Silicon Motion Technology CORP Q2 FY2021 Earnings Call

Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation’s Second Quarter 2021 Earnings Conference Call. And please be advised that today’s conference is being recorded. And 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 limitations, 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.

Thank you, Annie. Good morning, everyone, and welcome to Silicon Motion’s second quarter 2021 financial results conference call and webcast. As Annie mentioned, my name is Chris Chaney, I'm the Director of Investor Relations. Joining me today on this call are Wallace Kou, our President and CEO; and Riyadh Lai, our CFO. Following my comments, Wallace will provide a review of our key business developments, and then Riyadh will discuss our second quarter results and our outlook. And then we’ll conclude with a question-and-answer period. Before we get started, I would like to remind you of our safe harbor policy, which Annie just read at the start of the call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. SEC. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. 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 similar to how we analyze our own operating results. The reconciliation of 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.

Thank you, Chris. Hello, everyone, and thank you for joining us today. In the second quarter, we delivered another quarter of record sales and earnings. Revenue grew 21% sequentially to a record $221 million and earnings per ADS for a record $1.50. Sales of SSD controllers and eMMC+UFS controllers grew in the second quarter and both achieved record quarterly sales. We delivered better-than-expected growth and profitability, primarily by upselling a richer mix of products, allocating more product to higher-margin accounts and, where possible, repricing product to cover higher manufacturing costs. Additionally, our operations team has been actively working with our contract manufacturers to tune back-end processes to improve manufacturing yield and lower costs. This four-pronged initiative of upselling a richer mix of products, optimizing product allocation, better pricing discipline and tuning manufacturing processes is critical for creating continued value-add growth and profitability when our manufacturing capacity this year is capped and manufacturing costs remain elevated. Based on the execution of these initiatives, we are now also expecting better gross margin for the rest of this year. Earlier this year, we had communicated our 2023 $1 billion sales objective and growth roadmap. We will likely achieve this target much earlier. Based on our latest sales projection, our annual run rate is expected to be already at least $1 billion by this year's fourth quarter. We expect sales to ultimately exceed $1 billion next year as we add meaningful incremental foundry capacity that has already been committed to us and from continued execution of our four-pronged initiative, which includes upselling a richer mix of products. Sales next year will include the rapid scaling of a higher value, high-volume PCIe Gen4 SSD controller. Our customers have also provided us with purchase orders for next year, and our order book today already exceeds $1.5 billion. Our strong order book is a result of many years of hard work and not due to last-minute opportunistic procurement audit of shelf parts by customers. We have been building our business pipeline for many years, leading to these purchase orders. Our OEM projects typically kick off one to three years before initial sales, depending on product capacity. Projects start with defining the OEM product features and customization requirements before hardware and firmware product development and end with product compatibility, performance verification, analysis, quality assurance and manufacturing support activities before we start to manufacture and sell our controllers. What is clear from our design wins and order book is that we have been gaining market share among some of our NAND flash and Tier 1 module maker customers. Several of our customers have been gaining market share in the SSD and UFS marketplace. SSD and UFS adoption continue to grow in PCs and smartphones, and our customers are actively using our controllers to develop storage solutions for new applications that include game consoles and automotive systems. Our order book runs through the full year 2022, and our pipeline of design wins includes delivery beyond 2022.

