Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's First Quarter 2024 Earnings Conference Call. 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 relations 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 obligations 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 you over to the Interim Chief Financial Officer, Mr. Jason Tsai. Please go ahead.

Thank you, and good morning, everyone, and welcome to Silicon Motion's First Quarter 2024 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO; Wallace will first provide a review of our key business developments, and then I will discuss our first quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we get started, I'd like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. The 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. With that, I will turn the call over to Wallace.

Thank you, Jason. Hello, everyone, and thank you for joining us today. We had a good start to 2024. We delivered sequential revenue growth ahead of our expectations, achieved gross margin at the high end of our guidance range and exceeded our operation margin outlook. Our SSD controller business was better than expected, primarily driven by demand from two of our flash maker customers. We continue to improve our pricing in the quarter, which is driving the steady improvement in our gross margin and profitability. Our results this quarter reinforce our leadership position in controller technology and our products continue to be in high demand because our customers recognize how important our technology, innovation and service are to their business. The micro environment remains uncertain, but I'm pleased by our team's execution in this quarter. We are taking the right steps to efficiently navigate market dynamics, remain steadfast in delivering the products and solutions our customers need and focus on continuing growth and improving profitability across our platform. Let me start now with an overview of the NAND market and dynamics we are in today. We have seen NAND flash prices continue to increase since late last year and more recently, have seen flash makers gradually increase utilization in their plants, but more meaningful capacity increases from the build-out of next-generation NAND flash are not expected until next year. Demand remained robust, especially with Chinese handset OEMs as well as with enterprise and data center storage markets, while PC demand has been steadily increasing. All of this will continue to drive NAND flash prices higher throughout this year. We are seeing some near-term pricing fluctuations in the Chinese SSD market, which may cause some uncertainty with our customers that are more focused on the retail aftermarkets. But demand for our controller for PC OEM and SSD remains robust, especially with our flash maker customers. Our leadership in controller technology continued to drive stronger demand across the board with our customers. It is becoming clear each day that our experience and expertise with QLC NAND is a defining differentiator that has resulted in significant wins with the flash makers and other customers across all product categories. With the 3D NAND layer continuing to increase, managing QLC NAND becomes even more challenging and requires more sophisticated controller technology to ensure high data retention and data rewrite. Our advanced LDPC in the 3D Ray technology is best in class to protect data during high-speed data transfer between the controller and the NAND and operate over a wide temperature range. We can deliver controllers that enable a no-compromise, high-performance and low-cost solid-state storage solution incorporating the latest generation of QLC NAND, especially with the rapid adoption of AI, whether it’s in edge devices like PCs and smartphones or in data center and enterprise storage. QLC star devices are becoming increasingly central to AI applications and growth going forward. OEMs no longer need to choose between high performance or lower cost. With QLC, particularly the upcoming 2 terabyte mono die QLC NAND, we are able to offer high sequential read performance, high density and lower-cost solutions to meet their ever-increasing AI compute and storage requirements. Now let me talk about our SSD controllers. We are seeing strong traction with our new PCIe Gen5, 8-channel controller we taped out last year. This is the first 6-nanometer 8-channel PCIe Gen5 controller available in the market, and we are winning it with virtually every top module maker in addition to our three flash maker customers. The results from our early testing have been very good. This is a premium product that will be ideally suited for high-end notebooks and desktops, AI PCs, as well as for gaming and workstation PCs that offer unparalleled performance with ultra-low power consumption. In addition, we have a strong pipeline of design activity with several flash makers for PCIe Gen4 SSDs using their next-generation TLC and QLC NAND. This delivers a high-performance, high-density, low-cost SSD ideal for the rapidly growing AI PC market. Beyond the PC market, we also have automotive-grade PCIe Gen4 controller wins with two of our flash maker customers that will ramp with a leading electric car platform next year. We also expect to tape out our due PCIe Gen5 controller for the automotive market next year for several of our flash maker customers to further establish our leadership in the market. We are confident that our broad-based SSD controller solution will continue to scale this business meaningfully this year and into 2025, as many of these new products begin to ramp. Moving to our eMMC+UFS