Silicon Motion Technology CORP Q3 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's Third Quarter 2025 Earnings Conference Call. Be advised that today's conference is being recorded. 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 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 discussion 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. And with that, I'll now hand you over to Mr. Thomas Sepenzis, Senior Director of IR and Strategy. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to Silicon Motion's Third Quarter 2025 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will provide a review of our key business developments, and then Jason will discuss our third quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we begin, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release which was filed on Form 6-K 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 the call over to Wallace.

Thank you, Tom. Hello, everyone, and thank you for joining us today. I'm pleased to report that we delivered another strong performance in the third quarter, exceeding our revenue and operational margin guidance. We continue to benefit from the introduction of new controller products in existing and new markets and drive increased market share across our portfolio. We remain focused on delivering both top and bottom line growth and improving profitability while investing heavily in the next-generation controllers, increasing our engineering resources to support new products and markets, and further positioning Silicon Motion for long-term market share expansion. We expect strong revenue growth to continue as we introduce compelling new PCIe client SSD controllers, next-generation eMMC and UFS controllers that drive higher market share, benefit from strong growth in our automotive business, and as our MonTitan enterprise business begins to scale. I'm excited about the foundation for growth that we are building across each of our major markets and believe we are well positioned to see sustained revenue and profitability growth in both the near and long term. Let me start by discussing the broader market environment and then each of our major businesses in greater detail. AI remains a significant growth vector across the memory and storage industry, driving strong demand for NAND and other technologies including DRAM and HDD. The growing AI demand has, for the first time, created greater supply shortages in HDD, NAND, and DRAM, leading to price increases for the past three quarters, a trend we expect will continue at least through 2026. In the early stage of AI development, AI training drove strong demand for high-performance memory and storage using DRAM, HBM, and NAND for lower capacity TLC-based compute SSDs. As AI evolves, the focus is shifting to inference, which relies more on high-performance, high-capacity storage rather than raw computing power. The increasing demand from inference is placing a large strain on the HDD supply chain that traditionally serves this market, and we expect this trend to continue well into next year as HDD makers struggle to quickly meet the growing demand. Inference is also increasing NAND demand for high-capacity, high-performance QLC-based SSDs, creating a significant trend for the NAND market supply and availability. As AI is still in its infancy, we expect that these demand drivers will continue to impact supply availability across all memory technologies for quite some time as CapEx spending increases to catch up with market demand over the next few years. Growing AI demand is also forcing a more disciplined CapEx spending approach and is driving difficult resource allocation decisions by the memory and storage makers to prioritize engineering resources across multiple technologies, products, and markets. Increasingly, we are seeing a greater willingness by the NAND flash makers to rely on Silicon Motion to complete their product portfolio as they shift their internal resources to focus on DRAM, HBM, and future customized memory technology for high-performance AI applications. We are in active discussions with all NAND makers about expanding our partnership and taking on a broader range of projects long term to offset growing internal resource shortages. Looking ahead, we see continued NAND flash price increases and shortages given the impact of AI on overall demand, which has been amplified by reduced new capacity investment at the flash makers over the past years. Despite the challenges inherent with the NAND price increases, we believe our business will remain robust. Our module maker customers have been building NAND inventory ahead of anticipated price increases and are well positioned for next year to meet expected market demand. Our direct business with NAND makers continues to be strong, accounting for more than 50% of our revenue, and we expect to gain significant share over the next few years. Additionally, more than 70% of our business with NAND flash maker and module maker customers goes directly to PC, smartphones, servers, and other device OEMs that are not significantly impacted by high NAND prices. We have a robust design pipeline in eMMC and UFS, client SSD and enterprise SSD controllers, and our Ferri product line should benefit from the increased NAND price trend. Additionally, given increased NAND prices, we expect OEMs to more rapidly adopt QLC technology, where we have a significant advantage over our competition. And finally, we are starting to scale our new enterprise products, including MonTitan, which are less price sensitive than the consumer markets. We expect AI demand to continue to put greater demand on inference as more large learning models reach maturity, putting more focus on the high-performance, high-capacity storage capability that QLC-based SSDs are ideally suited to address. I will now discuss each of our business units in greater detail, starting with eMMC and UFS. We experienced another exceptional quarter of growth in our eMMC/UFS business with strength across the board in smartphone, automotive, industrial, and IoT. eMMC and UFS revenue was up over 20% sequentially as we continue to increase our market share and capitalize on new product introductions. Module makers are benefiting as NAND makers have walked away from eMMC and UFS 2 due to lower ASP margins, which have helped module makers gain market share rapidly using our eMMC and UFS controllers. Overall, end market demand in the third quarter was higher than expected and helped us deliver strong sequential growth with our NAND flash partners as well. Smartphone OEMs continued to shift to our new UFS controller in mainstream and now value line devices, driving better ASPs and margin for our business. Additionally, we continue to have success with our direct OEM engagement with QLC controllers. Our first customer is introducing a second smartphone with our chip in the current quarter. We plan to introduce additional models next year. Given the current NAND environment, we expect that other smartphone manufacturers will increasingly look to QLC to deliver high-capacity storage at lower cost, which could lead to further customer engagement. UFS will continue to grow rapidly in the smartphone market as low-end smartphones continue migrating from eMMC to UFS to deliver better performance cost-effectively. While smartphones are rapidly shifting away from eMMC to UFS, eMMC remains an important revenue driver for Silicon Motion. As we mentioned, the market for eMMC extends well beyond mobile phones and accounts for more than 900 million units annually. The market for eMMC includes automotive, commercial, industrial, IoT, smart devices, set-top boxes and streaming devices, robotics, and many more, including the rapidly growing market for smart glasses championed by various leading companies. These solutions will likely continue to use eMMC, providing a strong foundation for market growth for years to come. As NAND flash makers increasingly concentrate on the enterprise market, the opportunity for Silicon