慧榮科技 (SIMO) 2007 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third quarter 2007 Silicon Motion Technology Corporation Earnings conference call.

My name is Nicole.

I will be your coordinator for today.

At this time all participants are in a listen only mode.

We will conduct a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS).

This press release 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.

Such forward looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial conditions 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, 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 of any change in our relationships with our major consumers, and changes in potential electronics, legal, social conditions in Taiwan.

For additional discussions of these results and uncertainties, and other factors, please see the documents we file from time to time with the Securities and Exchange Commission.

We assume no obligation to update any forward looking statements, which apply only as of the date of this press release.

I would now like to turn the call over to Mr.

Riyadh Lai, CFO.

Thank you.

Good morning everyone, I am Riyadh Lai, CFO of Silicon Motion.

Thank you for joining us for our third quarter 2007 conference call and webcast.

With me here is Wallace Kou, President and CEO of Silicon Motion.

The agenda for today is as follows.

Wallace will start with an industry update, a review of our strategy and discuss some recent business developments.

I will then discuss our third quarter financial results.

We will then conclude with Q&A.

Before we get started 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 investing in our securities please refer to our filings with the U.S.

SEC.

Please also note that we are using presentation slides for our webcast which offer highlights from the quarter.

So I would encourage everyone who has dialed in to the conference call to click on the IR section of our website and view the slides there.

For more details of our financial results, please refer to our press release, which was filed on Form 6K after the close of market yesterday.

This webcast will be available for replay on our website siliconmotion.com for a limited period of time.

With that I would now like to turn the call to Wallace Kou.

Thank you Riyadh.

Good morning everyone.

I hope you all saw our earnings release that we issued a few hours ago.

The third quarter was a challenging one for us.

I am, therefore pleased to report that our results came in slightly ahead of our expectations, and ahead of the revenue guidance that we provided three months ago.

In fact, our revenue and net income are both new third quarter record high.

Let me first share with you why I remain very excited about our business.

Our many NAND flash partners, such as Samsung, Hynix, Intel, Micron and ST continue to build newer and ever bigger fabs, which will increase NAND flash production upward significantly.

This should lead to big growth, increasing well in sense of 100% next year.

This should in turn lead to increasing availability and affordability of flash and solid state storage devices.

What this means is a lot of more devices that need controllers, our business with Samsung, excluding the additional Samsung mobile business, LSCI has in fact increased by around 15% of total sales last year to over 20% year to date.

Last year over 440m flash memory cards were sold worldwide.

This year we expect sales of 660m cards.

Next year we think the number could jump all the way to 900m.

In this rapidly growing market we have been capturing market share from 21% '05 to 30% last year and we estimate about 35% in this year.

I will come back in a few minutes to talk about some of our new business wins.

If you are following along with our slides, now I would like you to take a moment to move on to slide four and talk about some of our major growth engines.

As I have just mentioned, controller for flash memory cards are a very important core business for us, and will continue to be a very important growth driver going forwards.

But we are not just about flash cards.

In fact, I am happy to report that the significance of flash cards have come down as we have diversified our business and add new growth drivers.

Card controllers, which were almost 80% of our revenue in the third quarter of last year, have come down to under 60% this quarter.

In our Mobile Storage product line we have also been growing USB flash drive controllers.

Revenue for this was up almost 30% year over year.

We are also very excited about our small but fast growing SSD controller, embedded flash controller business.

In our multimedia SoC partner line we've doubled our revenue from Q3 '06 largely as a result of our ramping MP3 business.

Last year we sold around 1m MP3 SoC units.

This year we are targeting at least 7m units.

And at the end of April this year we acquired our Mobile Communication business, and this product line already accounts for 17% of our total revenue.

Our Mobile TV Tuners business is rapidly growing both in sales and significance.

It went from accounting around one-third of our total mobile communication product line last quarter to almost one-half this quarter.

By many measures this acquisition is already looking like a tremendous success.

Changing gears a bit, on slide five I would like to talk about how unfavorable NAND flash supply demand dynamic impacted our Stars business this quarter.

We predicted, during our second quarter result announcement, that third quarter would be difficult for us as well as overall merchant controller market because our customers faced NAND flash shortages.

We note in July that shortages were being caused by spectacular activities, and we believe at that times that situation will be temporary.

We think this was, for the most part, accurate.

Issues relating to the spectacularly driven spike in NAND flash prices and related shortages have largely unwound.