controllers, we have successfully taped out our first UFS 4.0 controllers in the first quarter and are on track to start qualification with this new controller in the second half of this year. We also continue to see stronger than ever demand for our UFS 3.1 and 2.2 controllers, especially to support the new generation of low-cost NAND. In addition to several top module makers serving the smartphone market, we started ramping up a new flash maker customer for UFS 3.1 and 2.2 this quarter, and this customer is expected to ramp with our UFS 4.0 controller next year. While the smartphone market has predominantly used QLC NAND, we are now seeing increasing interest in QLC NAND, especially in mainstream handsets where OEMs can offer higher density without significant cost increases. We are collaborating with one of the leading handset OEMs directly for a QLC UFS solution that is expected to come to market later this year for their mainstream smartphone. We expect demand for QLC UFS products, especially in mainstream and entry-level 5G smartphones, to continue to increase. This higher-density, low-cost UFS solution will be required to drive adoption of AI beyond the premium segment of the smartphone market over the next few years. Additionally, we are seeing significant traction with our eMMC and UFS controllers in the automotive market as well as in commercial, industrial, and other connected and smart devices. This non-smart qualification accounts for more than 40% of the overall eMMC+UFS market today. With the automotive application market growing faster than the smartphone market, we are working with several flash makers to build eMMC and UFS controllers for these customers, especially for the automotive market, and expect this to scale meaningfully in the years to come. Now let me turn to our MonTitan platform that we have talked about before. The enterprise data center storage market is a tremendous opportunity that we believe we now have a truly differentiated solution with MonTitan to scale with the flash makers and solid solution enablers as well as directly with data-centric and enterprise customers. Based on market data from Gartner and IDC, as well as our own analysis, we anticipate the market for enterprise SSDs for both enterprise storage and data centers will grow by more than 50% to approximately 35 million units by 2027. More importantly, the market for PCIe Gen5 SSDs is expected to increase more than five times to over 60 million units by 2027. QLC-based SSDs are expected to account for nearly 30% of the total paid-up volume in 2027, up from less than 10% in 2023, representing a huge growth opportunity that we are uniquely positioned to lead. Our first MonTitan PCIe Gen5 controller will manage TLC or QLC NAND on a single platform, enabling the seamless transition and adoption of QLC NAND with enterprise and data center solid applications long-term. I'm excited to announce that we have won two Tier 1 customers in the first quarter for the MonTitan PCIe Gen5 controller, one in the United States and one in China, and we expect to begin ramping later next year. We continue to engage with more than a dozen additional customers and expect to secure more wins throughout this year. We are on track to begin mass production late this year and ramp more meaningfully next year. Our earnings success here has been driven by our ability to differentiate with our high-performance, power-efficient controllers that support more NAND products, including TLC and QLC, for high-capacity SSDs than any other platform in the market today. Using our patented performance and power shipping technology, we enable our customers to dynamically adjust peak performance versus low power consumption, depending on various workload requirements to achieve the best results. We are seeing inbound interest from world-leading data center providers due to our ability to deliver high density, high performance, low-cost TLC and QLC SSDs for the increasingly data-hungry AI compute and storage needs. Given our proven track record of managing more QLC NAND than any other vendor in the market over the past decade, we can leverage our unparalleled experience and expertise with QLC into the MonTitan controller platform to build SSD solutions that can effectively displace a portion of the new line HDD with high-capacity new line SSDs. These solutions offer a lower total cost of ownership compared to legacy HDDs due to their compact size, higher storage densities, lower power consumption, and greater reliability and resiliency. We see an incredible market opportunity to differentiate with our MonTitan platform and deliver solutions that are critical to the further build-out and adoption of AI in enterprises and data centers, driving a multi-year growth cycle for the company. Overall, I'm excited about a strong start to 2024 and the achievable opportunities on our horizon for the rest of the year. Beyond our strong results, our underlying business momentum continues to accelerate as we add more products and wins to drive the sustainable long-term growth of our business. We continue to see very strong traction across the board with the controllers we are bringing to market and have greater confidence that our strategy to diversify beyond data center and smartphone, aimed at new opportunities in enterprise and automotive markets, will soon scale meaningfully with our Tier 1 customers. We are very proud of this, and it gives us good confidence in our pipeline and our ability to serve our current and new customers to drive long-term growth. Now let me turn the call over to Jason to go over our financial results and outlook.