Motion in eMMC and UFS continues to grow. We expect to see further market share expansion as the flash makers outsource more, and we believe that our share gain in eMMC UFS will remain strong, a strong contributor for our future growth, leading to expanding market opportunity and end market growth. I will now discuss our client SSD business. Our client SSD revenue was up more than 20% sequentially in the September quarter after a slower start in the first half of the year. We are beginning to see greater PC demand driven by the transition away from Windows 10 this month and the adoption of AI at the edge in commercial and consumer PCs, which require higher performance SSD solutions. We are also benefiting from the positive impact of our 8-channel PCIe 5 controller that launched at the end of last year, with revenue growing 45% sequentially in the third quarter and which now represents more than 15% of our client SSD revenue. This new controller has significantly higher ASP than our PCIe 4 offering and will help drive revenue growth as they scale. As we have discussed, we have 4 of the 6 NAND flash makers and nearly all the module makers using this performance-leading controller for their high-end offerings. And we expect to capture significant market share in the top tier of the PC market for the first time, which represents approximately 10% to 15% of the overall market. We have wins with all the top PC OEMs in many of their upcoming high-end models that are expected to ship later this year and scale throughout next year. We are introducing our second 6-nanometer PCIe 5 controller, even with a 4-channel version targeting the mass PC market, and that we will begin initial shipments this quarter. We have already secured design wins with also 4 NAND flash makers and nearly all the module makers for this controller as well. This new controller targets the largest segment of the PC and retail SSD market, and we expect that it will help drive our client SSD market share from approximately 30% today to 40% over the next few years. We expect that PCIe 5 will become the dominant technology in consumer applications over the next few years, and we are in the best position to benefit given our strong customer partnerships with both NAND flash makers and module makers. I will now provide an update on our automotive business. We continue to experience significant design win activity in our automotive segment across each of our product units, including eMMC, UFS, PCIe, and our Ferri embedded solutions. While the overall market has experienced challenges in 2025, given the broader geopolitical and tariff issues, we continue to grow our product portfolio and market share. We are also benefiting from the super trend of increased vehicle complexity, which is driving the need for additional high-speed, high-performance storage. We recently won significant design wins with a Tier 1 Japanese auto manufacturer in their global model that could contribute to top-line growth moving forward. As I mentioned during our last call, we also recently won with a large South Korean customer that has started to sample our eMMC controller-based solution to multiple automotive OEMs, which we expect to drive further growth in our automotive business in 2026 and beyond. We are also on track to extend our lead in ASPICE certification, which we achieved this year with Level 3 certification for our PCIe 4 controller with plans to release our next-generation automotive PCIe 5 controller next year. Increased demand for advanced storage solutions in automotive is being driven by AI, multiple screen integration, ADAS sensors, cameras, navigation, and other applications. We are shipping to many of the leading automotive manufacturers in the world, including Tesla, BYD, Xiaomi, Mercedes, Toyota, Honda, and many others. Entering the second half of 2025, we experienced greater-than-expected demand from our partners in China as our strong design pipeline has led to market share gains with Beijing car makers like BYD and Geely. Chinese automotive brands are rapidly taking market share worldwide given their leadership in electric low-cost vehicles. As we continue to introduce compelling new automotive controllers and as we expand our customer relationships, we remain confident that automotive will represent at least 10% of our revenue by 2026 and 2027. Finally, I will now provide an update on our enterprise business. The requirements of AI computation, training, and inference are rapidly evolving and driving new requirements for storage and memory solutions that deliver performance, capacity, power, and affordability. These growing opportunities are expanding the prospects for Silicon Motion's MonTitan family of enterprise-grade controllers. The need for increased speed and lower latency is driving greater adoption of solutions in the data center, and the industry is increasingly looking to adopt NAND solutions for storage. Our MonTitan solution is ideally suited to address the increasing requirements of AI workloads for both compute SSD using TLC and high-capacity warm storage SSD using QLC. The opportunity for compute SSD represents most of the enterprise SSD market today, while high-capacity SSDs are just beginning to ramp but are expected to present a much larger market opportunity in the coming years. Interest in MonTitan for compute storage TLC SSD applications is increasing. This quarter, our customers are beginning qualification with end customer TLC based high-performance SSDs using our MonTitan controller, targeting the high-performance requirements of AI in the data center. We expect this qualification to progress into the first half of next year and begin to ramp commercially in the second half of next year. For high-performance, high-capacity QLC SSDs, our MonTitan-based solution helps deliver significant advantages over HDD for AI inference for cloud service providers, hyperscalers, and enterprises, by alleviating the speed and power bottlenecks inherent in HDD technology for warm storage. The switch to NAND technology for warm storage is being accelerated by the current supply shortage among major HDD manufacturers, making HDDs more expensive and high-capacity QLC SSD a cost-effective, better performance option. Longer term, warm storage requirements offer a much bigger market opportunity compared to compute SSDs, and we see increasing interest in our MonTitan QLC solution. We are on track to begin end customer qualification for QLC-based high-capacity SSD late this year or early next year. We are increasingly confident in MonTitan as a significant new growth opportunity given our successes and wins to date in both the compute and high-capacity warm storage market. We remain confident that MonTitan will deliver 5% to 10% of revenue by the late 2026 or 2027 time frame as this new opportunity and customer scale in the near and midterm. In conclusion, the third quarter of 2025 delivered significant growth for our business as we execute on our diversification strategy with new products and into new markets. We continue to see the rewards of investments that we have made over the past few years. These investments include our market-leading 6-nanometer product, our new UFS and PCIe 5 controller, our new MonTitan and Boot Storage enterprise cloud solution, our growing automotive portfolio and our new microSD product for multiple locations, including Nintendo Switch 2. We have never been in a better position to expand our market share given our leading product portfolio and the growing need for flash makers to shift their focus from consumer to enterprise applications. Given the growing demand in our legacy business and our new automotive and enterprise products, I'm increasingly confident that we will deliver strong, sustainable top and bottom line growth. And given our current backlog, I'm very confident in our ability to exceed our target annual revenue run rate of more than $1 billion this quarter. Now let me turn the call to Jason to go over our financial performance and outlook.

