higher operating expenses from higher R&D development head count expense and the continuing strength of the Taiwan dollar.

Our effective tax rate is expected to be approximately 18% stock based compensation dispute related expenses are expected to be in the range of six five to seven 5 million.

For the full year of PC and smartphone growth targets remain in the low to mid single digit range with an above average second half waiting we believe that our business will reflect the broader industry with significant growth expected in the second half driven by the strong ramp of new products and project wins, we continue to target an annual revenue run rate of approximately.

Jason Tsai: We believe that our business will reflect the broader industry with significant growth expected in the second half, driven by the strong ramp of new products and project wins. We continue to target an annual revenue run rate of approximately $1 billion as we exit the year. We expect to continue to improve gross margins as new product scale and our enterprise business begins to ramp in the second half of the year. We remain confident that we can drive gross margins towards the higher end of the historical range of 48% to 50% by the end of this year. Our pipeline of new design wins continues to grow, and we're committed to investing in next-generation advanced geometry products that allow us to enhance our market share and business long term and help us diversify our product portfolio and enter new markets.

$1 billion as we exit the year.

Jason Tsai: We expect to continue to improve gross margins as new products scale and our enterprise business begins to ramp in the second half of the year. We remain confident that we can drive gross margins towards the higher end of the historical range of 48% to 50% by the end of this year. Our pipeline of new design wins continues to grow, and we are committed to investing in next-generation advanced geometry products that allow us to enhance our market share and business long term and help us diversify our product portfolio and enter new markets. We will also continue to add additional R&D resources to address the growing range of customer projects that will drive long-term growth.

We expect to continue to improve gross margins as new product scale and our enterprise business begins to ramp in the second half of the year. We remain confident that we can drive gross margins towards the higher end of the historical range of 48% to 50% by the end of this year.

Our pipeline of new design wins continues to grow and we're committed to investing in next generation advanced geometry products that allow us to enhance our market share in business long term and help us diversify our product portfolio portfolio and entering new markets.

Jason Tsai: We will also continue to add additional R&D resources to address the growing range of customer projects that will drive long-term growth. Despite these higher investments, we're confident that we can return to our historical operating margin range of 25%+ in the midterm, as the investments we have made over the past 18 months begin to scale and drive stronger revenue growth, better gross profitability, and improve our operating profit. Our overall tax rate is expected to be approximately 15% for the full year, and stock-based comp and dispute-related expenses will be in the range of $32 to $34 million. As we enter the second half, our pipeline of new projects continues to build and position us for strong growth for the rest of this year and into 2026 and beyond.

We will also continue to add additional R&D resources to address the growing range of customer projects that will drive long term growth. Despite these higher investments. We're confident that we can return to our historical operating margin range of 25% plus of the midterm as investments we have made over the past 18 months, we get to scale and drive stronger revenue growth.

Jason Tsai: Despite these higher investments, we are confident that we can return to our historical operating margin range of 25% plus in the mid-term as investments we have made over the past 18 months begin to scale and drive stronger revenue growth, better gross profitability, and improve our operating profit. Our overall tax rate is expected to be approximately 15% for the full year, and stock-based comp and dispute-related expenses will be in the range of $32 million to $34 million. As we enter the second half, our pipeline of new projects continues to build and position us for strong growth for the rest of this year and into 2026 and beyond. Investments we have made in client SSD and eMMC and UFS controllers are beginning to scale, driving better ASPs and higher margins.

Better gross profitability and improve our operating profit.

Our overall tax rate is expected to be approximately 15% for the full year and stock based comp and dispute related expenses will be in the range of $32 million to $34 million.

As we enter the second half our pipeline of new projects, we choose to build and position us for strong growth for the rest of this year and into 2026 and beyond.

Jason Tsai: The investments we have made in client SSD and eMMC and UFS controllers are beginning to scale, driving better ASPs and higher margins. Momentum behind our enterprise business, driven by strong progress in our MonTitan development and expanding opportunities in enterprise boot drives, will deliver a new avenue of high-margin growth for the company longer term. We're confident that our leading controller products, paired with our unmatched customer relationships with all the flash makers and virtually every module maker, will drive significant long-term revenue and profitability growth for the company. This concludes our prepared remarks. We'll now open the call to questions from the investment community. Operator, please go ahead with the first question.

Since we haven't made a client SSD and E. MMC and you referenced controllers aren't forgetting to scale driving better Asps and higher margins mentioned behind our enterprise business continues driven by strong progress on our Mont tightened development and expanding opportunities in enterprise boot drives will deliver new Avenue high margin growth for the company longer term.

Jason Tsai: Momentum behind our enterprise business, driven by strong progress in our MonTitan SSD development and expanding opportunities in enterprise boot drives, will deliver a new avenue of high margin growth for the company longer term. We are confident that our leading controller products paired with our unmatched customer relationships with all the flash makers and virtually every module maker will drive significant long-term revenue and profitability growth for the company. This concludes our prepared remarks. We will now open the call to questions from the investment community. Operator, please go ahead with your first question.

We're confident that our leading controller products paired with our unmatched customer relationships all the flash makers and virtually every module maker will drive significant long term revenue and profitability growth for the company.

Our prepared remarks, we will now open the call to questions from the investment community. Operator. Please go ahead.

Operator: Thank you. As a reminder, to ask question, please press star one one on your telephone. Our first questions come from Craig Ellis from B. Riley Securities. Please go ahead.

Operator: Thank you. As a reminder, to ask questions, please press star 11 on your telephone. Our first question comes from Craig Ellis from B. Riley Securities. Please go ahead.

Thank you.

To ask a question. Please press star one one telephone.

First question is come from Craig Harris from <unk> Securities. Please go ahead.

Craig Ellis: Yeah, thanks for taking the question, and congratulations on a very strong quarter of execution and the momentum you have here at Midyear. I wanted to start with a clarification question on some of your operating expense comments, Jason. We've all seen that there's been exchange rate fluctuations at unusual degrees as we've gone through the last 3 months and with where we stand here early in Q3. I'm wondering if you can quantify what the new Taiwan dollar exchange impact was to Q2 and Q3 expenses versus the impact of some of the growth-related R&D expenses that you also talked about, just to help us calibrate the currency dynamic in the middle of the income statement.

