Q2 2026 Phison Electronics Corp Earnings Call

August 13, 2026

Astoria Chen: Hi, good day, everyone. Thank you for joining us today for Phison's Q2 earnings call. My name is Astoria Chen, and I am semi-analyst from SinoPac Securities. Today, we are very honored to have K.S. Puah, the CEO of Phison. In today's call, K.S. will first provide us some updates on the Phison Q2 results and business highlights, and then market outlook. After that, we will open the floor for the questions. As a reminder, if you have any questions during the call, you can write down the questions in the chat box, and we will raise up questions for you later. Now, I would like to turn over to K.S. for the comments. Thank you, K.S.

Speaker #2: Hi, good day, everyone. Thank you for joining us today for Phison Q2 earnings call. My name is Astoria Chen, and I am a semi-analyst from Synopex UST.

Speaker #2: Today, we are very honored to have KS Frost, the CEO of Phison, on today's call. KS will first provide us with some updates on the Phison Q2 results and business highlights, and then discuss the market outlook.

Speaker #2: And after that, we will open the floor for questions. As a reminder, if you have any questions during the call, you can write your questions in the chat box, and we will raise your question for you later.

Speaker #2: And now, I would like to turn it over to KS for comments. Thank you, KS.

Speaker #3: Yeah, thanks. Astoria, good afternoon, good morning. Ladies and gentlemen, thank you for joining Phison. I was CQ2 26 earnings call. Okay, we start with our CQ2's performance.

Khein-Seng Pua: Yeah. Thanks, Astoria. Good afternoon, good morning. Ladies and gentlemen, thank you for joining Phison, our Q2 2026 earning call. Okay. Okay. This, we start with our Q2's performance. Since the Q1, we define a new category naming AI ecosystem solutions, which including the enterprise main drive, boot drive, aiDAPTIV, and AI networking, et cetera. So this Q2 has around 38% of our total business, with 68% QoQ growth. We still gaining a lot of good demand from the enterprise and the AI ecosystem business. The second larger is, we name is embedded, mainly is a PC OEM, customized drive for the PC gaming, security, and also the mobile use. This has a 32% of our Q2's revenue, but we have over 2x of a growth QoQ. The third largest is industrial modules, which has 78%, and retail is down to below 5%.

K.S. Pua: Yeah. Thanks, Astoria. Good afternoon, good morning. Ladies and gentlemen, thank you for joining Phison, our Q2 2026 earning call. Okay. Okay. This, we start with our Q2's performance. Since the Q1, we define a new category naming AI ecosystem solutions, which including the enterprise main drive, boot drive, aiDAPTIV, and AI networking, et cetera. So this Q2 has around 38% of our total business, with 68% QoQ growth. We still gaining a lot of good demand from the enterprise and the AI ecosystem business. The second larger is, we name is embedded, mainly is a PC OEM, customized drive for the PC gaming, security, and also the mobile use. This has a 32% of our Q2's revenue, but we have over 2x of a growth QoQ. The third largest is industrial modules, which has 78%, and retail is down to below 5%.

Speaker #3: Since Q1, we defined a new category named 'AI ecosystem solutions,' which includes the enterprise main drive, boot drive, adaptive, and AI networking, etc.

Speaker #3: So this Q2 has around 38% of our total business, with 68% QOQ growth. So we are still getting a lot of good demand from the enterprise and the AI ecosystem business.

Speaker #3: The second larger is we name is embedded, mainly is a PC OEM customized drive for the PC gaming security and also the mobile use.

Speaker #3: This has 32% of our Q2's revenue, but we have over 2x growth quarter-over-quarter. The third largest is industrial modules, which has 78%.

Speaker #3: And retail is down to the below 5%. Controllers, we are CQ2 6% just because the revenue growth too much. By net amount of a controller, actually we are increasing in the CQ2.

Khein-Seng Pua: Controllers, we are 6% just because the revenue growth too much. By net amount of a controller, actually, we are increasing in the Q2. You may know the mobile phone, PC OEM gradually declining. Means Phison, we are gaining the unit share of a controller in the PC and also in the smartphones. Phison, we are proud that we have a record high in the Q2, not only in revenue but also in our market share in mobile, PC OEM, and also big growth in the AI ecosystem business. Okay, financial result. I think you just read from our announcement, so I don't want to spend time here. I need to highlight the gross margin. We growth Y over 7.5x, which is a record high, and this is really show the good performance of our engineers that many years hard investing in our new projects.

K.S. Pua: Controllers, we are 6% just because the revenue growth too much. By net amount of a controller, actually, we are increasing in the Q2. You may know the mobile phone, PC OEM gradually declining. Means Phison, we are gaining the unit share of a controller in the PC and also in the smartphones. Phison, we are proud that we have a record high in the Q2, not only in revenue but also in our market share in mobile, PC OEM, and also big growth in the AI ecosystem business. Okay, financial result. I think you just read from our announcement, so I don't want to spend time here. I need to highlight the gross margin. We growth Y over 7.5x, which is a record high, and this is really show the good performance of our engineers that many years hard investing in our new projects.

Speaker #3: So you may know the mobile phone PC OEM shipment actually declining means Phison we are getting the unit share of a controller in the PC and also in the smartphones.

Speaker #3: So, at Phison, we are proud that we have achieved record highs in Q2—not only in revenue, but also in our market share in the mobile PC OEM segment, and we've also seen big growth in the AI ecosystem business.

Speaker #3: Okay, financial results—I think you just read from our announcement, so I don't want to spend time here. I need to highlight that our gross margin grew year-over-year by over 7.5 times.

Speaker #3: Okay, which is a record high. And this really shows the good performance of our engineers after many years of hard investment in our new projects.

Speaker #3: Revenue wise, it's a 67.8 billion is all time high. The first half we hit a 100 or 8 billion. Again, this is actually Phison, I tried to map Phison 2025 to hit the 100 billion NT, we failed, but we make it in this first half.

Khein-Seng Pua: Revenue-wise is TWD 67.8 billion, is all-time high. H1, we hit TWD 108 billion. Again, Phison, I try to map Phison 2025 to hit TWD 100 billion. We fail, but we make it in this H1. Gross margin, we hit 65.3%, but this also we have company policy. We try to be more conservative, so we have a write-off 1.1% is inventory write-down. The component we keep for my policy, didn't use for certain period, we write down and to make sure our inventory is clean. H1 average is 63.8%. Earning per share by Q2 is 118, which we including the 14 from our the so-called investing gain. So 118 is also the all-time high, and H1 we are 187. In our income statement, by revenue-wise, you can see we have big growth.

K.S. Pua: Revenue-wise is TWD 67.8 billion, is all-time high. H1, we hit TWD 108 billion. Again, Phison, I try to map Phison 2025 to hit TWD 100 billion. We fail, but we make it in this H1. Gross margin, we hit 65.3%, but this also we have company policy. We try to be more conservative, so we have a write-off 1.1% is inventory write-down. The component we keep for my policy, didn't use for certain period, we write down and to make sure our inventory is clean. H1 average is 63.8%. Earning per share by Q2 is 118, which we including the 14 from our the so-called investing gain. So 118 is also the all-time high, and H1 we are 187. In our income statement, by revenue-wise, you can see we have big growth.

Speaker #3: Gross margin, we hit 65.3%. But also, we have a company policy—we try to be more conservative, so we have a write-off. 1.1% is the inventory write-down.

Speaker #3: Okay, so the components we keep by policy, lean and use for a certain period, we write down to make sure our inventory is cleaned.

Speaker #3: So first half average is 63.8%. Earnings per share by Q2 is 118, which we include the 14th from our so-called investing gain. So 118 is also the all-time high, and for the first half we are at 187.

Speaker #3: Okay, in our income statement, by revenue-wise, you can see we're seeing big growth. This part I just want to share with you. Especially in our R&D investment, some shareholders may have concerns about the company’s investment in R&D, but again, since many years ago, Phison insists we need to focus on our R&D investment.

Khein-Seng Pua: This part I just want to share with you, especially in our R&D investment. Some shareholder may have concern company about the investment R&D, but again, since many years ago, Phison insist, we need to focus in our R&D investment. So you can compare this Q2 versus the last Q2 is around 6.5x, close to 7x of the investment. Why? Because the AI coming, we need to keep customize a lot of new design. By H2 this year, we have many new tape out controllers for the high-speed PC OEM, for enterprise, for the bridge has some extra design, and also the mobile UFS4, UFS5. So we gain the market share. Why? Because for last 5 years, we market no matter market good or bad, we keep heavy investment in R&D. So that's why we can show the good performance here.

K.S. Pua: This part I just want to share with you, especially in our R&D investment. Some shareholder may have concern company about the investment R&D, but again, since many years ago, Phison insist, we need to focus in our R&D investment. So you can compare this Q2 versus the last Q2 is around 6.5x, close to 7x of the investment. Why? Because the AI coming, we need to keep customize a lot of new design. By H2 this year, we have many new tape out controllers for the high-speed PC OEM, for enterprise, for the bridge has some extra design, and also the mobile UFS4, UFS5. So we gain the market share. Why? Because for last 5 years, we market no matter market good or bad, we keep heavy investment in R&D. So that's why we can show the good performance here.

Speaker #3: So you can compare this Q2 versus last year Q2, it is around 6.5x, close to 7x, of the investment. Why? Because with AI coming, we need to keep customizing a lot of new designs.

Speaker #3: By the second half of this year, we have many new tap-out controllers for the high-speed PC OEM for enterprise, for the bridge, some exec design, and also the mobile UFS for UF5.

Speaker #3: So we get the market share. Why? Because for the last five years, we market—no matter if the market is good or bad—we keep heavy investment in R&D.

Speaker #3: So that's why we can show the good performance here. So again, in the second half of this year, Phison will keep the same momentum in R&D, make sure we heavily invest, and we are able to create new applications and try to lead in this market.

Khein-Seng Pua: Again, in H2 this year, Phison will keep same momentum in R&D, make sure we heavy invest, and we are able to create the new application and try to lead in this market. By the balance sheet, I think first of all, by cash flow, by Q1, Phison, end of Q1, Phison, we have cut in cash. But turn to Q2, we are now better. The AR is coming back, and we have TWD 1.8 billion by Q2, which happened. So cash flow now we are doing okay. Inventory-wise, I just share with you, company policy, we try to keep equivalent of a supply, which we carry every month. I don't know if you believe or not, NAND flash is getting much difficult to ask for supply. No matter you pay how much price, the supply now is really a big issue.

K.S. Pua: Again, in H2 this year, Phison will keep same momentum in R&D, make sure we heavy invest, and we are able to create the new application and try to lead in this market. By the balance sheet, I think first of all, by cash flow, by Q1, Phison, end of Q1, Phison, we have cut in cash. But turn to Q2, we are now better. The AR is coming back, and we have TWD 1.8 billion by Q2, which happened. So cash flow now we are doing okay. Inventory-wise, I just share with you, company policy, we try to keep equivalent of a supply, which we carry every month. I don't know if you believe or not, NAND flash is getting much difficult to ask for supply. No matter you pay how much price, the supply now is really a big issue.

Speaker #3: Okay, by the balance sheet, I think first of all, by cash flow, by CQ1, Phison end of CQ1, Phison we have tight in cash.

Speaker #3: But turn to Q2, we are now better. The AR is coming back and we have one CB, $800 million, by Q2, which happened.

Speaker #3: So, cash flow—now we are doing okay. Inventory-wise, I'll just share with you the company policy: we try to keep the equivalent of SR5, which we carry every month.

Speaker #3: So, I don't know if you believe or not, NAND flash is getting much more difficult to ask for supply. No matter how much you pay, the supply now is really a big issue.

Speaker #3: So our policy is to keep the same amount of the SR5 equivalent every month to make sure our design projects are able to ship.

Khein-Seng Pua: Our policy is keep same amount of the supply equivalent every month to make sure our design projects we are able to ship. But unfortunately, by end of this year and early next year, we got so many new inquiry from the CSP near cloud OEM. We still try to work hard to get upside supply to fulfill what our customer ask. So inventory-wise, if you really ask me, do we enough inventory, I'm telling you, most likely we still short in some part by end of this year and early next year. I would like to share some GAAP and non-GAAP different, but basically, you can checking here, it's not much different. This all about the Phison's our option. It's by our financial policy. So we not have a much stock option to the employee, so the difference is quite small here for the difference.

K.S. Pua: Our policy is keep same amount of the supply equivalent every month to make sure our design projects we are able to ship. But unfortunately, by end of this year and early next year, we got so many new inquiry from the CSP near cloud OEM. We still try to work hard to get upside supply to fulfill what our customer ask. So inventory-wise, if you really ask me, do we enough inventory, I'm telling you, most likely we still short in some part by end of this year and early next year. I would like to share some GAAP and non-GAAP different, but basically, you can checking here, it's not much different. This all about the Phison's our option. It's by our financial policy. So we not have a much stock option to the employee, so the difference is quite small here for the difference.

Speaker #3: But unfortunately, by end of this year and early next year, we got so many new inquiry. From the CSP near cloud OEM, we still try to work hard to get upside supply to fulfill what our customer ask.

Speaker #3: So, inventory-wise, if you really ask me, do we have enough inventory? I'm telling you, most likely, we are still short in some parts by the end of this year and early next year.

Speaker #3: Okay, I would like to share some tip and non-tip different, but basically you can checking here is not much different. This is all about the Phison's our option.

Speaker #3: It's by our financial policy, so we do not have many stock options for employees. So the difference is quite small here, for your reference.

Speaker #3: Okay, we'd like to show this page. For many years, I think you guys also expert to know memory cycle, phase cycle, this, that, this, that.

Khein-Seng Pua: We like to show this page. For many years, I think you guys also expert to know memory cycle, flash cycle, this, that. This is all predictable. Why? Smartphone, you can focus the unit, the content, PC. From now on, smartphone PC is declining by unit this year and next year. Our controller shipment increasing means we win the major share in this industry. I think this is about last 5 years, Phison keep investing. Never slow down, keep investing. That is why the PC OEM, the main manufacturer, they trust Phison. They are willing to work closely with Phison. So we believe 2 more years, consumer market, smartphone PC will bounce back. Why? Because the phone you use may end of life in certain period after 2 years. So demand will be back.