Thank you, Wallace, and good morning, everyone. I will discuss additional details of our first-quarter results and then provide our guidance. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. The reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the first quarter, sales decreased 6% sequentially to $189 million. SSD controller sales increased slightly by 0% to 5% sequentially. eMMC and UFS controllers declined 10% to 15% sequentially. SSD solutions sales decreased 5% to 10% sequentially. Gross margin in the first quarter increased to 45%, reflecting both better mix and higher average selling prices. Operating expenses in the first quarter were $62.5 million, $1 million higher than the prior quarter, primarily due to higher R&D expenses to support our technology leadership. Operating margins in the first quarter were 12%, down from 13.8% in the fourth quarter. Our effective tax rate in the first quarter was 16%, an increase from the 2.3% tax rate in the fourth quarter, primarily due to a tax reversal benefit we had in the fourth quarter. Earnings per ADS were $0.64, down from $0.93 we reported in the fourth quarter. Total stock-based compensation, which we exclude from our non-GAAP results, was $3.2 million in the first quarter. We had $349.3 million in cash, cash equivalents, restricted cash, and short-term investments at the end of the first quarter, compared to $369 million at the end of the fourth quarter. Inventory increased sequentially in the first quarter to $253 million from $217 million in the fourth quarter to support revenue growth in the second quarter and the rest of the year. Let me now turn to our outlook. As Wallace mentioned, we are seeing continuing success with flash makers and providing more clarity around the improving fundamentals of our business. We're observing strong demand in smartphones, coupled with increasing demand in PCs; our design wins for this year are well positioned to drive better growth than we had anticipated just three months ago. While the strength we are seeing with our current products, as well as the increasing interest in monetizing products, we are prudently increasing investments in R&D primarily through higher headcount to support the increasing programs we are engaging in with our customers. Now let me turn to our second-quarter outlook. Revenue is expected to increase 5% to 10% sequentially to approximately $199 million to $208 million. We expect eMMC + UFS sales to increase and SSD controller sales to be stable sequentially. Second-quarter gross margin is expected to continue to improve and be in the range of 45% to 46%, while second-quarter operating margin is expected to improve and be in the range of 16.5% to 17.5%. The second-quarter effective tax rate is expected to be approximately 19%, and stock-based compensation and dispute-related expenses are expected to be in the range of $2.5 million to $3 million. For the full year 2024, we are increasing our outlook given the strong momentum we are seeing from our customers. Revenue is now expected to increase 25% to 30% sequentially to approximately $800 million to $830 million. Gross margin is expected to be in the range of 45% to 47%. Operating margin is expected to be in the range of 14.7% to 16.7% as we further invest in our technology leadership. The 2024 tax rate is expected to be approximately 19%, and stock-based compensation and dispute-related expenses are expected to be in the range of $30 million to $32 million. With a strong start to the year and building momentum in our backlog, we expect to see sequential revenue growth and profitability improvements through the balance of the year. In relation to operating expenses, we took out our new 6-nanometer UFS 4.0 controller in the first quarter and expect to tape out our 6-nanometer PCIe Gen5 4-channel SSD controller in the third quarter. We expect our operating expenses to decline sequentially but to increase again in the third quarter to support the technology leadership investments we continue to make. We have accelerated some R&D hiring, especially in our MonTitan enterprise controller group to support the opportunities we are seeing with our sampling customers as well as an increasing amount of inbound interest. This concludes our prepared remarks. We will now open the call to your questions.

Our first question comes from Mehdi Hosseini from SIG.

Two follow-ups. First, for Wallace. Can you give us an update or review some of the key milestones determining your penetration into the enterprise segment with the PCIe Gen5? I think in the past, you've talked about evaluation in the second half of '24, vision by '25. Where are we with those milestones? And then for Jason, what are your thoughts on the longer-term growth and operating margin targets?

We see the very strong momentum for demand for MonTitan. In Q1, we had two Tier 1 customers, one from the United States and the other from China. We also have some ongoing module maker design engagements, and we expect to start seeing some revenue by the end of 2024, ramping into 2025 with the two Tier 1 customers. Our goal is to win a minimum of two Tier 1 customers in the U.S. and two in China. We're on track and might have more than we can really support. We believe that late 2025 to 2026 will see much more meaningful sales revenue growth for our MonTitan business in the enterprise segment.

And Mehdi, in terms of gross margin and profitability, certainly, our goal is to continue to gradually improve our gross margins. We believe we can return to our historic gross margin levels by early next year. Regarding operating profitability, as we scale our revenue and see our gross margins improve, we believe we can enhance our long-term operating profitability and get back to our historical range of over 25% as we execute and deliver.

