Silicon Motion Technology Q2 2026 Earnings Call Transcript

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Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Record second-quarter results: Revenue rose 127% year over year to $451 million, above guidance, while non-GAAP gross margin reached 50.2% and earnings per ADS were $2.43.
  • Positive Sentiment: Management expects third-quarter revenue of $519 million–$541 million, up 15%–20% sequentially, with gross margin projected at 50%–51% and operating margin at 27.5%–28.5%. Full-year 2026 revenue is expected to more than double year over year, with operating margins potentially exceeding 30% by year-end.
  • Positive Sentiment: The company’s diversification into automotive, enterprise boot drives, and AI infrastructure is accelerating; Ferri and enterprise boot-drive solutions more than doubled sequentially and represented nearly 30% of second-quarter revenue, versus 4% a year ago.
  • Positive Sentiment: MonTitan enterprise SSD controllers entered commercial production with two tier-one customers in the second quarter, with five additional tier-one customers expected to ramp in the second half. Management remains on track for MonTitan to contribute 5%–10% of total revenue exiting 2026, while PCIe Gen 6 design wins could support growth from 2028 onward.
  • Negative Sentiment: Memory supply remains constrained and NAND and DRAM prices are elevated as AI demand absorbs industry capacity, pressuring smartphone and PC affordability. Management expects the NAND supply-demand imbalance to persist until roughly 2028, while the transition to PCIe 5.0 and availability of high-capacity 2-terabit QLC NAND are progressing more slowly than anticipated.
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Earnings Conference Call
Silicon Motion Technology Q2 2026
00:00 / 00:00

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Operator

Good day, thank you for standing by. Welcome to the Silicon Motion Technology Corporation Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. At which time, if you wish to ask a question, you will need to press star one one on your telephone keypad. Please 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 semiconductor industry and our future results of operations, financial condition, and business prospects.

Operator

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, 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, 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, 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. With that, I'll now hand you over to Mr. Tom Sepenzis, Vice President of Investor Relations and Strategy. Please go ahead.

Tom Sepenzis
Tom Sepenzis
VP of Investor Relations and Strategy at Silicon Motion Technology Corporation

Good morning, everyone, welcome to Silicon Motion's second quarter 2026 financial results conference call and webcast. Joining me today is Wallace Kou, our President and CEO, Jason Tsai, our CFO. Wallace will first provide a review of our key business developments, then Jason will discuss our second 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 US 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.

Tom Sepenzis
Tom Sepenzis
VP of Investor Relations and Strategy at Silicon Motion Technology Corporation

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.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Thank you, Tom. Hello, thank you for joining the call today. We delivered another outstanding quarter, achieving record revenue of $451 million and gross margin above 50%, driven by continued growth across all our core markets. Stronger operation performance translating to record earnings per ADS, reflecting our ongoing solution from the leading NAND flash controller makers into a diversified supplier of controller and solution spanning AI infrastructure to the edge. During the June quarter, we grew our embedded eMMC UFS portfolio, delivered both sequential and year-over-year gain in HSG controllers, began the initial commercial ramp of our MonTitan enterprise SSD products, and posted strong growth in our Ferri for automotive and enterprise boot drive solution business. With expanding consumer market share and rapidly broadening suite of enterprise and AI controller and solution, our competitive position keeps strengthening.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We expect to deliver record revenue in 2026, up more than 100% year-over-year, setting the foundation for sustained growth in the years ahead. With the right product in the right market at the right time, we have never been better positioned to capitalize on the accelerating demand for intelligent storage from the data center to the edge. I would like to take a moment to address the current market environment. The AI super cycle has fueled significant demand for HBM, DRAM, NAND, and HDDs, driving substantial price increases over the past year and creating mounting substrate and supply pressure across memory and storage technology. As component prices, NAND and DRAM in particular, continue to climb, OEMs are finding it increasingly difficult to build affordable consumer products such as smartphone and PC, especially at the low end.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We expect this scarcity to persist likely until 2028, when new fab come online and help bring NAND supply back to reduce supply-demand gap. While the NAND environment will stay challenging through 2028, we have a clear path to deliver a significant top and bottom line growth. Silicon Motion is in the early inning of a complete transformation to a diversified supplier of a NAND flash controller and solution from AI infrastructure to the edge, where there is accelerating demand for next generation storage. I will now discuss our embedded eMMC and UFS business, which include controller for smartphone and other IoT and connected devices. This business continued to strive and grow significantly, outpace the industry despite the supply having as NAND makers increasingly rely on third-party controller while focusing their own resources on DRAM x DRAM solutions.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Our outperformance were driven primarily by market share gains as NAND makers de-emphasize these solutions to the benefit to our module maker customers. Across the many markets where we sell our embedded eMMC UFS products, OEMs are trimming specification to offset some of the rising cost of memory and storage. While we still expect smartphone unit to be down 10%-15% in 2026, we anticipate strong growth in our mobile business in 2026, driven by continued market share gains and ASP improvement from a mix shift to our newer UFS controllers. Our eMMC business delivering strong result as we win new business across a range of markets, including automotive, smart glasses, watches, drones, robots, next generation cable set-top box, smart TV, and more. With the NAND maker is interested in these markets, we were operating in an environment of stronger pricing power and profitability.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Overall, we expect strong revenue growth in our embedded eMMC and UFS segment in 2026, and I'm pleased with the exceptional performance our team delivered in the first half of this year. We expect our growing portfolio of a new product transitioning to next generation solution and expansion into additional markets to drive share gains to keep outpacing the micro pressure in the smartphone market. Moving on to our SSD business, which include edge and enterprise SSD controllers. Our edge SSD business improved significantly in the second quarter, following a seasonally soft first quarter, delivering 40%-45% year-over-year growth. We are beginning to see payoff from our PCIe 5.0 investment as an edge with our four-channel controller ramping steadily since its introduction in the fourth quarter of last year. However, the transition from PCIe 4.0 to PCIe 5.0 is proceeding more slowly than we anticipate six months ago.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