K.S. Pua: We like to show this page. For many years, I think you guys also expert to know memory cycle, flash cycle, this, that. This is all predictable. Why? Smartphone, you can focus the unit, the content, PC. From now on, smartphone PC is declining by unit this year and next year. Our controller shipment increasing means we win the major share in this industry. I think this is about last 5 years, Phison keep investing. Never slow down, keep investing. That is why the PC OEM, the main manufacturer, they trust Phison. They are willing to work closely with Phison. So we believe 2 more years, consumer market, smartphone PC will bounce back. Why? Because the phone you use may end of life in certain period after 2 years. So demand will be back.

Speaker #3: This is all predictable. Why? Smartphone, you can focus on the unit, the content, PC. But from now on, by the way, smartphone, PC is declining by unit this year and next year.

Speaker #3: But our controller shipment increasing means we win the major share in this industrial. I think this is about last five years, Phison keep investing.

Speaker #3: Okay, never stop for long, keep investing. That is why the PC OEMs and the NAND manufacturers trust Phison. They're willing to work closely with Phison.

Speaker #3: So we believe two more years, consumer market, smartphone, PC will bounce back. Why? Because the phone you use may end of life in certain period after two years.

Speaker #3: So demand will back. If Phison 26, 27, we are able to keep winning the unit share of controllers. Means 28, 29, definitely we can enjoy the good return at that period.

Khein-Seng Pua: If Phison 2026, 2027, we are able to keep winning the unit share of controllers, means 2028, 2029, definitely we can enjoy the good return at that period. What we have to pay is heavy R&D investment. That is why we keep pushing investment into R&D. Things keep different if AI. I think I will spend too much time. I do not want to waste the time here. The AI inference output was a text, it is a kilobyte. Now users start to go to the image, it is a megabyte. Some already have a video. The short video from China, from US, it is a gigabyte. Unfortunately, if you go to the AI agent, if you start to use AI agent in your platform, no matter on device, PC, on-premise service, server or go to the cloud, you are creating terabyte of content.

K.S. Pua: If Phison 2026, 2027, we are able to keep winning the unit share of controllers, means 2028, 2029, definitely we can enjoy the good return at that period. What we have to pay is heavy R&D investment. That is why we keep pushing investment into R&D. Things keep different if AI. I think I will spend too much time. I do not want to waste the time here. The AI inference output was a text, it is a kilobyte. Now users start to go to the image, it is a megabyte. Some already have a video. The short video from China, from US, it is a gigabyte. Unfortunately, if you go to the AI agent, if you start to use AI agent in your platform, no matter on device, PC, on-premise service, server or go to the cloud, you are creating terabyte of content.

Speaker #3: But what we have to pay is heavy R&D investment. That's why we keep pushing investment into R&D. Okay, things keep different is AI. I think I will spend too much time.

Speaker #3: I don't want to waste time here. The AI influencing the output was a test—it's a kilobyte. Now, users are starting to go to the image.

Speaker #3: It's a megabyte. Some already have a video, the short video from China, from US. It's a gigabyte. Unfortunately, if you go to the AI agent, okay, if you start to use AI agent in your platform, no matter on device, PC, on premise service, server, or go to the cloud, you are creating terabyte.

Speaker #3: Of a content. So I don't know how people saying that the phrase can supply demand can be balanced by 27, 28. I don't think so.

Khein-Seng Pua: So I do not know how people are saying that the flash can supply, demand can be balanced by 2027, 2028. I do not think so. Why? Because AI agent is coming. So this is defined by NVIDIA, the 5 level of the AI cake. What is Phison's role? I think you have to take a look into this. What Phison's our role position in this industry. First of all, we have controllers. Controllers not only mobile PC, but we have a lot of aiDAPTIV and also enterprise and some customized controller NPU in this layer 2. We also provide different kind of modules, main drive, boot drive, to the so-called infrastructure. At the end, Phison, we have aiDAPTIV. Now we transform to the Phison AI Data Platform. It is AI applications. 2 weeks ago, our board members also approved Phison start establish a corporate VC.

K.S. Pua: So I do not know how people are saying that the flash can supply, demand can be balanced by 2027, 2028. I do not think so. Why? Because AI agent is coming. So this is defined by NVIDIA, the 5 level of the AI cake. What is Phison's role? I think you have to take a look into this. What Phison's our role position in this industry. First of all, we have controllers. Controllers not only mobile PC, but we have a lot of aiDAPTIV and also enterprise and some customized controller NPU in this layer 2. We also provide different kind of modules, main drive, boot drive, to the so-called infrastructure. At the end, Phison, we have aiDAPTIV. Now we transform to the Phison AI Data Platform. It is AI applications. 2 weeks ago, our board members also approved Phison start establish a corporate VC.

Speaker #3: Why? Because AI agents are coming. So this is defined by NVIDIA as the five levels of the AI cake. What is Phison's role?

Speaker #3: I think you have to take a look into this. What is Phison's role or position in this industry? First of all, we have controllers. Controllers are not only for mobile and PC, but we have a lot of adaptive and also enterprise.

Speaker #3: And some customized controller NPU in the this layer two. We also provide different kind of modules, main drive, boot drive, okay, to the so-called the infrastructure.

Speaker #3: At the end, Phison, we have adaptive now we transform to the Phison AI data platform. It's a AI applications. Two weeks ago, our board members also approve Phison start establish a corporate VC, the first investment is a 20 million dollars equivalent to the 600 million NT.

Khein-Seng Pua: The first investment is $20 million, equivalent to the 600 million TWD. We are going to start invest to a lot of staff as ISV who are design the program on top of Phison aiDAPTIV. So in this 5 layer, Phison play the role from chips, infra, and also new applications. So we are transforming ourselves. So we are now naming Phison. We turn to 3.0. I do not want to spend time in today. Next quarter earning, we are going to show you what Phison doing in the Phison 3.0. So this is to show you. In the first generation, we are in the controllers, consumer modules. Then we move to the customized modules, enterprise which we are doing now. But next, what is our next? Next is mainly in the AI storage and the edge AI platform, which we have to show later.

K.S. Pua: The first investment is $20 million, equivalent to the 600 million TWD. We are going to start invest to a lot of staff as ISV who are design the program on top of Phison aiDAPTIV. So in this 5 layer, Phison play the role from chips, infra, and also new applications. So we are transforming ourselves. So we are now naming Phison. We turn to 3.0. I do not want to spend time in today. Next quarter earning, we are going to show you what Phison doing in the Phison 3.0. So this is to show you. In the first generation, we are in the controllers, consumer modules. Then we move to the customized modules, enterprise which we are doing now. But next, what is our next? Next is mainly in the AI storage and the edge AI platform, which we have to show later.

Speaker #3: We are going to start to invest in a lot of staff as ISV who are designing the program on top of Phison adaptive. So in these five layers, Phison plays the role from chips, infra, and also new applications.

Speaker #3: So, we are transforming ourselves. So, we are now naming Phison, we turn to 3.0. I don't want to spend time on today's next quarter earnings.

Speaker #3: Next quarter earnings, we are going to show you what Phison is doing in the Phison 3.0. So this is to show you, in the first generation, we are in the controllers.

Speaker #3: Consumer modules. Then we move to the customer modules, enterprise, which we are doing now. But next, what is our next? Next is mainly in the AI storage and the edge AI platform, which we have to show here.

Speaker #3: Show later, okay? So, CQ2. This is to show you what our role is in the enterprise. This is enterprise boot drive. In the last few months, our press release, we named our boot drive as like 40 times growth, 60 times growth.

Khein-Seng Pua: So in Q2, this is to show you what our role in the enterprise. This is enterprise boot drive. In the last few months, our press release, we named our boot drive is like 40 times growth, 60 times growth. Why? You can see here, AI networking, just only this quarter we have six new design wins program. It is a big program. In the no matter CSP, OEM, recently we just win the X12 OEM and the AI storage system partner, the new cloud, we have two new design win. Infra, we have one new design win. AI chip ecosystem, we have one new design win. This is the boot drive. Move to the main drive. We also cover a lot of design win CSP, OEM, AI storage system. Infra, we have two new. Networking, we just win special one of a big program of AI networking.

K.S. Pua: So in Q2, this is to show you what our role in the enterprise. This is enterprise boot drive. In the last few months, our press release, we named our boot drive is like 40 times growth, 60 times growth. Why? You can see here, AI networking, just only this quarter we have six new design wins program. It is a big program. In the no matter CSP, OEM, recently we just win the X12 OEM and the AI storage system partner, the new cloud, we have two new design win. Infra, we have one new design win. AI chip ecosystem, we have one new design win. This is the boot drive. Move to the main drive. We also cover a lot of design win CSP, OEM, AI storage system. Infra, we have two new. Networking, we just win special one of a big program of AI networking.

Speaker #3: Why? You can see here, AI networking—just only this quarter—we have six new design win programs. It's a big program. And no matter CSP or OEM, recently, we just won the extra two OEM.

Speaker #3: And the AI storage system partner, the near-cloud, we have two new design-ins. Design win infra, we have one new design win.

Speaker #3: AI chips ecosystem, we have one new design win. This is a boot drive. Move to the main drive. We also cover a lot of design win CSPs, OEM, AI storage system, infra, we have a two new networking.

Speaker #3: We just won a special award as part of a big program for AI networking. Main drive, not boot drive, okay? So, in the AI ecosystem, we play the role of main drive, creating a lot of SR5.

Khein-Seng Pua: Main drive, no boot drive. Okay? In the AI ecosystem, we play the role main drive creating a lot of SFI. Boot drive create a lot of customization. So we are now the key player in this field. Okay? So please recognize Phison is no more in consumer. We are in the AI ecosystems. This is some our new design win just to show here. Okay. We are in the 5G base station without EMC. We are moving to the medical, and we are going to a lot of automation. Share something with you about Computex, what our exposure. We have enterprise, PCIe Gen 5, already in MP, which create around 30-plus percent of our revenue. AI, later I will show you what is our potential revenue in the future. Gen 6, we are controller start sample back by January.

K.S. Pua: Main drive, no boot drive. Okay? In the AI ecosystem, we play the role main drive creating a lot of SFI. Boot drive create a lot of customization. So we are now the key player in this field. Okay? So please recognize Phison is no more in consumer. We are in the AI ecosystems. This is some our new design win just to show here. Okay. We are in the 5G base station without EMC. We are moving to the medical, and we are going to a lot of automation. Share something with you about Computex, what our exposure. We have enterprise, PCIe Gen 5, already in MP, which create around 30-plus percent of our revenue. AI, later I will show you what is our potential revenue in the future. Gen 6, we are controller start sample back by January.

Speaker #3: Boot drive creates a lot of customization. So we are now the key player in this field. Okay, so please recognize Phison is no more in consumer.

Speaker #3: We are in the AI ecosystems. This is some of our new design wins, just to show here, okay? We are in the 5G base station without EMC, we are moving to the medical, and we are going to a lot of automation.

Speaker #3: Share something with you about compute text, what our exposure. We have enterprise. PCI Gen 5 already in MP, which create around 30 plus percent of our revenue.

Speaker #3: AI, later I will show you what is our potential revenue in the future. Gen 6—we are controller, start sample back by January. We are going to show our Gen 6 enterprise SSD by November, okay?

Khein-Seng Pua: We are going to show our Gen 6 enterprise SSD by November. Okay? So this is going to move into the AI ecosystems. By the way, we have a pending order already. Unfortunately, fortunately, we have a pending order. Not small amount, but now we have to make sure we can get the supply. Client E37 is the best performance in the world. We win several big OEM projects recently Mobile, this is a 3.0. I want to remind you, Phison is a really key player in the mobile storage controllers. This is we are show in the Computex our 245 terabyte. This is a product good to MP, but recently customer no able to buy why? The price is super expensive. Now customer now move back to the 64 terabyte. Actually, which is good to us. We can sell more unit, more controllers, more systems.

K.S. Pua: We are going to show our Gen 6 enterprise SSD by November. Okay? So this is going to move into the AI ecosystems. By the way, we have a pending order already. Unfortunately, fortunately, we have a pending order. Not small amount, but now we have to make sure we can get the supply. Client E37 is the best performance in the world. We win several big OEM projects recently Mobile, this is a 3.0. I want to remind you, Phison is a really key player in the mobile storage controllers. This is we are show in the Computex our 245 terabyte. This is a product good to MP, but recently customer no able to buy why? The price is super expensive. Now customer now move back to the 64 terabyte. Actually, which is good to us. We can sell more unit, more controllers, more systems.

Speaker #3: So this is going to move into the AI ecosystems. And by the way, we have a pending order already. Unfortunately, unfortunately, we have a pending order.

Speaker #3: Not a small amount, but now we have to make sure we can get the supply. Client E37 is the best performance in the world. We won several big OEM projects recently.

Speaker #3: Mobile, this is a 3.0. I just want to remind you, Phison is a really key player in the mobile storage controllers. And this is, we are sure, in the Computex, our two 45-terabyte.

Speaker #3: But this is a good product for MP, but recently customers have been able to buy it. Why? The price is super expensive. Now, customers are moving back to the 64-terabyte.

Speaker #3: Actually, which is good for us. We can sell more units, more controllers, more systems. This is our Gen 6 controller. First silicon—we're going to MP directly without any ECO.

Khein-Seng Pua: This is our Gen 6 controller. First silicon, we are going to MP directly without any ECO. This again, to show that Phison engineers is very solid. How to make it solid? Again, heavy R&D investment. So this project, we are going to show to the November, and again, I have to keep repeating, we already have a pending order. But we still don't know if we can get enough freight to ship, and this is a 64 terabyte DRAM. This is our E37. We showed it is a lot of reviewers saying that this is the best, fastest, best power consumption in the world. Okay. We win several PC OEM and also their name companies' OEM business. Okay, this is aiDAPTIV. We keep saying that for many years. So I think if you follow us, you know about this, right? So we have a product go to the market.

