慧榮科技 (SIMO) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Silicon Motion Technology Corporation earnings conference call.

My name is Tawanda and I will be your coordinator for today.

At this time, all participants are in listen-only mode.

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 Company has asked the following statement to be read.

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 operation, financial condition and business prospects.

Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them.

These statements involve risks and uncertainties, and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons.

Potential risks and uncertainties include, but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan.

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

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 conference over to Mr.

Jason Tsai, Director or IR and Strategy.

Please proceed, sir.

Thank you very much.

Good morning, everyone.

Welcome to the Silicon Motion fourth quarter 2010 financial results conference call 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 the review of some of our recent business developments.

Riyadh will then discuss our fourth quarter financial results and 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 6-K after the close of market yesterday.

The 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.

Thanks to everyone for joining us on the fourth-quarter earning call today.

I'm excited to report a much better than expected fourth quarter and excited to talk to you about the overall improvement we have seen in our business this year.

I want to share with you the foundation that we have laid to capitalize on the many exciting opportunities that lie ahead of us in 2011.

To start with, fourth quarter revenues increased by 17% sequentially; significantly better than our expectation.

Both our Mobile Storage and Mobile Communication product lines performed better than expected, more than offsetting the weakness in the Multimedia products.

But our gross margin declined sequentially to 45% in the fourth quarter from 48% in the third quarter.

This was largely due to the increased mix of lower margin products, as well as the impact of the NT dollar/ US dollar ForEx.

Our operating margin continued to expand, increasing to 17% from 10% in the third quarter.

EPS increased sequentially to $0.18, an improvement of 13%.

Riyadh will discuss our financial result in greater detail later on the call.

Our Mobile Storage business continued to rebound as the availability of flash component increased throughout the quarter and our leading-edge controller technology and product showed stronger than expected growth.

We expect continuing improvement of flash supply in 2011 as Micron, Samsung and Toshiba ramp new fabs.

First, let me talk about our key mobile storage product performance.

Our card controller business grew by 12% sequentially, driven by stronger sale in China as well as new OEM progress.

This 12% sequential card controller growth came after blockbuster 40% sequential growth in Q3.

For the full year 2010, our card controller revenue recovered nicely by growing over 35% compared with 2009 while card controller shipment grew 40%.

Our revenue improved because of two factors; increasing demand and more (inaudible) value-added Silicon Motion controllers.

[Targeting that] increase of smartphones sales group, unlike regular mobile phones, most Android smartphones and other smartphones with card slots are sold bundled with microSD cards.

So the smartphone as proportion to our handset increased card bundle rate has also been increasing.

Over half of our card controller sales are for bundled cards.

Smartphone will continue to be an important driver for card controller sales this year.

Another reason for our strong card controller revenue is higher ASP by increasing and sell more differentiated higher value-added controllers such as for 20-nanometer MLC and 30-nanometer TLC.

Our full-year card controller ASP was up over 10% but fourth quarter ASP declined a mild 1%.

Our USB flash drive controller rebounded strongly in the fourth quarter after an unusually weak third quarter.

Our USB products rebounded by growing 43% sequentially due largely by a strong end demand in emerging markets.

We expect continuing USB sales growth in 2011 as PC OEMs increase adoption of USB 3.0.

Our USB 3.0 flash drive controller expected to enter production mid-year.

While our SD and embedded controller business declined sequentially due to uneven order patterns, we are better positioned for the growth today than compared with a year ago, and we were more optimistic about our opportunity than we have been for quite some time.

We have a significant number of design activity ongoing for embedded applications with major flash OEM to enable new and innovative solution for various embedded solutions, including eMMC and eUSB storage device for smartphone and other consumer electronic devices.

We have been executing our design and preproduction activity for these embedded memory controllers well, and anticipate beginning production mid-year to ramp in the second half of the year and through next year.

Until we ramp our embedded memory controllers, the majority of our SSD and embedded controller sales are for industrial and enterprise applications, including industrial PC and networking equipment.

While we anticipate our industrial and enterprise sales to continue growing, we believe that the opportunity for new class of embedded memory controller for consumer application like smartphone, tablet and other consumer electronic devices, will drive significant revenue going forward.

SSD and embedded controller account for nearly 10% of our full year 2010 revenue and we believe that this business will grow significantly faster than our overall business beginning mid-2011.

I will be talking a lot more about this part of our business in the quarters to come.

