Silicon Motion Technology Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's 2nd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. This conference call contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.

Operator

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

Operator

We assume no obligation to update any forward looking statements, which apply only as of the date of this conference call. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to Mr. Tom Sibenzis, Senior Director of IR and Strategy of the company. Please go ahead, sir.

Speaker 1

Good morning, everyone, and welcome to Silicon Motion's Q2 2024 Financial Results Conference Call and Webcast. Joining me today is Wallace Koh, our President and CEO and Jason Tsai, our Interim CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our 2nd quarter results and outlook. Following our prepared remarks, we will conclude with a Q and A session. Before we get started, I would like to remind you of our Safe Harbor policy, which was read at the start of this call.

Speaker 1

For a comprehensive overview of the risks involved with 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 ks 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.

Speaker 1

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.

Speaker 1

With that, I will turn the call over to Wallace.

Speaker 2

Thank you, Tom. Hi everyone and thank you for joining us today. We had a strong start to 2024 building on the momentum that began in second half of calendar twenty twenty three. We delivered sequential revenue growth ahead of expectation and achieved gross margin at the high end of our guidance range as better mix and pricing continue to steadily improve our profitability. The revenue upside was driven by our continued strength with our NAND flash customer, but demand from PC and smartphone OEM increased in anticipation of seasonally stronger second half demand.

Speaker 2

Additionally, we benefited from increased market share at the top NAND flash makers as they continue to source controller externally rather than develop them in house. Over the past few quarters, our team have been working hard to work deepening our partnership with our NAND flash maker customers. We are winning more and more sockets from mainstream to high end SSD and eMMC and UFS controller for PC, smartphones, automotive and other markets. Our success with our flash maker partner has helped improve our visibility and crucial to our strong growth this year. Despite market uncertainty especially in the retail aftermarket.

Speaker 2

This quarter our revenue from NAND flash maker grew nearly 15% sequentially, accounting for more than 60% of our total revenue. Both SSD and eMMCUF controller strength for our new program more than offset emerging softness in the retail market is our module maker customers. Demand for our product is rising and NAND Fashion makers increasingly also controller solutions and we are in the best position to benefit from this growing trend. We have unmatched technical and financial resources to build next generation controllers and we intend to enhance our position through the introduction of multiple new products in the coming year, including our enterprise class Mount Titan family, new PCIe 5.0 and UFS 4.0 controllers. I'm pleased with our team's execution in the first half of the year and the momentum going to second half of this year.

Speaker 2

We have significant opportunities ahead of us as we deliver product and solution our customer need and remain focused on driving additional revenue growth, improving profitability across our platform of leading NAND controller solutions. I would now like to provide you with an overview of the NAND market dynamic. NAND pricing is increasing and expected to move higher throughout the remainder of the year and early 2025, primarily driven by demand from data center and enterprise storage applications. As pricing continued to increase from the lowest experience last year, NAND maker are beginning to bring some capacity back online and invest in new generation NAND productions, but we do not expect NAND supply and demand to come back into balance until mid-twenty 25. Higher NAND pricing and the weaker global economy environment caused by higher inflation has softened retail demand for our module maker customers.

Speaker 2

With continuing inflationary pressure, expecting NAND price increase for the remainder of the year, we expect muted back to school and holiday sales of retail aftermarket SSD. Despite the headwind, the overall PC demand appears stable and we also continue to see incremental improvement in the smartphone market with the unit sales expected to grow modestly year over year. OEM entry in QLC NAND continue to increase in both the data center and the edge in PC, smartphone and other devices. This is being driven by device OEM anticipating the need to support AI and other applications that require higher performance and higher density solid state storage solutions. It becomes 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 our major product categories.

Speaker 2

The three d NAND layer continued to increase, managing QLC NAND become even more challenging as they require more sophisticated controller technology such as our proprietary advanced LDPC and 3dray technology and advanced firmware algorithm to ensure data retention and reduce readwrite determent issue. We expect QLC NAND will increasingly be deployed across all major market category that we serve given its ability to deliver high density and low cost. And we believe we are best positioned to benefit from the trend in the coming years. Now I'd like to discuss each of our major product segment beginning with our SSD controllers. We experienced strong demand in June quarter from our flash maker customer driven by PC OEMs.