K.S. Pua: This is our Gen 6 controller. First silicon, we are going to MP directly without any ECO. This again, to show that Phison engineers is very solid. How to make it solid? Again, heavy R&D investment. So this project, we are going to show to the November, and again, I have to keep repeating, we already have a pending order. But we still don't know if we can get enough freight to ship, and this is a 64 terabyte DRAM. This is our E37. We showed it is a lot of reviewers saying that this is the best, fastest, best power consumption in the world. Okay. We win several PC OEM and also their name companies' OEM business. Okay, this is aiDAPTIV. We keep saying that for many years. So I think if you follow us, you know about this, right? So we have a product go to the market.

Speaker #3: This again shows that Phison engineers are really solid. How do we make it solid? Again, heavy R&D investment. So, this project we are going to show in November.

Speaker #3: And again, I have to keep repeating, we already have a pending order, but we still don't know if we can get enough freight to ship.

Speaker #3: And this is a 64 terabyte demand. This is our E37. We showed it's a lot of reviewers saying that this is the best, fastest, best power consumption in the world, okay?

Speaker #3: And we win several PC OEM and also their name company OEM business. Okay, this is adaptive. We keep saying that for many years. So I think if you follow us, you know about this, right?

Speaker #3: So we have a product go-to-market, okay, and we are working on a POC with Minatech to use our UFS 4 controllers, with Minatech, to deploy the adaptive.

Khein-Seng Pua: Okay, we are working a POC with MediaTek to use our UFS 4 controllers with MediaTek to deploy the aiDAPTIV in the mobile phone. POC passed. POC doing good. We are able to let the NPU, which asking for 24 gigabyte LPDDR5, downsize to 12 gigabyte but still can execute the models to run inference, which using our UFS as a cache. This POC done. Hopefully, we like to see this go to the market by end of next year. This is also Phison innovation. Okay. Computex. Phison's co-promote their Intel platform with the Phison aiDAPTIV. You can check this from the YouTube. You can check whether. I do not want to spend time here, but go to check this. This small PC, we name it AI PC, AI on device, can run the 120 billion model with 32 gigabyte of DRAM.

K.S. Pua: Okay, we are working a POC with MediaTek to use our UFS 4 controllers with MediaTek to deploy the aiDAPTIV in the mobile phone. POC passed. POC doing good. We are able to let the NPU, which asking for 24 gigabyte LPDDR5, downsize to 12 gigabyte but still can execute the models to run inference, which using our UFS as a cache. This POC done. Hopefully, we like to see this go to the market by end of next year. This is also Phison innovation. Okay. Computex. Phison's co-promote their Intel platform with the Phison aiDAPTIV. You can check this from the YouTube. You can check whether. I do not want to spend time here, but go to check this. This small PC, we name it AI PC, AI on device, can run the 120 billion model with 32 gigabyte of DRAM.

Speaker #3: In the mobile phone and POC pass, POC is doing good. We are able to let the NPU, which was asking for 24 gigabytes LP5, downsize to 12 gigabytes, but still can execute the models to run inference, which is using our UFS as a cache.

Speaker #3: So, with this POC done, hopefully we would like to see this go to market by the end of next year. So, this is also Phison innovations.

Speaker #3: Okay, complete text. Phison's core promotes the Intel platform with the Phison Adaptive. And you can check this from YouTube. You can check why—I don't want to spend time here.

Speaker #3: But go to check this. This small PC we name as AI PC, AI on device, can run the 120-billion model with 32 gigabytes of DRAM.

Speaker #3: You know about the DRAM shortage, right? So, with full belief, AI on device—meaning AI on PC, laptop, and desktop—is going to happen by next year.

Khein-Seng Pua: You know DRAM shortage, right. We fully believe AI on device means AI on PC, laptop, desktop is going to happen by next year, but unfortunately, DRAM is shortage. So aiDAPTIV is the only solution. We also show the mature products to their market with our branding partner MSI, ASUS, Advantech, and ASRock. This is already go to market, not just only a concept. Okay. This is our server partners which Enterprise SSD Gigabyte, AIC, Pegatron, and Western Digital. Okay. I would like to show you what is Phison achievement. Many quarters investor, fund manager ask, "What is your revenue? What is the revenue?" Again, revenue is relatively small. Why? Because this is a totally new ecosystem. We need to have a lot of hardware, software implementation, and we need a lot of ISV. That is why. Okay, what is ISV? Independent software vendor.

K.S. Pua: You know DRAM shortage, right. We fully believe AI on device means AI on PC, laptop, desktop is going to happen by next year, but unfortunately, DRAM is shortage. So aiDAPTIV is the only solution. We also show the mature products to their market with our branding partner MSI, ASUS, Advantech, and ASRock. This is already go to market, not just only a concept. Okay. This is our server partners which Enterprise SSD Gigabyte, AIC, Pegatron, and Western Digital. Okay. I would like to show you what is Phison achievement. Many quarters investor, fund manager ask, "What is your revenue? What is the revenue?" Again, revenue is relatively small. Why? Because this is a totally new ecosystem. We need to have a lot of hardware, software implementation, and we need a lot of ISV. That is why. Okay, what is ISV? Independent software vendor.

Speaker #3: But unfortunately, DRAM is in shortage, so adaptive is the only solution. And we also show the mature products to the market with our branding partners MSI, ASUS, Advantech, and ASRock.

Speaker #3: And this is ready to go to market, not just only a concept. Okay, and these are our server partners, which are Enterprise, 60GB AIC, Pegatron, and WD.

Speaker #3: Okay, I would like to show you what Phison has achieved. Many quarters, investors and fund managers asked, "What is your revenue? What's the revenue?" Again, revenue is relatively small. Why?

Speaker #3: Because this is a totally new ecosystem, we need to have a lot of hardware and software implementations, and we need a lot of ISVs. That's why—okay, what is ISV? Independent Software Vendor.

Speaker #3: So that's why we established our CVC, corporate VC, to start investing in the startups, to help them to design their application into our adaptive.

Khein-Seng Pua: That is why we establish our CVC, corporate VC, to start invest to the staff to help them to design their application into our aiDAPTIV. Revenue-wise, again, I still cannot tell you the net amount, but this is showcased. Again, I want to repeat, this is not a POC, okay. This already in a commercial. We ship our AI server with aiDAPTIV, with Phison SSD, with our proprietary service, the software platform application customized. In Taiwan, more than 10 banks, okay. Definitely this already generate some revenue, but revenue is small, still very small. We are expanding this design service products to every bank in Taiwan. Every, okay. Which bank, if they ask on-premise AI solution, Phison most likely is the only capable company to provide. Hospital.

K.S. Pua: That is why we establish our CVC, corporate VC, to start invest to the staff to help them to design their application into our aiDAPTIV. Revenue-wise, again, I still cannot tell you the net amount, but this is showcased. Again, I want to repeat, this is not a POC, okay. This already in a commercial. We ship our AI server with aiDAPTIV, with Phison SSD, with our proprietary service, the software platform application customized. In Taiwan, more than 10 banks, okay. Definitely this already generate some revenue, but revenue is small, still very small. We are expanding this design service products to every bank in Taiwan. Every, okay. Which bank, if they ask on-premise AI solution, Phison most likely is the only capable company to provide. Hospital.

Speaker #3: So, revenue-wise, again, I still cannot tell you the net amount, but this is a showcase. Again, I want to repeat, this is not a POC, okay?

Speaker #3: This is already in a commercial. We ship our AI server with adaptive features, with SSD, with our proprietary service, and the software platform application, customized in Taiwan. More than 10 banks, okay?

Speaker #3: And definitely this already today has some revenue, but revenue is still way small. We are expanding this design service product to every bank in Taiwan.

Speaker #3: Every, okay? Which bank, if they ask on-premise AI solution, Phison most likely is the only capable company to provide. Hospital, we have more than 30-plus commercial products shipment to the hospitals.

Khein-Seng Pua: We have more than 30-plus commercial products shipment to the hospitals, which is with Phison AI Data Platform and SHIR systems. Today, I do not plan to spend time here. If you are interest, go to check internet what is a SHIR. Next earning call, Phison is going to spend more times to tell you what our achievement details in this AIDP, Phison AI Data Platform business. We also ship over 20-plus of SME. What is SME? Small minimum size of a company and enterprise. We ship our server service to them. We are going to expand this business. By this year, we have a confidence to win commercial business over 100 to bring in Phison AI Data Platform aiDAPTIV service to the new, our potential customer bank, government, enterprise, hospital, and education. Okay.

K.S. Pua: We have more than 30-plus commercial products shipment to the hospitals, which is with Phison AI Data Platform and SHIR systems. Today, I do not plan to spend time here. If you are interest, go to check internet what is a SHIR. Next earning call, Phison is going to spend more times to tell you what our achievement details in this AIDP, Phison AI Data Platform business. We also ship over 20-plus of SME. What is SME? Small minimum size of a company and enterprise. We ship our server service to them. We are going to expand this business. By this year, we have a confidence to win commercial business over 100 to bring in Phison AI Data Platform aiDAPTIV service to the new, our potential customer bank, government, enterprise, hospital, and education. Okay.

Speaker #3: Which is with Phison Adaptive AI Data Platform and SHIR systems. Today, I do not plan to spend time here. If you are interested, please check the internet for what SHIR is.

Speaker #3: Next earnings call, Phison is going to spend more time to tell you about our achievements in detail in this AIDP—Phison AI Data Platform—business.

Speaker #3: We also ship over 20 plus of SME. What's SME? Small, medium size of a company and enterprise. We ship our server service to them.

Speaker #3: So we are going to expand this business. But this year, we have confidence to win over 100 commercial business deals to bring in the Phison AI data platform adaptive service to our new potential customers in banking, government, enterprise, hospital, and education.

Speaker #3: Okay, and we also started to work with the AIDC, AI data center, to put Phison's software platform into data centers. This is totally our new business.

Khein-Seng Pua: We also start to work with the AIDC, AI data center, to put Phison's, our software platform, into data centers. This is totally our new business. We keep Taiwan because all engineers Taiwan. Now we show our performance in Taiwan. We have achievement, bang hospital enterprise. Now we start to move to North America. Phison already have office in San Jose, in Colorado. We new set up office in Vancouver. In Vancouver, start to hire the team, transfer our products to there, our design to there, mainly aim to the US, North American potential B2B SME business. At the same time, Phison has a new foundation in Malaysia, my hometown. We use them to start look to the Southeast Asia. India, we have a JV called MiPhi, which transfer this technology to them to help them service the local SME as our new business.

K.S. Pua: We also start to work with the AIDC, AI data center, to put Phison's, our software platform, into data centers. This is totally our new business. We keep Taiwan because all engineers Taiwan. Now we show our performance in Taiwan. We have achievement, bang hospital enterprise. Now we start to move to North America. Phison already have office in San Jose, in Colorado. We new set up office in Vancouver. In Vancouver, start to hire the team, transfer our products to there, our design to there, mainly aim to the US, North American potential B2B SME business. At the same time, Phison has a new foundation in Malaysia, my hometown. We use them to start look to the Southeast Asia. India, we have a JV called MiPhi, which transfer this technology to them to help them service the local SME as our new business.

Speaker #3: So we take Taiwan, because our engineer is in Taiwan, right? Now we show our performance in Taiwan. We have a bank, we have a shipment, bank, hospital, enterprise.

Speaker #3: Now we start to move to North America. Phison already has an office in San Jose, in Colorado. We just started setting up a new office in Vancouver.

Speaker #3: In Vancouver, start to hire the team to transfer our products to there. Our design to there. Mainly aim to the US, North America, potential B2B, SME business.

Speaker #3: At the same time, Phison has a new foundation in Malaysia, my hometown. We use them to start to look to Southeast Asia. In India, we have a GMV called MyFi.

Speaker #3: We transfer this technology to them to help them service the local SME as our new business. So again, next earnings call, we are going to tell you more.

Khein-Seng Pua: Next earning call, we are going to tell you more. This is go to the AI PC, AI on device. A lot of activities, a lot. After Computex, from now on to CES, a lot of activity to promote the so-called AI PC or agentic notebook. This is happening, and Phison aiDAPTIV is the only solution. Investor keep asking about the revenue. Yes. Not yet happened that much, but coming. This is the trend, and Phison has a heavy investment into here. Shareholder may again complaining, but we keep even H1 good profit, we still have a 22% investment into R&D, which is still by amount is a record high. We keep to push for more R&D development. Versus last year, the whole year, the R&D investment was TWD 13 billion. Now H1 already TWD 24 billion. This is commitment.

K.S. Pua: Next earning call, we are going to tell you more. This is go to the AI PC, AI on device. A lot of activities, a lot. After Computex, from now on to CES, a lot of activity to promote the so-called AI PC or agentic notebook. This is happening, and Phison aiDAPTIV is the only solution. Investor keep asking about the revenue. Yes. Not yet happened that much, but coming. This is the trend, and Phison has a heavy investment into here. Shareholder may again complaining, but we keep even H1 good profit, we still have a 22% investment into R&D, which is still by amount is a record high. We keep to push for more R&D development. Versus last year, the whole year, the R&D investment was TWD 13 billion. Now H1 already TWD 24 billion. This is commitment.

Speaker #3: So this is a go to the AI PC, AI on device. A lot of activities, a lot of after computer techs, from now on to CES, a lot of activity to promote the so-called AI PC or agentic notebook.

Speaker #3: Okay, this is happening. And Phison Adaptive is the only solution. Okay, so investors keep asking about the revenue. Yes, not yet happening that much, but it’s coming.

Speaker #3: This is the trend. And Phison has a heavy investment here. Okay, shareholder Megan is complaining, but even in the first half, despite good profit, we still have a 22% investment into R&D, which, by amount, is a record high.

Speaker #3: We keep to push for more R&D development. So, versus last year, the whole year, the R&D investment was $13 billion. Now, first half already $24 billion.

Speaker #3: So this is commitment. We are really consistent. So we keep hiring more engineers again, not for chips, not for firmware, but for our AI data platform because we can see this will be our next future big growth in our revenue.

Khein-Seng Pua: We are very consistent. We keep hiring more engineers. Again, not for chips, not for firmware, but for our AI Data Platform, because we can see this will be our next future big growth in our revenue. This page will show you we are heavily invest to the R&D activities to make sure we are able to grow in the coming years. Last, I want to show you. We define a new business platform called Phison AI Data Platform. This already ongoing, already have a commercial business. A lot of engagement is happening. Again, I not spend time, just let you know what we are doing. Next quarter, you will see more. This is a, we call Inphi as a hardware CPU server from the ODM/EMS with the Phison aiDAPTIV Cache. Phison define our own storage server with our SSD. We develop every software.

