慧榮科技 (SIMO) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Q1 2010 Silicon Motion Technology Corporation earnings conference call.

My name is Deana, and I'll be your operator for today.

At this time, all participants are in listen-only mode, but later we will conduct a question and answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

Before we begin, the host has asked me to read the following statement.

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, as amended.

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, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices; unpredictable changes in technology and consumer demand for multimedia consumer electronics; the state of and any change in our relationship with our major customers; and changes in political, economic, legal and social conditions in Taiwan.

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

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

And now I'd like to turn the conference over to your host for today, Mr.

Jason Tsai, Director of IR and Strategy.

Please proceed.

Good morning, everyone, and welcome to the Silicon Motion first quarter 2010 financial results conference call and webcast.

My name is Jason Tsai, and I'm the Director of IR and Strategy.

With me here is Wallace Kou, our President and CEO and Riyadh Lai, our Chief Financial Officer.

The agenda for today is as follows.

Wallace will start with a review of some our business developments, and Riyadh will then discuss our revisions to our fourth quarter results and first quarter financial results, and then provide our outlook.

We'll then conclude with Q&A.

Before we get started I'd 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 SEC.

For more details on 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 www.siliconmotion.com 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 similar to 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'd like to turn the call to Wallace.

Thank you, Jason.

And thanks to everyone for joining us today.

I am delighted to announce that our first quarter revenue of $26m exceeded our original expectations.

While the first quarter is typically our seasonally slowest we were able to grow revenue by 15% sequentially.

Our gross margin was 47.1%, and our net loss was $0.2m or loss of $0.01 per diluted ADS.

More importantly, we were able to generate a small operation profit of $0.2m, our first since the third quarter of 2008.

Riyadh will discuss our financial performance in more detail later on the call.

Let me start by discussing our strong revenue performance in this quarter.

Our mobile storage business exceeded expectations because of the increased of availability of the NAND flash to our customers.

In particular 3 bits per cell MLC flash, our mobile communication business, as expected, rebounded strongly as Korea recovered, and we continue expanding into new markets.

We have had three consecutive quarters of recovery in our mobile storage business.

The overall supply of the NAND flash has improved over the last few quarters, with the rollout of 30-nano flash, and should improve further as all NAND flash manufacturers ramp 20-nano flash in the second half of this year.

Additionally, 3 bits per cell MLC is now more widely available to our customers than in the past.

And the availability of 3 bits per cell flash should improve further in the second half of this year as other NAND flash manufacturers ramp their [by 3] production.

These next generation 3 bits per cell and 20-nano NAND flash require certainly more advanced controller technology than past generations of flash.

This next generation flash requires more advanced ECC engine, digital signal processing, global wear leveling and proper (inaudible) to help improve and maximize data endurance, integrity and data retention.

Our flash controller technology are among the best in the industry.

We continue to work closely with the flash makers and their technology partners to ensure that when they transition to next generation NAND our controllers are there to support their products.

Better performing controllers not only improve consumer's experience, but also help improve our NAND flash partners' yield and profitability.

In this quarter the supply of 3 bits per cell MLC flash to our customers increased sharply.

We were able to rapidly convert this market opportunity into revenue upside with our best-in-class 3 bits per cell MLC controller and believe we have clear market share leadership in the 3 bits per cell controller merchant market.

Our 3 bits per cell controller shipments increased by over 130% sequentially this quarter, and accounted for over 10% of all our controllers shipped.

Our by 3 controller customers are primarily using our solution for managing SsanDisk, Toshiba by 3 flash, as well as Samsung by 3 flash.

We prepared to support the by 3 product of other NAND flash vendors when they ramp their production in the second half this year.

Our mobile storage controller shipments increased 14% sequentially.

Both our car and UFD flash drive controller products sales improved solidly this quarter driven by both the improved availability of flash as well as solid demand for storage products.

Our bundled card business improved further as global handset sales, in particular smartphones, grew rapidly.

Our customers are reporting a strong demand for storage products, and we believe have lean inventory levels.

This quarter we became the sole source vendor for USB flash drive controllers to the second largest retail brand for the memory product in the US.

We have also started shipping SD card controllers to this customer.

