Silicon Motion Technology Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025

There are 9 speakers on the call.

Operator

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

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.

Operator

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, 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 Spanzis, Senior Director of IR and Strategy.

Operator

Please go ahead, sir.

Speaker 1

Good morning, everyone, and welcome to Silicon Motion's First Quarter twenty twenty five Financial Results conference call and webcast. Joining me today is Wallace Co, our President and CEO and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments and then Jason will discuss our first 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 in investing in our securities, please refer to our filings with the U. S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form six ks after the close of market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time.

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. Hello, everyone, and thank you for joining us today. I'm pleased that we delivered revenue at the high end of our range of our first quarter as the market of PC and smartphone began to rebound. Additionally, we delivered another quarter of gross margin expansion through the successful introduction of a new product and the mix shift toward higher end PCIe and UFS products. We continue to invest in the next generation technologies that we expect to drive long term sustainable top and bottom line growth of our company.

Speaker 2

We are also benefiting from the increased controller outsourcing by our NAND flash maker customer, a trend that should continue as the controller capacities increase and the design costs continue to rise. Flash makers remain focused on profitability while managing their investment to serve the increasingly diverse end market memory requirements. Despite the macro uncertainties, we are excited by the progress we are making, securing strong design win momentum and share gain across all our end markets as we launch several new products, including exciting new win with NVIDIA's BlueField three DPU platform. That I will discuss in greater detail in a moment, as well as a new solution for the PC, smartphone, enterprise and automotive markets. I would like to spend a moment discussing the current business environment.

Speaker 2

The current global economy picture is increasingly difficult to navigate and they change day to day due to ongoing tariff and geopolitical challenges. Regarding current climate, we believe the impact to our business should be limited given that The US only account for 10% of the global smartphone market and about 25% of the PC market. For smartphones, The U. S. Market is dominated by Apple and Samsung, accounting for nearly 85% of market, where we have historically had a little to no share.

Speaker 2

Our overall exposure to U. S. Consumer electronic sales is significantly lower than many other semiconductor companies in the PC and smartphone. While the escalating tariff environment create uncertainty in demand in the near term, we are going to remain focused on what we can control, delivering market leading products, win superior performance, expanding our market share with the flash makers that are increasingly resource constrained, supporting multiple memory technology and diversifying our business through the expansion into new and growing market, including enterprise and AI storage, automotive, industrial and more. I would now like to discuss the broader NAND flash environment.

Speaker 2

The NAND industry experienced improvements throughout the first quarter as the inventory level in consumer markets, including smartphone and PC appeared to have bottomed out, and enterprise storage demand remained strong. NAND flash maker have begun to raise prices recently, given scale back flash production and reduced inventory levels. We will continue to focus our resources on our flash maker partners as they will be the customer with the greatest asset to NAND in 2025 if prices continue to rise. Our business with module makers remains steady and they are starting to build inventory ahead of increasing NAND prices and restocking low channel inventory for aftermarket SSD. One area where we are benefiting from both increasing NAND cost and the potentially negative pricing impact of tariff is a rapidly growing interest in QLC NAND.

Speaker 2

QLC allows server and device makers the ability to significantly increasing memory density in a cost effective manner, given OEMs opportunity to deliver higher density storage solution at a more reasonable price. As we have discussed during the past few investor calls, we believe we are in the best position to benefit from the increased adoption of QLC, given that we have more experience managing QLC than any other controller maker. We are experiencing significant inbound interest for developing QLC products across the enterprise market for both TITAN and the consumer market for both SSD and smartphones. And we expect to deliver multiple new products in the coming months that will capitalize on this interest and help us deliver long term sustainable revenue and earning growth for many years to come. Now let me share some update for each of our business segment, beginning with client SSD controllers.

Speaker 2

While there has been much discussion around the 2025 outlook for PC, given the current geopolitical uncertainties, as of today, we believe the market is still expecting PC to grow in the low to mid single digit range. We have seen some motivation by customer to purchase ahead of a NAND price increases and any potential economic effect of tariff and potential supply disruption. But we believe inventory level remain healthy based on our current customer forecast and continued share gain in the mid range and high end PC market. We are increasingly confident in our client SSD business for this year and our pipeline of new program for next year to deliver long term growth. We are seeing stronger than expected demand for our new PCIe five eight channel controller.