OEM are increasingly pairing the latest generation, more cost-effective NAND with PCIe 4.0 SSD in value and mainstream PC, as this offer a way of reducing the overall bill of material. We are securing a meaningful share of this business across both NAND makers and module manufacturer with our leading controllers. Despite the slower pace of PCIe 5.0 transition, our four-channel DRAM-less PCIe 5.0 controller continue to gain adoption among customers seeking leading performance in the mid to high-end segment of the PC market. We therefore expect to further increase edge SSD average selling price as we progress through the remaining of the year. I would now like to provide you with an update on our new MonTitan enterprise SSD business.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Our new ESSD business entered commercial production in the second quarter with two Tier 1 customers, and we expect to ramp five additional Tier 1 customer in the second half of the year. There's exceptional strong start after several years of investment in our enterprise AI cloud controllers. NAND is an essential and growing technology across the enterprise storage ecosystem, spanning warm storage and compute storage application, and MonTitan is well-positioned for rapid growth. Our first customers are targeting the compute market using TLC NAND, which is in growing demand for next generation AI platform that leverage NAND to support compute storage solution that deliver high speed, low latency storage dedicated for near GPU and near CPU KV cache. Several customers are leveraging MonTitan to target this market and will be ramping production throughout the remainder of this year.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We continue to believe that TLC MonTitan solution will run faster than QLC-based solution until 2 TB QLC NAND dies become more broadly available. High-capacity, 1 TB SSD leveraging QLC NAND remains a large addressable market for MonTitan for long-term growth. We expect the QLC-based solution will begin their initial ramp in the second half of the year with multiple customers. We are seeing increasing inbound interest in our MonTitan for QLC solution to drive long-term growth. Finally, we are completing the tape-out of our next-generation 4 nm PCIe Gen 6 controller in August of the year, targeting hyperscaler and CSP. We developed this controller in close collaboration with several customers, and we have already secured multiple design wins with both flash maker and CSPs. We expect this new controller to be a significant growth driver in 2028.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

With TLC and QLC MonTitan controller already in customer qualification and clear rollout plan in place, I'm confident we will hit our revenue target this year, and I expect to see significant growth in 2027 and beyond as the business scales. Our customer base is strong and expanding, and MonTitan is well-positioned to drive meaningful revenue growth from here. I look forward to sharing further update. Then finally, I would like to provide an update on our Ferri for automotive and enterprise boot drive storage business. Our Ferri for automotive and enterprise boot drive storage business is growing rapidly across automotive and AI infrastructure markets. NAND makers are leaving the automotive market as the volume are now meaningful to their business, and the quality and technical support demand are significantly greater than in other markets.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

