Silicon Motion Q2 2025 Earnings Call - Product-led ramp puts company on track for $1B revenue run rate

Conference Operator: Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation’s Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. This conference call contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.

Such forward looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial condition and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends, and our results may differ materially from those expressed or implied in these forward looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices unpredictable changes in technology and consumer demand for multimedia consumer electronics the state of and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan. For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission.

We assume no obligation to update any forward looking statements, which apply only as of the date of this conference call. Please be advised that today’s call is being recorded. I would now like to hand the conference over to Mr. Tom Sefanzis, Senior Director of IR and Strategy. Thank you.

Please go ahead.

Tom Sefanzis, Senior Director of IR and Strategy, Silicon Motion: Good morning, everyone, and welcome to Silicon Motion’s second quarter twenty twenty five financial results conference call and webcast. Joining me today is Wallace Kho, our President and CEO and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments and then Jason will discuss our second quarter results and outlook. Following our prepared remarks, we will conclude with a Q and A session. Before we get started, I would like to remind you of our Safe Harbor policy, which was read at the start

Wallace Kho, President and CEO, Silicon Motion: of this call. For a

Tom Sefanzis, Senior Director of IR and Strategy, Silicon Motion: comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U. S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form six ks after the close of market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time.

To enhance investors’ understanding of our ongoing economic performance, we will discuss non GAAP information during this call. We use non GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call.

With that, I will turn

Wallace Kho, President and CEO, Silicon Motion: the call over to Wallace. Thank you, Tom. Hello, everyone, and thank you for joining us today. I’m pleased to report that we exceeded our revenue and the operational margin guidance for the second quarter that we further benefited from the introduction of new controller that drive higher market share and our continuing expansion and growth into new markets. As we further scale and shift to high end UFS PCIe controllers and then grow our automotive and mount titan products in second half of this year.

We expect our revenue growth to remain strong and profitability to further improve. We are excited by the progress and foundation of growth we are building. And based on our backlog, diversification strategy and design win momentum, we are well positioned for a strong second half and remain confident that we will exit the year as our target $1,000,000,000 revenue run rate. Let me start by discussing our view of a broader NAND flash environment and how it’s positively affecting our business today and opening new opportunity longer term as well. The NAND industry experienced improvement in the second quarter with flash prices increasing as the inventory level in the PC and smartphone market declined further, given the modestly better demand environment.

Enterprise storage demand remained strong in the quarter with AI expanding into nearly every industry. NAND flash makers have reduced capital expenditures for big growth and continue to increase prices as enterprise and AI growth are limiting NAND supply. Our module maker partner continue to build inventory ahead with an expected increase in NAND prices in the 2025. We will remain flexible and are very and as well positioned with both NAND flash maker and module maker to fulfill their growing requirement. With NAND price that is expected to increase, demand for more cost effective QLC NAND expanding in client SSD, smartphone and enterprise storage, increasing QLC production is a lower cost way to rapidly growing big growth for flash maker, while our QLC based solution deliver high density storage at a significantly lower cost.

We are the only controller company partnered with all flash makers, giving us significant advantage and insight into current and future NAND technologies. We believe these partnerships and our unmatched experience in managing QRC NAND will allow us to maintain our industry leadership and drive long term sustainable revenue and earning growth for many years. In addition, the demand for memory and storage solution expanding to new end markets in consumer, commercial, industrial, automotive and enterprise. Memory makers are constrained in where they allocate RD resources and capital resource between NAND, HPN and DRAM. The demand from each of these markets continue to rise and new generation of NAND evolves, the need for next generation controller for these different application expanding.

Our fashion maker partners are turning to Silicon Motion as their primary merchant supplier to help build comprehensive portfolios, expanding our market share and building the foundation for strong multiyear growth with an increasingly diversified range of products in end markets. Now let me share some update for each of our business segments beginning with EMC and UFS. Our mobile business significantly outperformed our expectation in the second quarter as we benefited from several positive trend for our EMC and UFS controllers. We continue to see strong booking momentum from both flash maker and module maker customers entering the second half of the year. Module maker in particular are experiencing strong growth in mobile as they are benefiting from the trend toward discrete eMMC and UFS solution, driven by the increasing of their ability of low cost mobile DRAM.