Speaker 2

PC OEMs D controller sales represent approximately 80% of our clients D controller sales. Is the high end of our historical range as the high NAND prices are putting pressure on channel and module makers. We continue to generate strong interest in our new PCIe Gen 5 8 channel controller that we tape out last year. This is a premium product that will be ideally suited for high end notebook and desktop AI PC as well as for gaming and workstation PC that offer unparalleled performance with ultra low power consumption. The controller offered best in class power to performance offered 20% to 30% lower power consumption than competitive controllers, including those internally developed by NAND makers.

Speaker 2

This is the first signal meter 8 channel PCIe5 controller available in the market, which has led to significant win including our 4th NAND maker, which I'm pleased to announce we won this quarter in addition to nearly every major module makers. We remain on track to ramp initial units of the new PCIe 5 controller with our customers later this year. Additionally, we have a strong pipeline of design activity with several flash makers of a PCIe 4 SSD using next generation TLC and QLC NAND. This new SSD deliver high performance and high density at a lower cost, ideal for rapidly growing AI PC market that is searching for lower cost solutions. While the PC market remains a top priority and will continue to drive significant growth in revenue, We are seeing emerging opportunity with our automotive, commercial, industrial grade SSD controllers.

Speaker 2

This includes our automotive grade PCIe 4 controller as well as multiple controller targeting industrial and commercial application. We intend to expand our leadership through the introduction of our upcoming dual port PCIe5 controller for the automotive market next year. And we expect to continue adding meaningful growth opportunity in 2025 and beyond with a more diversified customer and end market base. Now I would like to move to our eMMC and UFS business. We continue to benefit from the improving smartphone market during the June quarter, as well as we strength with our 2 EMC and UFS NAND customers.

Speaker 2

We successfully tape out our first UFS 4.0 controller early this year and the response has been positive. We are beginning qualification and we are targeting production ramp in the second half of calendar twenty twenty five. UFS 3.1 and 2.2 continue to account for most of the smartphone market volume today and are expected to stay relevant in the coming years. While flash makers allocate more resources to next generation UFS products in support of new generation NAND, We are seeing greater opportunity in high volume application as flash maker look to outsource mainstream controller, so that they can more effectively compete at leading edge. As with our leading PCIe product, we are generating strong inbound activity in our QLC controller technology in UFS and eMMC.

Speaker 2

With a growing interest in Edge AI, smartphone OEMs are looking for cost effective way to increase own device memory density. Our leadership in QLC NAND controller technology plays second motion at the forefront of QLC adoption as smartphone manufacturers are looking to deploy QLC with UFS for mid to high end devices and QLC with EMC in low end handset for AI and other storage intensification over the next few years. Our first handset OEM partner that will deploy QLC on UFS expected to ramp later this year. Once more, I'm pleased to report to you today that this customer expects to expand production of this new KLC UFS solution into additional smartphone models next year. Looking beyond the smartphone market, OEM are interested in adoption UFS in eMMC for smart connected devices and other consumer application.

Speaker 2

Our growing list of wins and customers in this additional area will further diversify our end market growth opportunity. Given the increasing opportunity to capture share with our flash maker partners and show the introduction of new eMMC and user QRC solution, we believe we are well positioned for continued growth. Now let me turn to our Mount Titan platform. As we have mentioned before, enterprise and data center story offers the commotion a tremendous new revenue opportunity combined with a meaningfully high ASP and margin profile over the medium to long term. We continue to see more inbound interest in our monetization solution given our unique differentiation.