Our SSD and embedded controller sales were flat sequentially, but up almost 300% year-over-year, and continue to account for almost 10% of our overall corporate revenue.

We remain optimistic about the long-term SSD] and embedded memory market opportunities.

While most of our SSD controller sales are for industrial applications, including enterprise and networking markets, we are also targeting unique opportunities such as the use of our controller in SSD of a ruggedized notebook PC manufactured by a leading global PC OEM.

Flash memory adoption continues to grow beyond card and SSD, with our embedded solutions we are targeting and help to have flash memory adoption into new devices and markets.

Moving onto our mobile communication business, revenue from this segment rebounded as expected in the first quarter, increasing by 67% sequentially.

Our shipment of the mobile TV ICs tripled comparing to the previous quarter.

We had previously mentioned that in the fourth quarter of last year, our mobile communication business has suffered short temporary and transitionary period, due to technology transition in Korea.

Our Korea T-DMB revenue improved strongly this quarter, as some of our T-DMB SoC design wins went into production.

I'm also pleased to announce that our strategy of expanding into other mobile TV technology and markets has begun to bear fruit.

Revenue from our ISDB-T solution for Japan and Brazil, and our CMMB solution for China now exceed our Korean T-DMB revenue.

We have talked about several design wins over the past few quarters in this new market, and we are now seeing strong revenue contributions from this new market as product begins to ramp.

I am also pleased to announce that we are shipping our ISDB-T SoC to LG for the Japanese mobile TV market.

The CMMB market in China remains robust as shipments continue to increase and design activity and design win continues to drive strong growth for 2010, with customers such as LG and Lenovo.

For our CDMA business I am pleased to announce that we are now shipping our CDMA transceiver to Samsung for the China market.

Overall, I am very pleased with the results of our fantastic first quarter.

I will now turn the call to Riyadh.

Thank you, Wallace.

First, I will discuss our revisions to our fourth quarter 2009 results, then financial highlights from our first quarter.

I will conclude with our guidance for the second quarter.

After we announced our unaudited results for fourth quarter in early February, new material information came to light regarding the more limited growth prospects of several products that are consequences of rapid changes in NAND flash and mobile TV technologies.

Revisions to our fourth quarter center around three areas, obsolete inventory, an impairment charge relating to our FCI acquisition and product returns.

We revised down our fourth quarter revenue by $0.3m to $22.5m because of a product return.

We revised down our fourth quarter gross margin from 42.2% to 27% because of a significant increase in obsolete inventory reserves.

We very regularly review the salability of our inventory.

We concluded during this quarter that the significantly older inventory of mobile storage and mobile communications products were no longer salable as a result of rapid technology changes in our markets.

We therefore wrote-off an additional $3.1m of obsolete inventory.

Total fourth quarter obsolete inventory reserves now total $5.3m.

Our revised gross margin for the fourth quarter, excluding obsolete inventory reserves, remains at 52%.

Operating expenses remain unchanged.

During the quarter we completed our previously reported assessment of impairment of goodwill and acquisition related intangible assets relating to our 2007 FCI acquisition.

Because FCI's financial performance was weaker than expected due to the economic recession in Korea, technology transitions and the push-out of new business opportunities, we have determined that goodwill and certain long-lived assets relating to FCI are impaired.

As a result we are taking a non-cash impairment charge of $38.3m in the fourth quarter to GAAP earnings.

Impairment charge reduces our FCI carrying costs to $32.4m.

I will now move onto our first quarter financial results.

For first quarter 2010 our revenue of $26m increased 15% sequentially and exceeded our original sequential revenue growth expectations of plus/minus 5%.

This quarter, mobile storage products accounted for 65% of sales, mobile communications 23% and multimedia SoCs 12%.

The significance of our mobile storage business remained largely unchanged compared to the previous quarter.

The significance of our mobile communications business increased from 16% to 23% of total revenues, due to strong revenue growth.

With the increased availability NAND flash to our customers, in particular 3 bits per cell MLC, we grew our mobile storage revenue 15% sequentially.

Unit shipments increased 14% due to solid card and USB flash drive controller sales.

Blended ASPs increased 1% because of increased sales of high-value added 3 bits per cell MLC controllers.