Craig Ellis: Yeah, thanks for taking the question and congratulations on a very strong quarter of execution and the momentum you have here at midyear. I wanted to start with a clarification question on some of your operating expense comments, Jason. We've all seen that there's been exchange rate fluctuations at unusual degrees as we've gone through the last three months and with where we stand here early in the third quarter. I'm wondering if you can quantify what the New Taiwan dollar exchange impact was to Q2 and Q3 expenses versus the impact of some of the growth-related R&D expenses that you also talked about, just to help us calibrate the currency dynamic in the middle of the income statement.

Yeah. Thanks for taking the question and congratulations on a very strong quarter of execution and the momentum you have Europe and Europe I wanted to just start with a clarification question on some of your operating expense comments, Jason. So we've all seen that there has been.

Exchange rate fluctuations that are unusual degrees just we've gone through the last three months.

Where we stand here early in the third quarter I'm wondering if you can quantify what new.

New Taiwan dollar exchange impact, whereas.

Two Q3 Q expenses versus.

The impact of some of the growth related R&D expenses, but you also talked about just to help us calibrate.

About the currency dynamic in the middle of the income statement.

Jason Tsai: You know, the Taiwan dollar strengthened meaningfully and quickly in Q2, and it was up by over 10% sequentially. While our revenue, cost of goods sold, and most of our development costs are all denominated in US dollars, our compensation is primarily denominated in Taiwan dollars, given that the majority of our employees are based here in Taiwan. Had the Taiwan dollar and the US dollar exchange rate stayed stable, assuming kind of we stayed similar exchange rates to what we saw in Q1, our operating margin in Q2 and for our outlook would have been about one-plus percentage points higher than what we have reported for Q2 or what we're guiding to in Q3.

Jason Tsai: Yeah, the NT dollar strengthened meaningfully and quickly in the second quarter, and it was up by over 10% sequentially. So while our revenue, cost of goods sold, and most of our development costs are all denominated in U.S. dollars, our compensation is primarily denominated in Taiwan dollars, given that the majority of our employees are based here in Taiwan. Had the Taiwan dollar and the U.S. dollar exchange rate stayed stable, assuming kind of we stayed similar exchange rates to what we saw in Q1, our operating margin in the second quarter and for our outlook would have been about one plus percentage points higher than what we had reported for the second quarter and what we're guiding to in the third quarter.

Yeah Yeah.

Dollar strength.

Meaningfully up quickly in the second quarter and it was up by over 10% sequentially. So while our revenue cost of goods sold in most of our development costs are all denominated in U S dollars. Our compensation is primarily denominated in Taiwan dollars given that the majority of our employees are based here in Taiwan.

The Taiwan dollar and the U S. Dollar exchange rate stayed stable assuming kind of a we stayed similar exchange rates to what we saw in Q1, our operating margin in the second quarter and for our outlook would have been about one plus percentage points higher than what we have reported for the second part of what we're guiding to the third quarter.

Craig Ellis: That's really helpful. Thank you. Yeah, absolutely. The second question is for Wallace. Wallace, you're clearly seeing robust engagement on the enterprise side of the business. I'm hoping what you can do is talk about this year's exit momentum along three parameters with respect to enterprise. One, what's happening with the initial customer ramps with MonTitan? Two, can you update us on the status of the NVIDIA BlueField DPU program and what you'd expect there exiting the Q4? Then we've just seen great engagement from the supply chain pulling in your PCIe Gen 5 controllers into lower end, more efficient, AI-related scale up/scale out configurations. Just help us understand what you see there and what all that means as we look to 2026. Thank you.

Craig Ellis: is really helpful. Thank you. The second question is for Wallace. Wallace, you are clearly seeing robust engagement on the enterprise side of the business. I am hoping what you can do is talk about this year's exit momentum along three parameters. With respect to Enterprise One, what is happening with the initial customer ramps with MonTitan SSD? Can you update us on the status of the NVIDIA BlueField-3 DPU program and what you would expect there exiting the fourth quarter? We have just seen great engagement from the supply chain pulling in your PCIe 5 client SSD controllers into lower-end, more efficient, AI-related scale-up, scale-out configurations. Just help us understand what you see there and what all that means as we look to 2026. Thank you.

That's really helpful. Thank you and yeah, absolutely. The second question is for Wallace wallets.

You're clearly, saying robust engagement.

The private side of the business.

And I'm, hoping what you can do is talk about this.

This year's exit.

Along three parameters with respect to enterprise wide.

What's happening with the initial customer ramps.

Brett Maas tightening too can you update us on the status of the Nvidia Bluefield GPU program and what you would expect they're exiting the fourth quarter and then we've just seen great engagement from the supply chain pulling in your Pcie Gen five controllers to.

Lower and more efficient.

AI related scale scale up scale out configurations, just help us understand where you see better but all that means is pretty much a 2020. Thank you.

Wallace Kou: Let me address the MonTitan status. I think the MonTitan's design momentum is very strong. We believe we're going to start to initial ramp in Q4 and will be more meaningful in strong momentum in 2026. We have 2 tier 1 customers, 4 other designs. We have more coming, but we just don't have enough resource to supply. The most important is non-numbers of customers, because each of customer need some custom-made, tailored firmware to fit certain certain category and workload. We are focused on deliver the robust, finalized firmware and expect to production in late this year. I think the momentum is coming, but also with both QLC high capacity enterprise SSD, as well as the TLC based for compute storage. Let me address to the NVIDIA BlueField.

Wallace Kou: Okay, let me address the MonTitan SSD status. I think the MonTitan SSD design momentum is very strong. We believe we are going to start the initial ramp in Q4, and it will be more meaningful than strong momentum in 2026. So we have four, two tier one customers, four other designs. Actually, we have more coming, but we just do not have enough resources to supply. The most important is the number of customers because each customer needs some custom-made tailored firmware to fit certain categories and workload. So we are focused on delivering the robust finalized firmware and expect production later this year. I think the momentum is coming, but also with both QLC high-capacity enterprise SSD as well as the TLC base for compute storage. Now, let me address the NVIDIA BlueField-3 DPU. NVIDIA qualification is in the final stage.

Okay, Let me try some entitlement status I've seen the Montana. This design momentum is very strong now we believe we're going to start to initial ramp in the fourth quarter.

It will be more meaningful than a strong will maintain 2026, so we have a.