Speaker 2

As we have mentioned previously, this controller is the first six nanometer PCIe five chip in the world, and we have design win at four of six NAND flash makers at nearly all module makers given its superior performance and lower power requirement. Introducing December, this controller already account for over five percent of our client SSD business, and we expect they will continue to grow rapidly over the next several quarters as PC OEM, NAND flash maker and module maker customer ramp up their high end PCIe five project to full scale. In addition to the success we are experiencing with our eight channel controller, we have already secured four flash maker win with our upcoming PCIe five four channel wireless controller, targeting the mainstream market. This four channel controller was taped out in Q3 last year and expected to begin shipment later this year. We are also actively engaged with virtually every module maker for this new controller, and we anticipate that they will help us continue to drive share growth in the client SSD in 2026 and beyond.

Speaker 2

In the first quarter, we began to see demand for our new PCIe eight channel controller increase as our flash maker partner secure additional PC OEM wins, and our module maker customer saw significant demand from the consumer aftermarket. Additionally, there is a new market developing for the controller, the white box server market, build a lower cost hardware platform for AI inference that can leverage more mainstream components. Given the early strength in our eight channel PCIe five controllers, in addition to the multiple win with our upcoming four channel DRAM less controller, In our strong competitive position in the mid end PC market, we believe we are increasingly well positioned for unit and revenue growth in client SSD over the next several years, barring significant headwind from the broader economy environment. Now I would like to move on to our eMMC and UFS business. Like the PC market, the smartphone market show sign of a bottoming and recovery in the March.

Speaker 2

This was driven in part by increased smartphone subsidized in China post the Chinese New Year holiday and from the increased inventory restocking ahead of any disruption from geopolitical actions. While it is difficult to know how tariffs will impact smartphone sales in 2025, we have had a promising start of the year. During the March, we experienced strong booking momentum from both flash maker and module maker customers for UFS 3.1 and UFS 3.2 controller, as well as our EMC controllers. As we mentioned during our last conference call, the market is shifting away from eMCP and uMCP solution in the smartphone market, which have historically been dominated by flash makers. With the introduction of less expensive mobile DRAM solution, module makers are gaining share using our controller and installing UFS eFMC solution to smartphone OEMs.

Speaker 2

It is also leading to the adoption of third party controller solution by the flash maker to compete in value line market to reduce development cost. With our new high end EMC 5.1 controller and our broad based EMC product portfolio, we are well positioned with both flash makers and module makers to serve the automotive, IoT, smart TV, set of box and other markets that account for more than 800,000,000 units a year. Overall, we are delighted by the long term opportunity we are seeing in the EMC and UFS to further grow our share in the embedded smartphone memory market, as well as make a significant inroads into automotive, IoT, and other high volume markets. I will now provide an update to our MONTITAN business. MONTITAN is one of the most exciting opportunity for Silicon Motion, given the large addressable multibillion dollar market for enterprise class controllers.

Speaker 2

As we have discussed, this is a new opportunity for our company, and we continue to expand our product portfolio, customer engagement, and technology as we enter the market for the data center, enterprise storage and AI solutions. Interest in monetizing is driven in part by emerging demand for QLC NAND solutions. In given its ability to deliver high density at lower cost, we have more experience with others and support more TLC NAND than anyone else in the industry. Montana also offer greater flexibility than competing solution, given our wide range of firmware capability, with which we can meet the unique need of different customers' application and use cases. Our flexibility is opening opportunity across multiple front in the enterprise and AI storage solution business.

Speaker 2

Many of our early customers are focused on delivering solution for storage system architectures, but we are now expanding our addressable market for Mount Titan. We have been working with NVIDIA team for over a year to qualify our new Mount Titan server full storage solution for use with a BlueField three data processing unit or DPU architecture. And we have been designing to the platform. BlueField three is a network accelerating solution that help deliver peak AI workload effectively. End to end security and high performance cloud networking use NVMe over fibers.