Flash maker have also adopted our controller as they continue to embrace outsourcing to stay competitive, improve their time to market and prioritize their own internal R and D resources for other technologies and end markets. Our family of user controller for smartphone and other mobile and IoT devices grew meaningfully in the quarter as demand from both our flash maker and module maker customer accelerated, driven by strong end market demand. The increasing share of UFS in smartphone is driving stronger demand for our new high ASP UFS controller in mainstream and high end devices. In addition, our new engagement with handset OEMs for PLC UFS solution are also expanding and diversifying our market penetration. We expect this trend to continue in the second half of this year.

For eMMC, our increasing share and robust demand in the quarter also delivered strong sequential growth for our controllers. Demand is accelerating in multiple existing and emerging market, including IoT, smartwatches, smart TV, set top box and emerging consumer products such as AI glasses. The market for eMMC account for over 800,000,000 units per year and the non smartphone account for much of this market. We believe our eMMC business will remain a strong contributor for many years to come, but these additional markets further scale. Now I would like to move on to our SSD business.

The PC market appeared to be bottomed out in the 2025 and stabilized in the second quarter. We believe that market will grow in the low single digit in 2025 And we are expecting a stronger second half given typically seasonality, which benefited from the back to school and holiday sales. This year, we’ll also see further benefit from some setting of Windows 10 in October And we are beginning to see more widespread adoption of AI as a edge in consumer and commercial PC, which is increasing demand of higher performance solution, including SSD powered by our PCIe PHY controllers. As we have discussed previously, we expect to drive significant market share gains in client SSD over the next few years, especially in the high end, driven by our leading position in PCIe five. Sales of our eight channel controller launched in December continued to grow quickly in the second quarter, increasing by more than 75% sequentially and already account for more than 10% of our client SSD controller revenue, driven by strong share gains and higher ASP.

We expect additional momentum with our PCIe five controllers throughout this year as OEM increased sales at the high end. Additionally, we will start initial ramp of our four channel DRAM less PCIe five controller at the end of this year and have already won design with four of six flash makers and nearly all the module makers. This new controller we’re talking to a broader segment of PC and aftermarket SSD sales. And we believe that this introduction will help us achieve 40% of the SSD market by 2028, up from 30% today. I will now provide an update to our automotive and other business.

As I mentioned earlier, we continue to experience tremendous design win activity in our automotive segment. Vehicle capacity is increasing with a growing demand of high speed and low latency storage. We support the motor storage need across nearly all our product lines, including PCIe, EMSC, UFS and increasingly. Our FerriInvest solution, we were the first company to achieve a SPI level three certification for our PCIe four solution and we are on track to tape out our new automotive PCIe five controller in 2026. Demand of more storage solution is increasing in conventional cars as well as with next generation electrical vehicle makers.

Our controller power increased storage density, speed and reliability for diverse and including smart cockpits, data sensors, cameras, navigation and other vacation. We’re now seeing increased demand for storage solution to support AI and multi screen integration to help automaker drive differentiation and customer loyalty. We are currently shipping to many of the largest automotive brand in the business including Mercedes, Tesla, BYD, Xiaomi, Toyota, Honda and many others. So as we enter the second half, we are seeing greater than expected demand from our partners in China as brands are successfully taking worldwide market share for low cost automobiles and leading electrical vehicles. Given the strength in China and increasing design win activity globally, we are increasingly confident that automotive will account for at least 10% of our revenue by 2026 to 2027.

During the second quarter, we also experienced strong growth in our memory card business due to the highly successful launch of Nintendo Switch two. We started ramping with the leading South Korea flash maker with direct attach to the Switch two games as well as partnering with leading brands like ADATA and loans for retail expandable storage with PCIe SSD level performance in a micro SD form factor. For the 2025, our memory card revenue more than doubled year over year and we expect to see continued success in the second half of the year as the switch to demand remain robust and as we enter the holiday season. The SM270A delivered the high density, high speed required by modern portable gaming devices and we are pursuing other opportunity with this exceptional controller to drive diversified long term growth. Finally, I would like to provide highlights on our enterprise business.