For two tier one customers for other design until we have more coming but we just don't have enough resource to supply. The most important is no numbers of customers because each of customer need some custom made Taylor is somewhere two feet certain.

Certain category and workload. So when you are focused on delivering a robust finalize somewhere I think its fair to production later.

Later this year, so I think the moment in the coming but also with the both kill all see high capacity and devices.

Well I'd TLC base, while computer storage.

Let me address to the.

Wallace Kou: The NVIDIA qualification in the final stage, we believe will enter production in the Q4. Actually, frankly, the solution we are controlling and the firmware we have have been with NVIDIA in the past two years with other NAND maker, which is, we cannot say. This is a transition naturally winning with our own solution with different NAND type to supply for the long term. We believe that helping us to grow in 2026 and 2027. In addition, they also open the door for us, engage with NVIDIA in other BU and other product lines. This is very great for us to be in the NVIDIA supply chain, and hopefully that will expand a much more opportunity in the future.

And so we'll field.

And media qualification in the final stage, we believe will enter production in Q4, essentially and frankly the solution. We are controlling the film where we had a thing within media in the past two years with other NAND maker, which.

Wallace Kou: We believe we will enter production in Q4. Frankly, the solution we are controlling and the firmware we had have been with NVIDIA in the past two years with other NAND makers, which we cannot say. This is a transition. Naturally, we are winning with our own solution with a different NAND type to supply for the long term. We believe this is helping us to grow in 2026 and 2027. In addition, they also opened the door for us in games with NVIDIA in other BU and other product lines. That is very great for us to be in the NVIDIA supply chain, and hopefully that will expand much more opportunity in the future.

We can now we cannot say so this is a transition naturally winning with our own solution with a deepened niche type to supply for the long term, but we believe that is helping us to grow in 2026 and 27. In addition, they also open the door for as a gay with Nvidia there'd be you and the other part of their lives.

So that's a very grateful to <unk> their media supply chain, and hopefully that will expand that much more opportunity in the future.

Operator: Wallace. Beg your pardon. If you would like to ask questions again, please press star 11. Allow me to move on to the next questions from Mehdi Hosseini from SIG. Please go ahead.

Operator: Wallace, I beg your pardon. If you would like to ask questions again, please press star 11. Allow me to move on to the next question from Mehdi Hosseini from SIG. Please go ahead.

Craig Ellis: Wallace.

And then Wallace.

Operator: Beg your pardon. If you would like to ask questions again, please press star 11. Allow me to move on to the next questions from Mehdi Hosseini from SIG. Please go ahead.

I beg your pardon.

I would like to ask questions again, Please press star one one.

Allow me to move on to the next question from Mehdi Hosseini from <unk>. Please go ahead.

Mehdi Hosseini: Yes, thanks for taking my question. The first one for Wallace. Congrats on increasing the annual revenue run rate. I see there's about a $55 million of incremental revenue increase from Q4 2024 to Q4 2025. I'm assuming the majority of this is driven by the new PCIe projects. As I look into next year, let's say Q4 2026, this is where I think BlueField is gonna kick in and add incremental revenue. You have a baseline of Q4 2024, and then you overlay $55 million of the new products, especially driven by storage, and then the BlueField would drive or sustain that growth into Q4 2026. Am I thinking about this transition the right way? Feel free to modify it and improve that thought process.

Mehdi Hosseini: Yes, thanks for taking my question. The first one for Wallace Kou, congratulations on increasing the annual revenue run rate. I see there is about a $55 million incremental revenue increase from Q4 2024 to Q4 2025. I am assuming the majority of this is driven by the new PCIe projects. As I look into next year, let us say Q4 2026, this is where I think BlueField-3 DPU is going to kick in and add incremental revenue. So you have a baseline of Q4 2024, then you overlay $55 million of the new products, especially driven by storage, and then the BlueField-3 DPU would drive or sustain that growth into Q4 2026. Am I thinking about this transition the right way? Feel free to modify it and improve that thought process.

Thanks for taking my question the.

First one for wireless.

Congrats on increasing.

The annual revenue run rate I see that there is.

For the 55 million incremental revenue increase from Q4 to 44 two Q.

45.

And I'm, assuming the majority of abuse.

Driven by the U.

E projects as I look into next year, Let's say Q4 46. This is where I think lucerne is going to kick it and add incremental revenue. So you'll have a baseline of Q4 20.

So and then you overlay for supply.

Neil.

Products, especially driven by storage and then the blueprint drive or sustain that growth into Q4 46.

Thinking about.

This transition the right way and feel free to.

Multiply that improve that thought process.

Jason Tsai: Yeah, I think, Mehdi, it's Jason here. In terms of your comparison between Q4 2024 and Q4 2025, that incremental revenue that we're talking about here is a result of really strength across the board. Increasing share and new products in eMMC and UFS, increasing share and new products in PCI, especially in PCIe 5 for SSDs, the initial ramp of the MonTitan products as well as the initial ramp of BlueField. We haven't guided into 2026, so, you know, you'll have to bear with us for a little bit, so I'm not gonna comment on kind of how this goes into 2026. Certainly, you know, we still expect to be achieving that 5% to 10% revenue run rate with MonTitan in that 2026, 2027 timeframe. Nothing's changed there.

Jason Tsai: Yeah, I think, Jason, in terms of your comparison between Q4 2024 and Q4 2025, that incremental revenue that we are talking about here is a result of really strength across the board. Increasing share, and new products in eMMC and UFS, increasing share and new products in PCIe, especially in PCIe 5 for SSDs, and then the initial ramp of the MonTitan products as well as the initial ramp of BlueField. Now, we have not guided into 2026, so you will have to bear with us for a little bit, so I am not going to comment on kind of how this goes into 2026, but certainly, you know, we still expect to be achieving that 5% to 10% revenue run rate with MonTitan in that 2026-2027 timeframe.

Yeah, I think it's.

It's Jason here.

Or is your.

Your comparison between Q4 2004 in Q4 25 that incremental revenue that we're talking about here as a result of really strength across the board increasing share.

New products in <unk> fast increasing share of new products, and PCI, especially PCI five for Ssds and then the initial ramp of the <unk> products as well as the initial ramp of Bluefield now we haven't guided into 26. So you have to bear with us for a little bit so I'm not going to comment on kind of how this goes into <unk>.

