慧榮科技 (SIMO) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Silicon Motion Technology Corporation earnings conference call.

My name is Edwin and I'll be your conference moderator for today.

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

(Operator Instructions).

Before we begin today's conference, I have been asked to read the following forward-looking statements.

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 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 hand our presentation over to our host Mr.

Jason Tsai, Director of IR and Strategy.

Please proceed, Mr.

Tsai.

Thank you, Edwin, and good morning, everyone.

Welcome to Silicon Motion's first quarter 2011 financial results conference call and webcast.

My name's Jason Tsai, 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 of our recent business developments.

Riyadh will then discuss our first 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 U.S.

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'll 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 would like to turn the call over to Wallace.

Thank you, Jason, and thanks to everyone for joining us for our first quarter earnings call.

I'm excited to be speaking with you again.

As expected, revenue over the first quarter declined [seasonally] to $64 million, but the increase 48% year-over-year, our ninth consecutive quarter of annual revenue growth.

This quarter our new growth products, which consists of our LTE and SSD plus Embedded products, increased 20% sequentially.

The sequential growth of our new growth products was driven by our eMMC controllers for major NAND flash maker going into production and the commercial launch of four new Samsung LTE smartphone using our LTE transceivers.

We are pleased by the momentum of our new growth products and believe this momentum will continue over the next many quarters as our pipeline of design wins go into production and scale up.

This quarter we delivered $0.41 in diluted earnings per ADS, significantly more than the $0.18 in earning that we delivered a year ago.

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

First, let me provide a review of our mobile storage business, specifically our card controller products.

This quarter, overall demand of memory card was seasonally weak led by sequential decline in overall global smartphone shipments.

In the first quarter, most industry analysts believe global smartphone unit sale declined over 10% sequentially and global handset unit sale declined over 15% sequentially.

We were affected by this seasonal weakness, but were considerably less impacted.

In contrast to the broader market weakness, our mobile storage revenue only decreased 2% sequentially.

Our overall controller unit sales increased 1% sequentially and our card controller unit sale increased 5% sequentially.

Our card controller business was able to beat the seasonal weakness because of several key reasons.

First, our card controller are being used by smartphone OEM that are gaining market share.

These OEM include Samsung as well as Chinese OEM manufacturing low-cost smartphones for the Chinese domestic market and export market.

Second, we also believe we continue to gain market share this quarter because of our technology leadership, competitive solution and close relationship with OEMs.

And finally, module maker using our controller saw a large amount of flash component released into the market place as the flash makers managed their inventory.

Many of these module makers are making cards for Chinese OEMs to bundle with their low-cost smartphones.

In the first quarter, our OEM business decreased by about 5% as expected, but still accounts for about 50% of our controller sales in the quarter.

Sale to our module maker customers in the first quarter was however stronger than expected as a result Chinese module maker procuring low-cost NAND flash to build card for bundling with growing low-cost smartphone market.

Visibility of sale to the module markers however, even for China bundled card market is poor in contrast to the better sale visibility that we have with OEMs because module maker do not own the source of flash and are very opportunistic in how they manage their business.

Despite the challenging market of card controller, we are pleased by the [trend] of our EMC controller.

You may remember we began initial mass production mainly in the fourth quarter of last year with some of our module maker customers.

We are pleased to announce that in the first quarter our eMMC controller entered mass production with one of our NAND flash partners and we expect that late in the second quarter our eMMC controller will enter production with another NAND flash partner.

Our flash partner is packaging our eMMC controller with their flash to manufacture eMMC memory module MCP.

MCPs are memory module data content in addition to NAND flash mobile direct.

eMMC memory module and the MCP using our controller have already begun shipping to several leading Asian OEM for many of their smartphone including some highly anticipated global flagship models as well as their low-cost smartphones.

We have been working with our NAND flash partners for over a year now in developing our industry leading eMMC controllers and are proud to say that we have one of the best performing controllers in the market with outstanding [performance] data retention and higher performance capability all the while offering one of the most cost competitive solution available in the market today.

We have in addition to our superior controller solution a mass capability to support our NAND flash partners including smartphone system level knowledge as well a deep understanding for how NAND interface and interact with different application processors running different operation system platforms.

Our mass capability also includes our ability to support both our NAND flash partners as well as their smartphone OEM customers with our comprehensive technical expertise in global support infrastructure.

It is because of these reasons that our eMMC controllers have been able to secure design wins with our NAND flash partners.