Mobile communications revenue increased 67% sequentially, largely because mobile TV IC revenues more than doubled this quarter and our CDMA transceiver revenue also improved meaningfully.

Multimedia SoC revenues decreased 7% sequentially due to seasonally weak shipments of our graphics products.

Our corporate gross margin of 47.1% increased from the revised 27% in the fourth quarter.

Fourth quarter gross margin was negatively affected by significant end of life and obsolete produce reserves, which I had just discussed.

Operating expense was $12m, $2m lower than in the fourth quarter.

Fourth quarter operating expense was negatively impacted by a non-recurring $1.1m bad debt expense and a one-time $0.4m construction in-progress cancellation.

First quarter operating expense benefited from lower R&D and selling expenses.

Our stock-based compensation expense in the first quarter was $1.1m, significantly lower than the $7.6m reported in the fourth quarter.

Fourth quarter stock-based compensation was negatively impacted by a one-time $5.1m expense incurred from the accelerated vesting of certain restricted stock units and the cancellation of a small portion of our outstanding restricted stock units that were previously granted to employees.

I'll now move to our balance sheet and cash flow.

In the first quarter we were again nearly cash flow neutral.

Total cash on our balance sheet decreased slightly to $61.0m from $61.2m.

Our accounts receivables turnover and inventory turnover both improved in the quarter.

DSOs decreased to 51 days from 68 days in the fourth quarter, while days inventory, excluding end of life and obsolete inventory write-offs, decreased from 122 days in the fourth quarter to 88 days in the first quarter.

I will now move onto our guidance.

We are optimistic about our outlook for the second quarter.

The supply of 3 bits per cell MLC flash will continue to increase and the ramp of smaller geometry 20-nano NAND flash will begin.

We begin -- we are ideally positioned to capture strong market share in these emerging technologies.

While our first half performance should be strong I would highlight that the NAND flash industry is very dynamic and emerging markets for mobile TV are subject to rapid technological, regulatory and other changes.

Our NAND industry supply bit growth this year will be much stronger than last year, driven primarily by 3 bits per cell MLC and 20-nano geometry migration.

Bit growth will remain significantly less than in past years.

I will also note that we are currently actively managing extended lead times at our foundry suppliers to ensure that our supply of our products to our customers remains smooth.

For the full year it is still our belief that 2010 is a year of gradual improvement for Silicon Motion.

We expect second quarter revenues to be up 10% to 20% sequentially.

We expect second quarter gross margin to be within the 46% to 48% range.

We are targeting operating expense to be in the range of $12m to $14m.

Since we are keeping our headcount largely constant core SG&A expense per quarter is expected to remain at about roughly $5m plus/minus $0.5m with R&D expenses roughly between $7m and $9m, depending on the timing of tape-outs and other project expenses.

Stock-based compensation expense should be roughly $1.6m to $1.8m.

Acquisition related amortization of intangibles is about $0.5m.

Our normal tax rate is 15%.

We will now open the call for your question.

Operator, we can take questions now.

(Operator Instructions).

And the first question will come from the line of Gary Hsueh from Oppenheimer.

Please proceed.

Yes, great, thanks for taking my question.

Now that we are starting to see the recovery here, particularly on the mobile storage side of the business just wondering in light of some of your comments about limited bit supply growth this year, what you're thinking is in terms of full-year revenue targets or reasonable modeling estimations for your company.

Just taking into account the fact that maybe bit growth is somewhere, for NAND, around 70%, 80%.

Maybe a little bit higher, but average card densities historically have risen by just as much.

So it seems that most of your top line is driven by market share gains.

I'm just trying to see -- engage where you think a reasonable target in terms of either revenue or unit growth could be for the company in 2010.

I've got a follow up as well.

Hi, Gary, this is Riyadh.

We don't provide a full-year guidance, but our views about bit growth is fairly consistent with the numbers that you have provided.

Our overall belief is this year NAND flash bit growth will be significantly higher than last year, approximately double last year, but still significantly below the big growth that we've seen in our industry in past years.

So -- and plus with the significant growth of bit growth over last year it's our belief that this year will be a year of gradual recovery off of the weak business conditions that we saw last year.