As the NAND makers exit automotive, the module makers should seem likely successors, but they do not have the infrastructure, the resources, the certification process, or the expertise to deliver automotive-grade products. This has benefited Silicon Motion significantly as we know the automotive market, the customers, and supply chain extremely well. We have developed our automotive product and certification for over a decade and already support three of the NAND maker with our automotive controller and firmware. Our success in automotive has generated interest in our Ferri solution for additional large and growing markets, including robots, drones, advanced networking, and other applications. In the emerging robotic market, we are now actively engaged with multiple company that want to leverage our storage product. We believe there are multiple opportunities in the emerging physical AI market for storage in humanoid robotic, including vision system, LIDARs, computing storage, balance system, and many others.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

In fact, it appears that from our initial conversation, the opportunity in robotics may be larger than automotive, and our Ferri solution will be ideally suited to support this future opportunity. Moving on to our growing enterprise boot drive storage business. This is a new and growing market. Enterprise boot drive for server CPU have been around for over 30 years, and the NAND maker have supported this market with solutions that employ both DRAM and the NAND. As we move into next generation of AI and enterprise application, enterprise CPU customer will continue to use enterprise boot drive with DRAM to enhance random write performance and reduce latency. Most other customers, including DPU, TPU, and switch makers, are looking for enterprise boot drive solution with our unique DRAM-less technology that offer enhanced security and is our primary focus today.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

While some NAND maker may choose to continue the support of conventional architectures, they do not have DRAM-less PCIe SSD controller, and they are not likely going to dedicate the R&D resources necessary to develop them for a comparatively low-volume market. Silicon Motion has the right technical knowhow, the leading controller and firmware technology and the right relationship to deliver turnkey enterprise boot drive solution, and this is why we are winning in the market. Ferri and boot drive storage solution segment is growing rapidly, and we expect new customer design win in both automotive and AI infrastructure to drive strong growth for the future. One of the most important reasons of our success in the solution business has been our long-term relationship, which have allowed us to secure NAND from multiple suppliers despite recent supply shortage, a significant and enduring differentiator.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

In second quarter 2026, Ferri and enterprise boot drive solution more than double sequentially and represent near 30% of our total revenue, up from 4% a year ago. We are just getting started. In conclusion, we reported our second consecutive quarter of record revenue for Silicon Motion as we executed across our rapidly diversifying business. We are fundamentally a much stronger company today than we were just a year ago with a broad suite of product to support the increasing demand from AI, from the data center to the edge. This gave us a strong balance across our markets and greater flexibility to capitalize on pockets of strength while overcoming end market challenge like those we're seeing today in PC and smartphones.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

I'm extremely proud of our teams for building a durable, diversified business that benefit from best-in-class technology, expanding share, and entering to new end markets, all while monetize the strong relationship we have built with OEMs, module makers, and NAND makers over the past two decades. I'm more confident than ever that we will deliver broad-based, sustainable growth across our business in 2026 and beyond. Let me turn the call to Jason to go over our financial performance and outlook.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Thank you, Wallace. Good morning to everyone joining us today. I will discuss additional details of our second 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 yesterday. Our second quarter performance was even stronger than expected. Sales increased 32% sequentially and 127% year-over-year to $451 million, coming in well above the high end of our guided range of $393 million-$411 million, delivering our third consecutive quarter record revenue. We experienced strong growth across all our businesses in the second quarter with standout growth in Ferri for automotive, enterprise boot drives, and embedded eMMC and UFS. Gross margin was 50.2%, exceeded our guided range of 48.5%-49.5% as we capitalize on new product introductions.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Operating expenses increased sequentially to $122.1 million, given increased investments in new controller and solution development, new tape-out related expenses, and higher headcount. Operating margin was 23.1% and exceeded our guided range of 21%-22%, driven by higher than expected revenue and gross margins during the second quarter. Our earnings per ADS was $2.43. Total stock-based compensation, which we exclude from non-GAAP results, was $3.4 million in the June quarter. We had $181.8 million in cash equivalents, and restricted cash at the end of the second quarter, compared to $210.9 million at the end of the first quarter. Cash decreased in the second quarter through a combination of dividend payments of $16.9 million and an increase in inventory to support our growing business. We continue to navigate the memory and storage supply challenges effectively.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Investments in new advanced geometry products for both our established markets and our emerging enterprise markets are ongoing. We are building a balanced and resilient portfolio of products that target everything from AI infrastructure to the edge. These investments will continue throughout 2026 as we support the growing demand for our new enterprise portfolio and fuel our growing market share across our consumer portfolio. For the third quarter of 2026, we now expect revenue to grow 15%-20% sequentially to $519 million-$541 million. We expect growth across nearly all our product segments led by Ferri for automotive, enterprise boot drive solutions, and our new MonTitan enterprise SSD controllers. Gross margins are expected to increase sequentially to 50%-51% in the September quarter, given the product mix assisted by greater contribution from MonTitan and our PCIe 5.0 controllers.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Operating margin is expected to grow substantially to 27.5%-28.5% as strong revenue growth drives leverage to the bottom line. Our effective tax rate is expected to be 22%. Stock-based compensation and dispute-related expenses is expected to be in the range of $14.9 million-$15.9 million. 2026 is on track to deliver record revenue for Silicon Motion, with top line expected to more than double this year. While we continue to invest heavily in R&D this year to expand our portfolio with leading-edge solutions, we are confident that along with much higher revenue and improved gross profitability, our operating margins can exceed 30% exiting this year. We are navigating today's memory and storage supply constraints and elevated pricing with a remarkable success, a direct result of the relationships we spent more than two decades building with NAND flash makers.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