Speaker 2

Our blue storage solution will be used to power BlueField three DPU beginning later this year, adding a significant new revenue and unique growth opportunity for Silicon Motion. Additionally, each BlueField three DPU will be paired with multiple high density enterprise class QLCSD through PCIe switches. Currently, SolidDigm is the only company shipping a high density 122 terabyte QLC enterprise SSD in the market. And we expect to be the second providing a 128 terabyte QLC mount and tighten SSD turnkey solution to our customer later this year. We are thrilled to be growing part of NVIDIA's storage ecosystem, providing enterprise boost storage and high density 128 terabyte Mount Titan enterprise data storage solution for AI.

Speaker 2

These solutions deliver ASV that are significantly above our current corporate average with a critical gross margins. As our Mt. Titan product portfolio evolves, we look forward to engaging with new customer to expand our addressable market in other areas as we are currently doing with Bluefield. To that end, we are currently focused on delivering a more complete family of Montanan product, including controller for SATA and PCIe server boot drives, higher density and performance eight channel and 16 channel controller for AI storage application. With Mount Titan supporting the upcoming two terabit monolithic die QLC NAND, we will be able to deliver high density, high performance 128 terabyte SSD with a best in class random read of 3,500,000 IOPS, putting us in a great position to rapidly expand our market share in the large and growing market for AI storage solution.

Speaker 2

And finally, we are also engaged with multiple partners with next generation PCIe six controller, targeting the NVIDIA Rubin GPU platform that expected to begin ramping in 2027. We are confident that montitan will begin to ramp in the second half of this year and more meaningfully in 2026 as multiple customers enter production. Finally, I would like to provide highlight on our automotive and other business. Our automotive market position continued to improve as we added new product to our growing portfolio. We continue to support automotive across all our product category, including SATA, PCIe SSD, eMMC, UFS, and our ferrite embedded solutions across a wide variety of use cases.

Speaker 2

We are the first company to receive eight SPICE level three certification in PCIe four controller, and we are on track to deliver a PCIe five controller for automotive later this year. Vehicle capacity continued to increase, along with a need for faster, more dense storage solution, given the increasing processing capability. ADAS, sensors, cameras, and other advanced systems. We continue to expand our presence in the automotive market and are increasing our market share with existing and new customers alike, including Samsung, which we have added recently. We are currently shipping to many of the biggest names in the business, including Mercedes, Tesla, GM, BYD, Xiaomi, Toyota, Honda, and many others, and are well on our way to achieving our large target of 10% revenue contribution from automotive by 2026 to 2027.

Speaker 2

Additionally, we recently introduced our 27.8 microSD Xpress controller and have already secured major design wins with a leading South Korea flash manufacturer, supporting one of the most anticipated next generation handset gaming platform announced this year, the Nintendo Switch two, by delivering PCIe SSD like level performance in microSD form factor. The SM270A is designed to meet high density, high speed needed for modern portable gaming and other demanding applications. In conclusion, the start of 2025 has been challenging given the geopolitical headwinds driven by the tariff crisis. Zika Mojin is well positioned to expand its position across the market in 2025, as we continue to gain share with the flash makers. These partnerships and partners increasingly look to outsource controller given their need for operation discipline, while managing significant investment in other technology, including DRAM and HBM memory.

Speaker 2

Our position is also improving through the introduction of a new product, including our PCIe five client SSD controller, which is experiencing strong demand, in addition to our new UFS and EMC product, as we progress through the year, we will also benefit from the introduction of a UFS 4.1 controller in the smartphone market, as well as ramp of Mount Titan for storage system solution and the boost storage in BlueField three DPU in the second half of the year. Additionally, we are well positioned for continued share growth in each of our aftermarket, including automotive. Longer term, as our magnetite and automotive business continue to scale for the next several years and our broad portfolio of solutions for IoT, industrial, commercial and smart devices application continue to gain share. I'm confident that our strategy to diversify beyond the maturing PC and smartphone market will be successful and continue to believe that we could generate more than 20% of our business in 2027 from these new opportunities. I look forward to sharing more about our successes with these products and new markets throughout this year.

Speaker 2

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 to everyone joining us today. I will discuss additional details of our first 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 with the earnings release issued yesterday. In the March, sales decreased 12.9% sequentially to 166,500,000.0 coming at the high end of our guided range despite the weak end user demand for PC and smartphones at the start of the quarter.