Okay, thanks, Riyadh.

And just more of a specific question here on gross margin guidance.

Gross margin guidance is flat, yet you guys are talking about significant share gains and a strong technical position for 3 bit per cell controllers.

Can you kind of discuss and walk us through some of the give and take in terms of margin there, maybe why you are not recognizing as much margin expansion on that technical leadership?

And could you specifically talk about trends in some of your foundry wafering costs?

Let me start off with our gross margins.

We have a broad mix of products, certain products have higher margin than other products.

In our first quarter we saw a slightly weaker seasonally induced weakness in our graphics businesses that generally have a higher gross margin.

So it's a blending of various products, some higher, some lower that resulted in the gross margin that we have in the first quarter.

And it's our belief that with the blending of the various products, some high, some lower, new products, older products, some products have higher ASPs, others have lower ASPs that we will be able to deliver on the gross margin that we've indicated.

And just a quick comment about what are the trends in terms of foundry wafering costs and how you're trying to mitigate any kind of increases throughout this year if there are any.

We do start to see the wafer price increase from our foundry supplier from 10% to 20% range.

But we are able to manage our wafer price with contract.

And we do have -- we do believe we have a very good relation to make the transition smoothly.

Okay, great.

Thank you.

And the next question will come from the line of Daniel Amir, Lazard Capital.

Please proceed.

Thank a lot.

Thank you for taking my question.

On the mobile TV side you've seen a great bounce here, and it seems like this business is back on track.

Can you give us a bit of info in terms of visibility in this business?

How should we look at this going forward?

And is Japan, Brazil and China is this really being driven by just one design win that's ramping up for production or is this multiple designs that are really ramping simultaneously and becoming a bigger part of your revenue?

So our design wins in China for CMMB, we have very, very broad design wins with our demodulator partner, innovated together.

So we believe we probably penetrate more than 10 to 15 major handset majors at the moment.

For ICBT in Japan and Brazil primarily with LG and Samsung, we also have a couple of small players through China and shipping to Brazil too.

We believe mobile TV this year will continue to grow strongly from ICBT, TBNB in Korea as well as CMMB in China.

So can the mobile TV come back to the level that it was a couple of years ago or is it too early to tell?

It's potentially global.

It's our expectation that that business will continue to grow.

Not just grow one year, but grow in multiple years.

But let me also jump to the other topic which we've talked about in our prepared remarks, which is the business has not performed according to our expectations.

While we expect this business to continue to grow, while we remain optimistic about the long-term growth potential of mobile TV in general in the various markets that we address, and in our -- or plan to address in the future, the overall business of FCI has not performed compared to expectations that we had at the time of our acquisition.

A lot of opportunities have been pushed out.

We had a fairly severe economic recession in Korea.

And there were also technology transition issues in the Korean market.

So these issues have led to underperformance of the business compared to our expectations that we had at the time of our acquisition, which resulted in the valuation that we had at the time of our acquisition.

And because of these reasons we've taken a significant impairment charge to this asset.

Okay.

And shifting gears to the 3 bit supply issue, so it was about -- north of 10% of controllers shipped this quarter.

What's your guess in terms of where it's going right now in 2Q?

Is it going to be 15%, 20% or even higher your controller ship?

We believe in the second quarter the 3 per cell controller will ship -- will be increased at least about 10% versus first quarter.

The reason is Samsung start to ramp up their 32 nanometer 3 bit from March.

So we believe Samsung will contribute more 3 plus cell NAND in second quarter.

Okay.

And then final question related to that, what is -- what's kind of the competitive environment related to 3 bit and 20-nano?

Do you have a one quarter lead, couple of quarters lead?

It looks like you've really been able to corner the market in terms of share growth here.

So how should we be looking at that?

So that is very hard to answer your question.

I think we can only answer for ourselves.

We maintain very close partnership with our NAND flash makers.

For 20-nanometer technology you have to work from the very beginning, very closely to [discovery guarding] the technology from the NAND side as well as controller side, because the customer they demand lower-cost, high-performance although you have to add about -- more than 500k gate into the silicon.

But you need to be able to maintain low power consumption, high-performance.

There are many new technologies required to support 20-nanometer NAND, and it's not just a higher, stronger ECC engine wear leveling technology.