Thank you, Wallace, and good morning, everyone. I will discuss additional details of our second quarter results and then provide our guidance. My comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the second quarter, revenue reached a record $221 million, 21% higher sequentially and 62% higher year-over-year. Earnings per ADS were $1.50, 35% higher sequentially and 84% higher year-over-year. Now I will walk through the performance of our three key products during the first quarter. SSD controller sales increased 30% to 35% sequentially and 105% to 110% year-over-year. Growth was driven entirely by our PCIe Gen 3 SSD controllers, which are primarily for OEMs. eMMC+UFS controller sales also reached a record high, growing 10% to 15% sequentially and 25% to 30% year-over-year. Growth was driven by our UFS controllers. SSD solutions sales increased 35% to 40% sequentially and were down 15% to 20% year-over-year. Our Ferri products grew year-over-year, while our Shannon products declined sharply. Gross margin in the second quarter increased slightly to 51% from 50.7% in the prior quarter. As Wallace had discussed earlier, our better gross margin compared to guidance came from the execution of our four-pronged initiatives of upselling, a richer mix of products, optimizing product allocation, better pricing discipline and the tuning of manufacturing processes. Operating expenses in the second quarter were $48.4 million, $4.5 million higher than the prior quarter, primarily from higher compensation accruals. Operating margin in the second quarter was 29.2%, an increase from 26.6% in the first quarter and up significantly from 22.2% a year ago. Our 29.2% operating margin this quarter is higher than the 26% to 28% guidance due to stronger revenue growth and better gross margin, partially offset by higher operating expenses. We are delivering strong operating leverage and making good progress towards our 30% operating margin targets. Our effective tax rate in the second quarter was 18.6%, slightly lower than our 20% tax rate guidance. Stock-based compensation in our operating expense, which we exclude from our non-GAAP results, was $2.4 million in the second quarter, within our guidance of $2 million to $3 million. We had $412.3 million of cash, cash equivalents, restricted cash and short-term investments at the end of the second quarter compared to $371 million at the end of the first quarter. We paid $12.2 million in dividends to shareholders, the third quarterly installment of our $1.40 per ADS annual dividend that was announced last October.

First question comes from the line of Ariel of Needham and Company.

Yes. Thank you and congratulations on the great momentum that you’re seeing. When you’re indicating that your order book now points to $1.5 billion. I’m wondering if you could elaborate further on what you’re seeing within that order book. What’s driving the uptick in the growth? And then secondly, can you talk about your conversations with TSMC regarding capacity allocation next year, what have those conversations been like? How much capacity has been allocated to support those targets? Thank you.

I think regarding our order book, the $1.5 billion majority comes from OEM projects and some from the backlog we cannot ship this year. So we have a solid $1.5 billion. By the end of this year, we believe we should see it even much higher in our backlog. Regarding the discussion with TSMC, as everybody knows, TSMC has announced they see wafer allocation will continue through 2021 and into the entire 2022 because all the new investment probably will not contribute to mature technology until 2023. With the incremental company wafer supply, we have confidence to increase our sales revenue to grow in 2022 by a fair amount of percentage. However, we will continue to negotiate with TSMC and other foundry makers to increase wafer supply in order to meet the very large amount of demand from our worldwide customers.

With respect to the upside in gross margins that you’re seeing in the quarter. I’m wondering how sustainable that gross margin shift is. You mentioned in the press release a shift towards higher-value products, and you’re now able to increase prices. I think that’s a change from what you talked about before, where I believe the pricing was set in some of these contracts. So maybe you could talk a little bit about those two dynamics in terms of pricing and also in terms of a richer mix of higher-value products.

We feel very good about our current situation. With the rollout of the initiatives that Wallace pointed out earlier, focusing on upselling a richer mix of products, allocating more products to higher-margin accounts and, where possible, repricing products to cover our higher manufacturing costs. These are all initiatives that we’re already executing, and we’ll continue to execute throughout the rest of the year and into next year. So we feel very good about our gross margins at today’s levels, extending through this year and into next year. And possibly, if there are opportunities, we’d love to increase our gross margin even more than where we are indicating, but there’s a lot of work to do. And for what we’re doing right now, the gross margin guidance that we just discussed, those are numbers that we feel fairly comfortable about.

Next question is from the line of Anthony Stoss of Craig-Hallum.

Riyadh, probably for you. Can you give us a breakdown of your non-kind of notebook business? What percent of revenues that might be, the IoT bucket, if you will, what kind of growth rates you’re seeing? And then I had a follow-up after that.

So for the notebook products primarily related to eMMC+UFS, our SSD controllers are very PC-oriented. Now for the eMMC+UFS, they were about 25% to 30% of sales last year, and we expect this to inch up this year given the very strong growth. And within that bucket, a large part of it is smartphones, but we also have a lot of eMMC going into non-smart applications, which include smart TVs and other smart appliances. So these products are still growing, and we expect this part of the market to continue to grow modestly over the foreseeable future.

Okay. And then just as a follow-up, the question that I get asked most from investors, and increasing amounts recently, is about share buybacks. You have incredible visibility. You’re talking about an order book of over $1.5 billion heading into next year, with three years' worth of visibility. You have a stock trading at a discount to cash. It just astounds me and investors that you guys haven’t initiated share buybacks. So I’m hoping your Board has listened to this call, and I’d love to hear your thoughts on why you haven’t initiated a share buyback.