Just a quick follow-up. Given the mix in your revenue, could you hit the 25% operating margin at a lower revenue run rate?

If you look at our products today, our revenue from the SSD controller business tends to be above the corporate average gross margins, while our eMMC and UFS controllers are below the corporate average gross margins. There are certainly growth vectors in both of these businesses, but historically, we've seen SSD controllers account for anywhere from half to two-thirds of our business in any given period, and eMMC and UFS account for about one-fourth to one-third. We don't see that percentage changing much. If we see automotive or MonTitan becoming a larger portion of revenue, then that can skew our gross margins better than what the historical average has been. However, it is too early to say what those long-term targets are given that we have to scale those products meaningfully.

Our next question comes from the line of Quinn Bolton from Needham & Company.

Wallace, Jason, congratulations on the nice results and particularly on the MonTitan wins. Wallace, I am wondering if you might try to size the opportunity for us for MonTitan for Silicon Motion in 2025. Is this something that you see contributing tens of millions of dollars as the two Tier 1 customers ramp next year? Could you try to help level set us on what's a reasonable expectation for MonTitan revenue next year?

Yes. We believe the two Tier 1 customers will ramp in late 2025, and they will likely contribute meaningfully in 2026. We believe MonTitan enterprise controller revenue will become significant, targeting at least 5% to 10% of total revenue.

Perfect. And then I think you commented in the script but also in the press release about increasing backlog and visibility. I'm curious how far your backlog extends. Do you have pretty good visibility now into the second half, or is your backlog shorter term in nature, really only covering about 90 days?

Our backlog includes long-term forecasts from our NAND maker partners, where we have much better clarity on their demand profile over a longer term. These are rolling forecasts that we get updated on regularly. It varies depending on the end markets they serve. Some provide better visibility, like PC OEM customers. It takes us about three months to manage inventory with our manufacturing partners. We need advanced notice to build inventory to support upcoming sales and ramps, especially in the second half of the year when NAND typically shows stronger growth; we need adequate inventory to support that revenue growth.

To add to Jason's point, if we are able to increase our annual sales guidance, it means we have better visibility for the second half of this year.

Got it. Lastly, Wallace, you mentioned price fluctuations in the NAND market might cause some uncertainty in the retail SSD market. Could you expand on those comments? Is it primarily due to NAND prices rising quickly, which could temporarily reduce demand in the retail channel?

The current situation is that NAND makers have high confidence because demand from data centers and enterprises is very strong. They continue to see supply shortages driving wafer prices higher throughout the year. However, we see fluctuations in certain retail markets where SSD demand isn't as strong as wafer prices increase. While there are fluctuations, overall demand for our controller remains strong and stable. Some customers acquired significant inventory last year to balance their costs.

Our next question is from Craig Ellis from B. Riley Securities.

Congratulations on the very strong start to 2024. Wallace, I wanted to start with a higher-level question that helps put into context what you're seeing with NAND OEM controller outsourcing. Can you talk about the incremental design wins you've seen with NAND OEMs that would ship in 2024? It seems from your commentary that you're also actively engaged in some 2025 projects. What have you seen in the last three months that impacts this year's revenues, and what are you seeing that gives at least project visibility for 2025?

The past three months haven't seen major changes, but we've observed NAND makers focusing on profitability. Each has its individual strategies for CapEx investments. We're working on several 2025 OEM projects covering UFS, automotive eMMC, and other product segments. MonTitan also has significant design wins, and we expect meaningful engagement this year. We feel confident in our design pipeline for 2025.

On that MonTitan point and following Mehdi and Quinn's questions, it seems like you expect the QLC segment to account for about one-third of the market by 2027. Given your history with the technology, what might be a reasonable share position for investors looking at this segment?

We cannot commit to a specific market share for 2027. However, I can tell you that MonTitan has gained significant traction and interest from Tier 1 customers primarily due to the strong demand for AI cloud and server solutions. Many Tier 1 customers from the U.S. and China are looking to adopt QLC-based SSDs for enterprise storage as they offer more capacity. Our strong positioning and know-how in QLC have spurred tremendous customer interest for joint development, particularly for 2 terabyte mono die QLC, which is becoming essential for future SSD adopting technologies to replace parts of HDD usage. We are pleased to be part of this growth.

That's really helpful insight. Lastly, Jason, if you could provide more color on how revenues might progress through the year. How do you expect the mix between SSD controllers and eMMC, UFS, and other segments to play out at a high level?