There are so many technologies you need to -- including digital signal processing to control the [actual] voltage during the read and write.

So there are many confidential information has to be shared between controller party as well as the NAND flash maker.

So we believe we are selected as a major partner enabler to the new-coming NAND flash.

Okay, thanks a lot.

And the next question will come from the line of Jie Liu, Auriga USA, LLC.

Please proceed.

Hi, good morning, everyone.

Two questions, could you guys first talk about the growth potential by business segment for your second quarter?

Again, this is Riyadh.

We believe that our key businesses, of our key businesses, mobile storage will continue to grow, will grow off the back of continued ramp of 3 bit per cell as well as the initial sales of 20-nano flash.

Additionally, our mobile TV, our mobile communication business will continue to grow based on the strong pipeline of business wins that we've secured.

And we'll probably start seeing a recovery of multimedia SoC business led from our graphics business coming off of a seasonally weak quarter as well as continued improvements in our notebook PC, webcam and SoCs business.

Okay.

My second question is how should we think about your gross margins for the mobile com business as Japan, China and Brazil begin to account for a bigger proportion of your revenue?

Well, we don't provide breakdowns of our gross profitability by our product lines.

But it's our belief that since we have various products that have higher gross margin than corporate average as well as products with lower gross margin, we are able to continue to blend.

And we've been fairly successful in blending the gross profitability of our product lines in past years.

And we believe we'll be able to continue doing that where we deliver on gross margins comparable to what we are seeing going forwards.

Okay.

So without getting into details could you maybe rank the gross margins of ISDB-T, CMMB and T-DMB for us?

I'd rather not do that for competitive reasons to go into that level of detail.

Okay, all right.

Thank you, guys.

The next question will come from the line of Kevin Vassily, Pacific Crest Securities.

Please proceed.

Yes, hi, guys.

Thanks for taking my questions.

I want to circle back on the comments around 3 bit per cell.

As you kind of were looking in Q4 out into Q1, what expectations did you have about 3 bit per cell NAND availability in your customer base?

And what if anything did change during the quarter to increase the opportunity for you?

Well, we would say in the first two months of the first quarter the main supplier of 3 bit per cell in the market were from SanDisk and Toshiba.

But starting from March, Samsung started to ramp up their 32 nanometer 3 bits per cell that increased the availability to our customer to ask for 3 bit per cell.

In the past, especially last year a lot of customers they hesitate to take 3 bit per cell due to the endurance and data retention issue.

Right.

But as flash maker they did improve seasonally from last year to this year.

So with the controller enhanced technology we believe we can bring the complete product to enhance the data retention as well as the endurance to next level.

That's why we believe we take advantage about the availability of 3 bit per cell streaming to our customer, we become the major enabler when the NAND supply of 3 bit per cell increase from Q1 moving into the Q2.

Okay.

If I heard your comments correctly it sounds like you're expecting more supply in the second quarter from Samsung.

Do you expect that the supply, ex-Samsung, will also increase in the second quarter or will that remain (multiple speakers)?

No, I -- we will use a single (inaudible).

Samsung only start to ship in March, so there is only one month in the first quarter.

Exactly, okay.

But I would imagine -- well, let me -- as I -- back to the SanDisk/Toshiba comment do you expect them to have more NAND available in the second quarter as well or is it too early?

I cannot comment on SanDisk or others.

We believe what we start to see will be more flash maker shipping 3 bit per cell.

Okay.

In addition the 20-nanometer 2 bit MLC the equivalent technology from controller.

So it's quite even in 30-nanometer 2 bit MLC.

When we start to see ramp for other flash makers in the second half, our 20-nanometer 2 bit MLC requires similar technology from controller to enable to move to acceptable endurance and data retention ability.

Okay.

And then last question on this.

If - when you SanDisk/Toshiba you can interpret that two ways, one, just output coming from the joint venture facility.

But there has been a fair amount of discussion around SanDisk actually -- wafers that they might have otherwise used and starting to sell them into the module houses in Asia.

It would -- given your comments about the necessity to be working with these NAND manufacturers on the integration of controller technology with their particular flavor of NAND, it would imply then that if you are supplying controllers into this market right now that you have had design activity directly with SanDisk.