Speaker 2

We believe we are well positioned to scale with the flash maker and storage solution enabler, as well as directly with data center and enterprise customer in the coming years. Our first one Titan PCIe 5 controller manages TLC and QLC NAND on a single platform, enabling the seamless transition and adoption of QLC NAND with enterprise and data center story applications. As we announced last quarter, we have won 2 Tier 1 customer for our new Mt. Titan PCIe 5 controller. 1 in the U.

Speaker 2

S. And 1 in the China and expect to secure 2 additional Tier 1 win later this year. We are on track to begin early mass production later this year and ramp more meaningfully next year. Our early success has been driven through differentiation with our controller offering high performance and greater power efficiency. We support for more NAND than any other platform in the market today.

Speaker 2

TongTitan delivered 2 key technology, low NAND space and flexible data placement with QLC, which combined with to improve latency and throughput speed while lowering overall cost should reduce DRAM demand. Additionally, our proprietary power and performance shipping technology enable our customers to dynamically adjust their storage to meet rapidly changing data center performance requirement. This improves in the upcoming 2 terabit mono die QLC NAND, the ability to deliver 128 terabyte SSD. These high capacity SSD have the higher sequential re performance and lower cost to meet ever increasing AI compute and store requirement. It is becoming increasingly clear for our customers that our monetization solution will be essential for the next generation data center and storage build build out plan, especially for delivering faster and more accurate AI capability to the market.

Speaker 2

We have mentioned on previous calls given our record of managing our QLC NAND than anyone over the past decade. We believe that this new product platform will drive multiple year growth cycle for silicon motion as we enter greenfield market opportunity for our company with leading technology. Given the early monetizing performance and widespread interest in our products, we expect the platform to grow to 5% to 10% of our total revenue in the 2026 to 2027 timeframes. Overall, I'm excited by our strong start to 2024 and our outlook for the remainder of the year, I'm especially pleased that we continue to target year over year revenue growth of 25% to 30% despite the challenging in the near term from increased NAND flash prices in the sum of our customers. Looking ahead, we are confident that our technology leadership and diversified portfolio of our controller across a wide range of market and application, well accelerate and drive the substantial long term growth of our business.

Speaker 2

We continue to push beyond PC and smartphone into new opportunity including the enterprise, automotive, industrial, commercial and consumer markets. I'm especially excited about emerging non Titan opportunity. And what I expect will be a significantly positive impact on our revenue growth and operation margins over the next few years. As we capture share in the enterprise market, I look forward to detailing more about our progress in the area in the future update. Now let me turn the call over to Jason to go over our financial results and outlook.

Speaker 3

Thank you, Wallace, and good morning, everyone joining us today. I will discuss additional details of our 2nd 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. A reconciliation of our GAAP to non GAAP data is included in the earnings release issued yesterday as well as the presentation that was uploaded to our website a little while ago. In the Q2, sales increased 11% sequentially to 211,000,000 dollars SSD sales increased modestly sequentially representing our 5th consecutive quarter of growth.

Speaker 3

Our strong share gains of flash makers continues to deliver outstanding results despite some market uncertainties from continued inflationary pressure and higher NAND flash prices contributing to weaker aftermarket SSD demand. EMMC and UFS controllers increased 25% to 30% sequentially as demand inflected in the 2nd quarter from increased smartphone builds in anticipation of demand growth in the second half of this year. SSD solution sales increased 20% to 25% sequentially. Gross margin in the 2nd quarter increased to 46%, primarily from better mix and newer products. Operating expenses in the 2nd quarter were $62,100,000 a slight decrease from the 1st quarter.

Speaker 3

Operating expenses, specifically R and D project expense, was higher than expected in the Q2 as we made the decision to re tape out our upcoming high performance 8 channel PCIe5 client SSD controller to deliver superior yields when we enter mass production later this year. This will result in higher overall gross margins for this product in the long term. Operating margins increased to 16.5% in the quarter, up from 12% in the 1st quarter. Our effective tax rate in the 2nd quarter was 16.5%, a modest increase from the 16.1% tax rate in the 1st quarter. Earnings per ADS were $0.96 an increase from the $0.64 in the 1st quarter.