Because of our capacity expectations for such shortages, we've provided revenue guidance for the third quarter of $43m to $45m, which was mostly flat in terms of sequential growth.

We exceeded this guidance slightly by delivering almost $46m, largely because of the strength of our non-flash card growth engines.

In fact, our overall revenue could be very well have been higher in our Card business not been impacted by the effect of Samsung power origin in the flash shortage, which, of course, no one could have predicted at that time.

This issue further fuelled up NAND prices and limited availability of flash for our customers and limited demand for our controllers.

NAND flash prices have come down sharply since early September.

We believe declining prices will lead to improved affordability of flash based storage devices, stronger device unit growth and higher demand for our controllers.

We are currently more optimistic about our business outlook than three months ago.

Now moving on to what matters most - winning new business, and in this area we had a pretty exciting quarter.

The strength of our advanced technology portfolio, first class engineering talent, economies of scale and established track record with customers and NAND flash vendors continues to position us well for growing market opportunities.

Last quarter we announced that we will be supplying embedded SSD controller for Asustek eeePC, the world's first notebook PC developed for high volume production using only a SSD.

We were, therefore, thrilled when the eeePC was launched on October 16, and that Asustek expects to sell 3m to 5m units in 2008 through their press release.

We think that the selection of our SSD controller by Asustek is validating the strength of flash controller technology, which we believe is among the best in the industry.

Another validation of our technological capability was selection by Smart Modular of our SSD controller for XCeedUltra SATA solid state drive, which targets servers and enterprise applications.

We are also thrilled that our Embedded Flash Controller business continues to gain traction with leading global OEMs, and are proud that Microsoft selected our embedded flash controller solution for its recently launched Zune2 portable media player.

During this past quarter we also won new business with several new com controllers including with Lexar Media and PNY, as well as with Hagiwara and Buffalo in Japan.

With that I will now hand over the call to Riyadh to talk about our financial performance, Riyadh.

Thank you Wallace.

Hello everyone.

As we disclosed in our press release issued this morning, overall unit shipment increased 57% from Q3 '06 and were flat sequentially.

Our Core Storage business was down slightly due to the NAND flash storage shortages that Wallace talked about earlier.

In the third quarter we shipped 71m flash storage controllers, which were 6% less than the previous quarter.

High NAND flash prices and shortages were primary reasons behind soft demand for our flash card and USB controllers.

For our non-storage products we sold 2.8m multimedia SoCs in Q3 which was 27% more than Q2, largely because of ramping PC camera SoC sales and continued growth in our MP3 business.

Mobile Communications volume increased from 3.3m ICs in Q2 to 5m in Q3.

This was the result of both accounting for a full three months of sales versus two months the previous quarter, because of our mid-quarter acquisition of FCI in Q2, and also because the growth in our mobile TV tuner and ETC RF IC products.

Turning to ASPs, the rate of decline for our mobile storage ASP has come down significantly over the last 10 quarters, but this rate of decline is decelerating.

In 2005 our ASPs were declining 40% to 50% year over year.

Last year ASPs were declining at a rate of 30% to 40% year over year.

This year ASPs are expected to decline around only 20%.

The rate of ASP decline for SSD card controllers is similar to overall storage ASPs.

So overall, blended ASP of our three product lines has also improved over the last many quarters as we sell more higher ASP products such as embedded graphics, mobile TV tuners and ETC RF ICs.

Our overall blended ASP, in fact, only decline 8% in Q3 on a year over year basis, and was up 4% quarter over quarter.

We believe that the decelerating rate of ASP decline for our mobile storage products is a result of increasing barriers to entry.

We believe economies of scale is increasingly important in the Flash Controller business because of three key reasons.

One, increasing R&D is needed to keep up with NAND flash technology advancements.

Two, more significant engineering support is required for our NAND flash partners with increasingly frequent product introduction.

And three, there is an increasing proliferation of electronic devices that use flash cards, for which compatibility still needs to be ensured.

Moving on to net sales on slide nine.

Overall, Q3 sales were up 4% from the previous quarter.

Mobile Storage sales were down 6% sequentially.

Multimedia SoCs sales were flat, and Mobile Communications were up 90%.

Mobile Storage sales were down because of unfavorable NAND flash supply demand dynamics that we had mentioned a few minutes earlier.

Falling blended Multimedia SoC ASPs from product mix changes offset increasing multimedia sales volume.

Mobile Communications rose sharply because we accounted for a full three months of results and mobile TV tuners and ETC RF ICs are growing rapidly.