Tony, our primary means of returning capital to shareholders is from our dividend payments. Historically, we paid out to half of our free cash flow. Given our very strong operating performance and good visibility into 2022, it is likely that our Board during the next dividend declaration in October could consider a dividend higher than what we paid last year.

Next question is from the line of Craig Ellis of B. Riley Securities.

Congratulations on the very strong performance in the business. I wanted to start with a question for Wallace. And Wallace, what I want to do is pick up where I left off on the last quarter’s call, where I inquired about the trends you were seeing as more of your customers look to outsource eMMC controllers, and you lined up with a dominant share of the market like you talked about again today. The question is a little bit different, and it focuses on the SSD controller opportunities. Given the very robust outlook you have for PCIe Gen4, do you get the sense that more of the NAND OEMs are starting to outsource more of their controller work? And to the extent that they are, to what extent do you think you’re going to benefit or benefit disproportionately from such a move?

It’s a very good question. In general, we see NAND makers wanting to maximize the profitability of their NAND solutions. For eMMC, it’s very natural because eMMC, the maximum size is small. The maximum is 64 gigabytes. There are very few 120 gigabyte applications. We see a lot of even 32 gigabyte applications. So NAND makers also see the wafer supply constraint. So they move out the wafer variable to higher density solid products. That’s why we see tremendous demand for eMMC controllers at our company, a direct metric from NAND makers and our leading module makers, and we have much more than we can supply and support. However, we will continue the effort and try not to create industrial breakdown for eMMC solutions for many consumer electronic devices. For SSD, that’s another story. We do see NAND makers having a tendency to start to outsource mainstream and value line projects to third-party vendors like Silicon Motion. Because we have a strong track record and long history with all NAND makers, we become the default standard candidate to take the opportunity. Frankly speaking, today, we have more project opportunities than we can support. This is a very important moment. We’ll continue to grow and recruit talent and R&D to join us and continue to work on new projects to make them successful. It’s very important because the new generation of technology for NAND beyond one layer or even beyond 200 layers is critical for a controller maker to have deep knowledge and work closely with the NAND maker so we can provide sufficient compensation for NAND endurance and retention. This is very important, and we can work closely with NAND maker to deliver various profound solutions to the OEMs and consumers. This is a great opportunity. We see the trend will continue, and we are in a very favorable position to take all the outsourcing opportunities from NAND makers.

For my follow-up question, I wanted to flip it over to Riyadh. Very helpful framework that you’ve provided and that Wallace provided on the factors that are leading to higher gross margin. And Riyadh, my question is for the change in gross margin in the back half of the year that we’re seeing very significant improvement from prior expectations. What’s the relative contribution from each of the four factors that were mentioned? And as we look to calendar 2022, which of those factors has the greatest potential? And how significant would that be for further gross margin improvement?

Craig, the largest piece relates to our product mix, which includes our allocation of products towards higher-margin accounts. The initiatives relating to these moves have been the biggest driver in terms of contributing to higher gross margin. But that said, where possible, we also seek to reprice our products to better reflect the higher costs of our products that we’re seeing.

Our next question is from the line of Karl Ackerman of Cowen & Company.

This is Eddie for Karl Ackerman. I have a couple of questions. There have been reports that your largest foundry partner will increase 28-nanometer capacity from 40,000 to 100,000 wafers per month by the end of this year. While that should enable you to fulfill existing customer orders, have you seen any indication from NAND OEMs resourcing earlier decisions to outsource to next year as incremental capacity comes online?

I cannot comment for TSMC because they have their capacity guidance, and some factory expansion also relates to political issues, and we really have no insight, sorry. However, we do have many opportunities coming directly from NAND makers, including very large sales customers from automotive as well as other sectors. Now it’s really about how we can manage so many opportunities under the supply shortage condition; we have to be very careful to make decisions. Because when we commit, we have to allocate all the resources for development, IP, support development, quality people, everything else. We must ensure we are using our R&D resources wisely to get sufficient financial returns. It’s very important; we don’t really worry about the business today. Our constraint is the wafer supply. That’s the most important thing we should focus on to secure more supply in order to meet customer demand for next year and 2023.