226, but certainly we still expect to be achieving that 5% to 10% revenue run rate with my time in that 2026, 2007 timeframe nothing's changed there and certainly the strength.

Jason Tsai: Nothing has changed there, and certainly the strength that we are building, the designs we have won, the pipeline that we have to support growth longer term continues to get stronger and stronger each day.

Jason Tsai: Certainly the strength that we're building, the designs we've won, the pipeline that we have to support growth longer term, continues to get stronger and stronger each day.

Strength that we're building designs. We wanted the pipeline that we have to support growth longer term continues to get stronger and stronger each day.

Wallace Kou: I think let me add a comment. We have very strong backlog in the second half of 2025. That is why we have confidence to reach our financial goal.

Wallace Kou: I think let me add a comment. We have a very strong backlog in the second half of 2025. That is why we have confidence to reach our financial goal.

Wallace Kou: I think let me add a comment. We have very strong backlog in the second half of 2025. That is why we have confidence to reach our financial goal.

Let me add a comment.

We have very strong backlog in the second half and that's why we are confident to reach our financial goals.

Mehdi Hosseini: Okay. Moving on to OpEx, there's a significant step up in 2025, as Jason highlighted, investment for future. Should I expect OpEx intensity to decline into 2026 as the new product ramp, and this is gonna give you some OpEx leverage?

Mehdi Hosseini: Okay. Moving on to OpEx, there is a significant step up in 2025, as Jason highlighted, investment for future. Should I expect OpEx intensity to decline into 2026 as the new product ramp, and this is going to give you some OpEx leverage?

Yeah.

Okay.

And then moving on to Opex.

<unk> step up with 25 as Jason highlighted investment for future should I expect opex intensity to declining to 26 as the new products as well, but this is going to give you some.

Opex leverage.

Jason Tsai: We certainly expect to see operating margin leverage as our gross margins improve and our revenue scales. We will continue to invest. As Wallace pointed out, we have a number of new projects that we actually don't even have enough resources today to support, that we have to turn away. We will continue to invest. We will continue to hire. We have a number of new projects that we're going to be taping out next year, especially in the enterprise and some of the more advanced geometries. These are things that we'll continue to invest in longer term. We believe you'll see operating margin leverage. A lot of the investments that we have made over the last two years are now just starting to come to market, and they haven't scaled yet.

Jason Tsai: We certainly expect to see operating margin leverage as our gross margins improve and our revenue scales. We will continue to invest, as Wallace Kou pointed out. We have a number of new projects that we actually don't even have enough resources today to support that we have to turn away. We will continue to invest. We will continue to hire. We have a number of new projects that we are going to be taping out next year, especially, in the enterprise, some of the more advanced geometry. So these are things that we will continue to invest in longer term. But we believe you will see operating margin leverage. A lot of the investments that we have made over the last two years are now just starting to come to market, and they haven't scaled yet. That should drive a significant amount of operating margin leverage going into it.

We certainly expect to see operating margin leverage as our gross margins improve in our revenue scale. We do continue we will continue to invest as was pointed out we have a number of new projects that we actually don't even have enough resources today to support that we have to turn away. So we will continue to invest and we will continue to hire we have a.

There are new projects and we're going to be taping out next year, especially in the enterprise some of the more grass commentary. So these are things that we will continue to invest in longer term, but we believe youll see operating margin leverage a lot of investments that we have made over the last two years are now just starting to come to market and they haven't scale that should drive a significant amount of offer.

Jason Tsai: That should drive a significant amount of operating margin leverage going into next year as well.

Any margin leverage going into elections this fall.

Mehdi Hosseini: Okay. Thank you.

Okay. Thank you.

Operator: Thank you for the questions. One moment for the next questions. Our next question comes from Suji Desilva from Roth Capital. Please go ahead.

Okay.

Operator: Thank you for the question. One moment for the next questions. Our next question comes from Sujit da Silva from ROTH Capital. Please go ahead.

Thank you for the questions.

One moment for the next questions.

Our next question comes from <unk> Silva from Roth Capital. Please go ahead.

Suji Desilva: Hi. Hi, Wallace. Hi, Jason. Curious with the trends you have in the revenues, whether the gross margin would continue to potentially expand, maybe above the target range, given the auto coming in, enterprise, some of these other areas. Or do we think about there being offsets to that, keeping it in the range intermediate term?

Suji DeSilva: Hi, Wallace. Hi, Jason. Curious with the trends you have in the revenues, whether the gross margin would continue to potentially expand, maybe above the target range given the auto coming in, enterprise, some of these areas, or do we just think about there being offsets to that keeping it in the range, intermediate term?

Hi, wallet side, Jason curious what the trends you have in the revenues whether the gross margin would continue to.

Actually expand maybe above the target range given the.

Auto coming in an enterprise some of these other areas or do we just think about there being offsets to that.

And the range intermediate term.

Wallace Kou: Yeah. I think it really depends on product mix and depends on which quarter for a certain product, because it's a high volume. I think the margin is a little below our corporate average. Some high-end product definitely is, margins better. I cannot comment right now. We were above the upside of our guided margin, but definitely we'll meet our gross margin, and I think we should have a better result in 2026.

Wallace Kou: I think there's a really dependent product mix, depending on which quarter for a certain product. Because it's a high volume, I think the margin is a little below our corporate average. For some high-end products, definitely the margin is better. I think we cannot comment right now. We were above the upside of our guided margin, but definitely we will meet our gross margin, and I think we should have a better result in 2026.

Yes.

I think it really depends on product mix and depending on which quarter.

For certain Florida, because it is a high volume is I've seen the margin is.

A little below our corporate average, but some high end products. Daphne you said margins are better so, but I think we cannot just.

I cannot comment right now.

But see upside of our guidance and margin, but definitely more meat on gross margin and I assume we should have a better result in 2026.

Suji Desilva: Okay. That's helpful. Thanks. On the MonTitan firmware efforts and the customer efforts in the R&D you're investing, Jason, is there a point in time where you think you get on top of that, or is that gonna be a persistent challenge of sort of having to turn away programs? Is there some kind of leverage after you do a few of these that you can kind of pull that forward?

Suji DeSilva: Okay. That helps. Thanks. On the MonTitan SSD firmware efforts and the customer efforts in the R&D you are investing, Jason, is there a point in time where you think you get on top of that, or is that going to be a persistent challenge of having to turn away programs, or is there some kind of leverage after you do a few of these that you can pull that forward?