K.S. Pua: We are very consistent. We keep hiring more engineers. Again, not for chips, not for firmware, but for our AI Data Platform, because we can see this will be our next future big growth in our revenue. This page will show you we are heavily invest to the R&D activities to make sure we are able to grow in the coming years. Last, I want to show you. We define a new business platform called Phison AI Data Platform. This already ongoing, already have a commercial business. A lot of engagement is happening. Again, I not spend time, just let you know what we are doing. Next quarter, you will see more. This is a, we call Inphi as a hardware CPU server from the ODM/EMS with the Phison aiDAPTIV Cache. Phison define our own storage server with our SSD. We develop every software.

Speaker #3: So again, this page shows you we are heavily invested in R&D activities to make sure we are able to grow in the coming years.

Speaker #3: Okay, lastly I want to show you we define a new business platform called the Phison AI Data Platform. This is already ongoing and we already have commercial business.

Speaker #3: A lot of engagement is happening. So again, I will not spend time, just let you know what we are doing. Next quarter, you will see more.

Speaker #3: Okay, this is a record info as a hardware CPU server from the ODM EMS, with the Phison adaptive cage. Phison defines our own storage server with our SSD.

Speaker #3: We develop every software, we have an HCI, a lot of functions. We license this to our partners, to the customers, to data centers. We develop different kinds of function modules to make sure it's good to use.

Khein-Seng Pua: We have a HCI, a lot of function. We license this to our partner, to the customers, to data center. We develop different kind of function modules to make sure it's good to use. Then we start our CVC to engage, develop, support a lot of new ISV to design application in Phison AI Data Platform. Phison in-house, we are now pushing internally to use our AI on-premise. We have AI server in Phison server room. Their engineers start to heavily, and every month review, I push them to use more service from our in-house AI service. By June, Phison save 114 headcount engineers. Just one month, we are able to take back every server investment. You can't believe. This is happening. What we are doing in our on-premise AI, we use, mainly is AI Agent and AI Copilot.

K.S. Pua: We have a HCI, a lot of function. We license this to our partner, to the customers, to data center. We develop different kind of function modules to make sure it's good to use. Then we start our CVC to engage, develop, support a lot of new ISV to design application in Phison AI Data Platform. Phison in-house, we are now pushing internally to use our AI on-premise. We have AI server in Phison server room. Their engineers start to heavily, and every month review, I push them to use more service from our in-house AI service. By June, Phison save 114 headcount engineers. Just one month, we are able to take back every server investment. You can't believe. This is happening. What we are doing in our on-premise AI, we use, mainly is AI Agent and AI Copilot.

Speaker #3: Then we start our CVC to engage, develop, support a lot of new ISVs to design applications in Phison AI data platform. So, Phison in-house, we are now pushing internally to use our AI on-premise with AI servers in the Phison server room.

Speaker #3: There are engineers starting to heavily—I'm every month reviewing, I push them to use more service from our in-house AI service. By soon, Phison save 140 headcount engineers.

Speaker #3: Okay, just one month, we are able to take back every server investment. You can't believe. Okay, so this is happening. And what we are doing in our on-premise AI, we use mainly is AI agent and AI copilot.

Speaker #3: Okay, I don't want to go into details, but this is to show you what we are doing in our AI activities. By ranking, we have a lot of engineering activity here using AI to improve our design cycle and also the performance.

Khein-Seng Pua: I don't want to go details, but this to show you what we are doing in our AI activities. By ranking, we have a lot of engineering activity here using AI to improve our design cycle and also the performance. Since I realized Phison, our rename is Agentic Hub, this is so-called Agentic Hub, okay? I can save a lot of headcount. We, Phison, place a big order to our ODM Taiwan to buy NVIDIA more than $50 million of GPU card and server. We are going to step by step install into our server room, and also we are going to rent data center outside to put the server there. What's the purpose? The purpose is target we are going to save close to 500 headcount engineers by end of this year by AI service.

K.S. Pua: I don't want to go details, but this to show you what we are doing in our AI activities. By ranking, we have a lot of engineering activity here using AI to improve our design cycle and also the performance. Since I realized Phison, our rename is Agentic Hub, this is so-called Agentic Hub, okay? I can save a lot of headcount. We, Phison, place a big order to our ODM Taiwan to buy NVIDIA more than $50 million of GPU card and server. We are going to step by step install into our server room, and also we are going to rent data center outside to put the server there. What's the purpose? The purpose is target we are going to save close to 500 headcount engineers by end of this year by AI service.

Speaker #3: Since I realized Phison, our rename is actually hub, this is so-called agentic hub. Okay, I can save a lot of headcount. We, Phison, placed a big order to our ODM in Taiwan to buy Nvidia, more than $50 million of GPU cards and servers.

Speaker #3: We are going to, step by step, install into our server room, and also we are going to rent a data center outside to put the server there.

Speaker #3: What is the purpose? The purpose is, our target is that we are going to save close to 500 headcount engineers by the end of this year, by AI service.

Speaker #3: So we are not going to hire that many ethical designers, firmware designers, or software designers. But we will only increase a lot of AI deployment, AI software, AI promotion, and AI business development for our new AI data platform business.

Khein-Seng Pua: We are not going to hire that many ASIC designer, firmware designer, software designer, but we only increase a lot of AI deployment, AI software, AI promotion, AI business development to our new AI data platform business. All the chip design, product design, we are going to rely on the new AI server, which we just purchased around $50 million. This page will show you why we insist to go on-premise. Why not going to cloud? We made a simulation. We use our June, our application, the input token, output token. We compare to the cloud Sonnet and the cheapest China service, Qimi Q2. We found if we have a good utility, just use 100% my server, my cost is here. This is a cost of Qimi. This is a cost of Sonnet. Okay?

K.S. Pua: We are not going to hire that many ASIC designer, firmware designer, software designer, but we only increase a lot of AI deployment, AI software, AI promotion, AI business development to our new AI data platform business. All the chip design, product design, we are going to rely on the new AI server, which we just purchased around $50 million. This page will show you why we insist to go on-premise. Why not going to cloud? We made a simulation. We use our June, our application, the input token, output token. We compare to the cloud Sonnet and the cheapest China service, Qimi Q2. We found if we have a good utility, just use 100% my server, my cost is here. This is a cost of Qimi. This is a cost of Sonnet. Okay?

Speaker #3: All the chip design and product design—we are going to rely on the new AI server, which we just purchased, for around $50 million.

Speaker #3: So this place to show you why we insist to go on premise. Why not going to cloud? We made a simulation. We use our June, our application, the input token, output token.

Speaker #3: We compare to the cloud Sonet and the cheapest China service, Kimi K2. We found if we have a good utility—let's use 100% my server—my cost is here.

Speaker #3: This is the cost of a Kimi; this is the cost of Sonic. Okay, so at the end, if you are a heavy user, your only choice is to go on premise.

Khein-Seng Pua: So at the end, if you are the heavy user, your only choice is go to on-premise. After your server all depreciate, that means that the compute power is all you can eat for free. You pay only the power supply fee. Okay? This will show you Phison was a user. Unfortunately, we can't find solution. We force ourselves to become provider. Now we are a developer. From user to developer. We develop our AI solution to help save our overhead improve cycle. Now we turn to provider. That's what next earning call, I'm going to share with more. Okay? Like I said, next step, Phison will aim to small, medium-sized enterprise, B2B, AI, on-premise, total solutions provider. Not only for Taiwan but also aiming to North America, Southeast Asia, India. Hopefully next year we are able to aim the worldwide. Okay. Summary.

K.S. Pua: So at the end, if you are the heavy user, your only choice is go to on-premise. After your server all depreciate, that means that the compute power is all you can eat for free. You pay only the power supply fee. Okay? This will show you Phison was a user. Unfortunately, we can't find solution. We force ourselves to become provider. Now we are a developer. From user to developer. We develop our AI solution to help save our overhead improve cycle. Now we turn to provider. That's what next earning call, I'm going to share with more. Okay? Like I said, next step, Phison will aim to small, medium-sized enterprise, B2B, AI, on-premise, total solutions provider. Not only for Taiwan but also aiming to North America, Southeast Asia, India. Hopefully next year we are able to aim the worldwide. Okay. Summary.

Speaker #3: After your servers are all depreciated, that means the compute power is essentially free to use. You pay only the power supply fee. Okay, so this is to show you Phison was a user. Unfortunately, we can't find a solution.

Speaker #3: We forced ourselves to become a provider. Now we are a developer. From user to developer—we develop our AI solution to help save all our heads and improve our cycle.

Speaker #3: Now we turn to provider. So that's for next quarter's earnings call. I'm going to share more. Okay, so as I said, next step, Phison will aim to be a small and medium-sized enterprise B2B AI on-premise total solutions provider.

Speaker #3: Not only for Taiwan, but also aiming at North America, Southeast Asia, and India. Hopefully, next year we are able to aim for worldwide. Okay, summary.

Speaker #3: I think there's no need to spend time here explaining how difficult it is to get supply. AI is changing everything. Phison is from the controller, consumer, and embedded segments.

Khein-Seng Pua: I think no need to spend time here to tell how difficult to get a supply. AI is changing everything. Phison is from the controller, consumer, embedded computing, now enterprise storage, main drive. Now we are going to as a system solution provider. Okay? That's why we need to keep heavy investment in our R&D, and we are going to build our own ecosystems. Of course, we also need to engage with every key player. We believe our SME B2B business can attract a lot of suppliers, system integrators, users. This is our next growth and our opportunity, but we invest this over 3 and a half years already. Finally, we can see something is going to happen. Okay, so last, Phison is a innovation company. We keep very consistent, invest, find the right way to help Phison to grow our business and to keep the good profitability.

K.S. Pua: I think no need to spend time here to tell how difficult to get a supply. AI is changing everything. Phison is from the controller, consumer, embedded computing, now enterprise storage, main drive. Now we are going to as a system solution provider. Okay? That's why we need to keep heavy investment in our R&D, and we are going to build our own ecosystems. Of course, we also need to engage with every key player. We believe our SME B2B business can attract a lot of suppliers, system integrators, users. This is our next growth and our opportunity, but we invest this over 3 and a half years already. Finally, we can see something is going to happen. Okay, so last, Phison is a innovation company. We keep very consistent, invest, find the right way to help Phison to grow our business and to keep the good profitability.

Speaker #3: Computing now, enterprise storage main drive. Now, we are going to, as a system solution provider. Okay, that’s why we need to keep heavy investment in our R&D.

Speaker #3: And we are going to build our own ecosystems. Of course, we also need to engage with every key player. We believe our SME B2B business can attract a lot of suppliers, system integrators, and users.

Speaker #3: This is our next growth and our opportunity. But we have invested in this over three and a half years already. Finally, we can see something is going to happen.

Speaker #3: Okay, so last, Phison is an innovation company. We keep really consistent investment to find the right way to help Phison grow our business and to keep good profitability.

Speaker #3: Okay, a few Q&A here. Let me close, then we can go live. Dividend. We bought. Member decides. Actually, we have a debate among the board members.

Khein-Seng Pua: Okay, few Q&A here. Let me close, then we can go live. Dividend. Board member decides. Actually, we have a debating in the board members, which is good. In the last policy, we try to match 55% of the net profit, but this time we decide not to do that. Why? Phison will need a lot of cash to help to grow our business, to help Phison to get more market share, to help Phison to transform from 2.0 to 3.0, to help Phison from modules application to the total system supplier. So we need cash. So we like to use index as interest rate. Based on yesterday's our stock price, based on the safety net is H1 2.87. H2, I believe I have a good confidence we still have a very good earning.

K.S. Pua: Okay, few Q&A here. Let me close, then we can go live. Dividend. Board member decides. Actually, we have a debating in the board members, which is good. In the last policy, we try to match 55% of the net profit, but this time we decide not to do that. Why? Phison will need a lot of cash to help to grow our business, to help Phison to get more market share, to help Phison to transform from 2.0 to 3.0, to help Phison from modules application to the total system supplier. So we need cash. So we like to use index as interest rate. Based on yesterday's our stock price, based on the safety net is H1 2.87. H2, I believe I have a good confidence we still have a very good earning.

Speaker #3: Okay, which is good. And the last policy, we tried to match 55% of the net profit, but this time we decided not to do that.

Speaker #3: Why? Phison, we need a lot of cash to help grow our business, to help Phison bring in more market share.

Speaker #3: To help Phison transform from 2.0 to 3.0, to help Phison move from module applications to total system suppliers, we need cash. So, we like to use an index as an interest rate.

Speaker #3: Okay, based on yesterday's our stock price, we based on the 60 NT is a half year 2.87. Second half, I believe I have a good confidence.

Speaker #3: We still have a really good earning. Hopefully, next first half January, Phison, potentially—I hope we can make more earning. We are a little bit cash rich; we can consider having a more dividend by ratio at the next January.

Khein-Seng Pua: Hopefully next H1, January Phison, potentially, I hope we can make more earning. We are a little bit cash rich. We can consider to have more dividend by ratio at the next January. But again, this is no commitment. Depends on our cash flow and our business and how good we are able to get the cash from the business. So some shareholder may not happy, but some shareholder keep came to me to ask me, "Don't pay that much." They wish the cash keep in the company to help company drive much faster, rapidly to get the better return. So let me clarify. In the last many years, Phison, we are good in the earning per share. We give 55%, everybody happy. But unfortunately, fortunately, now we are turned to special turbo mode is in revenue, in profit, in market share, in applications. This for what?

K.S. Pua: Hopefully next H1, January Phison, potentially, I hope we can make more earning. We are a little bit cash rich. We can consider to have more dividend by ratio at the next January. But again, this is no commitment. Depends on our cash flow and our business and how good we are able to get the cash from the business. So some shareholder may not happy, but some shareholder keep came to me to ask me, "Don't pay that much." They wish the cash keep in the company to help company drive much faster, rapidly to get the better return. So let me clarify. In the last many years, Phison, we are good in the earning per share. We give 55%, everybody happy. But unfortunately, fortunately, now we are turned to special turbo mode is in revenue, in profit, in market share, in applications. This for what?