Eddie, let me also add, with the investments TSMC has been announcing, we do not believe it’s going to change the direction of our NAND partners outsourcing to us. The reasons Wallace has talked about earlier.

And another question is NAND demand appears to further outstrip supply, and our field work indicates NAND OEMs are prioritizing high-capacity SSDs. In the past, as NAND capacity has been limited, OEMs, enterprise SSDs became a growth challenge for you. May you address why that reasoning may not make sense in the current environment? And thank you, and congratulations on the results.

This year, the underlying condition we’re facing for our business is more about the supply picture. We have demand that is significantly outstripping our ability to deliver. So the underlying conditions on the NAND flash dynamics side and industry conditions, whether their allocation is more towards enterprise or into other applications. Those decisions have no real material impact on our business as it relates to the shifting of the demand picture. Right now, the key focus for us is about the supply side, how we can drive more products given the supply capacity that we have on hand.

Next question is from the line of Suji Desilva of Roth Capital.

Congratulations on the momentum here. So given the NAND supply-demand situation, I’m wondering if the mix of OEM versus module maker is higher historically, is your shipments being leaning toward OEM? And if that’s one of the factors in the gross margin tailwind that might correct back if module makers get allocations in the future?

I think it’s a very good question. Every company has to make the wise choice and keep a balance. Our OEM projects are more important because we have to allocate sufficient wafers and supply the OEM projects because that’s what we committed to. At the same time, we also want to balance market makers. We don’t want the majority margin makers to suffer because many of them have been with us for 16 or 18 years. I think we have to look at the products themselves, which is important for the supply chain. Sometimes if the customer has multiple stores, we will try to reduce the weight. However, we are the sole supplier, and we have to ensure we can meet the supply demand. It’s a pretty complicated decision. Through that, we also review all of the gross margin from all the products and put them in priority. So this is the thing we feel very comfortable with because it doesn’t matter who the customer is; they all base a small percentage on a larger percentage of SSDs from Silicon Motion. We feel very sorry for that situation. That’s why we work very hard to try to secure more wafers to meet customer demand.

Suji, let me also add, some of our module makers are now very large and sophisticated, and our ability to engage in projects with OEMs like PC OEMs is solidified. For these large sophisticated module makers, we don’t treat them any differently than the NAND flash makers. The level of profitability really depends on the projects. It doesn’t necessarily mean that the profitability is better with one class of customers over the other. It really is the value asset that we are bringing that matters.

And then the SBC Solutions business, trying to understand where the Shannon revenue level is now, is that going to have a further step down as you kind of manage away from that? And what are the margin implications there? I imagine that’s also a lower-margin business that you’d be moving away from?

Regarding Shannon business, our main goal this year is really to maintain our relationship with the customer because some of the NAND procurement is also challenging. We do not want to grow Shannon business due to lower margin to dilute our overall gross margin. However, we have maintained certain important parts with Alibaba and made sure that our development technology will continue while we await our Gen5 major controller to shine in the market. But I think it’s also due to the wafer constraints with allocation. That’s why we have to allocate carefully because we have many OEM demands from NAND makers as well as PC and smartphone customers.

Next question is from the line of Mehdi Hosseini of SIG.

A couple of follow-ups. And thanks for providing visibility into 2022 with a minimum revenue of $1.5 billion. The question I have here is: what are the key growth assumptions for different sectors? And if you don’t want to elaborate, how should I think about the fastest growth versus the relatively lower growth segments?

I will say our client revenue will continue to grow. Although PCIe Gen3 next year growth rate will be modest, PCIe Gen4 will grow very strongly. We have a very large design share in PC OEMs. We stated almost 50% higher by the end of next year, with 8 different customers, 5 NAND makers with our PCIe Gen4 controller ramping up next year. For eMMC+UFS, we also will grow very strongly. It also depends on how many wafers we can secure. We guarantee revenues will exceed $1 billion next year. The backlog will continue to pile up by the end of this year. But we’ll continue to work hard to secure more wafers, especially in mature technology because many eMMCs are in mature technology wafers that are in severe allocation from all foundry makers. This is very critical.

Wallace, PCIe 4.0 is used for the commercial segment of the notebook, is that correct?

It’s used for both commercial and consumer segments. We have two generations of PCIe Gen4 controllers, one using 28-nanometer, one using 12-nanometer. This year, we’re ramping with more 28-nanometer, and next year, the majority will transition to 12-nanometer.