We anticipate growth from both segments this year. eMMC had a more difficult year last year given high inventory levels in the smartphone market, so we expect stronger year-on-year growth there. SSDs will grow but not at the same rate as eMMC. However, the proportions of SSDs, eMMC, and UFS are typically stable, and we don't expect significant changes in the near future.

To add some perspective, both SSD and mobile eMMC/UFS will gain market share this year. However, since our mobile controller business had a smaller base last year, we have more momentum to gain market share in mobile controllers.

Our next question comes from the line of Suji Desilva from ROTH.

Wallace and Jason, congratulations on the progress here and the strong start to the year. Regarding MonTitan and the AI opportunity, if it is supporting AI, do you have a sense if it's supporting inference, training, or traditional cloud instances? Any specific color on where you're seeing traction?

That's a very good question, but unfortunately, we don't have specific insights there. However, I believe that SSDs today primarily support storage needs rather than compute needs for AI, although they facilitate the storage of real data. I expect that at the upcoming Flash Memory Summit in August in Santa Clara, we will hear insights from NAND makers and enterprise suppliers regarding their support for AI applications related to inference and training processes.

Okay. On the smartphone market, I heard you guys mention an OEM that is trying to in-source their controller efforts versus using a merchant controller. Is that a trend you're seeing, or is that an exception? What impact could that have for Silicon Motion?

It's encouraging to see momentum from some smartphone makers who are considering integrating QLC into their mobile solutions. Samsung has been a leading manufacturer introducing this solution since last year's Q4 production. We're working closely with a major leading smartphone maker on a QLC project expected to enter production later this year, providing us with real momentum. Many smartphone manufacturers are looking to integrate AI capabilities into flagship and mainstream smartphones, emphasizing density increases without significant cost rises; that's why QLC is seen as a leading candidate.

Our next question comes from the line of Matt Bryson from Wedbush Securities.

I have a few questions. On the enterprise SSD side, we've seen substantial demand for 32 and 64 terabyte SSDs recently. It sounds like your technologies are enabling QLC to help other vendors in this market. Do you see your advantage around QLC enabling opportunities for you? Have you seen more momentum in the last few months as these high-capacity SSDs are gaining traction?

Silicon Motion aims to be the first in both QLC for enterprise SSDs and to lead in client QLC applications. We are beginning to witness tremendous demand for QLC, as all NAND makers plan to launch their 2 terabyte QLC offerings by late 2025. The strong interest stems from hyperscalers and data center leaders who are seeking to adopt QLC in response to robust demand for AI servers and cloud services. Our controllers work seamlessly across all NAND makers' QLC products, making us uniquely positioned to enable this transition.

Got it. Can you characterize the two Tier 1 customers and what buckets they fall into? Are they OEMs?

We cannot disclose the specific identities of our Tier 1 customers until they announce themselves. However, one is based in the U.S. and the other in China, and we believe we will add two more customers by the end of the year.

Awesome. Lastly, could you characterize the TAM for both the enterprise product and automotive market as compared to the more traditional markets you work in, like UFS, eMMC, and SSD controllers?

The TAM for enterprise is smaller in unit volume compared to PC and smartphone markets, but ASPs for our MonTitan products are several multiples higher than our client SSD controllers, resulting in a bigger opportunity despite lower unit volumes. For the automotive market, the total number of cars shipped today is significantly smaller; however, the multiple storage requirements per vehicle are increasing, driving demand for units. I can get back to you with a more specific figure soon, but these engagements are generally stickier than those in PC and smartphone markets.

Regarding automotive, Silicon Motion has two approaches to expand our visibility. One is direct controller engagement, and the other is with NAND makers. We currently have ongoing engagements in production, including two makers for PCIe Gen4 and developing new eMMC with NAND makers. Additionally, we are working with multiple customers, including major automakers like Toyota, Honda, and BYD from China. We expect strong growth in our automotive business from 2025 onward.

I am showing no further questions. I'll now turn the conference back to President and CEO Wallace Kou for closing comments.

Thank you, everyone, for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months, as well as the Tech Conference in Taiwan in June. The schedule for these events will be posted on the Investor Relations section of our corporate website. We look forward to speaking with you at these events. Thank you again, and goodbye for now.

This concludes today's conference call. Thank you for participating. You may now disconnect.