Speaker 3

Total stock based compensation, which we exclude from our non GAAP results was $385,000 in the 2nd quarter.

Speaker 4

We had

Speaker 3

$343,600,000 of cash, cash equivalents, restricted cash and short term investments at the end of the second quarter compared to $349,300,000 at the end of the first quarter. Inventory decreased sequentially in the 2nd quarter to $241,000,000 from $253,000,000 in the 1st quarter. Before I turn to outlook, I'd like to talk a bit more about our higher R and D investments that we are making this year. As the industry adopts new high performance standards that doubles the performance from previous standards, power consumption needs to remain at the same or lower to assure the same battery life for smartphones and notebooks that consumers demand. The only way to balance both significantly higher performance and lower power is to move to lower process geometry production and that means building these next generation PCIe and UFS controllers on 60 nanometer.

Speaker 3

In addition, we need to develop new SoC architecture, new firmware architecture and customized mixed signal capabilities that collaborate closely with our NAND partners to achieve these goals. While all of this does result in higher R and D expenses in the near term, we do see significant benefits including higher ASPs, more outsourcing and a bigger moat around our product leadership than ever before. We have unmatched technical and financial resources and intend to make this essential investment in order for us to continue to grow faster and increase our market share and to drive higher growth and better profitability over the long term. Let me now turn to our outlook. As Wallace talked about earlier this year earlier, due to the ongoing higher NAND prices and weaker retail consumer electronics demand, our customers, especially module makers, are seeing demand soften in the retail aftermarket.

Speaker 3

As a result, they are anticipating a much more muted seasonal pattern for retail demand for the second half of this year. Despite this, our ongoing success with Flashmakers customers and the increased outsourcing we have won over the past year gives us confidence that we'll be able to achieve our full year revenue outlook. For the Q3, we expect revenue to be flat plus or minus 2.5% sequentially to approximately $205,000,000 to $216,000,000 due to the expected weaker than seasonal aftermarket SSD demand. We expect eMMC and SSD controller sales to be stable sequentially. 3rd quarter gross margins is expected to continue to improve and be in the range of 46% to 47%.

Speaker 3

Our improving mix of sales towards newer products should lead to sustained gross margin improvements. 3rd quarter operating margin will experience a 1 quarter decline driven by the expected tape out of our new 6 nanometer 4 channel mainstream client PCIe 5 SSD controller. We expect this new controller will enter mass production early 2026 as PCIe 5 SSDs expand into the mainstream market. Operating margin is expected to be in the range of 14.3% to 15.3% in the September quarter and then return to more normalized levels. 3rd quarter effective tax rate should be 18% and 3rd quarter stock based compensation and dispute related expenses to be in the range of $6,400,000 to $7,400,000 For the full year, we are maintaining our revenue outlook given the continuing strong demand from our NAND maker customers, but improving our profitability.

Speaker 3

Revenue is expected to increase 25% to 30% this year to approximately $800,000,000 to $830,000,000 We are tightening our gross margin range given the strength of our margin improvement this year already. Full year gross margins is expected to be in the 46% to 47% range. Operating margin is expected to improve modestly given the better gross margin performance in the first half of this year and is expected to be in the range of 14.8% to 16.8% despite accelerated investments in our technology leadership and the new product introductions that should lead to revenue growth in 2025 and beyond. Our 2024 effective tax rate is expected to come down slightly and be now approximately 18%. 2024 stock based compensation, dispute related expenses and loss from settlement of litigation should be in the range of $29,000,000 to $31,000,000 With the dedication of our team over the past year, we have been able to develop and deliver cutting edge controller solutions that will power AI applications in PCs, smartphones and soon data centers and enterprises.