Can you comment on that?

You commented in the past about the close relationship you've had in the past with Samsung.

What is your relationship with SanDisk right now in this part of the market?

Well, we can only answer, we also work closely with SanDisk whenever they need us to supply controller to the module maker.

We are one of the important enabler for SanDisk to the module maker when they sell the wafer on NAND component.

Okay, great.

Thank you very much.

The next question will come from the line of Rajvindra Gill, Needham & Co.

Please proceed.

Yes, thank you.

Congrats on the good results.

Along the same questions that other people have talked about around the NAND flash, what percentage of the NAND flash supply do you think will be 3 bit MLC?

I think in the past you've talked about 25%.

Has that metric changed?

Do you see that increasing in your forecast?

The market outlook continues to change, but based on what we've seen of forecasts provided by the likes of Gartner and other technology research suppliers, it still remains within that range a quarter, a third of all flash and bit turns will be probably be 3 bits per cell MLC.

And with respect to the NAND flash supply going into the second half of '10 any metrics in terms of what percentage increase over the second half versus first half that potentially could be in terms of bits, bit unit growth?

Overall, there will be a lot more bit unit growth in the second half compared to the first half.

And it's really a function of the drivers for bit growth this year coming from continued migration, geometry migration in the finer geometry into the 20s.

So a lot of that will take place in the second half.

We also have bit growth coming from continued push into 3 bits per cell.

We've got initial push from Toshiba/SanDisk, Samsung (multiple speakers) in the second half; you'll have other module guys -- other NAND flash guys ramping.

So it will be very much second half loaded.

Is the bit progress primarily being driven -- is demand also driving it as well or is it just from percentage of magnitude mostly being driven by lower process geometry nodes and lower technology -- 3 bits per MLC.

Maybe you could characterize the demand landscape a little bit more.

And also do you see that the OEMs are gaining a share of the supply rather than the card manufacturers?

Any sense of how Apple also is going to -- how Apple will come into play with its new phone coming out in spring, how that will impact the NAND flash market?

We cannot comment that.

But we believe Silicon Motion is in a very unique position.

We've grown with the bit growth.

But also we've started to see more card bundle business from the OEMs bit demand very strongly.

We believe, even lower density card bit demand also very strong.

So 2 gigabyte 1 gigabyte, bundled Micro [C] card demand very strong with OEM business.

Okay.

And switching to mobile phone business, to the extent that the CDMA transceiver business picks up as you ramp new wins in China, how does that affect your overall blended ASPs in the mobile communication business?

Well, for overall business, as we've mentioned a couple of times during our call this evening, we have a very -- a whole portfolio of products of higher gross margin as well products with lower gross margin.

We don't comment specifically about the gross margins of individual product lines.

But overall we have the ability to blend and to deliver on the gross margin that we are accustomed to seeing and that we expect to see going forwards.

What's the migration in SoC strategy and other of the mobile TV markets?

Could you repeat again, I'm sorry?

Maybe if you could characterize what's happening in the T-DMB markets in terms of the competitive landscape and the demand situation there?

We believe we start to regain market share in Korea, T-DMB SoC market.

We believe this year we can grow very strongly up to 30% to 40% market share.

We also have a very leading position in China for CCMB market today.

We believe we can maintain our leading position for the whole year 2010.

ISDB-T, we're the newcomer to Japan market and Brazil market.

The current ramp is still very small compared with the overall market size.

That's why we believe we can continue to grow.

We have a much better opportunity to grow ISDB-T for 2011.

I think you had mentioned in the past that Korea accounted for about 90% of your segment revenue.

That proportion appears to be declining as growth from Brazil, Japan, China continues to grow.

Any metrics in terms of what kind of percentage of these markets will represent of your segment -- of your mobile TV business going forward?

And how big of a ramp do you think in China you'll get with the -- with TDS-DMA phones that contain the CMMB solution?

We believe China region this year will be at least about 20%, 25% of our total mobile communication [bottom line].

Okay, good.

And the -- no, that's it from me.

Thank you very much, appreciate it.

(Operator Instructions).

The next question will come from the line of Mike Crawford, B Riley & Co.