I will now shift gears and talk about our technology leadership especially, for managing next-generation MLC and TLC flash.

Our TLC controller technology, which is currently used primarily in card and USB products, continue to lead our competitors by several quarters.

We have been supporting 30-nanometer TLCs since late 2009 and just have begun supporting 20-nanometer TLC.

We offer high-end advanced solution with high-speed data bus, DDR Double Data Rate interface and multiple data channels, as well as lower-cost economic solutions but all designed with our industry-leading ECC engine and wear-leveling algorithm.

Our controller solution for managing TLC flash grew 32% sequentially and continued to account for approximately 25% of our overall controller sales.

I'd also note that our TLC controller solution contain essentially the same class of ECC and wear-leveling technology (inaudible) will manage MLC flash in the next design geometry node.

This means if we can manage well 20-nanometer MLC flash, we can also manage well 30-nanometer TLC flash.

Both TLC and MLC NAND flash are migrating to 20-nanometer, from higher 20-nanometer to lower 20-nanometer.

Our 20-nanometer TLC and MLC controllers have been in production since late last year.

Sale of these controllers was increased as NAND flash makers scaled their 20-nanometer TLC and MLC products.

Over the next few years, TLC flash will continue to increase as a percentage for all flash manufacturer, as its quality and cost improve, and will likely become the dominant type of NAND flash architectures.

We are well positioned to support NAND flash makers as advance TLC and MLC, whether for their merchant market sales or OEM programs across a wide range of applications from devices to embedded solutions.

Flash OEM are still trying to find the right balance of MLC and TLC flash production.

TLC flash is more cost effective and, ideally, suited for card and USB flash drives.

But MLC flash offers a broader range of application, such as embedded and SSD, due to its higher reliability and endurance.

As demand for embedded applications ramp on smartphone and tablets, the mix of MLC and TLC will vary from time to time.

Nevertheless, we continue to believe that TLC will grow to dominate overall flash production in the next few years as the quality improves and cost continues to be more attractive than MLC.

We saw greater availability of NAND flash in the fourth quarter, leading to our better-than-expected results.

Flash vendors are rapidly ramping new leading-edge flash components in order to drive down the cost of flash memory.

The ramp of new technology has benefitted us significantly as our leading-edge controller are passing cards for supporting this new product.

We have seen a significant increase in our leading-edge controller sales and this represents in both our strong shipment growth in 2010 as well as our strong ASP performance, which I have previously discussed.

Our leading controller technology has allowed us to seasonally extend our key flash OEM relationship.

As flash components get more complex and less robust with each geometry shrink and from the use of TLC flash architecture, it is critical that flash maker and controller maker work increasingly close to deliver more integrated solutions that enhance the consumer experience delivering the memory solution but at lower cost.

Our strategic relationship with the flash OEM has allowed us to win a significant number of new programs, whether relating to SD, microSD, USB flash drive or embedded solutions.

We recently won, on the basis of technological excellence, close partner relationship and cost competitiveness, a series of design wins at Samsung for microSD, SD and USB flash drives for 30-nanometer TLC as well as 20-nanometer MLC and TLC.

We are focused on expanding our strategic partnership with flash makers and device makers and believe our OEM business will scale as our year progresses.

We made significant progress in 2010 rebuilding our business and positioning ourselves for long-term growth.

We have won significant new programs with our OEM flash partners in recent quarters that position us to have a stronger 2011.

In terms of flash industry supply, we are expecting robust bit and component growth in 2011 from new fabs coming online throughout 2011 and continued migration to 20-nanometer MLC and growth of the TLC flash.

We are taking shares from our competitors, especially in leading-edge flash components such as 20-nanometer MLC and TLC products, and expanding our controller business to capture the rapidly-growing embedded flash opportunity in smartphones, tablets and other consumer industrial application.

We believe the opportunity for growth in 2011 are significantly better than what we have seen in many years and looking to new programs and tighter strategic relationship with the flash OEMs to drive further growth.

Let me now move to our Mobile Communications business.

Our Mobile Communications business rebounded in fourth quarter with revenue increasing 17% sequentially while shipment volume increased by over 40% sequentially.

Mobile TV sales increased in Korea for T-DMB and China for CMMB in the fourth quarter, while other markets, like Japan and South America, were weaker than expected.

We have a strong pipeline of design wins for our mobile TV business in 2011 across all markets and continue to believe that mobile TV adoption is a worldwide phenomenon.