Thank you, Wallace, and good morning to everyone joining us today. I will discuss additional details of our third-quarter results and then provide our outlook. Please note that 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 in the earnings release issued today. The September-quarter sales increased 22% to $242 million, coming in well above the high end of our guided ranges. We experienced a strong rebound in mobile demand, strong growth in our PCIe 5 segment. Gross margins were at the higher end of our guidance range and increased again in the quarter to 48.7% as we continue to capitalize on new product introductions and improving mix. Operating expenses increased sequentially to $79.5 million as we continue to invest in new projects and expand our customer engagements to further grow and support our significant pipeline of new opportunities. Operating margin increased sequentially to 15.8%, well above our guided range, resulting from improved gross margins and higher-than-expected revenues during the quarter. Our earnings per ADS was $1. Total stock compensation, which we exclude from non-GAAP results, was $5.5 million in the third quarter, and we had $272.4 million in cash, cash equivalents and restricted cash at the end of the third quarter compared to $282.3 million at the end of the second quarter of 2025. Cash declined in the third quarter primarily from a combination of dividend payment of $16.7 million and an increase in inventory to support our expected strong business ramp. Our team executed well, and our operational discipline delivered significant outperformance despite continuing investments in new advanced geometry products and our emerging MonTitan platform for the enterprise and AI markets. Now I'll discuss our fourth-quarter outlook. Revenue is expected to increase 5% to 10% to $254 million to $266 million, above our initial target of $250 million we set at the start of this year. We expect fourth-quarter strength to be driven primarily by our client SSD controllers and SSD solutions. Gross margins are expected to be in the range of 48.5% to 49.5%, and operating margin is expected to be in the range of 19% to 20%, approaching our historical operating profitability levels as we plan to benefit from higher revenue, higher gross margins and lower operating expenses sequentially. Our effective tax rate is expected to be approximately 18%. Stock-based compensation and dispute-related expenses are expected to be in the range of $18.1 million to $19.1 million. Despite the uncertainty this year due to rapid geopolitical changes and tariff impacts, our team has remained focused on execution and building an incredibly strong pipeline for long-term growth. We have successfully scaled new products, engaged with new customers, and expanded into new markets that will lead to higher market share and growth opportunities in enterprise storage, and we're just getting started. We expect to continue to invest to further expand our position as the leading merchant controller maker in the world for eMMC and UFS, client SSDs, automotive applications, high-performance, and high-capacity enterprise data center storage. As we look ahead, our pipeline for growth in 2026 and beyond has never been stronger, and we look forward to discussing it in greater detail when we report again in three months. This concludes our prepared comments. I'd like to open up for questions now.