Okay. That's helpful. Thanks, and then on the on the monetize from our efforts in the customer efforts in the R&D, you're investing Jason is there a point in time, when you think you'd get on top of that or is that going to be a persistent challenge of sort of having to turn away programs or is there some kind of leverage after you do a few of these that you can.

Pull that forward.

Jason Tsai: Look, I think to your point, once we do a few of these, once we get a few of our customers up and running, you know, we'll have a wide range of firmware capabilities that we can bring to market, right? Some folks are going to want SDKs, hardware only, where they're building their own firmware, and that's pretty easy to support. You know, some folks that require, you know, full turnkey will require more resources, et cetera.

Jason Tsai: Look, I think after we do a few, to your point, once we do a few of these, once we get a few of our customers up and running, we will have a wide range of firmware capabilities that we can bring to market, right? Some folks are going to want SDKs, hardware only, where they are building their own firmware, and that is pretty easy to support. But some folks that require full turnkeys will require more resources, etc.

Look I think after we do the rest of your plant once we do a few of these as we get a bunch of a few of our customers up and running.

I have a wide range of firmware capabilities that we can bring to market. Some folks are going to want SDK.

Sdk's hardware only where they are building their own firmware and thats pretty easy to support but some folks have require.

Paul turnkey will require more resources et cetera.

Suji Desilva: Okay. All right. Thanks, guys.

Suji DeSilva: Okay. All right. Thanks, guys.

Okay, Alright, thanks, guys.

Operator: Thank you for the questions. Please hold for the next questions. Our next question comes from Gokul Hariharan from J.P. Morgan. Please go ahead.

Operator: Thank you for the questions. Please hold for the next questions. Our next question comes from Gokul Hariharan from JP Morgan. Please go ahead.

Thank you for the questions. Please hold for the next questions.

Our next question comes from Goku Harri <unk> from J P. Morgan. Please go ahead.

Gokul Hariharan: Yeah, hi. Thanks for taking my question. Wallace, the first question is, you seem to be sounding a lot more optimistic about the automotive engagement, compared to maybe two quarters back. Could you talk a little bit about what is the incremental margin profile when it comes to automotive, both for gross margins as well as operating margins, given a lot of the R&D is fairly similar to what you do for client PCIe SSD controllers or client eMMC controllers, right? So, is there a meaningful operating leverage that we should expect as automotive starts to scale up, given it kind of just expands the scope of your revenue base on similar R&D? The second question is on enterprise. Could you talk a little bit more about the roadmap for MonTitan SSD? What are we thinking about for future engagement, like the next generation of MonTitan SSD?

Gokul Hariharan: Yeah, hi. Thanks for taking my question. One is, the first question is, you seem to be sounding a lot more optimistic about the automotive engagements compared to maybe 2 quarters back. Could you talk a little bit about what is the incremental margin profile when it comes to automotive, both for gross margins as well as operating margins, given a lot of the R&D is fairly similar to what you do for client SSD controllers or client eMMC controllers, right? Is there a meaningful operating leverage that we should expect as automotive starts to scale, given it kind of just expands the scope of your revenue base on similar R&D? Second, question is on enterprise.

Yes, hi.

Thanks for taking my question one is the first question.

Seemed to be pumping a lot more optimistic about the automotive engagement.

I'll come back to maybe two quarters back.

Can you talk a little bit about that.

What is the.

The metal margin profile when it comes to automotive.

Sure.

Gross margin.

Martin you Ben.

That will be RMB badly similar to what you do for.

Client SSD controllers declined E&P controllers, right. So is that a meaningful operating leverage that we should expect at automotive and start to scale given its kind of just expand.

The scope of your revenue on R&D second question.

On enterprise.

Gokul Hariharan: Could you talk a little bit more about the roadmap for MonTitan? I think, what are we thinking about for future engagements, like the next generation of MonTitan? What are you planning in terms of the roadmap?

Could you talk a little bit more about the roadmap for Monotype.

I think what I'd be thinking about.

<unk> the next generation of contract and what are you planning in terms of the roadmap.

Gokul Hariharan: What are you planning in terms of the roadmap?

Yeah.

Wallace Kou: All right, good. Let me try to address automotive business. We feel more positive about our automotive business from Q2 and moving to second half of 2025, because it's through our design win pipeline, and we also had a significant breakthrough in China automotive market. As you know very well, China automotive is very bloody and price very competitive. I think we find a very special way to position our value proposition to the leading customer like BYD, Xiaomi, and several others. That's why we build a tremendous new pipeline and move into production from late 2025 to 2026. Our major program in Toyota global model also start to ramp by late 2025. That's why we have a very, very strong momentum in automotive business.

Wallace Kou: All right, good. Let me try to address automotive business. We feel more positive about our automotive business from the second quarter and moving to the second half of 2025 because it's through our design win pipeline, and we also had a significant breakthrough in the China automotive market. As you know very well, China automotive is very bloody and price is very competitive. I think we find a very special way to position our value proposition to the leading customers like BYD and Xiaomi and several others. That's why we built a tremendous new pipeline and moved into production from late 2025 to 2026. Our major program in Toyota's global model also starts to ramp by late 2025. That's why we have a very, very strong momentum in the automotive business. We have confidence we'll be above 10% of our total revenue from 2026 to 2027.

Right. Good so let me try to address automotive business.

We feel more positive about our automotive business.

Good quarter and moving into the second half of 2000 <unk> because it is through our design win pipeline and we also had a significant breakthrough in China. All of them are the multi market you know very well, China automotive very bloody and price are very competitive I think we assigned to various special ways to position our value prop.

Opposition to the leading customer BYD and Xiaomi and several others. That's why we built a tremendous new pipeline and moving to production found late 'twenty 2026, and our major programs.

Global module also start to ramp by late 2025, Thats why we have.

Very very strong momentum in the automotive business, we are confident.

Wallace Kou: We have confidence we'll be above 10% of our total revenue from 2026 to 2027. Now let me comment about enterprise and regarding the plan and roadmap. Our MonTitan today is 16 channel, the PCIe Gen 5 controller with performance shaping technology. We also developed tape out a 6 or 8 channel, MonTitan. It's called 83 ADA, and the product will be available by end of this year. I know, I don't know whether you say you know very well, the US have demand high capacity of enterprise SSD from 128 TB, and some even ask for 256 TB. China also start a new momentum asking for 64 TB from late this year to 2026.