Our transceiver business also rebounded in the fourth quarter with revenue increasing by over 60% sequentially with the new design wins entering mass production in fourth quarter.

Overall, I am excited about the progress we made in the fourth quarter but I am even more excited about the opportunity ahead of us.

2010 was a very important recovery year for us.

In 2010, we demonstrated that we have built a business that has strong foundation, whether in terms of people, products, technology, customers and strategy to recover.

I'm confident that we will all -- we have the right element in place to further solid growth in 2011 and longer road ahead.

I will now turn the call over to Riyadh to discuss our financial result.

Thank you, Wallace.

First, I will outline our financial results for the fourth quarter.

Then I'll provide our first quarter and full year 2011 guidance.

As Wallace had mentioned, this quarter we increased our revenue 17% sequentially and 78% compared to the same period a year ago and delivered $40m in revenue.

In the fourth quarter, Mobile Storage increased to 73% of sales, up from 71% in the third quarter.

Our Mobile Communications business continued to account for 17% of our revenue mix in the fourth quarter, unchanged from the third quarter.

Multimedia declined to 8% this quarter from 11% of sales in the third quarter.

Both NAND flash supply and consumer demand was robust in the fourth quarter and our Mobile Storage business continued to benefit.

Our overall storage revenue increased by 20% sequentially, while card controller revenue grew by 12% sequentially and our USB flash drive controller revenue increased by over 40% sequentially.

Our SSD plus embedded controller revenues declined sequentially.

TLC revenue increased by over 32% sequentially and continued to account for about 25% of our controller sales.

Our Mobile Communications business increased 17% sequentially, primarily because of strong handset transceiver sales.

Our Multimedia SoC revenue decreased 10% because of weak embedded graphics processor sales.

Our corporate gross margin decreased to 45.1% from 48.4% in the previous quarter, primarily because of two reasons; increased mix of lower margin products, such as USB flash drive controllers, and CDMA transceivers; another factor, NT dollar appreciation.

These two factors affected our gross margin roughly equally.

I will talk more in a little while about how foreign exchange swings have impacted our financials.

Third quarter operating expense $11.2m decreased from the $13.2m reported for the previous quarter, due largely because of lower compensation expenses that resulted from the reversal of previously over-accrued expenses.

Operating margin increased from 9.8% in Q3 to 17.3% this quarter.

The continuing expansion of our operating margin is the result of higher revenue and operating expenses that remained firmly under control.

Operating profit doubled from $3.4m in Q3 to $6.9m in Q4 as we leveraged our fixed operating infrastructure.

Diluted EPS improved less dramatically from $0.16 in Q3 to $0.18 this quarter because our Q3 results benefitted from a tax benefit, whereas our Q4 results were impacted by a tax expense.

Overall, we are very pleased with our P&L performance this quarter.

I will now move to our balance sheet and cash flow.

In the fourth quarter, our cash balance decreased by $3.6m from $58.4m in Q3 to $54.8m this quarter.

The decrease in our cash balance was primarily because of lower accounts payable and higher accounts receivable.

Uses of cash included $7.3m from a decrease in accounts payable, $4.9m from an increase in accounts receivable, $1.4m from an increase in inventory and $1.1m from capital expenditures, offset by sources of cash that included $5.8m in net earnings.

Inventory days increased slightly to 95 days from the 87 days in the third quarter as we rebuilt stock to our desired three-month level.

DSO increased slightly from 55 days in the third quarter to 56 days this quarter.

Payable days decreased from 83 days in the third quarter to a more standard 62 days.

This quarter, the NT dollar appreciated from roughly TWD31 to the US dollar at the end of Q3 to TWD29 to the US dollar at the end of Q4, and our business was affected by this appreciation in many ways, even though we price our products in US dollar and procure foundry and other manufacturing services also in US dollar terms.

The NT dollar appreciation affected our gross margin and operating expenses in different ways since we maintain our financial accounts in NT dollars.

I'll start by talking about how gross margin was affected.

As the NT appreciated, for each US dollar products that we priced and sold, we were recording fewer NT dollars as sales.

Our cost of sales, on the other hand, were likely procured several months earlier and entered our NT denominated inventory at higher pre-NT appreciation exchange rates.

Gross margin therefore got impacted when the NT appreciated.

Operating expenses were also affected because a little over half of our employees are in Taiwan, including our headquarters staff.

Our Taiwan operating expenses, like salaries, are priced and paid in NT dollars so when converted back to US dollars these expenses are more.