Speaker 3

Gross margins increased again in the quarter to 47.1% as we continue to benefit from improved product mix as we shift customers to newer products. Operating expenses increased sequentially to 63.6% as we continue to invest in new enterprise storage products and given the timing of new product tape outs. Operating margin increased sequentially to excuse me, operating margin decreased sequentially to 8.9%, but was within our guided range. We had a one time tax benefit due to the reversal of a risk accrual of a tax accrual that we had in the previous year, which resulted in a tax benefit of $2,500,000 in the quarter. Earnings per ADS was $0.60 Total stock compensation, which excluded which we exclude from non GAAP results was $4,800,000 in 1Q twenty twenty five.

Speaker 3

We had $331,700,000 cash, cash equivalents and restricted cash at the end of the first quarter compared to $334,300,000 at the end of the fourth quarter of twenty twenty four. Cash declined slightly in the first quarter, primarily from the combination of dividend payment of $17,000,000 and $24,300,000 in stock repurchases. In the first quarter, we repurchased $24,300,000 of the $50,000,000 6 month repurchase program the Board authorized on February 6, with an average price of $56.96 per share. First quarter is challenging given the geopolitical impact of the U. S.

Speaker 3

Election and its effect on global trade. While market uncertainty remains high, our team executed well and delivered revenue at the high end and operating margin within the upper half of the guidance range while investing heavily in advanced geometry products and our emerging Montignan platform for enterprise and AI markets. We continue to build upon our strong foundation for long term growth. Now I will discuss our second quarter outlook. Revenue is expected to increase 5% to 10% to 175,000,000 to $183,000,000 driven by the success of our PCI Gen five as well as continuing strong demand for our UFS three point one and two point two controllers.

Speaker 3

Gross margins is expected to expand to the range of 47% to 48% as we continue to transition customers to newer platforms. Operating margin is expected to be in the range of 8.9% to 10.9% as we benefit from higher revenue and gross margins. Our effective tax rate is expected to be approximately 16% to 17%. Stock based compensation and dispute related expenses are expected to be in the range of 3,100,000.0 to $4,100,000 For the full year, PC and smartphone growth targets remain in the low to mid single digit range with an above average second half weighting. We believe that our business will reflect the broader industry with significant growth expected in the second half barring an overly negative impact from tariffs impacting end user demand.

Speaker 3

As such, we are changing our annual outlook currently and target revenue growth that is in line with the performance of achieving a run rate of approximately $1,000,000,000 as we exit the year. Additionally, we expect to continue to improve our gross margins as we transition customer new products and enter the enterprise market in the second half of the year. We remain confident that we can drive gross margins towards the higher end of our historical range of 48% to 50% by the end of this year. We'll continue to invest in advanced geometry products that will allow us to grow our market share across our businesses long term and help us diversify our product portfolio into new markets. Despite these higher investments, we are confident that we can return to our historical operating margin range of 25% plus in the mid term as investments we have made over the past eighteen months begin to scale and deliver stronger revenue growth, better gross profitability and improve our operating profitability.

Speaker 3

Overall tax rate for this year is expected to be approximately 15%. Stock based compensation and dispute related expenses for this year is expected to be in the range of 27,000,000 to $29,000,000 As we enter the second quarter, we are experiencing increased design win activity and improved outlook from our customers. We see strong demand for our new PCIe Gen five products, including eight channel that's currently shipping as well as for our UFS 3.1 and our new UFS 2.2 and eMMC 5.1 controllers in the smartphone and automotive markets. For our upcoming four channel PCIe five controller and our UFS 4.1 controllers, our teams have been actively securing new wins and growing our backlog meaningfully as these advanced platforms expand into mainstream PC and smartphone markets next year. Lastly, the momentum behind our Montign family of enterprise controllers continues to grow as enterprises and CSPs around the world continue to invest in next generation data centers that require high performance low cost QLC storage solutions in our that we are uniquely positioned to provide.