For nine consecutive quarters we have delivered a gross margin of more than 52%.

Our gross margin in Q3 was 53%, which was unchanged compared to the previous quarter.

GAAP and non-GAAP gross margins are largely the same.

Non-GAAP operating margin for the first three quarters of 2007 had been in the 31% to 32% range.

It was 32% in Q3.

Our operating margins have been fairly stable over the last two to three years with a gradually increasing trend as we benefit from operating leverage.

Our press release contains reconciliations of the non-GAAP measures to the comparable GAAP measures.

Our Q3 growth and operating margins were in line with our previous guidance.

Our Q3 non-GAAP earnings per ADS was $0.40 which was 29% better than the $0.31 in the same quarter last year.

In the first three quarters of 2007 our accumulative non-GAAP earnings per ADS is about $1.17, which already is fairly significant given that our full year EPS in 2006 was $1.01.

Now I'd like to turn to our outlook.

If you are following along in our presentation slide I am on slide 12.

We expect Q4 revenue to increase 9% to 14% sequentially to $50m to $52m because of year end holiday sales and continued improvement in our Card Controller business.

We believe our Card Controller business with Samsung will continue to increase in Q4.

We also believe that further decline in NAND flash prices will continue to improve the affordability of flash cards and other flash based storage devices.

We expect Q4 non-GAAP gross margin to remain in the 52%/53% and non-GAAP operating margin to remain in the 31%/32% range.

GAAP gross margin should be similar to non-GAAP gross margin, which excludes stock based compensation.

Our non-GAAP operating margin excludes stock based compensation and acquisition related charges.

We reaffirm that we expect to meet our full year non-GAAP earnings guidance of $1.60 to $1.70 per ADS.

Non-GAAP earnings per ADS excludes approximately $0.40 of stock-based compensation expense and acquisition related charges.

We, therefore, expect GAAP earnings per ADS of $1.20 to $1.30.

GAAP earnings per ADS, including stock based compensation but excluding acquisition related charges is $1.40 to $1.50.

Our non-GAAP earnings of $1.60 to $1.70 per ADS is 58% to 68% higher than our 2006 non-GAAP earnings of $1.01.

And that concludes our prepared remarks for today.

Now I would like to turn the call over to the operator and we will begin the Q&A.

Ladies and gentlemen, (OPERATOR INSTRUCTIONS).

Your first question comes from the line of Quinn Bolton from Needham Company.

Please proceed.

Hi guys, nice numbers.

Wallace, I was wondering if you could just give a little bit more detail on the embedded opportunity?

I think you got some cell phones that start to shift this quarter.

But just generally, if you look out into 2008, how big of an opportunity is this for you, and then I've got a couple of follow ups?

I think we start to win embedded solutions for mobile handsets start from late November moving to December.

We believe the total revenue contribution for '08 is small compared.

But I believe they will tremendous growing '09 moving to 2010 because next year probably just about 2% to 3% mobile handsets will start to use the embedded solution.

But moving to '09 and 2010 the number will increase dramatically.

Okay.

And then looking at other opportunities, can you talk about the pre-loaded content market heading in 2008?

Is that a new opportunity for you?

We can only say that we have opportunity to win the business, but we cannot share more information until that program moves to mass production.

Okay.

And then just looking at your comments earlier with Samsung, I thought Samsung was sort of 10%/15%, I think in your prepared comments you said that's moved over 20%.

Is that a direct, an indirect into Samsung, or is that 20% just looking at those customers that use Samsung flash?

I am just looking for a clarification.

This is both direct plus indirect.

Okay, but into Samsung?

That's correct.

And of your total customer base, how much of your total customers would you think use Samsung NAND memory?

I think about 80% of our customers are using Samsung NAND memory today.

Okay.

And then lastly, for Riyadh, just looking in the fourth quarter but probably more out into 2008, it sounds like the ASP declines, especially in Mobile Storage, are decelerating.

Given that trend, how do you look at your manufacturing cost reductions?

Do you think you can accelerate, or not accelerate, but exceed the pace of ASP decline through transitions to smaller geometries, and try and grow that gross margin?

Or how would you look at the cost reduction programs heading into next year?

We are continuing to reduce our costs.

As you know we have been migrating beginning of the second quarter our card geometry to 0.16.

Over time, as you know, we've been keeping our gross margin in the 52%/53% range and that is still our strategy, very much our strategy to maintain our gross margin at that level.