The negative impact to our gross margin and operating expenses would reverse into benefits if the NT dollar were to depreciate.

NT dollar appreciation also affected the foreign exchange gain or loss line on our non-operating expenses on our P&L.

This item is excluded from our non-GAAP results.

Foreign exchange losses arise from the NT dollar appreciates by affecting the translational value of US dollar assets and liabilities on our balance sheet, primarily, our US dollar cash and cash equivalent and US dollar intercompany financing.

These ForEx losses do not affect our cash flow as the losses arise from the translation, not transactions.

Also, while intercompany financings net to zero on a consolidated basis, they nevertheless affect our GAAP P&L when foreign exchange rates change.

Again, this ForEx loss would reverse into a gain if NT dollar were to depreciate.

I will now move on to our guidance.

We are proud of our achievements in 2010 as we grew revenue and profitability for four straight quarters.

We continued to invest in new technology and new opportunities in 2010 and these investments have begun to pay dividends.

Our growth and business opportunities in 2011 are even more exciting and our visibility will improve as we increase our OEM businesses and embedded solutions.

We believe that flash supply will be robust in 2011 as new fabs come online throughout the year and migration to 20-nanometer MLC and TLC continues.

Our expanded strategic relationships with flash OEMs as well as new embedded solutions will drive significant growth opportunities in 2011.

Our Mobile Communications business is also well positioned to grow as new significant design wins ramp in 2011.

As a result of our improved visibility, we will also start providing full-year 2011 guidance today.

Now, let me first provide guidance targets for Q1.

We expect first-quarter revenue to be flat to down 10% sequentially.

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

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

Stock-based compensation expense should be roughly $1.6m to $1.8m, and acquisition-related charges should be approximately $500,000 to $600,000.

Our target model tax rate remains 15%.

Now our guidance for full year 2011.

We expect full year 2011 revenue to increase 20% to 30%.

We expect full year 2011 gross margin to be within the 46% to 48% range.

We are targeting operating expense for full year 2011 to be in the range of $53m to $56m.

Stock-based compensation expense should be approximately $6.4m to $7.2m, and acquisition-related charges should be approximately $2m to $2.4m for full year 2011.

Our target model tax rate remains 15% for full year 2011.

We will now open the call for your questions.

(Operator Instructions).

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

Please proceed.

Thanks a lot, and congratulations on the good results.

So a few questions here.

First of all, can you give us an idea how the tablet market impacts SiMo, if at all, and what type of assumptions are you putting into that in terms of your revenue guidance?

For 2011, we don't expect tablet business will impact our 2011 guidance.

So you don't see --?

We may have a new -- go ahead, Dan.

So you don't see this as another application that's going to come with card slots and provides another opportunity for growth for you for cards?

We see there's opportunity for it to grow for embedded application, but in our guidance we did not accrue the potential upside, which it is a potential upside.

This is not baked -- tablets -- potential business from tablets is not baked into our full-year guidance.

Okay.

And then in terms of the embedded opportunity, can you expand a bit what should we be looking at there?

You highlighted that mainly you're focusing on the industrial side and enterprise; that's kind of where the current design wins are.

But is the consumer side going to be significantly more than the enterprise industrial currently?

Is that what you're seeing in the pipeline?

Yes, Daniel.

Currently our business is mostly industrial-type embedded, low-density industrial-type, industrial embedded memory as well as SSDs.

Beginning midyear we expect to ramp embedded solutions, controller for embedded memory, primarily relating to handsets as well as other consumer electronics devices.

It should begin to -- our products should begin to enter production around the midyear point, ramp through the balance of the year and through next year.

Okay.

And then on your comment on the Samsung design win, can you give a little more clarity?

Is this a business that is in lower gross margins?

Did you win it on price?

Did you win it on technology?

Is this all incremental or just partly incremental to what you've had in 2010?

Actually the gross margin will match probably average gross margin.

We win this design by our technology, by our support, by our relationship, by our commitment for the growing future NAND development.

And in terms of how much this is incremental, you've had Samsung as a customer in the past as well.

This is a big part of our -- as Wallace mentioned in his prepared remarks, this is one of the new programs that we have been investing in, expanding our relationship with Samsung across the various products through our leading-edge technologies.

And so we expect this to be a meaningful part of our revenue growth for this year.

Okay.

And final question is you mentioned the exchange rate impact.

What was the exact impact on gross margins?

Can you quantify it?