Both memory and storage needs are evolving rapidly in AI era and the opportunity for Silicon Motion are expanding. AI application requires a set of data more quickly, driving increased adoption of SSD throughout the data center. The current infrastructure comprised high performance memory, near GPU storage, compute storage, warm storage and cold storage. Our montitan platform is ideally suited to manage high density, high performance SSD that are both cost effective and power efficient to serve the warm storage market with our leading controller when paired with the QLC NAND. So, warm storage market has traditionally been served by HDD, but storage performance requirements have increased due to AI application and the price disparity between HDD and QLC SSD converge.

We expect more hyperscalers and CSTs will adopt high capacity QLC, ESD for warm storage, while new light HDD move to support growing cold storage need. Recently, we have been receiving interest from customers to expand beyond warm storage into compute storage market with our montitan. The new product will pair montitan with up to 16 terabyte of TLC NAND to target the high performance near CPU market and represent an exciting new opportunity for Mount Titan. Longer term, we are also beginning to work with our industry and the flash maker partner to support the development of a new JIDA standard for new line flash that will likely come to market in the next three to five years to further drive adoption of SD in one storage application, especially as a need to access more data, more quickly grow with AI. The new line of flash requirement will allow for more relaxed sophistication for QLC with lower cost driven by higher yield.

This should drive even greater adoption of QLC NAND in WAN storage and by extension, show create a bigger market opportunity for Mt. Titan. At the upcoming FMS conference next week, we will be co hosting a demo with the vast data to demonstrate how our Mount Titan SD can deliver a compelling solution for the insatiable growth in AI application. The collaboration will showcase the vast data storage class memory or SCM for its new CERES V2 platform. CERES V2 leverage NVIDIA BlueField three GPU platform for AI storage.

The CERES intelligent storage platform is used by system integrator and architects and deploy at hundreds of large enterprise around the world, including banks, data centers, retailers, multinational conglomerate and other leading companies that are leveraging or developing AI application. We invite you to join us at SMS to see how our monetization solution will drive the next wave of AI solution for the next several years. In conclusion, the 2025 has delivered a significant rebound in our business and we are beginning to see return on the investment we have made over the past few years. This include our leading signal meter product, our new UFS and PCIe PHY controllers, our new Mount Titan ESP and the Boost Storage solutions, our market leading automotive portfolio and our new micro SD product for multiple application including Nintendo Switch two. We’re in a better position to expand our market share across each of our markets in 2025 than ever before, but we continue to capture additional share with the flash maker across our product portfolio.

Given the current customer demand in our legacy business and the growing success with our new product, I’m increasingly confident that we will achieve our goal of exiting 2025 at a $1,000,000,000 revenue run rate and grow further in 2026. Now let me turn the call over to Jason to go over our financial results and outlook.

Jason Tsai, CFO, Silicon Motion: Thank you, Wallace, and good morning, everyone, for joining us today. I will discuss additional details of our second quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non GAAP results unless specifically noted. A reconciliation of our GAAP to non GAAP data is included with the earnings release issued yesterday. In the June, sales increased 19.3% sequentially to $198,700,000 coming in well above the high end of our guided range as we experienced a strong rebound in mobile demand and strong growth in our PCIe five client SSD business.

Gross margin was at the higher end of our guidance range and increased again in the quarter to 47.7% as we continue to capitalize on new product introductions and improving mix. Operating expenses increased sequentially to $69,300,000 as we continue to invest in new enterprise storage products and as additional resources to support our significant pipeline of new projects. Higher operating expenses in the second quarter were also impacted by the stronger Taiwan dollar as most of our compensation expenses are paid in Taiwan dollar. Operating margin increased sequentially to 12.8%, well above our guided range, resulting from improved gross margins and higher than expected revenues during the quarter. Our earnings per ADS was $0.69 Total stock based compensation, which we exclude from non GAAP results, was $200,000 in the second quarter.