It's not our intention to increase our gross margin, but rather to maintain it at this level.

There are opportunities to ramp further our revenue by maintaining our gross margin at this level.

Okay, great.

Thank you.

Your next question comes from the line of Daniel Gelbtuch from CIBC.

Please proceed.

Congratulations on a fantastic quarter and guidance.

With regard to -- you mentioned SSD, it looks like SSD is starting to -- you are starting to get traction in that market.

Could you possibly update us on what your plans are with regard to supporting MLC in this space?

Are you guys going to be supporting perhaps a hybrid type solution using SLC and MLC or is it just SLC right now?

What's your roadmap for that market?

For the moment our technology is capable to support MLC with advanced well rounding technology.

But it's just -- from an enduring point of view, most of our customers to date is still worried or have concerns to use MLC.

But we believe, start from second quarter next year, will be certain customers will start using MLC for solid state drive, using consumer product lines such as camcorder and certain consistent data transfer critical pattern.

And we will have a product ready from March next year/late Q1 or early Q2 which is the configurable MLC, NLC.

And we believe we could move product into mass production around early Q3 timeframe.

Okay thank you.

That's very helpful.

As far as the MP3 market, what kind of opportunities do you see there?

And what do you view as your edge relative to other suppliers like SigmaTel and Actions etc?

Our playing MP3 SoC product line is primary based on our know how in NAND flash memory.

As you can see other new NAND flash technology moving to 50 nanometer are now turning to 40 nanometer you need tremendous technology and know how in leveling, error correction, (inaudible) initial and to have a tremendous advanced file publishing file management.

We believe no one in the MP3 world can compete with us in the NAND management, so that is how we leverage.

We believe MP3 all the players can move to similar quality, but the winner is really who can provide a total one card and to win the final game.

So that's how we leverage our technology in NAND to win the battle.

Okay, thank you very much.

Your next questions comes from the line of David Duley with Merriman, please proceed.

Yes, nice quarter.

A couple of questions from me.

One housekeeping.

The Mobile business, could you talk about what the gross margin profile of the Mobile Communications business is?

And is there -- layering that in over time, will that keep gross margin steady up or down?

So today, this last quarter, from third quarter 30%, of our Mobile Communication product line comes from our mobile TV product lines.

And mobile product lines have around 55% gross margin.

And many of the, 50%, come from the CDMA front end components as well as ICs, ETC electronic toll collection RF module.

For CDMA front end component is about around 35% to 40% gross margin.

For the ETC RF module the gross margin are higher.

It's over above 60%.

So there sounds like there could be some expansion opportunities if this becomes a larger segment of your business?

I would imagine the TV business is growing more rapidly than the other stuff?

That's correct.

That's correct.

As the significance of the high margin products continue to increase, overall gross margin for this segment will increase.

Okay.

A little bit further detail on the ASP outlook.

You gave some excellent data about how ASPs over time the rate of decline has slowed.

But flash prices still typically comes down pretty hard.

So I am wondering why there is a divergence, or why we would expect controller pricing not to say go down another 20% or 30% next year?

I think we offer much broader product lines for flash memory card controller.

The solid state drive(compound) flash, Ascis controller as well as SATA 2 controller that will also help the overall blended base of ASP.

So although the legacy product line maybe we might see continued ASP decline, but it is the new product line I think are going to support/improve the blended base of ASP.

So we believe we will have -- we will guide about probably around 15% to 20% ASP decline next year for Mobile Storage.

Okay, and as you mentioned that is maybe the core or the older products will decline at the rate of what the flash market is declining at and some of the newer stuff helps that?

That's a way to summarize it?

Let me just add the flash market NAND flash in general has its own dynamics, which is different from the dynamics of controllers for the NAND flash.

So the rate of ASP decline for card controllers is going to be different from the rate of decline for NAND flash in general because we have a different set of dynamics.

Okay.

Two things, final things from me is can you let us know who the 10% customers were during the quarter?

And you talked about technology migration to 0.16.

Is there plans to move to smaller geometries in the foreseeable future?

The first one on the customer base in year to date we -- in the third quarter we don't have a customer that is directly in excess of 10% or more.

However, if you were to look at direct and indirect, Samsung accounts for a little over 20%.

Okay, and then the technology migration?

Are there plans to move to smaller geometries any time soon?

Our -- we plan our mobile TV tuner will move to SoC.

Next year we plan to move to 90 nanometer.

You know flash memory card is going to stay with this 0.16 microns.