At the same time, our leadership in the merchant controller market and our multi-year investments in enterprise and AI SSDs are starting to pay off with MonTitan and our enterprise boot drive storage business now ramping in volume. Our diversification strategy to expand beyond consumer-centric applications into automotive and enterprise is beginning to yield outsized results. Our wins in these new markets are for solutions that bring much better visibility, much longer product cycles, and much higher barriers to entry that ensure strong long-term revenue and profitability growth for Silicon Motion. We will be less subject to consumer cyclicality as these new wins scale in a diverse range of end markets, and our visibility and predictability will further improve significantly. Together, these drivers are the foundation of the transformation Wallace spoke about earlier and will set the stage for significant revenue growth at Silicon Motion in 2026 and well beyond.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

I look forward to sharing more on our progress next quarter. This concludes our prepared comments. I'd like to open it now for questions. Operator?

Operator

Thank you. To ask a question now, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for first question. We will now take our first question from the line of Neil Young of Needham & Company. Please ask your question, Neil. Your line is open.

Neil Young
Neil Young
Analyst at Needham & Company

Hey, everyone. Thanks for letting me ask a question. It sounds like there's some bigger contribution from Ferri that I think people have expected. I was wondering if you could give us the approximate boot drive revenue contribution in Q2 or maybe some idea of the percentage split between the boot drives, enterprise boot drive, and Ferri. Maybe what's embedded in the Q3 guidance between the two of those. I have a follow-up. Thanks.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Yeah. Neil, we're not giving out that level of granularity. I can tell you, though, that we are seeing tremendous growth across both of those categories. This isn't really driven by one or the other. It's driven by both. For Q3, again, we're not going to be providing that much detail, but certainly from the backlog that we've talked about, that we've seen, that we have been building, and the order patterns that we're seeing, we're seeing very strong contributions across all of these SSD solution products.

Neil Young
Neil Young
Analyst at Needham & Company

Okay, great. Thanks. That's helpful. Neil, on MonTitan, you obviously gave the update on the customers in production, sort of what you're expecting to the rest of the year. Are you still guiding to that 10% revenue run rate exiting 2026? Maybe helpful if you could distinguish the timing of the TLC compute and the KV cache programs from the QLC warm storage programs, just what you're seeing there. Thanks.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Yeah. We're still on track. I think Wallace had mentioned that we're well on track to achieve that 5%-10% of our overall revenue coming from MonTitan exiting this year. We are confident that we can achieve that. In terms of where we're seeing more contribution, certainly initially we're seeing more contribution from TLC-based solutions, but we are seeing early QLC shipments that will begin late this year. We don't expect QLC to become more meaningful until probably late 2027 into 2028 as 2 Tb dies become more affordable.

Neil Young
Neil Young
Analyst at Needham & Company

Thank you.

Operator

We will now take our next question. The next question comes from the line of Mehdi Hosseini of SIG. Please ask your question, Mehdi. Your line is open.