Speaker 3

While we are seeing a small degree of pull ins ahead of NAND price increases, we do not expect this to impact our ability to grow sequentially throughout the year. Our teams continue to execute well, are growing our product portfolio, winning new projects and customers and expanding our addressable markets positioning Silica Motion for sustainable long term revenue and profitability growth. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead with the first question.

Operator

Thank We will now take our first question from the line of Craig Ellis from B. Riley Securities. Please go ahead, Craig.

Speaker 4

Yeah, thanks for taking the question. I wanted to start with an inquiry on the enterprise SSD mon titan program. So, first of all, Wallace, congratulations on breaking into NVIDIA. That seems like a very significant intermediate and long term development. The question is more longer term with that business line.

Speaker 4

It sounds like the business is strongly on track with the six customer wins you talked about last quarter to begin ramping up later this year. The question is, as we look out to 2026, if we've got six customers engaged now, where would you expect the business to exit '26 in terms of customer engagements? And how many of those might be in production? Not looking for specific guidance, but just color on the degree to which the pipeline is building out, especially as you get blue chip customers into the mix.

Speaker 2

Okay, great. Thank you for question. Let me answer your question. First of all, our previous six major customer engagements, they are not related to current our NVIDIA Bluefield DPU platform engagement. So this is six customers we're on track.

Speaker 2

They're going to ramp from second half of twenty twenty five gradually and 2026 will reach the more meaningful revenue growth. As in 2027, you will see much more significant. We are on track to achieve 5% to 10% from 26%, twenty seven %, our total revenue, don't change. But NVIDIA Bluefield CPU design win gave us a better picture into the Bluefield module for boot storage. In addition, because the full field module with the PCIe switches, which connect to many up to 30 PCIe enterprise D solution.

Speaker 2

So each of us, storage server going to comply to maximum to 30 SSD. So this is a portion will be majority portion will be 128 terabyte high density. So give a new opportunity, so we need to leverage opportunity with NVIDIA ecosystem provider, such as a vast DDN, such as Dell, NetApp, and also their end customer, right? And so this will give them more opportunity to winning and qualify bounded ecosystem and not only grow our boot storage on NVIDIA platform, but also grow with NVIDIA ecosystem for storage. So this is what we work with many of our module maker and partner to deliver the high density 128 terabyte QLCSD by end of this year.

Speaker 2

This gave additional momentum to grow our revenue in montagem family.

Speaker 4

That's really helpful Wallace, thank you. For my follow-up question, I wanted to turn one to Jason. So Jason, it's clear that trailing eighteen months is the company's invested in six nanometer tape outs. On the other side of that, the company's done extremely well, getting new design wins with NAND makers and module makers across the full range of products that the company offers. The question is this, where are we in the journey of upgrading the portfolio to six nanometer from a mass set cost standpoint?

Speaker 4

How much of that is now behind us looking through the current 2Q? How much of that is ahead? And beyond six nanometer, can you talk about when we would see the next node transition for the company as we think about operating expense intensity over the next couple of years? Thank you.

Speaker 2

So in the near term, let me answer you. So in the near term, we're going to have two more signal meter tape out in the next three quarter and one final meter tape out, will cost reduction for mobile controller. And next year in probably around middle of next year, we're going to have a four nanometer tape out for PCIe Gen six enterprise D, because we have a customer waiting urgently and we do not want to miss the schedule and deliver the result. Frankly speaking, we are really in the full design pipeline and we have many, many customers and then we don't have enough R and D resources for many, many new design. And we are very confident in our growth momentum in client SSD, mobile controller, as well as enterprise SSD.

Speaker 3

I would also point out Craig that, we do not anticipate moving beyond six nanometer for the foreseeable future for client applications, client PCs or clients, or smartphone applications. The four nanometer product that Wallace is pointing towards is for PCIe six for the enterprise. So I think, and historically, with the exception of very rare cases, we really don't retape out an old controller into a new process geometry. We look at new design supporting whether new generation of flash or new generation interfaces for, new tape outs. And so, to Wallace's point, we've got two, six nanometer tape outs coming up here throughout this year, which is pretty flat compared to last year.

Speaker 3

But we're also looking at utilizing other foundry partners as well, to see if we can certainly get better pricing longer term.

Speaker 4

That's really helpful color guys. Thank you.