Speaker 3

Our wide range of controller solutions are gaining significant traction in other markets such as automotive, industrial and commercial applications, further diversifying our long term growth drivers. Our efforts to collaborate more with flash makers have allowed us to benefit from the recent trend of more outsourcing driving more predictable growth and better visibility despite near term market volatility. While we will continue to invest in growing our R and D capabilities and building more leading edge controllers, we're seeing these investments begin to pay dividends and we expect these products to scale meaningfully next year, driving additional revenue growth and profitability and further extending our technology and market share leadership in the flash controller market. This concludes our prepared remarks. We'll now open the call for your questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Craig Ellis from B. Riley Securities. Please ask your question.

Speaker 4

Yes, thanks for taking the question. Wallace, I wanted to start off with one that was high level and followed up on some of your comments regarding execution with NAND OEM share gain. At the beginning of the year, we were intending to see 500 basis points of share gain this year. Can you just talk about where you think you stand at midyear against that objective and any positive or negative variances versus what you were hoping for 6 months ago?

Speaker 2

So far, I think we're on track with all the project we're aiming and plan to do. We maintain very, very close relationship with all the NAND makers and we capture all the variable socket open to us. And so our share last year was about for SSD about 25% to 30% and we believe we'll continue to gain share with this is a forecast and design win. And we believe the mobile portion, we're also gaining around 20% to 25% range by year end. So we are cautiously monitoring all the opportunity to capture our source to 3rd party, especially second motion.

Speaker 4

That's helpful. And then the follow-up question relates to the PCIe Gen 5 transition. Can you just help us put that in context by providing a summary of where PCIe Gen 4 mix would be this year? And as we look to next year, when PCIe Gen 5 would ship in higher volume, how much of the business on the SSD controller side shifts over to PCIe Gen 5 next year? Thank you.

Speaker 4

Yes.

Speaker 2

PCIe Gen 5 will start to ramp from early 2025, but 2025 will maintain the high end premium line. So there will be the high end notebook in the high end PC for AI PC and gaming PC and workstation PC. So next year, the volume probably will stay maintained very low, only about 5% transition, but for 2026, we're moving to the high volume and the mainstream PCIe Gen 5 coming. So next year I think PCIe majority for SSD will maintain in the PCIe Gen 4. By 2026 and probably PCIe Gen 5 will occupy around 30% of total market.

Speaker 4

Very helpful, Wallace. Thanks and I'll hop back into the queue.

Operator

Thank you. Our next question comes from the line of Tony Stoss from Craig Hallum. Please go ahead, Tony.

Speaker 5

Thank you. Good morning, guys. Maybe for you, Jason, just want to follow-up on the tape up commentary expected for Q3. Can you maybe size that for us? And also, do you expect any continued tape outs in Q4?

Speaker 5

And I'd love to hear your thoughts, a lot of positive commentary related to increasing gross margins. Can you give us a sense of kind of what you think ballpark might be heading into 2025? I would assume it's higher than 2024.

Speaker 3

Yes. So for tape out costs, we talked about 6 nanometer tape out costs typically running $15,000,000 to $20,000,000 per controller. Obviously, that's over the entire production of the tape out. And given any given quarter where we do actually tape out, that's probably a $5,000,000 to $10,000,000 charge in that quarter. So that's what we're that's the ballpark that we're talking about here from an incremental perspective in Q3 given the new 6 nanometer 4 channel PCI 5 controller we're taking out this quarter.

Speaker 3

Going into Q4, we do not expect any additional tape outs for PCI for 6 nanometer. So you should see our OpEx come down in the Q4. In terms of gross margins, we've been steadily progressing over the last year or so, improving our gross margins due to better mix. And we expect that to continue as more and more of our products come from newer generation products. Next year, we'll also have PCIe 5 as well as Montitin starting to ramp a little more meaningfully.

Speaker 3

So those should be positive and additive for us as well. Historically, we've been at 48% to 50% gross margins. I think we're going to get pretty close to that this year. And then going into next year, we should be in that range.

Speaker 5

Got it. And then Wallace, maybe a follow-up for you on the Mondtitan and you're adding of 2 additional customers to make it 4 at the end of this year. I think in the last quarterly conference call you talked about a number of customers that you can handle. Can you update us? And do you think you could take on even more customers and maybe give us a sense of how many additional ones you think you could take on in 2025?