The above 10% of all to the revenue.

26 to 27.

Wallace Kou: Now, let me comment about enterprise and regarding the plan and roadmap. Our MonTitan today is a 16-channel PCIe Gen 5 controller with performance shaping technology. We also tape out a six or eight-channel MonTitan. It's called 8388. The product will be available by the end of this year. As you, I don't know whether you know very well, the U.S. has demanded high capacity of enterprise SSD from 120 terabytes, and some even ask for 256 terabytes. China also started a new momentum asking for 64 terabytes from late this year to 2026. Our eight-channel lower-cost MonTitan, which is perfectly fitting the demand and provides decent performance as well as the high capacity up to 128 terabytes. We also developed our PCIe Gen 6 MonTitan family with TSMC 4 nanometers. We'll tape out next year, and we'll engage with at least two NAND makers in this program.

Let me comment about enterprise and regarding the plan and roadmap or monetize today as <unk> channel <unk>.

<unk> Fi controller with performing shaping technology, we also divide tape out six or eight channels tighten it calls <unk> 88, and the product would be a variable by end of this year.

In June.

So I don't know whether you say you know very well the U S have demand high capacity of antibodies. The day, one penny a terabyte and selling you have an outflow of 256 terabyte, China also started a new moment and asking for six four terabyte file later this year to try and 'twenty six so.

Wallace Kou: Our eight channel lower cost MonTitan, which perfectly fit in the demand and provide decent performance as well as a high capacity up to 128 TB. We also will develop a PCIe Gen 6 MonTitan family with TSMC 4 nanometer. We'll tape out next year, and this will engage with at least 2 NAND makers in this program. This is a very, very exciting. We're very busy. We'll build design pipelines. We believe MonTitan will continue to run, and they're driving much bigger momentum beyond 2026, 2027.

<unk> channel lower CASM on Titan, which of course that is feeding that demand and provide decent performance as well as the high capacity up to one terabyte and we also what developer Pcie Gen. Six some title family with TSMC and four nanometer tape out next.

Here and there so we are engaged with at least.

Two NAND makers in this program.

Wallace Kou: This is very, very exciting. We're very busy. We'll build a design pipeline. We believe MonTitan will continue to run and drive much bigger momentum beyond 2026 and 2027.

So this is a very very exciting we're very busy liabilities on pipelines, we believe <unk> will continue round.

Driving much bigger momentum beyond plenty to say youre trying to say that.

Gokul Hariharan: Got it. Maybe one follow-up, Wallace there. I think you talked about potentially seeing some demand for the cold storage market as well for some of the AI data centers. Is there anything that you need to really change in your portfolio or the controller itself to address this market? Is it kind of like an adjacency that you can address without too much change in the product?

Gokul Hariharan: Got it. Maybe one follow-up, Wallace, there. I think you talked about potentially seeing some demand for the cold storage market as well, for some of the AI data centers. Is there anything that you need to really change in your portfolio or the controller itself to address this market, or is it kind of like an adjacency that you can address without too much change in the product?

Maybe one follow up.

I think you talked about potentially seeing some demand for the cold storage market.

But it won't be a data center.

Is there anything that you need to really change in your portfolio are.

The controller itself.

Duane this is mark.

Is it kind of like an adjacency that they can address without too much change in the product.

Wallace Kou: No, the data storage today, primarily really warm storage and some of the compute storage conventional server. I think for cold storage, really it's a conventional nearline HDD. But I think the Samsung led the association with the nearline flash and proposed to JEDEC as a standard. That's very, very interesting to drive a lower cost QLC-based enterprise C to expand warm data storage for SSD. I think we love, definitely willing to see that, and we'll put a good effort to engage with that trend, because that's a huge potential for the NAND maker and the data center for enterprise opportunity.

Wallace Kou: No, the data storage today, primary really warm storage and some of the compute storage is conventional server. I think for cold storage really is the conventional near-line GDD. I think Samsung led the association with the near-line flash and proposed to share that as a standard. That is very, very interesting to drive a lower-cost QLC-based enterprise SD to expand warm data storage for SD. I think we definitely willing to see that, and we absolutely will put a good effort to engage with that trend because that is a huge potential for the NAND maker and the data center for enterprise SD opportunity.

No.

So data today, primarily in really well storage and some of the company and salaries conventional server.

<unk> for Us Costar, it's really it's a conventional <unk> and.

But I have seen a Samsung led to the association with a new line of flash and promoted share that as a standard that's a very very interesting to drive a lower cost <unk> based antibody FC to.

To chewy Spanish one data storage for ACD, I think we'd lost Daphne what else you'll see that in.

Absolutely, we'll put it really accurately engaged with that trend because thats a huge potential for the NAND maker and data center for antibodies the <unk> opportunity.

Gokul Hariharan: Do you have any timing on when this could open up? Is it in the next couple of years that you think it'll open up or will take longer than that?

Gokul Hariharan: Do you have any timing on when this could open up? Is it in the next couple of years that you think it will open up, or will it take longer than that?

Do you have any timing on when that could open up in the next couple of years, you think it will open up we'll take a look.

Wallace Kou: I think all NAND makers are working together and, looking for how to define the right stack. Definitely, the preparatory says the performance has to be a little better than nearline HDD. They can relax the spec and make sure the performance meet AI application in the warm data storage. Timeframe, as I said, about three to five years range.

Wallace Kou: I think all NAND makers are working together and looking for how to define the right stack, and they definitely the preference is that the performance has to be a little better than near-line GDD, and so they can rely on the stack and make sure the performance meets AI applications in the warm data storage. But the timeframe, as I said, about three to five years range.

Thank you.

All NAND makers, working together and looking for how to define the right back and Japanese February performance has to be a little better in near line HDD and so they can realize this fact and make sure to perform and meet a vacation in the Walmart data storage.

But the timeframe as I said about three to five year range.

Gokul Hariharan: Okay. Thank you.

Okay. Thank you.

Operator: Thank you for the questions. Our next question comes from Matthew Bryson from Wedbush. Please go ahead.

Operator: Thank you for the questions. Our next question comes from Matt Bryson from Wedbush. Please go ahead.

Thank you for the questions. Our next question comes from Matt <unk> from Wedbush. Please go ahead.