Mehdi Hosseini
Analyst at SIG

Yes, thanks for taking my question. I think it's for the team. I think it will be very helpful for us and the investment community if you guys could elaborate on a revenue mix by end market, like enterprise, consumer, and auto, and how it would map to specific products. I understand you don't want to be specific, but any kind of a qualitative view on how end market and products are mapping will be great. I have a follow-up.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

I think as we said in the past, all our product line are growing in 2026. Of course, our Edge SSD, I think because the PC market, unique decline. However, due to the market share gain, we continue to grow 50% compared with the last year, first half. Our enterprise, because the base is small, we grow faster enterprise controller. For Ferri and for automotive and our boot drive, we do have multiple major customers supporting our growth trends. We expect to see continued growth through the 2026 and to 2027.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

I think another way to look at it also is the majority of eMMC and UFS is really going to be consumer-centric. Today, SSD controller sales, the majority of that is going to be consumer-centric, going to Edge SSD controllers. Certainly, as we exit this year, getting to that 5%-10% coming from MonTitan contribution. Ferri and boot drives, Ferri for automotive, and enterprise boot drive solutions. Again, you can imagine those are going to be less consumer-centric.

Mehdi Hosseini
Analyst at SIG

Okay. Moving on to my next question. The 2 TB die and the timing of the QLC ramp. It's been more than a year of waiting, I'm just wondering if Wallace could share with us Is that the qualification, there's an issue? Is that the capacity, or is it something else? I'm asking this question in the context of, would this actually provide an opportunity for controller suppliers like Silicon Motion, or is it just a manufacturing ramp that is delayed? Any comment will be great.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

I think you asked a very good question. We have been waiting for also a very long time, too. The 2 TB QLC is supposed to be the great darling for the NAND industry and to drive us to QLC-based storage SSD to be a next level. However, due to the price increase, supply shortage, I think high capacity data storage drive is less attractive because the price is too high. We also see the DRAM NAND maker putting more focus and CAPEX into the DRAM HBM. That's why the development for 2 TB, or to fine-tune the quality to next level, is going to take a much longer time. This is why at the current market situation, I think the DDR5 HBM is more attractive and driving more high profit.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

It just has to take some time, we believe, because there's still high demand through the AI inference for the data storage. Demand for storage is much bigger than the current supply. Through the new CAPEX, we see the arrangement, 2028, we'll see meaningful recovery from NAND supply. That's why we see all the NAND makers should have a 2 TB QLC by that time.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

I want to make it clear, Mehdi, that the delays here are on availability of NAND side. Our controllers are here, our controllers are ready. As we said, we're going to be starting to early ramp of some of the QLC-based solutions with our customers by the end of this year. This isn't something that's a controller issue, this is an industry availability issue of the NAND.

Mehdi Hosseini
Analyst at SIG

Thank you.

Operator

We will now take our next question, and the next question comes from the line of Matthew Bryson of Wedbush. Please ask your question, Matthew. Your line is open.

Matthew Bryson
Matthew Bryson
Analyst at Wedbush

Thanks. Congratulations on the great results. Just with gross margins, given how strong the embedded piece was, and that's typically a lower gross margin segment for Silicon Motion, I would've expected a little bit of a headwind there. Can you talk a little bit about the puts and the takes that affected the gross margin line in Q2?

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Yeah. I think what we've always said is that our MonTitan controllers are margin accretive. As those have begun to ramp, that's been able to help offset and drive strong gross margins for us here in the second quarter, as well as in the back half of the year. The back half of the year, we're also going to benefit from additional growth in our PCIe 5.0 controllers, for example. All of these things are going to be margin accretive. That's going to offset some of the margin pressure that we see from the solutions business.

Matthew Bryson
Matthew Bryson
Analyst at Wedbush

Jason, just when we're thinking about things moving forward with MonTitan seemingly being as successful as it's been, I know longer term, you've talked about gross margins being a little bit below 50%. Should we be rethinking that, if MonTitan's going to ramp like this? Any comment there would be really helpful.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Yeah. I think we're still comfortable with the 48%-50%. As I think we've said in the past, we're going to see a little variability to that depending on mix in any given periods. We're still targeting 48%-50%, certainly in certain periods like Q2, Q3, when we're seeing a little bit above that. We're certainly going to be able to take advantage of some of these mix benefits in the near term, long term, we still expect to be in that 48%-50%.

Matthew Bryson
Matthew Bryson
Analyst at Wedbush

Awesome. Thank you.

Operator

The next question now comes from the line of Sebastien Naji of William Blair. Please ask your question, Sebastien. Your line is open.