We had $282,300,000 cash, cash equivalents and restricted cash at the end of the second quarter compared to $331,700,000 at the end of the 2025. Cash declined in the second quarter primarily from the combination of the dividend payout of $16,700,000 and an increase in inventory to support our expected strong business ramp. We did not repurchase any shares in the second quarter. Our team executed well and delivered significant outperformance despite ongoing global macro uncertainty and continuing investments in new advanced geometry products and our MOUNTAIN platform for the enterprise and AI markets. Now I’ll discuss our third quarter outlook.

Revenue is expected to increase 10% to 15% to $219,000,000 to $228,000,000 driven by growth across all segments of our business as newer products continue to ramp in PCIe five, UFS, eMMC and the enterprise. Gross margins are expected to be in the range of 48% to 49% as we continue to transition customers to newer platforms and we’ll return back to our historical range. Operating margin is expected to be in the range of 12.3 to 14.3% as we benefit from higher revenue and gross margins, partially offset by higher operating expenses from higher R and D development and headcount expense and the continuing strength of the Taiwan dollar. Our effective tax rate is expected to be approximately 18%. Stock based compensation, dispute related expenses are expected to be in the range of 6,500,000.0 to $7,500,000 For the full year, PC and smartphone growth targets remain in the low to mid single digit range with an above average second half weighting.

We believe that our business will reflect the broader industry with significant growth expected in the second half, driven by the strong ramp of new products and project wins. We continue to target an annual revenue run rate of approximately $1,000,000,000 as we exit the year. We expect to continue to improve gross margins as new products scale and our enterprise business begins to ramp in the second half of the year. We remain confident that we can drive gross margins towards the higher end of the historical range of 48% to 50% by the end of this year. Our pipeline of new design wins continues to grow and we’re committed to investing in next generation advanced geometry products that allow us to enhance our market share and business long term and help us diversify our product portfolio and enter new markets.

We will also continue to add additional R and D resources to address the growing range of customer projects that will drive long term growth. Despite these higher investments, we’re confident that we can return to our historical operating margin range of 25% plus in the mid term as investments we have made over the past eighteen months begin to scale and drive stronger revenue growth, better gross profitability and improve our operating profit. Our overall tax rate is expected to be approximately 15% for the full year and stock based comp and dispute related expenses will be in the range of 32,000,000 to 34,000,000 As we enter the second half, our pipeline of new projects continues to build and position us for strong growth for the rest of this year and into 2026 and beyond. The investments we have made in client SSD and eMMC and UFS controllers are beginning to scale, driving better ASPs and higher margins. Momentum behind our enterprise business driven by strong progress in our Montitan development and expanding opportunities in enterprise boot drives will deliver a new avenue of high margin growth for the company longer term.

We’re confident that our leading controller products paired with our unmatched customer relationships with all the flash makers and virtually every module maker will drive significant long term revenue and profitability growth for the company. This concludes our prepared remarks. We’ll now open the call to questions from the investment community. Operator, please go ahead with the first question.

Conference Operator: Thank you. Our first question comes from Craig Ellis from B. Riley Securities. Congratulations

Craig Ellis, Analyst, B. Riley Securities: on a very strong quarter of execution and the momentum you have here at Indira. I wanted to start with a clarification question on some of your operating expense comments, Jason. So we’ve all seen that there’s been exchange rate fluctuations at unusual degrees as we’ve gone through the last three months and with where we stand here early in the third quarter. I’m wondering if you can quantify what the New Taiwan dollar exchange impact was to 2Q and 3Q expenses versus the impact of some of the growth related R and D expenses that you also talked about, just to help us calibrate the currency dynamic in the middle of the income statement?

Jason Tsai, CFO, Silicon Motion: Yes. The equity dollar strengthened meaningfully and quickly in the second quarter and it was up by over 10% sequentially. So while our revenue, cost of goods sold and most of our development costs are all denominated in U. S. Dollars, our compensation is primarily denominated in Taiwan dollars given that the majority of our employees are based here in Taiwan.

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

Craig Ellis, Analyst, B. Riley Securities: That’s really helpful. Thank you. And yes, absolutely. The second question is for Wallace. Wallace, you’re clearly seeing robust engagement on the enterprise side of the business.