Matt Bryson: Thanks for question this morning. I just have one. If I look at your target of 25% plus operating margins, and I work off kind of current OpEx levels, even if I assume gross margins move up into the 50%, 51% range, at historical a little bit of new run rate of $300 million, and that goes higher if OpEx continues to increase, which I think you're suggesting it will because.

Matthew Bryson: Thanks for your question this morning. I just have one. If I look at your target of 25% plus operating margins, and I work off current OpEx levels, even if I assume gross margins move up into the 50%, 51% range, so at the historical a little bit renew run rate of $300 million, and that goes higher if OpEx continues to increase, which I think you're suggesting it will because the.

Thanks.

Good question this morning.

I just have one.

Yeah.

If I look at your target of 25% plus operating margins.

And I work off kind of current opex levels, even if I assume gross margins move up into the $50 51 per cent range. So that's historical a little bit.

Okay.

Let me run rate.

$300 million and that goes higher if opex continues to increase which I think youre, suggesting.

It will because.

Okay.

Wallace Kou: Hey, Matt, you're breaking up. We can't hear you.

Okay.

Hey, Matt you're breaking up.

Matt Bryson: Oh. Let me... Is this better?

Matthew Bryson: Oh. Let me, is this better?

Can't hear you.

Yeah.

Is this better.

Wallace Kou: No.

No.

Matt Bryson: I will jump out and try dialing in again. Thank you.

Matthew Bryson: I will jump out and try dialing in again. Thank you.

Matt Bryson: I will jump out and try dialing in again. Thank you.

I will jump out and truck dialogue and again.

Wallace Kou: Okay, let me answer your previous first question is, I think that definitely we have a higher operating expense because we increase R&D, and also we have a single retail bounce. Next year, we also have a full retail bounce with the SLC major TAM. Operating expense probably will increase slightly. When we grow strongly in the top line of our revenue, that will help much faster for our operating margin. We're definitely looking forward to move back to 20, 25% margin in late 2026, and you will see even better margin moving to 2027.

Wallace Kou: Okay. Let me answer your previous first question. I think that definitely we have a higher operation expense because we increase R&D. Also, we have a 6 nanometer tape out. Next year, we also have a 4 nanometer tape out with a 6 nanometer tape out. So operating expense probably will increase slightly. But when we grow strongly in the top line of our revenue, it will help much faster for our operation margin. We are definitely looking forward to move back to 20% to 25% margin in 2026, and you will see even better margin moving to 2027.

Okay. Let me answer your first question is.

It seems thats happening, we have a higher attrition in expense because we increase R&D and also we have a six nanometer tape outs next kols either for now let me tell you about with the major tape outs. So I'll bring it probably will increase.

Slightly but when we grow strongly in the top line of our revenue.

How much faster for our operating margin and so we're definitely looking forward to move back to 20% to 25% margin. In 2020 is based on your six and you will see even better margin moving to 2007.

Matt Bryson: Thanks, Wilson. Sorry for the technical difficulties on my end.

Matthew Bryson: Thanks, Wallace. I'm sorry for the technical difficulties on my end.

Thanks, Paul from sorry for the technical Colby.

Operator: Thank you for the questions. One moment for the next question. Our next question comes from the line of Nick Doyle from Needham & Company, LLC. Please go ahead.

Operator: Thank you for the questions. One moment for the next question. Our next question comes from the line of Nick Doyle from Nickham & Co. Please go ahead.

Thank you for the questions.

The next question.

Our next question comes from the line of Nick Doyle from him and co. Please go ahead.

Nick Doyle: Hey, thanks for taking my questions. Just trying to think about the mobile strength and figuring out how sustainable that is. You mentioned, you know, the strength's coming from units and share gains. Is the bulk of that related to this Chinese domestic market dynamic you've discussed and you mentioned it again? Just how should we be thinking about that growth into next year and if it's sustainable?

Tom Sepenzis: Thanks for taking my questions. Just trying to think about the mobile strength and figuring out how sustainable that is. You mentioned the strength coming from units and share gains. Is the bulk of that related to this Chinese domestic market dynamic you have discussed? You mentioned it again. How should we be thinking about that growth into next year and if it is sustainable?

Thanks for taking my questions.

Just trying to think about the mobile strength and figure out how sustainable that is.

And it's kind of like the strengths coming from units and share gains as the bulk of that related to this Chinese domestic market dynamic you've discussed and you mentioned it again.

Just how should we be thinking about that growth into next year, if it's sustainable.

Wallace Kou: Okay. I think that it's a very good question. We have a very specific strategy to grow our mobile controller for both eMMC and UFS. Of course, the China market and because of the affordable low-cost mobile DRAM are variable, that's why most of the smartphone maker, they like to adopt discrete eMMC or UFS. They help the module maker customer to expand quickly. That's why when they expand quickly, I think that also will impact some NAND maker for the value line. For NAND maker also turn to Silicon Motion controller because they do not want to develop in-house. They will utilize our solution quickly to the market, and you can either sell the wafer to module maker or make a lower cost solution to come in the market.

Wallace Kou: OK, I think that it's a very good question. We have a very specific strategy to grow our mobile controller, both eMMC and UFS. Of course, the China market and because of the affordable, low-cost mobile variant, that's why most of the smartphone makers like to adopt discrete eMMC or UFS. They help the margin-maker customer to expand quickly. That's why when they expand quickly, I think that also will impact some nanomakers for the value line. So nanomakers also turn to Silicon Motion controller because they do not want to develop in-house. They will utilize our solution quickly to the market. You can either sell the wafer to a margin maker or make a lower-cost solution to convene the market. That's why we grow very quickly for the value line and the mainstream for both eMMC and UFS. In addition, we see the nanomaker also looking for next generation.

Okay.

I think that's a very good question.

We have a very specific strategy to grow our mobile control there called <unk>.

We will of course see China.

And so China.

Market.

And because.

Portable low cost mobile DRAM variables, that's why most of our smartphone maker.

<unk> they help the module maker customer to expand quickly.

And that's why when they extend quickly I've seen that also will impact some NAND maker for the value of life. So NAND makers.

<unk> also tend to think our motion control. This because they do not want to develop in house that will utilize our solution quickly to the market and you can either.

The sale of the wafer to module maker.

Lower cost solution to come in the market. That's why we grow very quickly for C.