And they in turn are able to secure design wins with many of the leading global smartphone OEMs.

In the start of the year we had about 12 eMMC design wins.

And we have increased this with two additional smartphone OEM wins.

We now have a win with five major global handset OEMs with multiple handset models as well as two top tier Chinese smartphone OEMs.

Right now all our design wins will go into production.

We expect all our major ones, all the ones with our NAND flash partners to enter mass production this year with the first half beginning production this quarter.

We believe our eMMC products are on track to be a very significant growth in 2012, and our eMMC is a very important part of our new growth product.

Let me now turn to our new growth product, our LTE transceivers.

In the first quarter we began shipping our new Samsung LTE smartphone for Sprint, Metro PCs and US Cellular.

These four new LTE smartphones are the Galaxy Attain 4G, Galaxy S Aviator, Galaxy Tab 10.1 and Galaxy Nexus.

With the rollout of these new Samsung LTE smartphones our LTE transceivers are now used in smartphone marketed by four LTE carriers, previously Verizon and Metro PCs; now also Sprint and US Cellular.

As we have discussed last quarter, a five design wins that will ramp in the first half of 2012, and we are well underway to meet this target.

I'm also pleased to announce that we have secured an additional two new design wins for the second quarter and four design wins for the second half of 2012.

We believe that Samsung, as a world leading vendor of LTE smartphones, remain committed to their internal LTE baseband program.

Similarly, we remain committed to supporting Samsung LTE baseband with our LTE transceiver solution.

We are confident that our LTE related revenue will grow strongly through the rest of the year even as Samsung splits its LTE baseband procurement between its internal solution and external suppliers.

Overall, I'm pleased with our first quarter performance whereas the overall market environment is challenging today.

Our new growth product along with our continuing leading controller technology for our core products will allow Silicon Motion to maintain a strong growth throughout 2012.

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

Thank you, Wallace.

First, I will outline our financial results for the first quarter and then I'll provide our second quarter and full-year -- our second quarter guidance.

As Wallace had mentioned, we delivered $64 million in sales this quarter, a 5% decrease compared to the prior quarter and a 48% increase compared to the first quarter 2011.

In the first quarter sales from our new growth products increased 20% sequentially.

New growth products accounted for 18% of total sales up from 15% of total sales in the prior quarter.

Let me recap the performance of our three key product lines for the benefit of our audience.

First, mobile storage; mobile storage revenue decreased 2% sequentially and increased 48% year over year.

Mobile storage controller shipments increased 1% sequentially and 38% year over year.

ASPs decreased by 3% sequentially but increased 7% year over year our ninth consecutive quarter of annual ASP increases.

Our card controller revenue decreased by 3% sequentially and our USB controller revenue decreased by 13% sequentially.

Over 70% of our controller sales are for 2X nanometer NAND flash including the new 19 to 21 nanometer flash.

As comparison, in the fourth quarter controllers for 2X nanometer NAND flash were about 65% of our controller sales.

TLC controller revenue in the first quarter was about flat sequentially and continued to account for nearly 50% of our controller sales in the quarter.

OEM revenue decreased by about 5% sequentially and accounted for about 45% of our controller sales in the first quarter.

Moving to mobile communications; our communications business increased 3% sequentially as new design wins for LTE transceivers began ramping in the quarter more than offsetting weakness relating to transceivers for 3G, EVDO phones.

Our revenue from our multimedia SoCs, primarily our legacy graphics processor products, decreased by 10% sequentially.

Our corporate growth margin decreased slightly in the first quarter.

Growth margin fell 30 basis points from 49.8% in the previous quarter to 49.5% this quarter.

In the first quarter, operating expenses increased to $16.8 million from $16.6 million due to higher compensation expenses.

Headcount at the end of this quarter was 656 employees, 14 more than at the end of the previous quarter.

Operating margin decreased to 23.3% this quarter from 25.1% last quarter.

We generated diluted earnings per ADS of $0.41 in the first quarter, down from $0.47 per ADS in the fourth quarter but up significantly from $0.18 per ADS a year ago.

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

Stock-based compensation in the first quarter declined to $1.6 million from $2.8 million in the fourth quarter

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

Inventory days increased to 92 days in the first quarter from 81 days in the fourth quarter.

DSOs increased to 57 days in the first quarter compared to 50 days in the fourth quarter.