Speaker #3: But again, this is not a commitment. It depends on our cash flow and our business, and how well we are able to get the cash from the business.

Speaker #3: Okay, so some shareholder may not happy, but some shareholder keep came to me to ask me don't pay that much. They wish the cash keep in the company to help company drive much faster rapidly to get the better return.

Speaker #3: So let me clarify. In the past many years, Phison has been good in earnings per share. We give 55%. Everybody happy. But unfortunately, unfortunately now we have turned to special turbo mode in revenue, in profit, in market share, in applications.

Speaker #3: Okay, this is for what? This is to make sure Phison can lead in the market and can enjoy the last few years' business returns from the market.

Khein-Seng Pua: This to make sure Phison can lead in the market and can enjoy as the last few years business returned from the market. So please understand, we understand the ask from shareholders. We keep 2.87% half year, the year, but we need to keep the cash to run the business, to make our shareholder get more return, not only from the interest, but also for the capital gains. Again, analyst, not some few, maybe one, keep asking Phison as a module house. Answer is, yes, we are module house. So what? But Phison module house is different with what definition of a module house. Traditional module house are buy, sell, buy assembly, buy, sell. Phison is a module house. All activity starting from R&D fundamentally design. But revenue wise, coming from modules. So you can name this is a module house. We use this example for many years.

K.S. Pua: This to make sure Phison can lead in the market and can enjoy as the last few years business returned from the market. So please understand, we understand the ask from shareholders. We keep 2.87% half year, the year, but we need to keep the cash to run the business, to make our shareholder get more return, not only from the interest, but also for the capital gains. Again, analyst, not some few, maybe one, keep asking Phison as a module house. Answer is, yes, we are module house. So what? But Phison module house is different with what definition of a module house. Traditional module house are buy, sell, buy assembly, buy, sell. Phison is a module house. All activity starting from R&D fundamentally design. But revenue wise, coming from modules. So you can name this is a module house. We use this example for many years.

Speaker #3: So please understand we understand the the the ask from shareholders. We keep 2.87% half year the the the the the year but we need to keep the cash to run the business.

Speaker #3: To make our shareholders get more returns, not only from interest but also from capital gains. So again, analysts—not just a few, maybe one—keep asking Phison as a module house.

Speaker #3: Answer is yes we are module house. So what? But Phison module house is a different with why definition of a module house. Traditional module house buy sell buy assembly buy sell.

Speaker #3: Phison is a module house. All activity, starting from R&D, is fundamentally design. But revenue-wise, it is coming from modules. So, you can name this as a module house.

Speaker #3: Okay, we use this example for many years. Again, I have to use this. Okay, you look at Apple and Nvidia. Chip designers—they design the chips. Most likely, their revenue is not from selling chips; they build modules.

Khein-Seng Pua: Again, I have to use this. You look to the Apple and the NVIDIA, a chip designer. They design the chips. Most likely, revenue not selling chips, they build modules. Revenue from modules. So, when I talk to analyst 2 weeks ago, he said, "No, no, no, Phison different." You are module house, NVIDIA module house, but they are in-house technology. I say, "Hey, Phison controller also in-house technology." Then he said, "No, no, no. Your controller is only a small BOM cost. The rest is a flash." Or you see the own company, NVIDIA is all about their design. If you read the report last week, NVIDIA new data moving platform memory, BOM cost 62%. So what's the difference?

K.S. Pua: Again, I have to use this. You look to the Apple and the NVIDIA, a chip designer. They design the chips. Most likely, revenue not selling chips, they build modules. Revenue from modules. So, when I talk to analyst 2 weeks ago, he said, "No, no, no, Phison different." You are module house, NVIDIA module house, but they are in-house technology. I say, "Hey, Phison controller also in-house technology." Then he said, "No, no, no. Your controller is only a small BOM cost. The rest is a flash." Or you see the own company, NVIDIA is all about their design. If you read the report last week, NVIDIA new data moving platform memory, BOM cost 62%. So what's the difference?

Speaker #3: Okay, revenue from modules. So when I talked to an analyst two weeks ago, he said, "No, no, no, no, you Phison different, different. You are module house and we are module house."

Speaker #3: But they are in-house technology. I said, hey, Phison controller is also in-house technology. Then he said, no, no, no, no, no, your controller is only a small part, the rest is the flash, or you see their own company. Nvidia is all about their own design.

Speaker #3: If you read the report last week, Nvidia's new way of moving platform memory bomb cost 62%. So what's the difference? Okay, I just want to tell you we are really consistent, develop our controllers, heavy investment, but the good thing is our revenue is coming back from the modules.

Khein-Seng Pua: I just want to tell you, we are very consistent, develop our controllers, heavy investment. Good thing is our revenue coming back from the modules. So you call me module house, I am okay, but we are able to generate the value in the market, generate value to the ecosystem, and generate value to the shareholders. So please, study more and please understand what we are doing for company, employee, and shareholders. So Phison, from everything 100% in-house, going to their product, and we go to the revenue by modules. Now we transform ourself to Phison 3.0 AI Data Platform. I hope I can show you more number, more visibility by next earning call. Again, I have to use this as a comparison. Okay. How Phison able to keep growth our technology? Simple. You can see. Show them a comparison.

K.S. Pua: I just want to tell you, we are very consistent, develop our controllers, heavy investment. Good thing is our revenue coming back from the modules. So you call me module house, I am okay, but we are able to generate the value in the market, generate value to the ecosystem, and generate value to the shareholders. So please, study more and please understand what we are doing for company, employee, and shareholders. So Phison, from everything 100% in-house, going to their product, and we go to the revenue by modules. Now we transform ourself to Phison 3.0 AI Data Platform. I hope I can show you more number, more visibility by next earning call. Again, I have to use this as a comparison. Okay. How Phison able to keep growth our technology? Simple. You can see. Show them a comparison.

Speaker #3: So you call me a module house, I'm okay with that, but we are able to generate value in the market, generate value to the ecosystem, and generate value to the shareholders.

Speaker #3: So please study more and please understand what we are doing—for company employees and shareholders. So, Phison, from everything 100% in-house going to the products, and we go to the revenue by modules, and now we transform ourselves to 3.0 Phison AI data platform.

Speaker #3: I hope I can show you more numbers, more visibility by next earnings call. Again, I have to use this as a comparison, okay? How Phison is able to keep growing our technology.

Speaker #3: Simple. I mean, you can see shareholders may complain this is all about our R&D investment versus our revenue. And we just go to the plumber to search Apple, Nvidia—they're not small, they're big.

Khein-Seng Pua: This is all about our R&D investment versus our revenue. We just go to the Bloomberg to search. Apple, NVIDIA, they are not small, they are big. They have a big revenue. So if go to net amount R&D expense, they are also big. Phison is a tiny, small company, but we have a much higher percentage. Means what? Means we aim to very long-term, and we are able to grow by what? By revenue of modules, which analysts may not happy to see module, but unfortunately, this helping us to make good enough of profit. So last, please understand, we are module house, but different with the module house you mean. This is our inventory. Again, we have, by Q2, 90-plus billion TWD inventory, most likely enterprise. Okay. They are ODM and industrial. I think retail in Phison in the coming two, three, four quarters gone. Okay.

K.S. Pua: This is all about our R&D investment versus our revenue. We just go to the Bloomberg to search. Apple, NVIDIA, they are not small, they are big. They have a big revenue. So if go to net amount R&D expense, they are also big. Phison is a tiny, small company, but we have a much higher percentage. Means what? Means we aim to very long-term, and we are able to grow by what? By revenue of modules, which analysts may not happy to see module, but unfortunately, this helping us to make good enough of profit. So last, please understand, we are module house, but different with the module house you mean. This is our inventory. Again, we have, by Q2, 90-plus billion TWD inventory, most likely enterprise. Okay. They are ODM and industrial. I think retail in Phison in the coming two, three, four quarters gone. Okay.

Speaker #3: I mean, they have big revenue, so if you go to net amount, R&D expense, they are also big. But Phison is a tiny, small company, but we have a much higher percentage.

Speaker #3: Means what? Means we aim for very long term, and we are able to grow by what? By revenue of modules, which analysts may not be happy to see as module, but unfortunately, this is helping us to make good enough profit.

Speaker #3: So last, please understand, we are a module house, but different from the module house you mean. This is our inventory again. We have, by Q2, 90-plus billion NT inventory.

Speaker #3: Most likely enterprise. Okay, then ODM and industrial. I think retail in Phison in the coming two, three, four quarters gone. Okay, retail may be back by 2028 when the market starts coming back. Phison is going to use our resources to get the business, and at that time if I say business, it means the profit definitely has to be good.

Khein-Seng Pua: Retail may back by 2028 when the market start coming back, Phison is going to use our resource to gain a business. That time, if I ask business, means the profit definitely had to be good. If not, why I spend my resource to there. Back to the ESG, we keep doing all our best, okay? Every index, we keep improving. Okay. Thank you. Let us go to the Q&A.

K.S. Pua: Retail may back by 2028 when the market start coming back, Phison is going to use our resource to gain a business. That time, if I ask business, means the profit definitely had to be good. If not, why I spend my resource to there. Back to the ESG, we keep doing all our best, okay? Every index, we keep improving. Okay. Thank you. Let us go to the Q&A.

Speaker #3: If not, why would I spend my resources on that? And back to the ESG, we keep doing our best. Okay, every index, we keep improving.

Speaker #3: Okay, so thank you. Let's go to the Q&A.

Speaker #1: Thank you, KS, for the encouraging updates, and congratulations on the strong results. We are now opening the floor to the Q&A session. If you have any questions, please use the 'raise hand' function, or you can also type your questions in the chat box and we will raise the question for you.

Astoria Chen: Thank you, K.S. Puah, for the encouraging updates, and congratulations to the strong results. We are now opening the floor to the Q&A session. If you have any questions, please use raise hand function, and you can also type your questions in the chat box, and we will raise the question for you. When we are waiting for questions, I will start with some questions from me. My first question is about the NAND demand and supply dynamic. As you just mentioned, NAND supply remains quite tight, and you were actively adding supply sources. Can you give us some update on your current supply condition? For example, how many suppliers do you now have LTAs, and how it compare to what you see in the last quarter? What can we expect for the incremental bit allocation for maybe H2 this year or 2027?

Speaker #1: When we are waiting for questions, I will start with some questions from me. My first question is about the non-demand supply dynamic. As you just mentioned, non-supply remains quite tight and you were actively adding supply resources and supply sources. Can you give us some update on your current supply condition? For example, how many suppliers do you now have LTAs with, and how does it compare to what you saw in the last quarter? And what can we expect for the incremental bit allocation for maybe the second half of this year or 2027?

Speaker #2: Okay, thanks, Israel. To be honest, in the last nine months, I spent too much of my time being interviewed by TV, by everywhere, keep talking about supply, demand, supply, demand.

Khein-Seng Pua: Okay. Thanks, Zoe. To be honest, the last nine months, I spent too much my time by interview, by TV, by everywhere, keep talking about supply demand. Supply demand, no solutions for many, many years. Back to Phison. We still able to get supply, but unfortunately, supply not enough to what we need. So last week was the FMS in San Jose. We meet every suppliers there. They recognize Phison's value. I am telling them, Phison is not going to take their place, make the modules, and sell the modules. We are now converting ourself to the NAND users. Just now I mentioned, we are having our business in the so-called AI Data Platform, and this is the number we show to them. They are very surprised what we are doing.

K.S. Pua: Okay. Thanks, Zoe. To be honest, the last nine months, I spent too much my time by interview, by TV, by everywhere, keep talking about supply demand. Supply demand, no solutions for many, many years. Back to Phison. We still able to get supply, but unfortunately, supply not enough to what we need. So last week was the FMS in San Jose. We meet every suppliers there. They recognize Phison's value. I am telling them, Phison is not going to take their place, make the modules, and sell the modules. We are now converting ourself to the NAND users. Just now I mentioned, we are having our business in the so-called AI Data Platform, and this is the number we show to them. They are very surprised what we are doing.

Speaker #2: Okay, so I want to go deep go details today. Supply demand no solutions for many many years. Okay, back to Phison. We still able to get supply.

Speaker #2: But unfortunately, supply is not enough for what we need. So, last week was FMS in San Jose. We met every supplier there. They recognize Phison's value. I'm telling them, Phison is not going to take their flash, build modules, and sell the modules. We are now converting ourselves to the non-user side. Just now, I mentioned we are having our business in the so-called AI data platform, and this is a number we show to them. They are already supplying what we are doing. I'm telling them, what we purchase is not only for selling to others, but we build systems—this can bring more value. So, we can't disclose what kind of LTA, or how many supply, because if I say something here, my competitors may go there to ask for the same amount. So, I'm not going to do that. But just a commitment here: we have enough, we have a supply, but supply is still not enough for what we need.

Khein-Seng Pua: I am telling them, the NAND what we purchase is not only for selling to others, but we build to the systems. This can bring more values. So we cannot disclose what kind of LTA, how many is supply because if I say something here, my competitors may go there to ask the same amount. I am not going to do that, but just a commitment here. We have enough, and we have a supply, but supply still not enough what we need. Okay.

K.S. Pua: I am telling them, the NAND what we purchase is not only for selling to others, but we build to the systems. This can bring more values. So we cannot disclose what kind of LTA, how many is supply because if I say something here, my competitors may go there to ask the same amount. I am not going to do that, but just a commitment here. We have enough, and we have a supply, but supply still not enough what we need. Okay.

Speaker #2: Okay,

Speaker #1: Thank you very much. My second question is about the non-price in the second half. How do you see the press trend in the second half compared to the first half?

Astoria Chen: Thank you very much. My second question is about the NAND price in H2. How do you see the price trend in H2 compare to H1? I remember our peers SanDisk, they said in their earnings call that price increases will moderate. That does match what you are seeing now, and how should we think about the growth margin in H2 and onward?

Speaker #1: I remember our peer, SanDisk, said in their earnings call that price increases will moderate. Does this match what you are seeing now, and how should we think about the gross margin in the second half and onward?