I think what I was trying to highlight is that there is a concern that a consumer notebook like Chromebook may roll over. It can’t grow 20-some percent plus per year indefinitely. But I think the commercial segment, which has been relatively quiet or muted, could turn on, and that’s a significant positive catalyst for Silicon Motion. Am I thinking about this the right way?

Let me just clarify that. This year, the total volume for Chromebooks is around 40 million to 50 million units, which is very small. Most use eMMC, not SSD; they’re using embedded SSD. Our involvement in the Chromebook market today is limited, and Chromebook demand going up and down has relatively no impact on our business. For SSD, we are really focusing on mainstream notebooks for both commercial and consumer accounts. That portion is expected to grow strongly and consistently with our top 5 PC OEMs.

And then one follow-up for Riyadh. Is it a product mix that is going to put a lid on the gross margin in the back half of the year despite sequential revenue growth? It seems like margins are going to calm down. I’m just trying to understand, is that because of a higher base? Is that because of the mix? Or is it just that your year-end gross margin operating margin guide is conservative?

Mehdi, our gross margin expectations for the second half of the year are significantly higher than what we had originally guided. But obviously, we still have a lot of work to do. We’d love to take our gross margin even higher than what we’ve just talked about. This will come from the continued execution of the initiatives that Wallace had talked about relating to upselling our product mix to richer products, relating to how we allocate towards higher-margin accounts, more profitable accounts, and the ability to reprice our products where possible to reflect the higher costs. Our operations team is also working very hard to see how we can better optimize processes with our contract manufacturers. All four of these initiatives are still in execution. The more we execute, the better our gross margins could be. Our guidance reflects a baseline expectation, and if we can execute even better, we’d love to increase our gross margin higher than what we’ve indicated.

And on the execution side, you’re executing flawlessly on managing working capital. Your free cash flow margin for the June quarter was 25%. You have grown cash. And if I just take your base assumption for 2022 of $1.5 billion of revenue, your cash could go towards mid-teens, $15 net cash per share. I know the question came up earlier, but I’m going to ask it again. Is there something you can offer us on why not become more aggressive with buybacks, or why not consider strategic options? The cash is going up, the valuation is not changing, and I’m just trying to think about how the management team is reconciling execution, free cash flow margin with the valuation on share price.

I think you’re looking at Silicon Motion today; our total diluted shares outstanding is about 35 million shares. So it’s not really very meaningful for us to do share buyback. As Riyadh said, we, and the Board, when we have more free cash, we either invest in certain M&A or potentially increase the dividend. That is the direction we think is most likely to happen in the next quarter, but please wait for the next quarter after forming our dividend plan.

Mehdi, let me add that historically, we’ve been pretty good about returning capital to shareholders. We typically return half of our free cash flow, and we’ve done that over the last few years, and we expect to continue doing so. Our primary means of returning capital to shareholders is through our dividend payments. We’ve just paid our third installment of our quarterly dividend, and the last one will be coming soon. By October, we’ll decide on our dividend for the upcoming four quarters. Given our strong business performance and good visibility into next year, the likelihood of a higher dividend being declared is strong. So back to your question about cash usage; we will continue to return value to our shareholders through dividend payments.

Our next question is from the line of Gokul Hariharan of JP Morgan.

Congrats on the great results. First of all, Wallace or Riyadh, could you talk a little bit about the SSD controller market? You’re growing at almost 100% in the first half; looks like the growth rate is still going to continue around the same pace. How much of that is the volume growth? How much of that is pricing roughly? Are we still looking at average ASP per SSD controller in the $4.50 to $5 range? And could you also give us some context on how much market share you have of your addressable market in SSD controllers and consumer SSD controllers?

So we will continue growing our client SSD controller business. We are outperforming the market growth. Unfortunately, we cannot comment on ASP dollars, but we can assure you that the PCIe Gen3 has a higher ASP than SATA controllers, and the PCIe Gen4 also has a higher ASP than PCIe Gen3. We definitely expect strong growth from our PCIe Gen4 controllers next year, so every ASP for client controllers should go higher. Regarding market share, we believe that last year we were around 25% to 30% market share, and this year will grow by 5% to 10%. So we're roughly in the 35% to 40% range. We aim to grow beyond 40%, and growth is really not a question of demand; it depends on how quickly we can build a more R&D team to serve the increasing demand, especially from our NAND makers.