Speaker 2

Yes. So we have roughly our R and D resource can handle maximum around 4 Tier 1 customer simultaneously. But as of today, we're winning 2 Tier 1 customer. 1 of the customer would develop the firmware themselves with our SDK. So that will help us offload the resources.

Speaker 2

We provide complete documentation, this is about technology and by the way, help them to porting their firmware into our platform. So once it gets down, I think that will be the golden basis for the complete SDK and documentation we can offer to other OEM customer. We're looking forward to expand more resources and we try to expand and wider range of customer in 2025 because if customer decide to use our standard turnkey solution with both firmware and our ASIC, I think we are able to support more than for Tier 1 customer.

Speaker 5

Great. Thanks guys. Appreciate it.

Operator

Thank you. Our next question comes from the line of Quinn Bolton from Needham and Company. Please ask your question, Quinn.

Speaker 6

Hey, guys. Just wanted to follow-up sort of similar question to what Craig asked except this time maybe on the mix of QLC. Where do you see QLC as a percent of both SSDs and the smartphone business as you get into 2025 and 2026? And then I've got

Speaker 7

a couple of follow ups.

Speaker 2

So it's a very good question. I think the QLC today in the PC that's about around 10% to 15% in the very low single digit, very low side. But all the NAND maker is roughly driving into the QLC office. So I think 20% to 25% for client SSD should be minimum 20% to 25%. For smartphone, majority smartphone maker, they are deploying the opportunity, they are in the trial mode.

Speaker 2

So for next year, the total percentage should be very, very low single digit, probably less than 5%. But after they deploy very successful, we spend to multiple model. We see the UFS adoption initially come from the Mi range. But after mid drain is down, they will try to fill into the high end. At the same time, we see 2 smartphone makers going to try QLC into the eMMC for value line.

Speaker 2

So this is a tremendous opportunity and momentum, but they have to try the field trial and make sure it's really transparent to end user and consumer. They probably won't see the difference between TLC and TLC, but with higher density than traditional TLC.

Speaker 6

Got it. Thank you for that Wallace. And then a follow-up question on Montytain. As you ramp that solution, you've mentioned it carries premium margins. Wondering if that ramp takes and it hits that 5% to 10% target in 2026, 2027, do you think that that carries enough lift on margins that it puts you to the higher end of your kind of target range of 48% to 50% Could it push you above the 50% level?

Speaker 6

Just any sense on how additive Mondtitan could be to the margin profile?

Speaker 3

Yes. It's a little too early for us to comment about 26%, 27% margin profile at this point, Quint. But I think historically, we've been able to achieve that 48% to 50% based upon what we have today and what the products that we have today versus Montaigne is a greenfield opportunity like Wallace had pointed out. So I think that could be additive to that, maybe potentially lift us up longer term, but it's a little too early to say how additive that is in that 2026, 2027 timeframe.

Speaker 6

Yes. I know it's a long ways out. And then lastly, Jason, just as you look at the expenses you're spending today on the PCA Gen 5 products, the UFS4 controllers, wondering if you expect another heavy investment year in 2025. You guys have done a great job of citing revenue this year, but obviously expenses are increasing as well. And so there's been less fall through to EPS and just wondering if you might expect additional operating leverage on revenue growth next year is perhaps some of those investments kind of maybe stabilize next year rather than continue to increase at a pretty fast pace?

Speaker 3

Yes. That's exactly the way we look at it. We're going to start seeing the dividends pay off of these investments we're making this year. That will lead to revenue growth, but we do expect to I think it's a little early talk about OpEx for next year, but we wouldn't expect it to grow nearly as fast as we saw it grow this year just given the initial staying of the 6 nanometer tape outs that we had to bear this year.

Speaker 2

Let me just add some comments. I think we try to control our operating spend next year. However, we have a very, very strong demand from NAND maker. Some of us to customize certain new UFS controller. We have to base on the resource and finally return to do calculation.