Operator

Thank you. We will now take our next question from the line of Suji Desilva from ROTH Capital. Please ask your question, Suji.

Speaker 5

Hi, Wallace. Hi, Jason. So maybe following up on Craig's question about the NVIDIA product here. Appreciate the montight and guidance of 5% to 10% of revenues. How should we think about sizing the NVIDIA partnership with the ecosystem in terms of addressable market?

Speaker 5

Any framework or metrics there would be helpful.

Speaker 3

Yes. So look, think obviously the opportunity for Brookfield we're very excited about. I think there are a number of factors regarding that kind of affect the TAM. We expect the BlueField three products to begin ramping late this year. And we see a meaningful ramp in '26 and beyond with every successive win among Titan, it makes more, it gives us more confidence around achieving our goals for, 5% to 10% of revenue in 26%, twenty seven %.

Speaker 3

And the TAM really depends on several factors, the growth in the enterprise storage market, the global demand, tariff impacts, etcetera. We do anticipate this to be a meaningful part of our Montane business longer term.

Speaker 2

So let me add a comment is, we're very happy to see NVIDIA start to focus on storage. During the GTC twenty twenty five, they mentioned the storage next. So they really put a new spec and performer requirement to grow the storage, especially there's a compute storage and data storage. The blue field DP3, the third generation is really for data storage for much bigger density as a storage system. We're very happy to see the momentum and as for the design win.

Speaker 2

And I think we cannot comment the total unit, but we're going to start to ramp from second half this year and there's a minimum quality revenue And we do see the momentum moving to many, many sources and set integrator. And in addition, I think many, many hyperscaler CSP, they are also looking for high density QLCSD. In the past, many, many CSP provider and server provider, they only need an eight or 16 terabyte. Now they really change their mind and moving. And I think as you can see from last financial release, several player announced the major design win in the CSP.

Speaker 2

So that gave you the indication about the trend. So I think we're exciting for our technology from TITAN, not just for NVIDIA BlueField three CPU design, and also they're going to go many, many for and for AI cloud service and storage, server storage and requirement.

Speaker 5

Okay, that's very helpful color Wallace. Thank you. And then maybe switching over to the notebook market, understanding the mix here, where is your traction in the premium notebooks? And what's your outlook for those eight versus four channel product here as the year progresses?

Speaker 2

Okay. If you take a look for the PC OEM this year, they're going to ramp up the eight channel PCIe five from July 10 frame. I think all the PC OEM top five were aligned at the same time. And we're going to see by 5% of the second half, 5% of the total PC shipment. And the four channel, during this controller is designed for 2027, Mi 2026 production.

Speaker 2

So I think we have a design win from four of six NAND maker and nearly all module maker for both eight channel and the four channel DRAM controller. That's why we believe our eight channel will have a minimum 30% market share through with PC OEM. And for four channel, we're going to have a minimum 50% market share when PCIe five move to mainstream in full scale production. That's why we believe we're going to continue gain market share in Class B and we're going to grow from our 30% to 33% today and moving towards 40% in the next few years.

Speaker 5

Okay. Very helpful, Wallace. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Gokul Hariharan from JPMorgan. Please go ahead, Gokul.

Speaker 6

Yeah. Hi. Thanks, Wallace, Jason and Tom. So first of all, on this BlueField three DPU engagement, can you talk a little bit about how this business engagement and product sale will work? So you are already qualified by NVIDIA, and then customers such as DDN or WAP Data or Dell will basically embed your controller into their storage solutions.

Speaker 6

Is that is that typically how that's gonna work? And secondly, how many vendors have been qualified? I think you mentioned only SolarDigm has been qualified so far. You're kind of the, like, second vendor. How long do you think you can kind of keep this kind of only two kind of vendor status in in in this?

Speaker 6

And maybe lastly, I think, how do you size this market compared to the regular kind of enterprise and data center controller market in the enterprise that you've been targeting with the original target market?

Speaker 2

So let me explain that maybe basic about this model and certain thing we cannot share with you. I think we start to engage with the media about a year ago. So in the beginning, we don't fully understand what's really the purpose for the application after three months query and everything. And I think, and we understand this for the media BlueField three DPU platform. And see in the past, the BlueField three used for really is a pass through transfer the data between GPU to GPU and CPU to GPU.