Sure.

I'll give you an example.

We price our products in US dollars and so -- but we account for our financials in NT dollars.

Our GAAP -- our audited financials are all in NT dollar terms.

So when we price our products in US dollars we have to book our sales in NT dollar terms.

When NT dollars are stable there's little impact.

But when NT dollar appreciates or depreciates, we get impacted.

On the other hand, our cost of sales for the same reason, foundry services, manufacturing, other manufacturing, testing services are also priced in US dollar terms, but we book these expenses on NT dollar terms.

So I'll give you a quick, easy example.

Let's say our products are priced at $1, our cost of sales are $0.50, we -- if the NT is at TWD0.30 to $1 then we book on the revenue side TWD0.30 and on a 50% gross margin, at the TWD0.30/$1 ForEx, that would be TWD0.15, right.

So if we keep that same inventory and the foreign exchange goes to TWD0.28, instead of booking TWD0.30 on sales, we're now only booking TWD0.28, whereas the inventory that we have for cost of sales could be from a couple of months ago when NT was still at TWD0.30.

Okay.

So the Q4 impact maybe was 1% to 2%.

Is that a fair way of looking at it?

Approximately 2%.

Approximately 2%.

Okay.

All right.

Thanks a lot.

I'll get back into the queue.

Thanks.

Your next question comes from the line of Jie Liu with Auriga USA.

Please proceed.

Hi.

Good evening.

Congratulations on the good results and the guidance.

A couple of questions.

The first one is could you give us more color on your full year 2011 guidance, in particular how should we think about the revenue contribution from your major product lines?

Hi, Jie.

We expect roughly equal growth coming from our storage as well as our communications on a percentage basis.

Multimedia should be a bit weaker.

But overall, since our storage business is so much bigger than our other two product lines, the dollar contribution is going to be significantly more out of the storage as it is expected to grow just as fast as the communication business.

Okay.

And just in terms of gross margin, do you think this equal growth of your two major product lines will have any impact?

No.

We except gross margins to be maintained at the current 46% to 48% range.

Okay.

All right.

The second question is could you give us an update on the competitive landscape in China's mobile TV market and your opportunities there?

Well, as a rising player to jump to China -- CMB mobile TV, such like Siano and other China local development companies, but we believe China mobile TV in 2011, the market should grow double compared with 2010.

And we believe we will maintain either similar, slightly decreased market share in 2011.

We do expect to see demodulator partner coming to 2011 to win major handset makers' designs.

Okay.

Understood.

Do you still expect Siano to be a meaningful competitor of yours, because it's being sued by somebody, right?

We cannot comment.

We think there will be more players come to the market.

We believe our shipments will increase dramatically.

However, because of more players, the ASP will decline, so that will impact our overall revenue growth.

But we believe we'll maintain at least about 40%, 50% market share in the market.

40%, 50%, okay, in 2011.

Okay.

That's great.

Thank you.

Your next question comes from the line of Mike Crawford with B.

Riley & Company.

Please proceed.

Thank you.

For 2010, what were your 10% customers?

We have three 10% customers in the fourth quarter.

Samsung obviously has been our perpetual 10% plus, and we have two module makers who are within the 10% plus customer grouping.

Okay.

Thank you.

And then for your -- as part of the storage growth, what percent of the mix in 2011 do you think will be represented by SSD products?

We should -- we expect that our SSD plus embedded will grow faster than our overall product line.

Our overall product line for our storage will grow rapidly this year.

But given the momentum of design wins that we have for the embedded solution, it will give us a strong uplift.

But a lot of it on the new embedded products should be coming in in the second half of the year.

We begin production midyear for embedded and that should ramp for the balance of second half of the year.

Okay.

Thank you.

And then further to that point, is the vast majority of that controller-only, or are you also starting to see some traction with the full SSD solution that I believe you've branded under your Ferri brand?

For 2011 our embedded solution comes on controller only.

And our Ferri partner line is experimental partner line, which starts to including provide embedded solution with NAND.

But that's in very niche market and demand by specific customers, mostly with the SLC with industrial grade.

We won't see material revenue until 2012.

Okay.

Thank you.

(Operator Instructions).

Your next question comes from the line of Raji Gill with Needham & Company.

Please proceed.

Yes.

Thanks.

And just to echo everyone's comments, congrats on very good results and the guidance.

A question on the -- quick question on the foreign exchange impact, are there any internal programs that you're using to hedge your foreign exchange exposure?