Sebastien Naji
Sebastien Naji
Analyst at William Blair

Good morning. Thank you for taking the questions. Congrats on another quarter of record results here. First, I just wanted to ask about what you're seeing in the mobile market, specifically at the Chinese smartphone makers. Last night, Qualcomm reported and posited that calendar Q2 will be the trough for China handset demand in their business. Given your exposure to some of those vendors, could you maybe just comment on whether you're seeing the same signals that point to a potential recovery in the second half, or if you're seeing anything different?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We see the China smartphone market is very challenging, due to the price increase of both LPDDR5 and also the storage product. Especially value line, I've seen the software much more, because if you're looking for the DRAM and the NAND, almost 50%-60% of the total BOM cost for the low-end smartphone. This is a same challenge. However, because we work with the NAND maker outsourcing to us in certain model the smart module maker continue gain market share, and we benefit from collaborate with smartphone maker directly through the QLC development. We see our demand for smartphone, for our UFS and eMMC, they continue to grow from Q2 and also moving to next quarter. I think we do not have a significant market share in the low end. That's why the impact for our business is relatively small.

Sebastien Naji
Sebastien Naji
Analyst at William Blair

Got it. Okay. That's helpful. Then, maybe for my follow-up, just on the boot drive business, can you comment on whether you're starting to see the benefit of BlueField 4 sales in either Q2 or your Q3 guidance as Nvidia starts to ramp their Vera Rubin platform? Or has much of the growth so far been tied to the first generation BlueField 3 program?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We cannot comment specific regarding the time, but I think the BlueField 4 definitely would go with customer's announcement, right? We do have a pretty large share for BlueField supply for the boot drive, so we're very happy when they ramped up in the second half this year.

Sebastien Naji
Sebastien Naji
Analyst at William Blair

Okay, great. That's helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Craig Ellis of B. Riley Securities. Please ask your question, Craig, your line is open.

Craig Ellis
Craig Ellis
Analyst at B. Riley Securities

Yeah, thanks for taking the question. Team, congratulations on the AI solution evolution that you're engineering with the business. Wallace, I wanted to start by seeing if you could characterize the growth that we could expect to see in the Ferri and DPU business over the next few quarters versus what we've just seen, that 110% rise. Similarly, help us frame the right expectations for MonTitan. I wanted to see if in so doing, you could also help us understand if you thought the MonTitan business could, over time, rise to the size of what you're seeing with Ferri and DPU.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Yeah. We cannot comment specific customer, but what I can tell you, the boot drive business is going to grow very strong, not just through one customer, it's through multiple customer. We said last time, boot drive not only winning for DPU, also winning for TPU and the telco company. We see we're engaged with a leading server maker, too. Boot drive will grow very broadly, but definitely with the leading GPU company, it will grow even much stronger and even for next year. Our MonTitan is very exciting. We have two Tier 1 customer ramping from second quarter. We'll add five more customer coming second half. We believe next year we're going to ramp much more revenue growth than this year. With our PCIe Gen 6 have much broader design win even before we even tape out.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We have very, very high confidence our MonTitan Gen 5, Gen 4 are going to carry significant growth for company for long-term growth and profitability.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

I'd also point out, Craig.

Craig Ellis
Craig Ellis
Analyst at B. Riley Securities

That's really Yep

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

our solutions business in boot drive, just a reminder, it's controller plus NAND. ASPs are going to be naturally much higher than what you're going to see on a controller only. While certainly we're excited about the scale and opportunity of MonTitan, just keep that difference in mind, where ASPs are going to be certainly lower on MonTitan than relative to the boot drive side.

Craig Ellis
Craig Ellis
Analyst at B. Riley Securities

Yeah. That really relates to my follow-up question, Jason, so thanks for the color. The question is this: Given the company's unusually long and broad expertise with NAND makers as a controller designer, and given the evolution we're seeing in the memory industry, where customers really want full solutions, to what extent are customers asking for more of a full solution beyond what you're providing today in businesses that may be auto-related or associated with MonTitan? To what extent would that look attractive for you as a way to further evolve the business model? Thank you.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Yeah. You raised a pretty good question. I think, as today, MonTitan controller business are totally independent of boot drive business. However, I think in certain cases, we see the added value together as a package sale and penetration. Because we do see our boot drive solution business have very unique position, because first of all, NAND maker do not have a dual-list enterprise SSD controller. Second, they have less interest to invest for, because it's a rather smaller market compared with the enterprise SSD solution. We are in very unique position to grow the enterprise boot drive business. In the same time, we can also offer the MonTitan controller business together to support the Tier 1 customer who don't get enough supply from NAND maker directly. That is how we play and try to grow together.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

So far, MonTitan, because we already have very, very strong momentum and we don't even have enough R&D resources to support so many projects. It's very exciting to see the position we are today. We'll continue invest, and we're definitely going to see much stronger growth in 2027.