Table days increased to 54 days in the first quarter compared to 48 days in the fourth quarter.

In the first quarter, our cash balance increased by $3 million to $94.7 million at the period's end.

In terms of primary source of cash, we generated $14 million in net earnings.

In terms of primary uses of cash, an increase in AR consumed $3 million, an increase in inventory consumed $4.8 million, a decrease in payables consumed $3.5 million.

And we invested $0.7 million for testing equipment, software and design tools.

I will now move on to our guidance.

In the second quarter we are facing challenging market conditions for our cards and USB flash drive controllers offset by our accelerating sales of new growth products.

Currently market conditions for card controllers are challenging for several reasons.

End retail demands for cards is weak.

Smart phone sales remain seasonally weak though we believe smartphone sales and related bundle cards by OEMs will increase when new smartphone models are rolled out over the next few months.

Current NAND flash price volatility is affecting the visibility of our module maker sales and the willing of module makers to buy flash components and build cards.

We are partially shielded from the full exposure of the challenging market conditions by our bundled business relating to smartphone OEMs that are gaining market share and Chinese OEMs ramping low-cost smartphones.

But, nevertheless, believe our overall second quarter card sales will be lack luster.

Sales of our new growth products, on the other hand, are accelerating rapidly as eMMC and LTE design wins that went into production in the first quarter scale up and new eMMC and LTE design wins enter production in the second quarter.

Our new growth product revenue growth in the second quarter will accelerate and grow significantly faster than the 20% growth in the first quarter.

The proportion of our total sales from new growth products will increase further in the second quarter.

Our mobile storage and mobile communications product line revenue will both grow in the second quarter as a result of rapidly growing eMMC and LTE sales.

For a second quarter guidance, we expect second quarter revenue to be flat to up 10% sequentially.

We expect first quarter(Sic-see press release) the gross margin to be within the 48% to 50% range.

We are targeting operating expanses to be in the range of $17 million to $18 million.

Stock-based compensation expense should be roughly $3.2 million to $3.7 million.

Our target model tax rate remains at 15%.

For the full year 2012, our previously provided guidance remains unchanged.

We will now open the call for your questions.

Thank you.

Ladies and gentleman, we will now begin the question and answer session.

(Operator Instructions).

Daniel Amir, Lazard Capital.

Thanks a lot and congratulations on a good quarter in a tough environment.

So, first of all, I guess on the LTE business there has been a lot of talk around Qualcomm's issues with the 20 nanometer stuff.

Are you still thinking that the split with the transceiver business will be 50:50 this year or do you feel that you are seeing design momentum with Samsung more than you expected maybe two, three months ago?

We hope we can speak to Samsung but it's up to Samsung decision.

I think Samsung has global configuration.

How they really design internal solutions and external suppliers external solution.

So really we don't know, we cannot comment Samsung decision.

Okay.

And related to kind of the eMMC strategy, I mean it sounds like this is going well and maybe even above your expectation.

Can you quantify a bit more the opportunity that you see here?

I mean how should we be looking at this going forward?

I mean is this really something that's going to be a big driver to your business in the second half?

Anymore clarification on that will be great.

Thanks.

We are very excited about -- to see the growth of our eMMC because we have a very strong design pipeline, design win in front of us.

The reason, as I mentioned, we are able to win more design for the flash makers, the eMMC solution because we have a very strong geographical supporting infrastructure.

Supporting eMMC design win compared with the card is probably three or four time complicated because we have a very [strong] infrastructure outlets in China, in Taiwan, in U.S., Japan and Korea.

So we are capable to quickly supporting the major mobile phone and move into production.

Particularly, this year major growth on the low-cost smartphone in China.

Several major smartphone maker, they are really ramping up very aggressively.

We are fortunate to be in this design pipeline.

Okay and then my final question.

And then I'll go back into the queue.

With regards to the card market, it looks like you are out-performing the market currently given probably your exposure a bit more to kind of the China handset side.

What type of visibility do you have there?

I mean this -- could this be an issue going forward if we have issues in the China handset market given your exposure there or lack of visibility, or do you feel the adoption rates is accelerating and therefore this is definitely a multiple quarter growth business for you guys in China.

Daniel, this is Riyadh.

Going -- taking a multiple quarter look at our business, our card business, we believe we are going to be outperforming the handset industry as a whole, the smartphone industry as a whole.

We are going to be outperforming for two reasons.