We will take our first question from Neil Young from Needham & Company.

Could you dive a little deeper into your comment in the press release about white box AI server makers continuing to leverage mainstream hardware components? I believe your SSD controller sales are typically in PC or other consumer applications. So can you just give us a sense of how much of the SSD controller revenue in this quarter came from the white box AI server makers you referenced? And where you expect that to trend going forward? And then I have a follow-up.

The mention of white box refers to AI all-in-one servers primarily coming from China and Taiwan, involving the DeepSeek Volume-1 surveyor and others bundled with training models. I believe our 8-channel PCIe 5 controller is well positioned in the market. We cannot comment on exact volumes, but there is a growing momentum for these AI all-in-one servers, similar to what NVIDIA announced with MGX and DGX GPUs for this kind of market.

Okay. And then looking at the gross margin guidance, the midpoint coming in at 49%. I was wondering if you could perhaps walk through the moving pieces of the gross margin in 4Q. And if possible, could you share where you expect gross margin to trend next year? If not, at least what the main drivers of gross margin improvement should be in 2026?

Certainly, as we continue into the fourth quarter, scaling new products like our PCIe 5 next-generation products tends to have better gross margins that offset the declining gross margins of older products. We do expect to see, as MonTitan continues to scale, some incremental benefits, but that remains a relatively small portion of our business today. We're not guiding for 2026 at this point. We'll discuss more about that in three months' time, so stay tuned for that. But certainly, we are excited that we're back to a normalized range that we historically have been; historical range has been 48% to 50%, and we're guiding in the middle of that. So we're pretty happy that we've been able to recover off of some tough times a couple of years ago, but we're back to where we historically have been.

We will now take the next question from the line of Craig Ellis from B. Riley Securities.

Team, congratulations on real good execution. I wanted to start with a question that takes off from Jason's comments that the company is just getting started in enterprise storage and ask a question that’s fairly broad and has a couple of parts to it. So if we look at what's our ambition over the next year with MonTitan and enterprise storage, and think about what's currently happening with boot drive controllers and full solutions already starting to ship and potentially diversifying our customer base next year. And then this part would be for you, Wallace. As we think about some of the news surrounding high-bandwidth flash from Korea and other countries, while some may be skeptical that this may just reflect storage-class memory trends that didn't materialize over the past 15 years, the backing by leading OEMs suggests otherwise. How should we think about these drivers as we progress from 2025 to 2026 and 2027? What can enterprise broadly defined be for the company longer term?