Speaker #2: I remember by March, I already saying that the memory company, the gross margin bottom line, 80%, easier, easier, 85% may happen. Now, I'm telling you, if 2026, 90% gross margin may happen. But I don't think this is healthy to the industry. And my sense of advice: don't do that. If you ask component for 90% gross margin, industry potentially will be killed. Like you know, you can see the IoT, you can see the consumer die.

Khein-Seng Pua: I remember by March, I already saying that the memory company, the growth margin bottom line 80% easier. 85% may happen. Now I am telling you, if 2026, 90% growth margin may happen, but I don't think this is healthy to the industry. My sense of advice, don't do that. If you ask component for 90% gross margin, industrial potentially will be killed. You can see the IoT, you can see the consumer die. Okay? I don't want to comment what price is going. Supply tight, demand too strong. Price definitely will still going up, but 85%, more than enough. Okay?

K.S. Pua: I remember by March, I already saying that the memory company, the growth margin bottom line 80% easier. 85% may happen. Now I am telling you, if 2026, 90% growth margin may happen, but I don't think this is healthy to the industry. My sense of advice, don't do that. If you ask component for 90% gross margin, industrial potentially will be killed. You can see the IoT, you can see the consumer die. Okay? I don't want to comment what price is going. Supply tight, demand too strong. Price definitely will still going up, but 85%, more than enough. Okay?

Speaker #2: Okay, so I know—I know, one to comment: what price is going, supply type, demand too strong, price definitely will still going up, but 85% more than enough.

Speaker #2: Okay,

Speaker #1: Thank you. I already see some investors online. Maybe the next question is from Charlie Chen at Morgan Stanley.

Astoria Chen: Thank you. I already see some investors online. Maybe next question is from Charlie Chen, Morgan Stanley.

Speaker #2: Yeah, hey yes yeah I mute I mute myself. Hi KS and since yeah I I I first of want to congrats for very strong results and let me probably just get straight to the points right for your AI related business right it's a 38% revenue may I know whether ESSD is kind of the make a most of that business and how big can that ESSD revenue exposure into next year.

Khein-Seng Pua: Yeah. Hey, Charlie.

K.S. Pua: Yeah. Hey, Charlie.

Astoria Chen: You can

Charlie Chen: Yes. Yeah, I unmute myself. Hi, Kex and Sorya. First of testing, want to congrats for very strong results. Let me probably just get straight to the point, right? For your AI-related business, right, it is 38% revenue. May I know whether ESSD is kind of the make a most of that business and how big can that ESSD revenue exposure into next year?

Charlie Chan: Yes. Yeah, I unmute myself. Hi, Kex and Sorya. First of testing, want to congrats for very strong results. Let me probably just get straight to the point, right? For your AI-related business, right, it is 38% revenue. May I know whether ESSD is kind of the make a most of that business and how big can that ESSD revenue exposure into next year?

Khein-Seng Pua: This 38%, NAND drive is around 30 plus.

K.S. Pua: This 38%, NAND drive is around 30 plus.

Speaker #2: This 38% main drive is around 30 plus, okay, because this is more in the, you know, the revenue generator—food drive. We win a lot of program and share, so food drive played a big role, no matter in the AI system or the networking, okay? And again, adaptive.

Khein-Seng Pua: Because this is the more in the revenue generator. Boot drive, we win a lot of program and share, so boot drive play the big role, no matter in the AI system or the networking. Again, aiDAPTIV data solutions still small. As I mentioned, this is totally new. We need to spend a lot of time. But now we convert this to the AI Data Platform. Hopefully from Q4, Q1, Q2, we can see the significant number in the revenue.

K.S. Pua: Because this is the more in the revenue generator. Boot drive, we win a lot of program and share, so boot drive play the big role, no matter in the AI system or the networking. Again, aiDAPTIV data solutions still small. As I mentioned, this is totally new. We need to spend a lot of time. But now we convert this to the AI Data Platform. Hopefully from Q4, Q1, Q2, we can see the significant number in the revenue.

Charlie Chen: Mm-hmm. Okay. I guess two follow-up question. It seems like this ESSD business continue to see meaningful growth. Do you have a kind of roughly market share? I am not sure how big is the TAM, but do you have a kind of rough market share for your ESSD business? Another follow-up question is actually to Sorya's question about the NAND price trend. I just want to get a sense whether the consumer NAND and the AI NAND price has some correlation. I ask this because I agree. I admit that Phison is no longer the consumer-related player. But my concern is that if a consumer NAND market price shows some weakness, whether it would also impact your current ASP average price. That is my two follow-up questions. Thank you.

Charlie Chan: Mm-hmm. Okay. I guess two follow-up question. It seems like this ESSD business continue to see meaningful growth. Do you have a kind of roughly market share? I am not sure how big is the TAM, but do you have a kind of rough market share for your ESSD business? Another follow-up question is actually to Sorya's question about the NAND price trend. I just want to get a sense whether the consumer NAND and the AI NAND price has some correlation. I ask this because I agree. I admit that Phison is no longer the consumer-related player. But my concern is that if a consumer NAND market price shows some weakness, whether it would also impact your current ASP average price. That is my two follow-up questions. Thank you.

Khein-Seng Pua: Phison, we are not a NAND manufacturer. We are not aiming to the enterprise SSD market share because we are not NAND supplier. By the way, the NAND is shortage, right?

K.S. Pua: Phison, we are not a NAND manufacturer. We are not aiming to the enterprise SSD market share because we are not NAND supplier. By the way, the NAND is shortage, right?

Khein-Seng Pua: We take our limited supply, limited is quite a lot, mainly go to the customize. Even go to the main drive, most of that is a customized product. That is why we can enjoy the much better gross margin. I read a report. It is a paid report, US report. Phison is around 1.9%. This is what I read, 1.9% of the enterprise SSD. This is what I can share with you.

K.S. Pua: We take our limited supply, limited is quite a lot, mainly go to the customize. Even go to the main drive, most of that is a customized product. That is why we can enjoy the much better gross margin. I read a report. It is a paid report, US report. Phison is around 1.9%. This is what I read, 1.9% of the enterprise SSD. This is what I can share with you.

Khein-Seng Pua: You can go

K.S. Pua: You can go

Khein-Seng Pua: and check the report.

K.S. Pua: and check the report.

Khein-Seng Pua: Back to the so-called consumer NAND, AI NAND, or I like to more easier, downgrade NAND and the good NAND.

K.S. Pua: Back to the so-called consumer NAND, AI NAND, or I like to more easier, downgrade NAND and the good NAND.

Khein-Seng Pua: Downgrade NAND, the price also increased a lot and their supply declining a lot. Why? Back to the history when the 2D NAND, every 18 to 24 months, they have a new NAND generation.

K.S. Pua: Downgrade NAND, the price also increased a lot and their supply declining a lot. Why? Back to the history when the 2D NAND, every 18 to 24 months, they have a new NAND generation.

Khein-Seng Pua: The N generation not mature yet, N plus one coming. Every period, they have a lot of downgrade. Now 3D NAND, the longevity getting much longer. You can't believe the NAND produced by the six NAND vendors, the yield rate can be 90% plus. My people report to me they have some wafer with 95% of a good yield. Means what? Means the downgrade part declining a lot. I don't think this consumer, unique consumer NAND, downgrade NAND, will impact to the AI NAND. Who is going to buy consumer downgrade to the AI system?

K.S. Pua: The N generation not mature yet, N plus one coming. Every period, they have a lot of downgrade. Now 3D NAND, the longevity getting much longer. You can't believe the NAND produced by the six NAND vendors, the yield rate can be 90% plus. My people report to me they have some wafer with 95% of a good yield. Means what? Means the downgrade part declining a lot. I don't think this consumer, unique consumer NAND, downgrade NAND, will impact to the AI NAND. Who is going to buy consumer downgrade to the AI system?

Khein-Seng Pua: Again, you keep saying that the market price, spot market dropping. Go back to check YouTube, which I already said by March. The time I already hint after June, Shenzhen module house is going to dump their wafer. Why? Because their business 90% plus are in the consumer tech.

K.S. Pua: Again, you keep saying that the market price, spot market dropping. Go back to check YouTube, which I already said by March. The time I already hint after June, Shenzhen module house is going to dump their wafer. Why? Because their business 90% plus are in the consumer tech.

Khein-Seng Pua: They need revenue. If they public, they need revenue. So they buy wafer, they sell wafer.

K.S. Pua: They need revenue. If they public, they need revenue. So they buy wafer, they sell wafer.

Khein-Seng Pua: Okay? This happening. I like to share with you, in June, July, Phison, we spent our cash, more than TWD 450 million, to buy the NAND wafer from Shenzhen module house. Of course, the price is much cheaper than the NAND contract price. If not, why I am buying there, right?

K.S. Pua: Okay? This happening. I like to share with you, in June, July, Phison, we spent our cash, more than TWD 450 million, to buy the NAND wafer from Shenzhen module house. Of course, the price is much cheaper than the NAND contract price. If not, why I am buying there, right?

Khein-Seng Pua: Why they sell? Because Phison has a solution. I buy. I do not know how. Okay, so do not take that spot price is a regular price because NAND guy is not going to decline their price.

K.S. Pua: Why they sell? Because Phison has a solution. I buy. I do not know how. Okay, so do not take that spot price is a regular price because NAND guy is not going to decline their price.

Charlie Chen: Okay. Understood. Thank you.

Charlie Chan: Okay. Understood. Thank you.

Khein-Seng Pua: Yeah.

K.S. Pua: Yeah.

Astoria Chen: Thank you. Next question is from Chatbox. Bruce. The investor wants to know, Longsys recently co-exhibited a general DRAM offload solution for edge devices with UNISOC, and is also collaborating with AMD on HLC plus SPU. How about Phison? This is the first question from Bruce.

Khein-Seng Pua: Okay. In 20 something March, they have a so-called China FMS. The chairman Longsys was my previous speaker. I surprised he said he got this something. When I am on stage, I say, "Hey, don't copy. You are a big company. You are innovative company. Why you just copy? Come to talk." This is my comment. I do not care. Anyone want to copy, we have our weapon, we have our solution. Wait, see how Phison reacts. I do not care. We win everything because we are the innovators. We are the inventors, the world wide know. We start promote this since three years ago. No hide, we wait and see. At least in the world, many countries still respect to intellectual property. Okay?

K.S. Pua: Okay. In 20 something March, they have a so-called China FMS. The chairman Longsys was my previous speaker. I surprised he said he got this something. When I am on stage, I say, "Hey, don't copy. You are a big company. You are innovative company. Why you just copy? Come to talk." This is my comment. I do not care. Anyone want to copy, we have our weapon, we have our solution. Wait, see how Phison reacts. I do not care. We win everything because we are the innovators. We are the inventors, the world wide know. We start promote this since three years ago. No hide, we wait and see. At least in the world, many countries still respect to intellectual property. Okay?

Astoria Chen: Thank you, K.S. Next question from Bruce, I think as a follow-up. He said Apple built its own SSD offloader specifically to shape Apple Intelligence, but most laptop OEMs clearly do not have that kind of capability. AMD choose to partner with Longsys, while Phison choose to partner with Intel and MediaTek.

Khein-Seng Pua: Okay. Ezra, how about going this way? I think the audience wait. We no need spend time here, okay?

K.S. Pua: Okay. Ezra, how about going this way? I think the audience wait. We no need spend time here, okay?

Astoria Chen: Sure.

Khein-Seng Pua: First of all, Apple is Apple. It is all proprietary, so no comment. You name AMD choose Longsys. Wrong. This only happen in some show, AMD China Longsys. You go to ask AMD Austin what happened today, okay? I do not want to comment here. Phison choose partner Intel, MediaTek. Okay. No worry, no rush. A lot of NDA there. You wait and see. Okay? I just saying that don't copy. Be a man. Then we go to the next.

K.S. Pua: First of all, Apple is Apple. It is all proprietary, so no comment. You name AMD choose Longsys. Wrong. This only happen in some show, AMD China Longsys. You go to ask AMD Austin what happened today, okay? I do not want to comment here. Phison choose partner Intel, MediaTek. Okay. No worry, no rush. A lot of NDA there. You wait and see. Okay? I just saying that don't copy. Be a man. Then we go to the next.

Astoria Chen: Yeah. Next question is from Simon Wu, Bank of America.

Khein-Seng Pua: Okay. Hey, Simon.

K.S. Pua: Okay. Hey, Simon.

Simon Wu: Oh, hi. K.S., can you hear me well?

Simon Woo: Oh, hi. K.S., can you hear me well?

Khein-Seng Pua: Yes.

K.S. Pua: Yes.

Simon Wu: Great. Congrats. Great result. Great number.

Simon Woo: Great. Congrats. Great result. Great number.

Khein-Seng Pua: We work so hard. We effort so much. When talking, nobody listen.

K.S. Pua: We work so hard. We effort so much. When talking, nobody listen.

Simon Wu: We are listening to you, sir.

Simon Woo: We are listening to you, sir.

Khein-Seng Pua: Thank you.

K.S. Pua: Thank you.

Simon Wu: No.

Simon Woo: No.

Khein-Seng Pua: That's a joke.

K.S. Pua: That's a joke.

Simon Wu: Yeah. So maybe, number one, how long you think the NAND price, still rising, right? So when it will stop? You mentioned that

Simon Woo: Yeah. So maybe, number one, how long you think the NAND price, still rising, right? So when it will stop? You mentioned that

Khein-Seng Pua: Call your friend.

K.S. Pua: Call your friend.

Simon Wu: makers are very profitable.

Simon Woo: makers are very profitable.

Khein-Seng Pua: Call. Do not ask me. Call to your Korean friend, okay? I wish 85% gross margin is really good. Do not ask to 90.

K.S. Pua: Call. Do not ask me. Call to your Korean friend, okay? I wish 85% gross margin is really good. Do not ask to 90.

Simon Wu: You think it is time to see more stable NAND price these days?

Simon Woo: You think it is time to see more stable NAND price these days?

Khein-Seng Pua: No, not stable. What I like to mention is saturate. Still rising, but the ratio getting smaller and eventually saturate.

K.S. Pua: No, not stable. What I like to mention is saturate. Still rising, but the ratio getting smaller and eventually saturate.

Simon Wu: Saturate means?

Simon Woo: Saturate means?

Khein-Seng Pua: Means it hits some certain point, gross margin there. Supplier is happy. Then they start to pick up who they are going to ship.