Craig Ellis
Craig Ellis
Analyst at B. Riley Securities

Thank you very much, Wallace. Good luck to you.

Operator

Thank you. Our next question now comes from the line of Subham Singhania from JPMorgan. Please ask your question, Subham. Your line is open.

Analyst at JPMorgan

Yeah. Hi. This is Gokul. Can you hear me, Jason?

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Yeah, we can hear you.

Analyst at JPMorgan

Yeah. Hi. This is Gokul from JPMorgan. First question on the boot drive market. Wallace, could you help us kind of size this market a little bit? Because it seems like this market is growing much faster, and become much larger than what we would have expected or even you would have expected maybe a year back when you outlined this market for us. Secondly, could you also address how the market share and competition you're expecting to shape up here, given it looks like right now Silicon Motion is kind of a large majority of the market. Do you feel like there will be some competition entering this market in the next maybe one or two generations?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Okay. I think the boot drive business have a very wide range opportunity. First of all, near CPU boot drive, that's with conventional enterprise controller with a DRAM together, right? Because with DRAM, you have a much better read, random write performance and with low latency. That's it for server CPU. Doesn't matter Intel or AMD or even Ferri, they have a boot drive with DRAM. That business belong to NAND maker. It's conventional, traditional. We don't compete that sector. However, I think some of the server maker come to Silicon Motion, they will likely have a solution. We do provide some controller to either NAND maker or to module maker to support that portion with the DRAM for boot drive.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

As for the rest of the other sector, like DPU, like TPU, NPU, like a PCIe switch, like a NVLink switch, like Ethernet switch, there is a boot drive they need. Today they favor DRAM-less, because the cost is better without DRAM. We have a specific security support and performance also very good. As long we can secure the NAND supply, that portion is really our crown jewelry to grow in the next few years. We do see the demand is stronger because, see, the boot drive number per server rack, that's a huge. That's more than 30, 40. It depends the server rack. This is a really great opportunity we see. Not only the number of boot drive, but the capacity might be increased in the next few years, right?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

This really can boost our sale revenue growth in the top line and the bottom line.

Analyst at JPMorgan

Any thoughts on competition, Wallace, from either regular NAND makers or any of the other module makers that you do see come into this market? Or you think you got this largely locked down for the next couple of generations?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

So far, we see we are comfortable in good position. We do not see more competition. Really to NAND maker, because the density is really 256 GB compared with the enterprise drive, 16 TB, 30 TB, is much more smaller. We don't see competition from NAND maker come here. We are largest on merchant company. We also don't see the competition from module maker either.

Analyst at JPMorgan

Understood. That's clear. My second question is on MonTitan. Could you talk a little bit about your market opportunity, especially as you migrate to PCIe Gen 6 with your next generation MonTitan platform? What is the competitive landscape looking like? Because I can remember several enterprise controller companies are kind of terminating or slowing down their development in PCIe Gen 6. Could you help us understand your market opportunity when it comes to MonTitan with PCIe Gen 6? I think originally it was mostly about QLC, but it definitely feels like you have kind of expanded beyond just the QLC opportunity to KV cache offloading and some of the TLC opportunities as well.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

I think our MonTitan Gen 5 has already set a foundation for our customer. When we develop a Gen 6, not only Gen 6, Gen 5 customer all sign in, but we attract many tier 1 customer from NAND maker in the CSP. There's more than a dozen Tier 1 customer waiting for our MonTitan PCIe Gen 6 sample. This have a very unique architecture. We offer particular focus on either AI inference, especially around the NVIDIA CMX architecture, but also particularly for the data. Right. We have a multiple dimension and support, and support multi-host, and also it will be very efficient under the new AI era. As we work closely with the NAND maker and also leading server maker as well as CSP. This particular sound feature, we exclusively designed for certain customer.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

We believe when MonTitan PCIe Gen 6 start to ramp, will be much stronger and faster, quicker than our PCIe Gen 5.