Speaker 2

I think this is a selling for networking and really a design for the storage system. And I think the design win give us great opportunity to fully understand NVIDIA, their plan for the storage application. And they give opportunity to approach it beyond through the ecosystem and go to the end system integrator one by one. And I think NVIDIA did not own the system storage product, but is selling the BlueField three module to see their system integrator and storage enabler. So this is a business model and so we need to be qualified by NVIDIA.

Speaker 2

I think there's only two suppliers to support the boost storage. We are one of them and it's in the final state qualification because they're going to ramp in the second half of this year. So nearing the final stage. And see, we are in the process to qualify our high density QRCSD through their ecosystem. So this is in process.

Speaker 2

We believe by end of the year, the customer will move into mass production. So this is adjusting the beginning range about the storage system growing momentum for AI storage. And we see there is more beyond this. And when this is a mature variable, we can share more data with our investors.

Speaker 3

And I would also point out, Gokul, that on the blue field, when we talk about the opportunity there and SolidDigm isn't in the BlueField opportunity, it isn't in the BlueField opportunity there. SolidDigm is on the high density 122 terabyte side that our high density QLC data storage, opportunity is. So it's different than the boot drive opportunity that we're talking here specifically with NVIDIA on the BlueField three.

Speaker 6

Got it. So for the boot drive opportunity, according to what you know, you are currently the only one qualified. Is that is that is that fair? Or you're the only one likely to be qualified?

Speaker 2

There's only two supplier. We are one of the two supplier.

Speaker 6

Understood. Understood. Yeah. That's very clear. Second question, maybe for you, Jason, and also for Wallace.

Speaker 6

How should we think about I think you're you're still maintaining the exit rate of a billion dollar by q four of this year, which is a pretty meaningful step up from what your q two guidance is, roughly a 30% or 40% kind of step up from the Q2 guidance. And historically, have never seen that kind of seasonality, at least in the last five or six years. Maybe in 2019, we saw that. I think beyond that, we have never seen that kind of step up in revenues into Q4. So just wanted to understand, like, are there some specific kind of project wins, customer ramps that you are really kind of penciling in, which gives you the confidence to kind of still stick to that guidance, especially given the macro environment has changed?

Speaker 2

I think we will see Q4 momentum building the $1,000,000,000 run rate, we did not count on the enterprise business of Bluefield design revenue. It's really based on last year, our major design win from mobile phone, mobile controller as well as PC, PCIe Gen five. So because these design win pipeline will create enough momentum for us to bring to 1,000,000,000 run rate in Q4.

Speaker 3

And I would also point out that we do have a number of new programs that are scaling, right? The HL PCIe five, we expect the PC OEM channel to scale more meaningfully in the back half of the year as PC OEMs start ramping for the holiday season, ramping for enterprise replacement cycle, for the Windows 10 replacement cycle, all those things are kicking in, in the back half of the year. And that's still the current expectation. Obviously the geopolitical is uncertain, but the numbers that we've seen, the forecast that we've seen today are still indicating a very back half centric growth profile for PCs and for smartphones for this year as well. So we've got the new PC, I.

Speaker 3

E. Eight channel ramping, we've got, beginning late ramp of, UFS 4.1. We've got, to Wallace's point, some of them on Titan boot drives, as well as the high density one twenty two, one hundred 20 eight terabyte SSD, controllers ramping. So we do have a number of new programs that would be supplementing the expected market shrink that we're seeing.

Speaker 6

Got it. Yeah, that's very clear. Thank you.

Operator

Thank you. We will now take our next question from the line of Matt Bryson from Wedbush. Please go ahead, Matt.

Speaker 7

Thanks for taking my question. I guess, first off, when I look at what was happening with some of your customers and peers in Q1, it seems like February and March picked up relatively significantly and that momentum is carrying into Q2. Obviously, you came in ahead of your guidance range, but didn't quite see the same magnitude of momentum. And if I look at Q2 seasonality or Q2 guidance, it looks relatively seasonal. I guess my question is, the first question is why aren't we seeing a bit more of a guide that's reflective of the pickup that seems to be happening across the industry?