K.S. Pua: Means it hits some certain point, gross margin there. Supplier is happy. Then they start to pick up who they are going to ship.

Simon Wu: Okay. Sorry. NAND price, still some room to see the NAND price increase

Simon Woo: Okay. Sorry. NAND price, still some room to see the NAND price increase

Khein-Seng Pua: Yes

K.S. Pua: Yes

Simon Wu: for H2 of this year, but how about next year, sir? Stable, right? No?

Simon Woo: for H2 of this year, but how about next year, sir? Stable, right? No?

Khein-Seng Pua: Hey, let me ask you. If next year, nobody doing things, right? The gross margin of a memory company go to 95%, don't you believe this is going to happen or not?

K.S. Pua: Hey, let me ask you. If next year, nobody doing things, right? The gross margin of a memory company go to 95%, don't you believe this is going to happen or not?

Simon Wu: Theoretically possible, but

Simon Woo: Theoretically possible, but

Khein-Seng Pua: Yes

K.S. Pua: Yes

Simon Wu: I think like Taiwan Foundry, shortage is there, but they are not raising the price aggressively anymore.

Simon Woo: I think like Taiwan Foundry, shortage is there, but they are not raising the price aggressively anymore.

Khein-Seng Pua: Memory is different.

K.S. Pua: Memory is different.

Simon Wu: Different. I see. Okay. You are feeling that the shortage of NAND will continue into next year?

Simon Woo: Different. I see. Okay. You are feeling that the shortage of NAND will continue into next year?

Khein-Seng Pua: Many years, not next year. Many years.

K.S. Pua: Many years, not next year. Many years.

Simon Wu: Oh, many years. But you don't see quite significant NAND big growth per wafer with 200, 300 layers, sir?

Simon Woo: Oh, many years. But you don't see quite significant NAND big growth per wafer with 200, 300 layers, sir?

Khein-Seng Pua: No. You go to ask the manufacturers.

K.S. Pua: No. You go to ask the manufacturers.

Khein-Seng Pua: I met one NAND, the top-level guy. I say, "Hey, from investment to produce to production, 2 years." He said, "No." He said, "4 years.

K.S. Pua: I met one NAND, the top-level guy. I say, "Hey, from investment to produce to production, 2 years." He said, "No." He said, "4 years.

Khein-Seng Pua: 4 years. Yeah. Not easy. I realize, not easy.

K.S. Pua: 4 years. Yeah. Not easy. I realize, not easy.

Simon Wu: Oh, okay. Just in case I am double-checking, sir, so your inventory value, TWD 90 billion.

Simon Woo: Oh, okay. Just in case I am double-checking, sir, so your inventory value, TWD 90 billion.

Khein-Seng Pua: That is right.

K.S. Pua: That is right.

Simon Wu: It is just a book value, right? You have some-

Simon Woo: It is just a book value, right? You have some-

Khein-Seng Pua: Book value. We never revalue, okay? Phison policy, never revalue. We only write down.

K.S. Pua: Book value. We never revalue, okay? Phison policy, never revalue. We only write down.

Simon Wu: Yeah. Only. Okay, following the GAAP. Would you recap your recent convertible bond issuance? Because your competitors issued CB last night.

Simon Woo: Yeah. Only. Okay, following the GAAP. Would you recap your recent convertible bond issuance? Because your competitors issued CB last night.

Khein-Seng Pua: Why?

K.S. Pua: Why?

Simon Wu: Because the consensus indicates that maybe your competitor needs extra cash to buy more NAND chips for the enterprise solutions. So working capital increase.

Simon Woo: Because the consensus indicates that maybe your competitor needs extra cash to buy more NAND chips for the enterprise solutions. So working capital increase.

Khein-Seng Pua: They are the control company. Why would they buy NAND?

K.S. Pua: They are the control company. Why would they buy NAND?

Simon Wu: Because enterprise solution needs the NAND chips. Because it is a-

Simon Woo: Because enterprise solution needs the NAND chips. Because it is a-

Khein-Seng Pua: No.

K.S. Pua: No.

Simon Wu: It is a module business. Enterprise solution.

Simon Woo: It is a module business. Enterprise solution.

Khein-Seng Pua: Yeah, Charlie is here. Charlie can ask, "Hey, they buy a lot of NAND, how about gross margin?

K.S. Pua: Yeah, Charlie is here. Charlie can ask, "Hey, they buy a lot of NAND, how about gross margin?

Simon Wu: Gross margin, usually the controller should be higher because only the fabless business model. Module theoretically should be lower, but it is growing very strongly. Anyway, I think my question is, would you recap your previous funding? It was ECB $500 million, well executed?

Simon Woo: Gross margin, usually the controller should be higher because only the fabless business model. Module theoretically should be lower, but it is growing very strongly. Anyway, I think my question is, would you recap your previous funding? It was ECB $500 million, well executed?

Khein-Seng Pua: Fully used.

K.S. Pua: Fully used.

Simon Wu: Already used.

Simon Woo: Already used.

Khein-Seng Pua: Used. Already turned one and a half times.

K.S. Pua: Used. Already turned one and a half times.

Simon Wu: Okay. It was a USD 500 million equivalent. Sorry, would you remind us?

Simon Woo: Okay. It was a USD 500 million equivalent. Sorry, would you remind us?

Khein-Seng Pua: 800.

K.S. Pua: 800.

Simon Wu: Sorry?

Simon Woo: Sorry?

Khein-Seng Pua: 800 million ECB.

K.S. Pua: 800 million ECB.

Simon Wu: How much?

Simon Woo: How much?

Khein-Seng Pua: 800. Eight.

K.S. Pua: 800. Eight.

Simon Wu: 800.

Simon Woo: 800.

Khein-Seng Pua: Yes.

K.S. Pua: Yes.

Simon Wu: Phison raised $800 million.

Simon Woo: Phison raised $800 million.

Khein-Seng Pua: ECB, $800 million. Yes.

K.S. Pua: ECB, $800 million. Yes.

Simon Wu: So that implied what percentage of the dilution?

Simon Woo: So that implied what percentage of the dilution?

Khein-Seng Pua: Not yet. It is not happened.

K.S. Pua: Not yet. It is not happened.

Simon Wu: Yeah, but equivalent-wise.

Simon Woo: Yeah, but equivalent-wise.

Khein-Seng Pua: Oh. You ask them by 30 more prime.

K.S. Pua: Oh. You ask them by 30 more prime.

Simon Wu: 10% or?

Simon Woo: 10% or?

Khein-Seng Pua: No, less.

K.S. Pua: No, less.

Simon Wu: Okay, low single digit.

Simon Woo: Okay, low single digit.

Khein-Seng Pua: Less, single digit, low 5.

K.S. Pua: Less, single digit, low 5.

Simon Wu: Okay.

Simon Woo: Okay.

Khein-Seng Pua: If I remember, it was 3 something. 3.

K.S. Pua: If I remember, it was 3 something. 3.

Simon Wu: Yeah. 3% something because your conversion price.

Simon Woo: Yeah. 3% something because your conversion price.

Khein-Seng Pua: Yeah.

K.S. Pua: Yeah.

Simon Wu: The market level.

Simon Woo: The market level.

Khein-Seng Pua: Yeah.

K.S. Pua: Yeah.

Simon Wu: Okay. Anyway, you used up the cash proceeds, TWD 800 million from issuing the ECB. You already bought a lot of NAND chips. That's why your inventory is very high.

Simon Woo: Okay. Anyway, you used up the cash proceeds, TWD 800 million from issuing the ECB. You already bought a lot of NAND chips. That's why your inventory is very high.

Khein-Seng Pua: To me, it's too low according to

K.S. Pua: To me, it's too low according to

Simon Wu: Oh, too low. Okay. In that case, you believe in a Q2 revenue already strongly up, then September quarter

Simon Woo: Oh, too low. Okay. In that case, you believe in a Q2 revenue already strongly up, then September quarter

Khein-Seng Pua: No. I have to manage my inventory to design in customer. Design customer don't buy everything one night, they buy one year. Next year, supply is getting much, much, much, much difficult.

K.S. Pua: No. I have to manage my inventory to design in customer. Design customer don't buy everything one night, they buy one year. Next year, supply is getting much, much, much, much difficult.

Simon Wu: You mean the NAND supply will be tighter? Is because

Simon Woo: You mean the NAND supply will be tighter? Is because

Khein-Seng Pua: Yes

K.S. Pua: Yes

Simon Wu: the percentage of a shortage next year bigger

Simon Woo: the percentage of a shortage next year bigger

Khein-Seng Pua: Yes

K.S. Pua: Yes

Simon Wu: than this year?

Simon Woo: than this year?

Khein-Seng Pua: Yes.

K.S. Pua: Yes.

Khein-Seng Pua: Yes, no doubt.

K.S. Pua: Yes, no doubt.

Simon Wu: Yeah, that's why

Simon Woo: Yeah, that's why

Khein-Seng Pua: Simon, you have to agree, I am a very good, accurate fortune teller. Since last year, I keep saying a lot. Nobody listened to me, right? Now they grin.

K.S. Pua: Simon, you have to agree, I am a very good, accurate fortune teller. Since last year, I keep saying a lot. Nobody listened to me, right? Now they grin.

Simon Wu: Okay. Yeah.

Simon Woo: Okay. Yeah.

Khein-Seng Pua: Yeah. Simon, I think we need to spend some time to others.

K.S. Pua: Yeah. Simon, I think we need to spend some time to others.

Simon Wu: Okay. Yeah, sure. Thank you.

Simon Woo: Okay. Yeah, sure. Thank you.

Astoria Chen: Thank you, K.S. and Simon. Next question is from the chat box, from Khein from Digitimes. The question is in Chinese. I will translate it in English first. Khein wants to know the update about the SFIPC, the Industrial Protection Center. Thank you, K.S. I will rephrase what

Khein-Seng Pua: Victoria, we do not have time, so no need to translate, okay?

K.S. Pua: Victoria, we do not have time, so no need to translate, okay?

Astoria Chen: Sure. Okay.

Khein-Seng Pua: Anybody interested, you can email me. I can talk to you. Yeah.

K.S. Pua: Anybody interested, you can email me. I can talk to you. Yeah.

Astoria Chen: Sure. As we are running out of time, we will conclude the call.

Khein-Seng Pua: Victoria, how about let me take over? Let me take over, save time.

K.S. Pua: Victoria, how about let me take over? Let me take over, save time.

Astoria Chen: Sure.

Khein-Seng Pua: I know when to come and say commotion. I kept telling you many years ago, I am saying controllers, there is no hope, no belief. Phison is so lousy, and Charlie Chen said Phison is a module house. What is wrong with module house? We are doing good. So looks like Simon Wu now transformed themselves to module house. If you are the investor, you are the analyst, you have to start to ask, what is their gross margin rate in the future? Next. We have our own LTCA. No matter what, I am not going to disclose because sensitive NDA.

K.S. Pua: I know when to come and say commotion. I kept telling you many years ago, I am saying controllers, there is no hope, no belief. Phison is so lousy, and Charlie Chen said Phison is a module house. What is wrong with module house? We are doing good. So looks like Simon Wu now transformed themselves to module house. If you are the investor, you are the analyst, you have to start to ask, what is their gross margin rate in the future? Next. We have our own LTCA. No matter what, I am not going to disclose because sensitive NDA.

Khein-Seng Pua: 大家都买一样的 NAND 的价格，人家加 3% 卖掉，我可以加 30、50% 做成不同的产品，这就是 R&D 投资的价值。那这点我没办法给你证明什么，那你就等时间我讲过，等等看， wait and see。如果你不相信，去看过去 10 年来，我们跟所有的母子公司毛利的差别，你大概就可以理解了。下一题。 Plan to be using HLC, Hybrid Memory Cube. 这个是那个叫 Storyknex，我们也在里面，所以时间关系不 comment 了，我们也在里面。 Sorry. Strong results for your products, for your margin from, difficult to tell how much come from your value add and how much are using. Again, back to the so-called low-cost inventory. Again, I am not able to describe what is that. Agree, definitely, we have a low-cost inventory, no doubt. But you can see if left hand I have a low-cost inventory, good profit; right hand, I spend this to R&D, I move this to R&D. So this R&D is going to generate the future momentum for our business. Again, what Phison has to do if price keep going up, the gross margin definitely cannot be linear, but we need to have a new product. So I keep saying that we are moving to so-called AI Data Platform. This next quarter, I am going to tell you more. This will be our next growth, and we have to do that. If not, the things will follow what you said. Gross margin, I fully agree.

K.S. Pua: [Foreign language]。 Sorry. Strong results for your products, for your margin from, difficult to tell how much come from your value add and how much are using. Again, back to the so-called low-cost inventory. Again, I am not able to describe what is that. Agree, definitely, we have a low-cost inventory, no doubt. But you can see if left hand I have a low-cost inventory, good profit; right hand, I spend this to R&D, I move this to R&D. So this R&D is going to generate the future momentum for our business. Again, what Phison has to do if price keep going up, the gross margin definitely cannot be linear, but we need to have a new product. So I keep saying that we are moving to so-called AI Data Platform.

K.S. Pua: This next quarter, I am going to tell you more. This will be our next growth, and we have to do that. If not, the things will follow what you said. Gross margin, I fully agree.

Simon Wu: Thanks。

Simon Woo: Thanks。

Khein-Seng Pua: What is the next?

K.S. Pua: What is the next?

Astoria Chen: I think Charlie can also have questions. He raised his hand.

Khein-Seng Pua: Yes。

K.S. Pua: Yes。

Charlie Chen: No, actually, my questions were all answered and all good for me now. Thank you.

Charlie Chan: No, actually, my questions were all answered and all good for me now. Thank you.

Khein-Seng Pua: Thanks, Charlie. I think, again, Phison keep telling the market one very consistent message.

K.S. Pua: Thanks, Charlie. I think, again, Phison keep telling the market one very consistent message.

Charlie Chen: Yes。

Charlie Chan: Yes.