Please proceed.

Thanks.

In the mobile storage business you talked about ASPs up 1% on mixed higher density.

What was the trend within like-for-like parts?

ASP trends for like-for-like parts have been a lot more stable than in past year.

But on a fully blended basis our ASPs for controller products inched up slightly, and the key driver is because we shipped more higher value added products including by 3 MLC controllers.

Okay thanks.

And then with the SSD controllers coming on almost 10% of revenues what are the main markets those SSDs are -- applications for those SSDs using your controllers?

For a lot of our products we have designed to -- for industrial applications.

A lot of our SSD controllers are for industrial applications with a significant amount of them addressing both networking as well as enterprise end markets.

We've also have SSDs that are going into other products.

The big design win that we started shipping in the first quarter was for ruggedized notebook PC.

Okay, thanks.

And then just kind of a bigger question, so I've heard talk that low beyond 20-nanometer flash NAND flash might get even too difficult.

I don't know if you share that opinion or not.

And if so what other technologies are you exploring for future storage technologies like memristors or phase change memory or what do you think comes to the forefront if indeed NAND kind of runs into a ceiling room?

Well, I cannot comment the different technology for the storage.

I believe phase shift really is to replace NOR and not the NAND flash.

What we see is that we experience for the new 20-nanometer MLC for 2 bits they also have a very weak endurance as well as data retention.

They require very complicated technology -- a new technology from controller side to compensate the weak endurance and data retention.

That's the main reason controller makers we had to work very closely with the flash maker from the very beginning to put into the new technology into the controller.

And we are pleased to be selected, to be recognized for majority of flash maker, we are able to enable their technology in the very early stage.

And we believe for 20-nanometer 2 bit MLC requires the equivalent or even more complicated technology than 30-nanometer 3 bit per cell MLC.

Let me also add, based on the technology roadmaps that we've seen from our flash partners there's still many, many years left with NAND flash moving from the 30-nanos to the high 20-nanos to the low 20-nanos to high teens to the low teens and into the single digits.

So there's still a long life ahead of us for supporting -- providing controllers for this industry.

Okay, thank you.

And the next question will come from the Dunham Winoto, Avian.

Please proceed.

Hi, guys.

Thanks for taking my questions.

Wallace, that's actually a perfect lead-in for my question.

I wanted to ask you where are we at in terms of 3 bits per cell application, meaning that we all understand that there's less endurance, less reliability and so forth with 3 bits.

Are we at a point where we are ready to see 3 bits being used in anything other than cards?

And what's the limiting factor there?

Is it the controller?

Is it the (inaudible)?

If you can provide some insight into that, that'd be great.

Well, actually the (inaudible) is the way that it is, but all flash makers would continue improve the data retention and endurance.

The controller side we also look involved, even a [pro-technology] and to improve endurance and data retention.

Now I believe for 2011 3 bits per cell will be used moving from car and USB into embedded application.

And we believe we are going to see quite even new technology innovation can maintain endurance as good as the 2 bit MLCs today.

So are we -- we were prepared to move in the new development, the new technology, working closer with the flash makers to enable the total solution for [embedded application] in the future.

Okay.

Parallel to that you had also mentioned earlier that the challenge in going from [XXX to X] is sort of similar in terms of difficulty on the controller side going from 2 bits to 3 bit on a similar geometry.

Does that mean that this X NAND right now is also not usable in embedded application?

And if so when can we see it in terms of timeline of that moving from things like cards?

I cannot comment.

Every flash maker have different challenges, different focus for their business.

I believe a lot of the [embeddification] for [better] NAND will have a controller together to enable the application.

So we are going to see more and more application with embedded solution that need additional NAND.

Even they're [stacked] together in a one package or put on the side.

So controller is going to add more technology, more digital signal processing and more enabling new feature to protect, enhance the data retention and endurance.

That's why we are going -- I think most people are going to see 3 bits per cell or 20-nanometer MLC moving to embedded applications either from second half this year or 2011.

Okay, great.

Riyadh, maybe a couple questions for you.

Number one I just wanted to clarify the 25%, 30% that you had talked about earlier in terms of 3 bits out of total industry bits.