And I’m hoping what you can do is talk about, this year’s exit momentum along three parameters, with respect to enterprise one. What’s happening with the initial customer ramps with MonTitan two. Can you update us on the status of the NVIDIA BlueField DPU program and what you’d expect there exiting the fourth quarter? And then we’ve just seen great engagement from the supply chain pulling in your PCIe Gen five controllers into, lower end, more efficient, AI related scale scale up, scale out configurations? Just help us understand what you see there and what all that means as we look to 2026.

Thank you.

Wallace Kho, President and CEO, Silicon Motion: Okay. Let me address the Mt. Titan status. I think the Mt. Titan’s design momentum is very strong.

Now we believe we’re going to start to initial ramp in the fourth quarter and we’re more meaningful than strong momentum in 2026. So we have four two Tier one customer for other designs. Actually, we have more coming, but we just don’t have enough resource to supply. The most important is the number of customers because each of customer need some custom made tailored firmware to fit certain category and workload. So we are focused on deliver the robust finalized firmware and expect to production in late this year.

So I think the momentum is coming, but also with both QLC high capacity enterprise SSD as well as the TLC base for compute storage. Now let me address to the NVIDIA Bluefield. See NVIDIA qualification is the final stage. We believe we’ll enter production in the Q4. Actually frankly, the solution we have controller and the firmware we have have been with NVIDIA in the past two years with other NAND maker, which is we cannot say.

So this is a transition naturally winning with our own solution with a different NAND type to supply for the long term. But we believe that helping us to grow in 2026 and 2027. In addition, they also opened the door for us to engage with NVIDIA in other BU and other product line. So this is very great for us to be in the NVIDIA supply chain and hopefully that will expand much more opportunity in the future.

Gokul Hariharan, Analyst, JPMorgan: And then Wallace?

Conference Operator: Beg your pardon. Allow me to move on to the next questions from Mehdi Hosseini from SIG. Please go ahead.

Mehdi Hosseini, Analyst, SIG: Yes, thanks for taking my question. The first one for Wallace. Congrats on increasing the annual revenue run rate. I see there’s about a $55,000,000 of incremental revenue increase from Q4 twenty twenty four to Q4 twenty twenty five. And I’m assuming that the majority of this is driven by the new PCIe projects.

As I look into next year, let’s say ’26, this is where I think Bluefin is gonna kick in and add incremental revenue. So you have a baseline of q four twenty four, and then you overlay 55,000,000 of the new products, especially driven by storage, And then the blueprint would drive or sustain that growth into 2026. Am I thinking about this transition the right way and feel free to modify that and improve that thought process?

Jason Tsai, CFO, Silicon Motion: Think Mehdi, it’s Jason here. In terms of your comparison between Q4 twenty twenty four and Q4 twenty twenty five, that incremental revenue that we’re talking about here is a result of really strength across the board, increasing share, new products in eMMC and UFS, increasing share of new products in PCI especially in PCIe five for SSDs and then the initial ramp of the Montitan products as well as the initial ramp of Bluefield. Now we haven’t guided into 2026, so you’ll have to bear with us for a little bit. So I’m not going to comment on kind of how this goes into 2026. But certainly, we still expect to be achieving that 5% to 10% revenue run rate with Mont Titan in that twenty twenty six, twenty seven timeframe.

Nothing’s changed there. And certainly, the strength that we’re building, the designs we’ve won, the pipeline that we have to support growth longer term continues to get stronger and stronger each day.

Wallace Kho, President and CEO, Silicon Motion: So I think let me add a comment. We have very strong backlog in the 2025. That’s why we are confident to reach our financial goal.

Mehdi Hosseini, Analyst, SIG: Okay. And then moving on to OpEx, there’s a significant step up in ’25, as Jason highlighted, investment for future. Should I expect OpEx intensity to decline into 26% as the new product ramp and this is going to give you some OpEx leverage?

Jason Tsai, CFO, Silicon Motion: We certainly expect to see operating margin leverage as our gross margins improve and our revenue scales. We will continue to invest. As Wallace pointed out, we have a number of new projects that we actually don’t even have enough resources today to support that we have to turn away. We will continue to invest. We will continue to hire.