Khein-Seng Pua: I know price going up, eventually gross margin rate will drop. This is simple mathematics, I know. Only thing to move the gross margin is new invention, new product. This is what we are doing. NVIDIA many years ago, from they sell GPU to gaming car maker like ASUS. 10 years ago, they sell the car to the mining, now they sell the full rack. OK. They mark up their gross margin. We named this as a total system. Phison from controllers many years ago, modules, now we move to AI Data Platform as a system. So good luck to Phison. Hopefully, I can show you our big transformation within 12 to 24 months.

K.S. Pua: I know price going up, eventually gross margin rate will drop. This is simple mathematics, I know. Only thing to move the gross margin is new invention, new product. This is what we are doing. NVIDIA many years ago, from they sell GPU to gaming car maker like ASUS. 10 years ago, they sell the car to the mining, now they sell the full rack. OK. They mark up their gross margin. We named this as a total system. Phison from controllers many years ago, modules, now we move to AI Data Platform as a system. So good luck to Phison. Hopefully, I can show you our big transformation within 12 to 24 months.

Charlie Chen: That's a good luck for that. That also comes to me on this question because I think Astoria asked that question about same this, right? You also sort of agreed that the gross margin would be better to normalize a little bit, memory is taking a too big cake from AI CapEx, right? What we're thinking going to happen in the coming one to two quarters? Do you think there's CSPs or for example, NVIDIA, Google, AMD will try to de-spec the memory or they will try to pressure the price?

Charlie Chan: That's a good luck for that. That also comes to me on this question because I think Astoria asked that question about same this, right? You also sort of agreed that the gross margin would be better to normalize a little bit, memory is taking a too big cake from AI CapEx, right? What we're thinking going to happen in the coming one to two quarters? Do you think there's CSPs or for example, NVIDIA, Google, AMD will try to de-spec the memory or they will try to pressure the price?

Khein-Seng Pua: They have to. No, Charlie, sorry, they have to.

K.S. Pua: They have to. No, Charlie, sorry, they have to.

Charlie Chen: OK。

Charlie Chan: OK.

Khein-Seng Pua: This happened, I'm saying that since the end of last year, right? Now you see a lot of systems that cut half of the DRAM, right?

K.S. Pua: This happened, I'm saying that since the end of last year, right? Now you see a lot of systems that cut half of the DRAM, right?

Charlie Chen: Mm-hmm。

Charlie Chan: Mm-hmm.

Khein-Seng Pua: Let me ask this way. Do they cut storage? They cut DRAM, yes.

K.S. Pua: Let me ask this way. Do they cut storage? They cut DRAM, yes.

Charlie Chen: Uh。

Charlie Chan: Uh.

Khein-Seng Pua: Cut storage.

K.S. Pua: Cut storage.

Charlie Chen: Uh。

Charlie Chan: Uh.

Khein-Seng Pua: No。

K.S. Pua: No.

Charlie Chen: OK。

Charlie Chan: OK.

Khein-Seng Pua: Storage is income. Agree?

K.S. Pua: Storage is income. Agree?

Charlie Chen: Mm-hmm.

Charlie Chan: Mm-hmm.

Khein-Seng Pua: Inference. Inference two parts: power, storage.

K.S. Pua: Inference. Inference two parts: power, storage.

Charlie Chen: OK。

Charlie Chan: OK.

Khein-Seng Pua: DRAM is here, DRAM is here. DRAM is here. You can use algorithm or you can just sacrifice the performance. But storage is money.

K.S. Pua: DRAM is here, DRAM is here. DRAM is here. You can use algorithm or you can just sacrifice the performance. But storage is money.

Charlie Chen: Mm-hmm。

Charlie Chan: Mm-hmm.

Khein-Seng Pua: OK, so aiDAPTIV. What is the difference between aiDAPTIV using flash to complement DRAM?

K.S. Pua: OK, so aiDAPTIV. What is the difference between aiDAPTIV using flash to complement DRAM?

Charlie Chen: Mm-hmm。

Charlie Chan: Mm-hmm.

Khein-Seng Pua: Yeah。

K.S. Pua: Yeah.

Charlie Chen: Yeah. My only concern is that during this server normalization or kind of negotiation, there could be some sentiment impact to memory stocks. I agree with you that your fundamental remains to be very strong, just capital markets, right? Especially for momentum investors, they are kind of looking at those kind of price negotiation very closely. I guess that is why people really care about your view.

Charlie Chan: Yeah. My only concern is that during this server normalization or kind of negotiation, there could be some sentiment impact to memory stocks. I agree with you that your fundamental remains to be very strong, just capital markets, right? Especially for momentum investors, they are kind of looking at those kind of price negotiation very closely. I guess that is why people really care about your view.

Yeah, there, there could be some, some sentiment impact to, uh, memory, uh, starts, right? So, so so I agree with you that your fundamental remains to be very strong. Just

Uh, capital markets, I'll associate for a moment and—

Khein-Seng Pua: Yeah. OK. I think we are 1:00, but still I think since still 170 audience there, right? Simon, you have something to ask? Simon? Hello, Simon?

K.S. Pua: Yeah. OK. I think we are 1:00, but still I think since still 170 audience there, right? Simon, you have something to ask? Simon? Hello, Simon?

investors, uh, they are kind of looking at the those kind of the price negotiation, very closely. So I guess why? That's why people, uh, are really care about about your view.

Yeah.

Okay, so I think we’re one of them, but still, I think since there are still 170 audience members there, right, Simon? You have something to ask, Simon.

Simon Wu: Yes, sir. Yeah, just a very quick question. Q2 results very good, 65% revenue growth is more price increase driven, right? Rather than any meaningful volume increase QoQ.

Simon Woo: Yes, sir. Yeah, just a very quick question. Q2 results very good, 65% revenue growth is more price increase driven, right? Rather than any meaningful volume increase QoQ.

Hello, Simon.

Khein-Seng Pua: By ASP we grow, and of course, price will grow. Yeah.

K.S. Pua: By ASP we grow, and of course, price will grow. Yeah.

Simon Wu: Yeah, so another question is your volume growth trend in terms of the bit. How it can be meaningful? Because the end makers are saying 20% big growth or a little bit lower. How about your overall the product volume growth?

Simon Woo: Yeah, so another question is your volume growth trend in terms of the bit. How it can be meaningful? Because the end makers are saying 20% big growth or a little bit lower. How about your overall the product volume growth?

Yes, sir. Yes, sir, yeah. Uh, just a very, very quick question. Second, Corel results—very good. Uh, 6.35% revenue is more price increase driven, right, rather than any meaningful volume increase, Q-o-Q? But with growth as a base—with growth and, of course, price, we grow.

Khein-Seng Pua: No. Product volume actually declining.

K.S. Pua: No. Product volume actually declining.

Yeah, yeah. So another question is your volume growth trend in terms of the bit, how it can be meaningful, because in the energy makers, they are saying 20%—because we're a little bit lower. How about your overall products?

Simon Wu: Declining.

Simon Woo: Declining.

Khein-Seng Pua: Actually declining. No, depends on consumer decline almost to nothing. You have to be clarified, don't misunderstand. Okay? And the price module increased because we have nothing last year. Controllers increased.

K.S. Pua: Actually declining. No, depends on consumer decline almost to nothing. You have to be clarified, don't misunderstand. Okay? And the price module increased because we have nothing last year. Controllers increased.

No product volume, actually declining, declining, declining now. No, depends on consumer decline. Almost to nothing. Okay, you have to clarify? No, no misunderstanding. Okay, enterprise module will increase because we had nothing last year.

Simon Wu: Yes, so all combined together, your big growth, Phison only growth.

Simon Woo: Yes, so all combined together, your big growth, Phison only growth.

Controllers increase, yes. So, all combined together, your big growth.

Khein-Seng Pua: Controller unit increase, SR5 increase.

K.S. Pua: Controller unit increase, SR5 increase.

Simon Wu: Mm-hmm.

Simon Woo: Mm-hmm.

5-unit increase. It's about increase.

Khein-Seng Pua: Yeah。

K.S. Pua: Yeah.

Simon Wu: So maybe Q3, September quarter, December quarter visibility, I mean the growth momentum still based on your blended ASP upside.

Simon Woo: So maybe Q3, September quarter, December quarter visibility, I mean the growth momentum still based on your blended ASP upside.

Khein-Seng Pua: Demand is there strong, but again, I think I need to keep repeat. I have to manage my inventory. Why? If I design in one program for 24 months, I have to make sure I can supply. I cannot sell components tomorrow. If I sell, I am not able to buy back next year, I die, because the CSP will kill me.

K.S. Pua: Demand is there strong, but again, I think I need to keep repeat. I have to manage my inventory. Why? If I design in one program for 24 months, I have to make sure I can supply. I cannot sell components tomorrow. If I sell, I am not able to buy back next year, I die, because the CSP will kill me.

Auto quarter, September quarter, December quarter visibility—I mean, the gross momentum is still based on your blended ASP side.

Simon Wu: Okay. Sorry, one last question from some investors. They are asking this, ECB issuance already done, but you are saying inventory is still not enough. That means additional funding needed or you have enough cash to build up the further inventories? Sir, thank you.

Simon Woo: Okay. Sorry, one last question from some investors. They are asking this, ECB issuance already done, but you are saying inventory is still not enough. That means additional funding needed or you have enough cash to build up the further inventories? Sir, thank you.

Uh, demand is very strong but again, I think I need to keep repeat. I have to manage my inventory. Why if I design in 1 program for 24 months, I have to make sure I can supply. I can't sell components tomorrow. If I sell, I'm not able to buy back next year. I die because the CSU will kill me.

Okay, okay. Oh, sorry. One last question from some investors. They are asking, this ECV issuance is already done, but you are saying inventory is still not enough. That means additional funding is needed, or you have enough cash?

Khein-Seng Pua: Okay. by end of March, Phison has a big debt from bank. By July, we pay back almost everything. Now we have no debt.

K.S. Pua: Okay. by end of March, Phison has a big debt from bank. By July, we pay back almost everything. Now we have no debt.

Simon Wu: No debt.

Simon Woo: No debt.

Khein-Seng Pua: Very healthy. So what does that mean? It means coming six months, if I need to get cash, I can use bank. But if business keeps going strong H2 next year, yes, I need to raise fund.

K.S. Pua: Very healthy. So what does that mean? It means coming six months, if I need to get cash, I can use bank. But if business keeps going strong H2 next year, yes, I need to raise fund.

Uh, to build up further for the inventories, sir. Thank you. Okay. Bye. End of March 5th has a big, big table from bank. By July, we pay back almost everything. Now, we have a not, not that very healthy. So means what? I mean, coming 6 months if I need to...

Get cash. I can use the bank.

But if business keeps going strong, second half next year,

Yes, I need to respond.

Simon Wu: Okay. All clear, sir. And we appreciate your valuable time today. And congrats, great result. Thank you, sir.

Simon Woo: Okay. All clear, sir. And we appreciate your valuable time today. And congrats, great result. Thank you, sir.

Khein-Seng Pua: Thank you。Okay, since still 160 here, I want to 我用中文跟各位再做个简单报告。公司状况我想这个不多说了，都这样子的。研发的费用确实是高，但是为什么要高？因为美国公司来台湾挖人，我们培养好工程师如果没有办法留得住，对公司长期是损害。那现在反过头看，谁有能力留得住？所以我们的研发费用会强力地把好人才留下来，确保我们有更多新的生意可以顺势拿到。我们同时也用了大量的AI工具，自己开发的。我的政策是在整个IC跟产品设计上面已经不再找太多新人了，基本上就是用旧人配上AI，提升效率，倍数地成长，费用不再增加，创造更好的营收跟获利。有加的人部分绝对都在AI的这个开发生意的等等的，刚刚看到下次quarter我要好好地跟各位表述我们在做什么事。那对于股东的期待，当然有两种声音，一种说我就想要55%。那董事会也在辩论55%我们发出去，银行要来借钱经营，让公司因为资金不足，成长动能有限。大部分股东是说我们应该让公司继续成长。另外再表述一下，我们一年分两次，上半年还有个下半年，如果我们下半年有更好的获利，现金流更强，我们再评估下半年。因为这个股息是讲股东会是一整年。所以我们期待有更好的一个现金流，下半年看看有没有机会把比例增高。但是这不是承诺，要看明年的整体的这个市况。但是基本的一个依据，就是我们希望整年的，based on我们董事会的这个殖利率，我们基本上还是希望可以看到有5%，这是大部分股东的需求。更多的良性股东希望公司不要配太多股息，他希望公司把钱留着，让公司可以更好地成长。最后我要表述的是，群联电子这段时间会转型成快速成长的一个企业，而不是一个稳定获利配股息的企业。我认为这是这辈子只有一次的机会，我们要趁这个机会抓住快速地成长，然后在这个产业里面把最大的生意把它吃下来。刚刚投资人也提到说我们的竞争对手也去弄ECB找钱，这个只是呼应认可群联电子讲的IC很难赚钱，burn out发生了模组。但模组马上分析，还是在讲说毛利率，这个我们都经历过了。所以刚进来的做模组，毛利率不用太久，你们等着看吧，好不好？以上是跟各位台湾的朋友做个说明，也希望大家可以理解，我们的目的就是希望群联电子长长久久、稳稳定定一直地成长。谢谢各位。So I think we run out 10 minutes。

K.S. Pua: Thank you. Okay, since still 160 here, I want to [Foreign language]. So I think we run out 10 minutes.

Okay, all clear, sir, and we appreciate your, you know, valuable time today. And congrats, great result. Thank you, sir. Thank you. And okay, uh, since 2060 here, I want to...

Get.

For.

Astoria Chen: Yeah。

Astoria Chen: Yeah.

Khein-Seng Pua: If no any question, I think we can end up, or in case, because still all day say, if you have any question, you ask, I answer, okay?

K.S. Pua: If no any question, I think we can end up, or in case, because still all day say, if you have any question, you ask, I answer, okay?

Astoria Chen: Yeah. Thank you, Khein-Seng. As we are running out of time, so we will conclude the call. Thank you, Khein-Seng, for your time today, and thank you everyone for joining us.

So I think we run out 10 minutes, so if not any question I think we can end up all in case because uh, still all day. If you have any question, you ask I answer, okay.

Thank you, everyone, for joining us.

Khein-Seng Pua: 感谢各位，thank you。谢谢。

K.S. Pua: [Foreign language]，thank you. [Foreign language].

Okay, thank you.

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