Is it fair to assume that most of the growth this year is coming from units and a little bit of it is coming from mix improvement, not really price?

Also from the mix and price improvement.

Okay. Maybe moving on to your second question. I think you talked about M&A. It feels like one of the problems the market has in terms of evaluating Silicon Motion is that the addressable market is still primarily SSD controllers, which I think is limited in terms of units. Obviously, there is ASP upgrade. Could you talk about any of the initiatives that Silicon Motion is doing to potentially address some newer addressable market, either an adjacency or something else that you have in mind given that you’ve executed extremely well in the current SSD controller and eMMC market?

Gokul, we’re doing really well in the client device market. In this part of the market, SSDs accounted for 60% to 65% last year, and we believe it will rise to 75%. But there’s a natural cap in terms of what’s addressable. Opportunities coming incrementally to the client device and to the smartphone for us include a couple of pieces. Firstly, our enterprise SSD controller market. Year-to-date, we’re just hitting our first million milestone. We have our upcoming Gen5 and are still executing with our enterprise-class Gen4. This is a huge growth opportunity for us and will be a big piece of how we continue to grow rapidly beyond when client-based devices start plateauing. Additionally, in eMMC products, as NAND flash makers exit low-density applications, this creates an opportunity for us to step in. We’re talking about a 1 billion units market opportunity with eMMC. Also, we’re seeing a lot of design activities by automotive OEMs and their partners, and we’ve been involved in a lot of these projects.

Let me just add some comments as you see from the business model. Traditionally, when a storage product becomes mature, NAND makers move to the new generation and toward higher density and performance. But looking at eMMC, for example, this is one of the great examples today because eMMC has a maximum density, probably around 120 gigabytes; the majority are around 64, 32 or even 16 gigabytes. There's limited interest from NAND makers because the manufacturing yield is low in financial returns. However, there’s huge demand from all consumer electronics and growing IoT devices, and we become the seller from the merchant controller makers providing solutions. Our backlog is at 2x what we can supply today. We have many ongoing projects because we continue to develop new controllers supporting upcoming new 3D NAND. So that puts us in a unique position. NAND makers probably won’t use their R&D resources for this kind of trend because the product is mature. We have much larger ambitions than just a few controllers.

Last question is from the line of Matt Bryson of Wedbush Securities.

The prominent pushback or concern I hear from investors around SMI is probably related to the cyclicality of end markets for NAND. So whether it’s PCs, handsets, or what have you. Wallace, I think what you’ve described as a number of secular growth opportunities that are specific to the company, like new Gen4 PCIe customer wins and IoT opportunities with new UFS customers. Is there any way we can look at that order book of $1.5 billion for 2022? Can you characterize how much of those incremental orders are tied to new business versus existing designs or follow-on designs to existing designs? Any characterization you could provide would be very helpful.

In the past couple of years, it seemed our business did not show growth consistency. That’s why many investors have concerns regarding how stable and how fast Silicon Motion can grow. Now I think we are moving to a healthier business model, where all our sales revenue this year is derived from designs from last year or two years ago. The projects we are working on today are aimed at fulfilling demand that will pop up next year and beyond into 2023. That’s why the order book we have is very solid and doesn’t require any new designs happening today. I’m quite sure our backlog will continue to pile up to even higher numbers by the end of this year. Our main goal will be to secure more wafers so that we can fulfill the demand from many customers. Several very important projects are upcoming, not just for PCs, smartphones, and consumer electronics, but there are many exciting innovations, and we do have a good pipeline of automotive sector growth. Our product portfolio is diversified, with a wide range of customers, and we have many opportunities. Now we want to leverage our base, our technology, and our products to secure more manufacturing capacity and fulfill demand. We believe our growth is very solid and consistent, and market trends are favorable for Silicon Motion and our customers as they gain market share.

Now I’d like to hand the conference back to Mr. Wallace Kou for closing remarks. Please go ahead, sir.

Thank you, everyone, for joining us today and for your continuing interest in Silicon Motion. We will be attending several investor conferences over the next few months, all of which we believe remain virtual events. The schedule of these events will be posted in the Investor Relations section of our corporate website. Thank you, everyone, for joining us today. Goodbye for now.

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now all disconnect.