Are you looking to perhaps implement a program in the future so you don't see fluctuations on the currency?

Just a quick question on that.

Raji, we do not engage in financial derivatives to hedge our financial.

We have, in essence, a series of natural hedges for our underlying business.

The FX has resulted, especially the foreign exchange gain or loss, that does affect our GAAP financials but does not impact our cash flow.

It's a big part of it is, I would argue, almost entirely accounting-driven, that has impacted our inter -- as a result of our intercompany financing.

US dollar denominated intercompany financing as foreign exchange changes impacted these financing and it does flow through our P&L.

But this in no way affects our underlying business.

Okay.

That's fine.

Just curious on that.

Going to the core business, if you look at -- maybe you can describe a little bit about the ramp of NAND flash supply in 2011 from some of the key customers.

What's their progress on ramping at their fabs?

Any sense of that by, say, Samsung, Toshiba, etc., because clearly supply of NAND flash is increasing rapidly after a little bit of a pause in 2010, the latter half of 2010?

I just want to get a sense of, from that endpoint, what you're seeing.

What I can only say is all flash maker will enter 2X-nanometer MLC as of today.

By second half, majority will offer 20-nanometer TLC in mass production.

As what we can see, there will be less and less controller makers who can live up to the expectation for performance, endurance and cost.

And so we see less competition from controller makers to compete in the 2X-nanometer landscape.

The 2011 guidance, which is pretty robust, what -- how much percentage of sales do you have accounted for TLC?

We believe probably at least about 50%.

Okay.

So that's going to be up from about 25% in the fourth quarter.

The reason we have such a strong confidence in 2011, because we have won significant major OEM program in the past several months that's being designed.

And we have very high confidence this program will move into production from Q1, Q2 and move into the second half.

So we are in the leading position of many major opportunities for this new NAND-related application.

So we -- our visibility in 2011 is much better than 2010.

Okay.

I see.

And the last question on the mobile TV side, what's the update on the moving to -- your presence in the ISDB-T market in South America?

What's been -- there's been a little bit of weakness recently in those markets.

How's that strategy looking going into 2011?

So we -- I believe we're going to see the rebound for ISDB-T for both Japan and South America from Q1 and Q2.

And we see more new smartphones coming to the market.

And in the past there were very few with ISDB-T.

Now majority are going to carry ISDB-T into the market.

So we believe we are very excited to see mobile TV will have a strong growth in 2011.

One more question.

What factor do you think could threaten that annual guidance in 2011, which is pretty robust?

Would it be if NAND flash supply contracts more rapidly?

What realistically or practically you think could put that guidance at risk or jeopardy?

Well, let me -- we -- a big part of our visibility as well as expected strength for this year relates to our embedded and our OEM programs.

We have strong confidence that our programs will continue going into production and will scale as the year progresses.

But in the event one of our OEM partners were to cancel, postpone or change plans, then that would affect our growth expectations for this year.

Similarly our embedded solutions, with the longer visibility, the better visibility, these all relate to OEMs.

So, again, if these OEM partners of ours were to change their plans, delay, cancel, what have you, then that would obviously affect our growth expectations for this year.

Okay.

Thank you.

And your next question is a follow-up from the line of Jie Liu with Auriga USA.

Please proceed.

Okay.

Could you just talk a bit more about your CDMA transceiver business?

Perhaps you can tell us by geography where your opportunities really lie, where the phones are actually sold?

Our major growth of CDMA is really the EV-DO in two countries.

One is North America.

It's a diverse EV-DO.

We have major design wins with Samsung, (inaudible) and [Wilders].

The second is China.

Under China Mobile, we collaborate with VIA Telecom.

We're winning more than probably 70%, 80% of the China Mobile and VIA socket with EV-DO single band.

Okay.

Understood.

Thank you.

Ladies and gentlemen, that concludes the question-and-answer session.

I would now like to hand the conference over to Mr.

Wallace Kou for closing remarks.

I would like to thank all of you for joining us today and your continuing interest in Silicon Motion.

In March we'll be presenting in the Wedbush 2011 Technology, Media and Telecommunication Conference, New York; Bank of America-Merrill Lynch 2011 Taiwan Technology and Beyond Conference in Taipei; and Lazard Capital Market Annual Technology and Media Conference in Boston.

Thank you and goodbye for now.

Thank you for joining today's conference.

That concludes the presentation.

You may now disconnect.

Have a great day.