We have a number of new projects that we’re going to be taping out next year, especially in the enterprise and some of the more advanced geometry. So these are things that we’ll continue to invest in longer term. But we believe you’ll see operating margin leverage. A lot of the investments that we had made over the last two years are now just starting to come to market and they haven’t scaled. So that should drive a significant amount of operating margin leverage going into next year as well.

Mehdi Hosseini, Analyst, SIG: Okay. Thank you.

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

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

Wallace Kho, President and CEO, Silicon Motion: Yes. I think that it really depends upon our mix and depend on which quarter. For certain product, because it’s a high volume, I think the margin is a little below our corporate average, but some high end product definitely margin is better. So but I think we cannot just I cannot comment right now. We were above the upside of our guidance margin, but definitely will meet our gross margin.

And I think we should have a better result in 2026.

Suji Desilva, Analyst, ROTH Capital: Okay. That’s helpful. Thanks. And then on the Montitan firmware efforts and the customer efforts in the R and D you’re investing. Jason, is there a point in time where you think you get on top of that?

Or is that going to be a persistent challenge of sort of having to turn away programs? Or is there some kind of leverage after you do a few of these that you can kind of pull that forward?

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

Suji Desilva, Analyst, ROTH Capital: Okay. Alright. Thanks, guys.

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

Gokul Hariharan, Analyst, JPMorgan: Yeah. Hi. Thanks for taking my question. Wallace, the first question is, you seem to be sounding a lot more optimistic about the automotive engagement compared to maybe two quarters back. Could we talk a little bit about what is the incremental margin profile when it comes to automotive, both for gross margins as well as operating margins, given a lot of the r and d is fairly similar to what you do for client SSD controllers or client EMMC controllers.

Right? So is there a meaningful operating leverage that we should expect, as automotive starts to scale given it kind of just expands the scope of your revenue base, on similar r and d? Second, question, is on enterprise. Could you talk a little bit more about the roadmap for MonTitan? I think what are we thinking about for future engagement like the next generation of MonTitan?

What are you planning in terms of the roadmap?

Wallace Kho, President and CEO, Silicon Motion: All right. Good. Let me try to address automotive business. We feel more positive about our automotive business from second quarter and moving to 2025 because it’s through our design win pipeline and we also had a significant breakthrough in China automotive market. As you know very well, China automotive is very bloody and price very competitive.

I think we find a very special way to position our value proposition to the leading customer like BYD and Xiaomi and several others. That’s why we build a tremendous new pipeline and moving to production from late twenty twenty five to 2026. And our major programming Toyota global model also start to ramp by late twenty twenty five. That’s why we have a very, very strong momentum in our automotive business. We are confident we’ll be above 10% of our total revenue from 26% to ’27 Now let me comment about enterprise and regarding the plan and road map.

Our monetization today is 16 channel, the PXI Gen five controller with performance shaping technology. We also developed tape out six or eight channel mount titan called eight thousand three and eighty eight and the product will be available by end of this year. And as you I don’t know whether you say, you know very well, The U. S. Have demand high capacity of enterprise SSD from 128 terabyte and some even ask for two fifty six terabyte.

But China also started a new momentum asking for 64 terabyte from latest year to 2026. So our eight channel lower cost one titan, which is perfectly fitting the demand and provide decent performance as well as high capacity up to 128 terabyte. And we also would develop our PCIe Gen six from Titan family with TSMC four nanometer. We’ll take out next year and this we are engaged with at least two NAND makers in this program. So this is a very, very exciting.

We’re very busy. We’ll build a design pipeline. We believe monetizing will continue around and they’re driving much bigger momentum beyond 2627.

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

Wallace Kho, President and CEO, Silicon Motion: No. The data storage today, primarily really one storage, some of the compute storage conventional server. I think for cold storage really is the conventional nearline GDD. And but I think the Samsung led the association with the nearline flash and promote to JED as a standard. That’s a very, very interesting to drive a lower cost QLC based enterprise D to expand one data storage for SSD.

I think we’re definitely willing to see that and we absolutely will put a good effort to engage with that trend because that’s a huge potential for the NAND maker and data center for enterprise SSD opportunity.