Thank you for your question. Please remain on the line. Your conference will resume shortly. Thank you. Presenters, you may continue your conference. Craig, please feel free to repeat your question.

Yes, the question is this: If we look at enterprise storage broadly, including MonTitan's traditional enterprise storage and also boot drive business, which has begun shipping now, as well as the potential for high-bandwidth flash in the future as a much-needed AI-based solution, how do we think about the longer-term market storage as we just get started with boot drives this year, ramping MonTitan, and then projecting forward with high-bandwidth flash as a possible third driver?

I want to clarify that the 5% to 10% of total revenue projected for 2026 to 2027 does not include our Boot Drive for the current DPU design or the additional switch Boot Drive solution. We are looking at 2026 as a significant and challenging year for the storage industry. There are many new opportunities emerging, not just in conventional compute storage, but also one storage and high-capacity QLC SSDs. Moving forward, it will be near GPU storage with new prospects for the MonTitan controller. We need to ramp up our R&D resources to meet this demand. Simultaneously, it’s a great opportunity, and we see MonTitan scaling up, along with our Boot Drive solutions.

What's your view on the potential for high-bandwidth flash to be a third driver of enterprise storage longer term?

High-bandwidth flash is a very interesting product designed for AI inference closer to the GPU. We see 3D SoC technology that meets certain requirements from leading GPU providers. High-bandwidth flash also involves packaging technology which requires new controllers. We will monitor this carefully; while this development is currently in the hands of NAND makers, and we are keeping an eye on it, we need to prepare for when the market matures and decides when to engage.

Regarding the NAND sufficiency, what messaging are you getting from your customers with respect to how they will prioritize their output and capacity allocations across enterprise versus PC, smartphone, and consumer applications? What does this mean for various growth drivers of the business in 2026?

We face an unprecedented situation with HDD, DRAM, HBM, and NAND all experiencing severe shortages in 2026. Most of our capacity is sold out. I have talked to many major makers, but I cannot disclose specific allocation policies. However, leading manufacturers will maintain discipline while securing some capacity for smartphones, PCs, and automotive, although the majority will be directed to AI and AI data centers. Balancing these allocations is crucial to keep the entire industry moving forward.

We will now take our next question from the line of Suji Desilva from ROTH Capital.

Wallace, Jason, congratulations on your progress. For MonTitan, I know you're discussing two lead customers initially, and now there are more. One of them was an OEM that was, I think, trying to secure their own hyperscaling customers. Has that happened with that lead customer? If so, what's the start of ramp timing for that customer?

I cannot comment on their ramping timelines. They are very close to it. As you know, Tier 1 customers may develop their firmware independently or work with us. We cannot comment on their ramping, but we are seeing tremendous demand for MonTitan from multiple Tier 2 customers, so we are busy providing solutions for both TLC and QLC. We hope to start a small ramp in Q4 and see more meaningful growth in 2026.

Okay, that's very helpful. My other question is on the arbitration. I'm wondering if there's any update there.

Yes. Thanks, Suji. Yes, the arbitration has begun. The hearing was held as scheduled earlier this month. The tribunal scheduled oral closing arguments to occur in March of 2026, and it is expected that a decision from the tribunal will be available sometime after that.

We will now take our next question from the line of Tiffany Ye from Morgan Stanley.

Congrats on the great results and guidance. My first question is that it seems your inventory value rose around 62% in the third quarter. May we know the reason behind this? Is it due to inventory preparation for the BT substrate shortage? And I have a follow-up.

Yes. The inventory increase is to support the growing backlog and orders that we have already received. This is expected to ship over the next few quarters and includes inventory increases for all our product categories, including some low-cost NAND that we've procured as well as controllers for SSDs, eMMC, and UFS. So it's a broad-based increase in demand that we are preparing ahead of.

Got it. It seems that the BT substrate shortage has impacted some of our fabless peers heading into the first half of next year. Do we see any impact from that, or are we fully loaded now and therefore not worry about that impact?

I think the substrate PCB shortage or long lead times in non-power business, we have prepared in advance. However, we need to prepare for the production ramp for more controllers as well as the Ferri product line. That's why we increased our inventory right now.