Analyst at JPMorgan

Got it. Any idea about how much of the market can you address with the PCIe Gen 6 solutions? Do you think you can address maybe 30%, 40% of the market already with that? Or that is too high an expectation?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

Well, we set the market just a minimum 15%-20% as a beginning. Hopefully, it can grow faster.

Analyst at JPMorgan

Got it. Yeah. Thank you very much.

Operator

Thank you. As a reminder, before we take our next question, if you wish to ask a question now, please press star one one on your telephone keypad. We will now take our next question. Next question comes from the line of Suji Desilva of Roth Capital. Please go ahead, Suji.

Suji Desilva
Suji Desilva
Analyst at Roth Capital

Hi, Wallace. Hi, Jason. Congratulations on the progress here. Maybe the first question for Jason. With the mix that's steadily shifting, would we think that a seasonality would be more muted in the 2027 timeframe or 2028 perhaps? Linearity be greater, more steady, or would that still be kind of a further out trend?

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Yeah. We're not going to comment on 2027 yet at this time. We're only guiding one quarter out, stay tuned on that. To your point, there are a lot of moving pieces. Depending on how quickly certain businesses scale, that could certainly limit the seasonality that we historically would see. Right now, given how much we're in the early stages of some of these businesses ramping and some of these new customers coming on, it's hard for me to say right now, and we're not guiding that far out.

Suji Desilva
Suji Desilva
Analyst at Roth Capital

No. Fair enough, Jason. Thanks. Then maybe the second question for Wallace, perhaps. The Ferri roadmap, how are you evolving that to support newer end markets like robotics? When might that be a meaningful contributor? How far out could that be?

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

It's a very good question, and we have been constantly monitoring the survey and engaged with the robot developer from China and U.S., also including the drone. We see the drone were coming earlier with a high volume, and robot will probably come later. However, to diversify is so many new opportunity for the storage and not just a one solution per robot. It's multiple. There's many, we would like to engage and also provide certain reference as well as the custom design to show the differentiation with robot maker. Now I think, the initial is about next year, the volume is still pretty small. We believe 2029, certainly 2030, will be much higher volume, and we want to start in the early stage and make sure we can occupy the higher market share.

Suji Desilva
Suji Desilva
Analyst at Roth Capital

Okay. Thanks, Wallace. Thanks, everybody.

Operator

Thank you. Next is a follow-up question from the line of Mehdi Hosseini from SIG. Please ask your question, Mehdi, your line is open.

Mehdi Hosseini
Analyst at SIG

Yes. Thank you. A couple of follow-ups. First one, would it be possible if you could just elaborate on the mix of eMMC and UFS, either the mix of the specific product or mix by like a smartphone versus other consumer electronics? I do have another follow-up.

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Within the eMMC and UFS business, majority of revenue comes from UFS, just given that it's a much higher ASP product. Unit volumes in eMMC are still very strong, but given the much lower ASPs in eMMC, it's a smaller contributor to our overall revenue. The vast majority of our UFS business is going to smartphones. The majority of our eMMC business is going to really more IoT consumer-centric connected devices.

Mehdi Hosseini
Analyst at SIG

Got you. Thanks. I'm not asking for a guide, but when I look into 2027, your commentary and excitement around new product ramp suggests to me that Ferri and boot drive could at least be a third of your revenue mix. Is that in the ballpark?

Jason Tsai
Jason Tsai
CFO at Silicon Motion Technology Corporation

Look, I think certainly the backlog we have and the strength we're seeing in the pipeline with our customers and new customers ramping, I think that's certainly a possibility.

Mehdi Hosseini
Analyst at SIG

Thank you.

Operator

Thank you. We have now reached the end of the question and answer session. I'll now turn the conference back to Mr. Wallace Kou for closing remarks.

Wallace Kou
Wallace Kou
President and CEO at Silicon Motion Technology Corporation

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 these events will be posted on the Investor Relations section of our corporate website, and we look forward to speaking with you at these events.

Operator

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

Executives
    • Tom Sepenzis
      Tom Sepenzis
      VP of Investor Relations and Strategy
    • Wallace Kou
      Wallace Kou
      President and CEO
    • Jason Tsai
      Jason Tsai
      CFO
Analysts
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