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

Wallace Kho, President and CEO, Silicon Motion: I think all NAND makers are working together and looking for how to define the right spec and definitely the purpose that the performance has to be a little better than nearline GDD. And so they can relax the spec and make sure the performance meet AI application in the warm data storage. But time frame, as I said, about three to five years range.

Gokul Hariharan, Analyst, JPMorgan: Okay. Thank you.

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

Speaker 4: Thanks for taking my questions this morning. I just have one. So if I look at your target of 25% plus operating margins and I work off kind of current OpEx levels, even if I assume gross margins move up into the 50, 51% range. So at historical, a little bit of run rate of $300,000,000 and that goes higher if OpEx continues to increase, which I think you’re suggesting it will because

Tom Sefanzis, Senior Director of IR and Strategy, Silicon Motion: Hey, Matt. You’re breaking up. We can’t hear you. Oh.

Speaker 4: Let me is this better?

Wallace Kho, President and CEO, Silicon Motion: No.

Speaker 4: I will jump out and try dialing in again.

Wallace Kho, President and CEO, Silicon Motion: Thank you. Okay. Let me answer your previous first question. I think that definitely we have a higher operation expense because we increased R and D and also we have a six nanometer tape out. Actually, we also have a four nanometer with the six nanometer table.

So operating expense probably will increase slightly. But when we grow strongly in the top line of our revenue, you will they will help much faster for our operation margin. And so we definitely looking forward to move back to twenty percent, 25% margin in 2020, 2026% and you will see even better margin moving to 2027%.

Speaker 4: Thanks, Wallace. I’m sorry

Mehdi Hosseini, Analyst, SIG: for the technical difficulties on my end.

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

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

Wallace Kho, President and CEO, Silicon Motion: Okay. I think that it’s a very good question. We have a very specific strategy to grow our mobile controller for both EMC and UFS. So of course, the China market and because the affordable low cost mobile DRAM are variable, that’s why most of us smartphone maker, they like to adopt discrete EMC or UFS. They help the module maker customer to expand quickly.

And that’s why when they expand quickly, I think that also will impact some NAND maker for the value line. So NAND maker for NAND maker also turn to second motion controller because they do not want to develop in house that will utilize our solution quickly to the market and you can either sell the wafer to module maker or make a lower cost solution to come in the market. That’s why we grow very quickly for the value line and the mainstream for both EMC and UFS. In addition, we see the dynamic also looking for next generation. For example, UFS 4.1 is in high end, but UFS five point zero will move into the high end by late twenty twenty six and 2027.

So the 4.1 become mainstream. So the NAND makers, they don’t have enough resource to develop a new firmware to port into the new NAND. So they have come to also into third party and SMI in the right position to capture the outsourcing opportunity. So all of this pipeline together continue, you’ll see so many opportunities. Actually, we have so many projects in hand, we don’t have a resource to take.

This is what we see the momentum. And we definitely see we’re growing the market share in the mobile. And hopefully, you can reach 30% within two years.

Nick Doyle, Analyst, Needham and Co: Okay. Thanks. And if I understand correctly, it sounds a bit like this transition to the 4.1 in the mainstream could help the sustainability into next year. Maybe also asking a bit of a different way. I mean, you talked about the module maker inventory and how they’re pulling in orders almost fear of price hikes later in the year.

I mean, how did their inventories compare to historical? Does that make you nervous at all in terms of the future mobile business? Thanks.

Wallace Kho, President and CEO, Silicon Motion: We really don’t see I think our customer in early Q2, some of worry about their tariff, but later it’s stabilized. Really, don’t see many customers pulling the demand. As you know, any customer, if they don’t buy that many NAND, they won’t buy controller for inventory, right? So really they will see the balance. Most of us really plan ahead and make sure they also can prepare the NAND price increase.

And I think that’s why we see the very stable pipeline because we can see six months backlog right now. That’s why we’re very confident about what we can achieve the $1,000,000,000 run rate by year end.

Conference Operator: Thank you for the questions. At this time, we appear to have no more further questions. I’d like to hand the call back to the management for closing.

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

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