Got it. I have one more question. As we move into 2026, we see our foundry partner and OSAT partners initiating price hikes to reflect elevated material costs. How should we think about the impact on our profitability? Do you think we can pass through all these elevated costs to our customers?

What I can say is that TSMC will increase wafer prices from 5, 4, and 3 nanometers starting from 2025. Our PCIe Gen 6 TSMC 4-nanometer won't enter production until late 2027 or 2028. So there won’t be a significant cost impact from foundry wafers on our controller costs in the next two to three years.

Most of our products are using trailing-edge process geometries. Thus, availability and pricing are certainly more favorable in those trailing edges. The more advanced products we have today are at 6 nanometers, but many of our other products are at 12, 20, or even higher process geometries.

So maybe the impact from foundry is quite limited in 2026, but how about OSATs?

For OSAT, we have a preliminary agreement, so the cost impact from OSAT will be very limited and almost irrelevant to us.

Next question comes from Gokul Hariharan from JPMorgan.

Given this rapid increase in NAND flash pricing, it seems like you're going to be in a reasonably short supply situation throughout 2026. What business dynamics are you observing from your customers? Historically, Silicon Motion has been more affected when NAND flash is very tight, as OEMs try to prioritize allocations to certain customers. Meanwhile, QLC NAND is clearly rising. Could you talk a little about any insights on your engagement, and reasons why you are not getting more bullish about your 5% to 10% enterprise SSD exposure given activities surrounding QLC NAND?

Over 50% of our business comes from NAND OEMs, so we are well protected in this segment. Our module maker customers have prepared for potential NAND price increases and shortages in advance. They all have at least 8 to 12 months' inventory. While they have certain contracts with NAND suppliers that could be affected, most of our customers, based on discussions over the last couple of weeks, are confident they can navigate through 2026. We do not foresee any adverse impact on our business in the coming quarters or even in the first half of 2026. We feel strong about our backlog and expect to benefit from the NAND supply shortage, becoming a stronger player in the industry.

Are there any updates on the QLC NAND pipeline—design pipeline and revenue pipeline? I thought you might sound a bit more bullish about enterprise SSD given the current QLC NAND activities.

We are indeed excited about the high demand for QLC high-capacity enterprise SSD. We just need to deliver results. As you can see, not only AI inference requires high-capacity enterprise SSD but HDD shortages have also created urgent demand for high-capacity SSDs. That's why we are busy. I cannot comment on the outcome, but we are working hard to deliver results as soon as possible.

We are maintaining our target of 5% to 10% for enterprise revenue growth in 2026, 2027, despite strong demand. If we can accelerate that growth, we certainly will, but we are resource constrained and are making every effort to deliver results as quickly as possible. Our products are beginning to sample with end customers, so as they ramp up, we are ready to support them. We have several processes in place to facilitate this.

How are you thinking about the next couple of quarters for your client SSDs? We've seen a lot of benefits from the end of Windows 10 and demand pull in for PCs as a result. As we start to course this, how do you see this affecting growth? Do you expect any moderation in growth, or does the spec migration to PCIe 5 offset any decline in volume growth?

You're correct that we benefit from PCIe 5 market share gains. Our PCIe 5, 8-channel product has won design wins with four NAND makers and nearly all the module makers. As PC OEMs begin to ramp later this quarter, we expect revenue growth and further market share gains from this. Our 4-channel mainstream DRAM PCIe 5 is also nearing production, with initial production expected to start late this quarter and ramping up by mid-next year. As PCIe 5 becomes the mainstream technology in the PC market, Silicon Motion will capitalize on this trend and aim for 40% global market share.

As I mentioned in previous comments, we anticipate our SSD controller business to experience sequential growth in the fourth quarter.

Looking at PCIe Gen 5 for next year, what percentage of the PC OEM market do you expect it to represent? Is it around 15%, 20%? Or once your 4-channel controller is ready, could it be even higher?

We cannot comment on specific plans from PC OEMs regarding their ramp. We simply know that as they ramp more models, we stand to benefit from market share gains.

Our next question comes from Matt Bryson from Wedbush. We are not getting a response from Matt. So I'm not showing any further questions. I'll now turn the conference back to Mr. 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. The schedule of these events will be posted on the Investor Relationship section of our corporate website, and we look forward to speaking with you at these events. Thank you, everyone, for joining us today.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.