But we might move our USB product lines for some high end move to 0.13 micron technology in '08.

Thank you.

Your next question comes from the line of Bob Gujavarty with Deutsche Bank.

Please proceed.

Hi guys and good job in what was probably a tough quarter.

Could you talk a little bit about the mobile TV tuner market and competition from maybe larger guys with SoC solutions, why you think it's not an issue short term or longer term?

Just we'd like to hear your thoughts on that.

At today there is only two countries that have more than 30% to 40% mobile TV user.

One is in Japan, the other is in Korea.

Japan primary use [ISGBT].

In Korea the standard is primary TDMV.

And about 25% is SDNB.

And we believe China could be a next growing country due to the Olympic Games.

And China Government will finalize standards in December.

There could be three or four different standards at the moment.

Silicon Motion, our mobile division FCI we are positioned very well for all these three different standards in China.

We already started a field trial since six months ago.

And we believe with the technology we have and with our demodulator partner we have, we can move in very quickly from TDMV and SDNB into China [TMMB] and Astini.

In addition we are also sampling DVB-H.

We've partnered with Samsung Mobile.

We believe through Samsung Mobile demodulator SIP solution will help us win multiple designs in central mobile division.

And we also have a selling right and win two other countries.

Okay, so if I understand it you are going to have a time to market advantage over maybe a SoC solution from a larger handset silicon guy and that you are partnering very closely with your customers?

Is that the differentiator?

Yes, we don't have a SoC solution venture ourselves next year.

But as of today there is no hard evidence to tell you if those SoC solutions have a better technology base or better cost structure than SIP.

Okay.

And within your -- I now your overall flash card volumes were down.

Can you talk a little bit about the relative?

I assume your OEM business was -- did okay, and then the retail appeared to the merchant retail market was a little weak.

Can you talk a little bit about that, the different dynamics?

Our bundled business, our bundled business with MicroST has been very strong in the third quarter.

The retail business, due to the shortage for NAND flash, particularly with the right set of NAND flash on Samsung, Hynix so, that business slowing down in July and August, but it picked up nicely from September.

And in 4Q could we expect that to reverse maybe?

Or what do you think the dynamics you see there the retail business coming back a little bit and OEM maybe moderating?

Based on our current forecast we believe the bundled business maintains strong in four quarter.

The retail business will continue to increase compared with the third quarter.

Okay, thanks guys.

Your next question comes from the line of Betsy Van Hees from Cowen and Company.

Please proceed.

Thank you.

Great quarter and great guidance guys.

I have a couple of questions.

I am sorry if I missed this, but can you go over your 10% customers?

Yes in the third quarter we don't have any customers, direct customer that is over 10%.

But if you were to look at direct and indirect for Samsung it's a little over 20%.

Okay, thanks for clarifying that.

I was wondering could you provide us a little bit of color on the recent lawsuits that were filed by SanDisk.

And how you think that's going to impact OpEx going forward?

It's a bit early for us to be talking about the impact on OpEx.

We are still trying to find out what this is all about.

We have received a summons from Wisconsin but we are still waiting for a summons from ITC.

As you know SanDisk is on a litigation rampage.

They've taken legal actions, directed legal action at almost the entire flash card and controller industries and so this is not directed at us.

Currently we don't believe that their claims as they relate to us have any valid legal basis.

And we will certainly defend ourselves vigorously.

Okay, great.

Of course, we will update the market when it's appropriate.

Okay, thank you very much for providing this little bit of color on that.

And then a little bit of housekeeping.

When we are looking at your OpEx for Q4, should we look at R&D and SG&A being essentially the same as Q3?

Yes that's a fair assumption.

We expect to keep our overall operating margin at about the same rate as third quarter.

Okay, and then how about for taxes for Q4, what should we be modeling?

Around 10%.

10%, great.

And then, okay well thank you very much I appreciate it, and once again congratulations on a great quarter and very good guidance.

Thank you Betsy.

Your next question comes from the line of Alec Berman from AMPAC Research.

Please proceed.

Hi, how are you going?

Congratulations.

Just a quick clarification.

You've covered this, but the stuff you are doing for Asustek that is those controllers those are actually SLC right now, or what are they?

At the moment it's 100% SLC.

Okay.

And what do you see as far as the overall opportunity for that market for 2008 in terms of Asustek and maybe some others in that business?

I think we would definitely work hard together to get MLC qualified as soon as the core authorization process.

But there is no timetable.

Hopefully it could happen some time in second half of next year.