Speaker 2

If we decide to do it, that will increase some our operating expense. But I think we will based on every major project, we will be cautiously review all the ROI to make decision.

Speaker 6

Thank you, Ross. Thank you, Jason.

Operator

Thank you. Our next question comes from the line of Suji Desilva from ROTH Capital. Please ask your question, Suji.

Speaker 7

Hi, Wallace. Hi, Jason. Congrats on the progress here. The AI PC, I'm just wondering, what is the content uplift there for the SSDs in terms of product or ASP versus the non AI PC? Just if you could

Speaker 4

clarify that would be helpful.

Speaker 2

Yes. It's a very good question. I hope I can answer you. By seeing that so far AI PC get a tremendous momentum. However, we did not see any meaningful impact of increase PC unit shipment so far.

Speaker 2

Besides Microsoft Copilot, I think the market is really waiting for more meaningful application coming to add a practical application and purpose to make both the corporate and consumer feel comfortable. So I think there's many, many different new platform coming, but it's also some bundle with PC OEMs own AR application. So we have to wait foresee the consumer feedback to see adoption. So far, I think the PC unit shipment for 2019 4 is maintained the same at the beginning of the year or single digit increase compared to 2023.

Speaker 7

Okay. And then switching over to the infrastructure side.

Speaker 2

Sorry, we definitely see PCI HEM5 SSD that become a plus because they have much better performance, provide a better sequential read, provide a much better shorter latency. So that's why we do see potentially there will be high demand for PCI Gen 5A channel SSD in 2025.

Speaker 7

Okay. That's available 25. Great. Got it. And then switching overall to the AI infrastructure side, can you give us some framework for these programs that are on the call that you have the team might be adding?

Speaker 7

How to think about the inter ASPs maybe on a content per server, content per rack framework, maybe that will be one way to kind of get a sense of these Mondtitan programs and how

Speaker 4

big they can get for you?

Speaker 3

We talk about it on a volume basis, right, because we are we sell controllers, we don't sell density. I think if you take a look at historically, enterprise SSD controllers are typically in the 50 to 75 plus range in that ballpark. Obviously, configurations for different servers, different applications can vary. So it's difficult for us to assess or to really say that there is any sort of real kind of algorithm you can use on that.

Speaker 2

So we can only give you roughly range for the 16 channel on Titan controller, the ASP is between $55 to $65 range. Durameter TLC, QLC, our Durameter density, the controller price is similar range. We also have a version for 8 channel controller, which we have a new design probably taped by mid of next year. And this will for 8 channel controller, the selling price between $42 to $50 range. So this is part of the ballpark for the Mount Titan family controller price.

Speaker 7

All right. Very helpful. Chase, thanks.

Operator

Thank you. Next question comes from the line of Robert Hsu from JPMorgan. Please ask your question, Robert.

Speaker 4

Okay. Thank you. I'm asking on behalf of Gokul Hariharan. So I have a quick question on the inventory level. How should we think about the inventory level for the client SSD or with the PC OEMs as well as the mobile solutions with OEM customers?

Speaker 4

Thank you.

Speaker 2

So at this moment, we see the inventory level in the channel is relatively healthy, but however, just because the demand side is very weak from the channel in retail. So most of our customers see inventory level, I think is largely healthy and in line now. And for the NAND maker, I think they definitely have much less the inventory for the client SSD.

Operator

Do you have any follow-up question, Robert?

Speaker 4

Yes, that's it.

Operator

All right. Thank you. I'm showing no further questions. I'll now turn the conference back to the President and CEO, Mr. Wallace Kuo for closing comments.

Speaker 2

Thank you everyone for joining us today and for your continued interest in Second Motion. We'll be attending the Future Memory and the Starry Conference in Santa Clara next week as well as several investor conference in the coming months. The schedule of this event will be posted on the Investor Relations section of our corporate website and look forward to speaking with you at this event. Thank you everyone for joining today. Goodbye for now.

Operator

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

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