Is that what we are at right now or is that what we'll see at the end of the year?

And what the number might be do you think for 2011?

Well, those are the numbers that we've seen from Gartner and other research houses.

It's -- the data continues to move as new information comes to market.

But overall the percentage of 3 bits per cell this year will be significantly higher than last year, especially as you get the introduction of new players who come in with their own 3 bits.

That will come on line second half of the year.

You have the ramp of Samsung.

And so there's still a lot of variability and hopefully full-year we'll see a lot more.

Okay, one last question, Riyadh, controller inventory in the channel quarter to quarter, if you can give us a sense of whether it's flat, up or down.

We pretty much shipped just in time to our customers, so we don't believe there's much inventory of controllers in the channel.

Okay, great.

Thanks, good luck.

And the next question will come from Betsy Van Hees, Wedbush Securities.

Please proceed.

Good evening, everybody.

Congratulations on the nice great and that great sequential revenue growth.

I was hoping we could go back to the ASPs.

Can you please refresh our memory as to what you're expecting for a year-over-year ASP decline on a broader basis?

In past years we saw ASPs for our mobile storage products decline 20%, 30% and in better years around closer to 20%, in poorer years, more competitive years 30% or even more.

That's what we've seen.

But so far ASPs for this year have been holding pretty nicely.

And that's the reason why we had a 1% ASP improvement in the first quarter.

Great.

So when you're looking at -- as you are looking forward and you're looking at -- and I believe you said that wafer prices were increasing 10% to 20%.

How are you going to be able to manage the increased wafer prices in light of potential ASP declines, or ASP even staying flat?

Our wafer prices is through some contract which was signed in the beginning of this year, so we benefit from the contract for our wafer price through certain foundry maker.

But -- I'm sorry I just want to make sure I'm understanding what you're saying.

So are you saying that your wafer prices are increasing 10% to 20% or your wafer prices are going to stay flat year-over-year?

Majority of the wafer will be protected by the contract we signed earlier this year.

So although we do see wafer price increase for our foundry maker some 10% to 15% we've benefited from the contract we signed early this year.

So our ASP -- our wafer price, our cost will be protected by the contract we signed.

Okay, thanks.

That's very helpful that (multiple speakers).

So we won't see the wafer price increase at the 10% to 15% range.

Okay.

Given the constraints you were talking about in terms of -- or as [to say] the longer lead times that you were talking about from your foundry partners, is there a potential that we could see pricing ASPs go up in the back half of the year versus traditionally going down?

Well, we cannot comment foundry manufacturer what's their strategy.

But as of today the wafer supply is very tight.

And all foundry manufacturers are full.

And the lead time, average lead time increase from 45 days to 90 days.

But we don't know whether they are going to increase their wafer price more or they are going to maintain the same.

But we believe we are able to manage our wafer price very well through the end of the year.

Okay.

Thanks very much for taking my questions, and once again, congratulations.

And we have a follow up question from the line of Rajvindra Gill, Needham & Co.

Yes, thank you.

Just following up on the whole inventory and lead time question, I believe -- maybe you could talk a little bit about your inventory levels.

I think in the past they approximated around four months.

And you needed to maintain that level in order to match the manufacturing cycle at the foundries.

Maybe if you could give us a better sense of how your inventory levels are matching up with the manufacturing cycle that you are experiencing now.

And could there be a situation when there is more wafer supply that comes on line, could there be potential order cancellations that you see (inaudible)?

In this moment we have a [simple] product line matching demand very, very strong with probably a potential shortage position.

We do not see inventory for our customer side.

And would there be potential bubble we show in the end of the year we don't know yet.

However, we believe at the moment the flash memory card, UFD and embedded product line we can sell through very quickly through the channel, OEM customer.

Okay, thank you.

And this concludes the question and answer session for today's conference.

I'd now like to turn the call back to management for closing remarks.

So I would like to thank all of you for joining us today.

We'll be attending the Oppenheimer Fourth Annual China Dragon Call Conference in New York and the B.

Riley 11th Annual Investor Conference in LA in May, and UBS Global Technology and Services Conference in June.

Thank you again for your interest in Silicon Motion.

Goodbye for now.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may now disconnect and have a great day.