Okay, I guess I was trying to ask you what the -- how big a market opportunity do you think that style of notebook is in general next year.

I still predict through the press release next year we plan to sell 3m to 5m units.

But it's not just Asustek alone to do the eeePC type notebook.

We believe that the entire notebook industry from Quanta, Inventec, Asus Wistron Compel and Foxcom will also move to that direction.

Great, thanks.

Your next question comes from the line of Daniel Amir with Lazard.

Please proceed.

Good morning and congratulations on a good quarter.

A couple of things here I just wanted to clarify.

First of all, as you basically look at your different numbers your GAAP, non-GAAP etc., would you like investors more to focus on your non-GAAP numbers considering the big difference in the acquisition related charges and etc going forward here?

That's correct.

We will -- we believe that looking at our non-GAAP measures would be an easier way to understand the underlying dynamics of our business.

Our -- we have the FCI acquisition so that adds a certain amount of expenses which we do not believe are relevant to our core operations.

So it will be easier to understand our business excluding that.

Additionally, the stock based compensation, as you know, we only started accounting for that in the first quarter of '06.

So looking at the longer trend of our business it's also helpful to look at our operating structure without that as part of the total.

Okay, thanks for clarifying that.

Now on the Samsung considering as an indirect customer it's fairly large, what's the visibility on Samsung here into Q4 and maybe in '08?

Do you expect any changes?

Or in your prepared comments you maybe even said that your business will increase with Samsung over time.

Can you clarify that?

I think moving to Q4 we believe the Samsung business will going increase due to micro ST card and ST picture com controller.

But we cannot guide '08.

I think the next quarter earnings call I think we will give a fair guidance with Samsung.

We believe it could be potentially some management change in Samsung and I think we will have to wait for that to happen next year.

Okay.

And then you mentioned about your PC Camera business.

I guess this is the first time that I heard that that is something that is contributing to revenues.

Can you quantify a bit the opportunity there, and where we are going forward in that business?

The PC Camera Controller business is the around 450,000 unit shipment in third quarter.

We believe the Q4 will maintain the same level.

We won't see the high volume until second quarter next year because that's a new design win for the notebook.

It's a very -- the cycle is very predictable.

So we believe through the next year, second quarter we are going to see more visible revenue contribution from PC camera outside Taiwan.

Could this be coming -- is this a bigger opportunity than your Embedded Flash Controller business, or same size?

How would you look at it?

Our embedded controller for the mobile handset next year we believe, the percentage wise is small.

But, however, our embedded flash controller would go everywhere from consumer MP3 to DVD player, to many, many devices.

So we believe embedded flash controller next year will be a very, very large driver to our growth.

Okay.

And the last question, a bit on the competitive environment.

Has anything significantly changed there?

Or do you feel that it's the same players right now?

We do not see any new players, so I think we do not see close competition.

So we doubt we see the third quarter because flash shortage slowed down our growth momentum.

So with that we are looking for good fourth quarter.

Daniel, let me just add to what Wallace has just talked about.

We've also been tracking the volume shipment of our competitors our merchant card controller competitors.

And looking at their year to date volume we've in fact been out growing our volume well in excess of theirs by at least 10% year to date, so we believe we are doing very well against them.

Okay, thanks a lot and congratulations on a good quarter again.

(OPERATOR INSRUCTIONS).

Your next question comes from the line of Quinn Bolton from Needham, please proceed.

Hi, I just wanted to ask two quick follow ups.

First just the revenue mix in Q4.

I am assuming it probably shifts back a little bit more towards mobile storage given the constraints easing as we coming through the quarter?

Yes.

Okay.

And then Riyadh, any sense for stock comp charges in the fourth quarter?

Is that going to be about flat with the third quarter level?

It should be.

This quarter stock based comps were about around 5% of book revenue, so we expect about the same level.

Okay, so it will trend up with revenue?

Yes.

Okay, thank you.

And I show no further question at this time.

I'd like to hand the call back over to management for closing remarks.

Well we are very excited about our business.

As Wallace has been talking about throughout the call today, our -- we've gone through some turbulence in the third quarter.

During the third quarter, however, we've also done quite well in wining a lot of new businesses.

So this is certainly very exciting to us.

And going into the fourth quarter we believe a lot of the new business that we've talking about will certainly add to the strength of our overall business, and well position us for next year.

So, again, thank you everyone, thank you for joining us on the call today.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation and you may now disconnect.

Good day.