Wallace Kou: That's why we grow very quickly for the value line and the mainstream for both eMMC and UFS. In addition, we see the NAND maker also looking for next generation. For example, UFS 4.1 is in high-end, but UFS 5.0 will move into the high-end by late 2026 and 2027. The 4.1 become mainstream. The NAND makers, they don't have enough resource to develop a new firmware according to the new NAND. They have come to also into third party, and SMI in the right position to capture the outsourcing opportunity. All these pipelines together continue. You see so many opportunities. Actually, we have so many project in hand, we don't have a resource to take.

The value line and the mainstream for both EMC and USS. In addition, we see the NIM. If you're also looking for next generation <unk> product one Isa in high end <unk> and moving to the high end by late 2006, 2007, So the Florida one become.

Wallace Kou: For example, UFS 4.1 is in high-end. UFS 5.0 will move into the high-end by late 2026 and 2027. So the 4.1 becomes mainstream. The nanomakers, they don't have enough resource to develop a new firmware to put into the new nan. So they come to outsource to third party. It's the mind in the right position to capture the outsourcing opportunity. All this pipeline together continues, you'll see so many opportunities. Actually, we have so many projects in hand. We don't have a resource to take. This is what we see in the momentum. We definitely see we're growing the market share in the mobile. Hopefully, we can reach 30% within two years.

Mainstream so that the.

So NAND maker, they don't have another resource to develop a new firm, where it's pointing to the new NAND. So they have come to also into a third party.

Is the right position to capture as outsourcing opportunity. So all of those are pipeline together continue you'll see so many opportunities actually we have a solid project hand, we still have a resource to take this as what are we seeing the momentum and we with Dell and EMC with growing our market share in the mobile and hopefully we can.

Wallace Kou: This is what we see the momentum, and we definitely see we're growing the market share in the mobile, and hopefully we can reach 3% within 2 years.

70% within two years.

Nick Doyle: Okay, thanks. If I understand correctly, it sounds a bit like this transition to the UFS 4.1 in the mainstream could help the sustainability into next year. Maybe also asking a bit of a different way. I mean, you talked about the module maker inventory, and you know, how they're pulling in orders in almost fear of price hikes later in the year. I mean, how do their inventories compare to historical? Does that make you nervous at all in terms of the future mobile business? Thanks.

Tom Sepenzis: OK, thanks. If I understand correctly, it sounds a bit like this transition to the UFS 4.1 in the mainstream could help the sustainability into next year. Maybe also asking a bit of a different way. You talked about the module maker inventory and how they are pulling in orders in almost fear of price hikes later in the year. How do their inventories compare to historical? Does that make you nervous at all in terms of the future mobile business? Thanks.

Yeah.

Okay.

If I understand correctly it sounds a bit like this transition is a $4 one in the mainstream could help the sustainability into into next year maybe.

Maybe also asking a bit of a different way I mean, you talked about the module maker inventory in and how they are pulling in orders in.

And almost fear of price hikes later in the year I mean, how did their inventories compared to historical does that make you nervous at all in terms of the future mobile business. Thanks.

Wallace Kou: We really don't see. I think our customer in early Q2, some are worried about the tariff to stabilize. Really, we don't see many customers pulling the demand. As you know, and a customer, if they don't buy that many NAND, they won't buy controller or inventory, right? Really they will see the balance. Most of them really plan ahead and make sure they also can prepare the NAND price increase. I think that's why we see the very stable pipelines, because we can see six months backlog right now. That's why we very confident about what we can achieve the billion dollar run rate by year-end.

Wallace Kou: We really don't see. I think our customers in early Q2, some worried about the tariff, but later it's stabilized. Really, we don't see many customers pulling the demand, as you know. A customer, if they don't buy that many NAND, they won't buy controller or inventory. So really, they will see the balance. Most of them really plan ahead and make sure they also can prepare the NAND price increase. I think that's why we see the very stable pipeline, because we can see six months backlog right now. That's why we're very confident about what we can achieve, the billion-dollar run rate by year-end.

We really don't see it.

So our customer.

Early Q2 suddenly are worried about the tariffs, but later stabilized really we don't see many customers pulling that demand as you know and then customers don't buy that many NAND a woman by controlling our inventory.

So really they will see the balance most of it really planned ahead and make sure. They also Tim prepared NAND price increase and I assume that's why we've seen the greatest stable highlights. Let me go we can see a six months backlog right. Now that's why we are very confident about what we can achieve.

The run rate by year end.

Jason Tsai: Thank you.

Nick Doyle: Thank you.

Tom Sepenzis: Thank you.

Operator: Thank you for the questions. As a reminder to ask question, please dial star 11 and wait for your name to be announced. At this time, we appear to have no more further questions. I'd like to hand the call back to the management for closing.

Thank you.

Operator: Thank you for the questions. As a reminder, to ask questions, please dial star 11 and wait for our name to be announced. At this time, we appear to have no more further questions. I would like to hand the call back to the management for closing.

Thank you for the questions as a reminder to ask question. Please dial star one one and wait for it needs to be announced.

Okay.

At this time, we appear to have no more further questions I would like to hand, the call back to the management for closing.

Wallace Kou: Thank you everyone for joining today and as for your continuing interest in Silicon Motion. We'll be attending FMS Conference in Santa Clara next week, as well as several investor conferences over the next few months. The schedule of these events will be posted in of our investor relationship section of our corporate website, and we look forward to speaking with you at the event. Thank you everyone for joining us today.

Wallace Kou: Thank you, everyone, for joining today and for your continued interest in Silicon Motion. We will be attending FMS conference in Santa Clara next week, as well as several investor conferences over the next few months. The schedule of these events will be posted in our investor relationship section of our corporate website. We look forward to speaking with you at the event. Thank you, everyone, for joining us today.

Thank you everyone for joining today and therefore, you're continue ensuring a sneaker motion will be attending SMS count rating, Santa Clara next week as well as several investor conferences over the next few months the schedule of this event will be posted in our investor relationship.

Section of our corporate website, and we look forward to speaking with you as events. Thank you everyone for joining us today.

Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

That does conclude today's conference call. Thank you for your participation you may now disconnect your lines.

Okay.

Yeah.

Okay.

[music].

Okay.

[music].

Q2 2025 Silicon Motion Technology Corp Earnings Call

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