Speaker 2

Because of tariffs, it's really created many uncertainty. I think we can only have based on where we are, although I believe we have almost no impact on tariffs moment. We try to be cautious, but our design win pipeline is rock solid and we're gaining market share continually. And it's really, as we said, we have enough design win pipeline and ramping second half this year. That will bring us to $1,000,000,000 run rate in Q4 timeframe.

Speaker 2

And we have very confident achieve it. And we have many, many new projects ramping, including Toyota global model for ADAS and IVI. So this is a many new design win and really bring a very broad range of product mix. And I think the NVIDIA and the 120 terabyte enterprise demand titan that will bring more momentum in 2026 and beyond. But at 2025, Q4, I think the full year, a current pipeline and design win is sufficient to carry our cell revenue growth.

Speaker 2

But we won't be we don't want to have a more aggressive guidance because I think so far we try to be cautious and make sure we meet all of the investor expectation.

Speaker 7

Great. So it sounds like you're just trying to embed some conservatism in your current outlook. And I guess the second question

Speaker 2

is kind of following up on

Speaker 7

Gokul's last question. In terms of how we should think about the ramp in Q3, Q4, it sounds like it's very project based. I tend to think about new PC designs, them starting to get built in June, July, handset designs, particularly Chinese handset designs being more of a late Q3, Q4 timeframe type opportunity. And it sounds like a lot of the enterprise designs come in, in Q4. Is that kind of how we should think about those new programs layering into your revenue stream to get to that $250,000,000 goal by Q4?

Speaker 3

Yes, that's right. That's right, Matt. And just, again, a little bit more commentary around Q1, Q2, just given the broader economic environment, the potential impacts of the changing tariff policies, we believe it's prudent to on the side of caution, right? While we're seeing, as we said, some mild customer pull ins, the amount is not material enough to change our near term outlook. And we're experiencing increased interest in all the new products that we talked about, right?

Speaker 3

PCI five, US plus four, etcetera. And our guide for the June is pretty consistent with our peers and in line with, really more importantly with our customer forecast. And so those are kind of the key foundation of kind of what we see in the market today in the first half of this year. And then, certainly to your point, we do have some program specific market specific things affecting growth in Q3 and Q4 that are going to be pretty meaningful.

Speaker 1

Thanks.

Operator

Thank you. We will now take our next question from the line of Nick Doyle from Needham. Please go ahead, Nick.

Speaker 8

Hi, thanks for taking my questions. Asking about the switch to opportunity, can you help size that at all what your market share attach rate is there and maybe what kind of ASPs are those looking like? Thanks.

Speaker 2

This is designed for the micro SD Express SC7.0, they use for content card for the Nintendo. So I can only say we're about 80% of the share.

Speaker 8

Okay, helpful. The importance of the boot storage application, could you just talk more about that? Like, what exactly are you providing there? And does that help you get closer to providing the data storage part? Thanks.

Speaker 2

I think what I can say is that because through the collaboration with NVIDIA team, we definitely understand the full field module and the ecosystem. And through the ecosystem, we work with the star ecosystem together and that's why we get an opportunity to get our product qualified in advance. And through that, I think because we see, because many company announced their 120 terabyte QRCSD, but no one can deliver the real product except SolidDyme. And we believe we could be the second player provides the turnkey solution to the market to feed the demand for storage system. So this is a great opportunity, but we have to ask you very well to deliver the result.

Speaker 2

So we're very excited about the new opportunity and engage with media by seeing this go beyond just a full field DPU, believe me. We cannot say too much, but we do want to work because the storage system and much bigger for AI cloud and AI server. And this is opportunity we show QLC in demand when we do see, as I said, all the cloud service provider in changing their direction in a set higher density enterprise D drive. So this is a great opportunity for second motion to shine to grow.

Speaker 4

Thank you.

Operator

Thank you. I'm showing no further questions. I'll now turn the conference back to Mr. Wallace Kove for his closing comments.

Speaker 2

Thank you, everyone, for joining us today and for your continuing interest in Silicon Motion. We will be attending several investor conferences over the next few months. 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.

Operator

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

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Earnings Conference Call
Silicon Motion Technology Q1 2025
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