We are in the programs of the smartphone OEMs that are gaining market share.

And in addition to the smartphone OEMs who are gaining market share, we are also going into the Chinese low-cost smartphone OEMs that are rapidly growing that segment of the market.

That's a very fast growing part of the segment and it's also scaling to a fairly large unit market.

But that part of market is being serviced by both NAND flash vendors as well as module makers.

On the module maker part of that business, module makers making cards for the Chinese smartphone OEMs visibility can be a bit cloudy.

These module makers are opportunistic.

They do not own flash.

So they think that they can quickly buy flash, turn them around into cards and make good profits.

They will do it.

But by nature of their business, it's quite opportunistic and so it's very difficult for us to forecast properly how this business will grow over the next few quarters.

But that said, if you look into the underlying trends of the Chinese smartphone market, that part of the market will definitely grow over the many -- next many quarters.

Okay, great.

Thanks a lot.

Anthony Stoss, Craig-Hallum.

Just also following on the eMMC side, are you able to respond quicker to designs?

Have you guys gotten better in terms of your ability to turn a request?

Also are you limited in any way in production?

You had some bottlenecks at TSMC in terms of overall capacity.

Love to hear your thoughts there and then the last or third part was the USB 3.0, just what you are expecting in terms of ramp up throughout the year.

Thanks.

As regarding the eMMC every design, every customer, doesn't matter small or big, it needs to goes through the design qualification process.

We definitely are able to react very quickly when there is the issue because we are running the structure in our sale side with technical support in Beijing, in Shanghai, Shenzhen, U.S., Korea, Japan and as well as in Taiwan.

So we are able to react very quickly, work with the flash partner to resolve the issue quickly.

Regarding the capacity issue, we don't see we have capacity in TSMC, which is our major foundry supplier because we are not in 28 nanometer.

We're not in 40 nanometer yet.

Majority we are in 110 nanometer as well as 55 nanometer moving forward.

So we feel comfortable regarding capacity and supply from our major supplier.

Then USB 3.0?

Thanks.

USB 3.0, we just start to ramp into production smoothly.

However, the current market demand still now that's strong, but we believe we are going to ramping up when Intel Ivy Bridge and base platform come to the market.

So we believe second half USB 3.0 will have a more significant revenue in conclusion to our Company.

Thank you.

Raji Gill, Needham & Company.

Congrats also on the good results.

Just on the mobile compasses if I can.

In Q1 it seemed it was up about 3% sequentially.

Can you maybe talk a little about the piece parts in more detail, the mobile TV and then the LTE business if you could elaborate?

You mentioned that you saw some softness in 3G EVDO sales -- EVDO transceiver sales that was offset.

Any color there would be helpful.

In our mobile communications product line, we have three key products.

We have our LTE transceiver solutions.

We have our mobile TV solutions and we have EVDO transceivers that we sell primarily to the Chinese handset OEMs.

In the first quarter, our LTE sales are very strong, our mobile TV related ICs were flattish and our EVDO transceivers for the Chinese market, that part of market had decreased.

And what's the proportion of each of those segments?

Our mobile communications business is -- last year, this is looking at 2011 full-year numbers.

Our LTE accounted for roughly 40% to 50% of the mobile communication segment and the rest is composed of our mobile TV and the China EVDO transceivers.

So you saw a very strong ramp in LTE in Q1.

Can you maybe talk about the pricing on LTE transceivers?

Are you offering volume discounts as Samsung ramps, any color there?

I know in the past you had said something like sub $10 for both those transceivers.

Well, I think that when volume going up and bigger, that means price would go down.

But we think we are a major partner with Samsung.

We definitely will handle very well there.

And on the partnership with Samsung, can you talk about the nature of the agreement?

Is it a multiyear agreement?

How confident that they will continue to work with you in 2013 and beyond?

I think I cannot comment any contract detail, but we work very closely with Samsung and with LTE and multiple products and then we're also working for future beyond LTE transceivers related projects here.

And the mobile storage business, the weakness in card controller business is kind of understood.

Are you seeing any kind of reduction in the tax rates for bundled cards?

Just kind of it's evident what SanDisk had mentioned.

Any reduction there or the bundled cards having lower capacity as the OEM try to drive the cost down, anything like that?

We are seeing both, both, reduction in the bundled rate as well as a reduction in the average density of the cards that these phones are bundled with.

In terms of -- if you look at the U.S.

market, overall bundle rate has decreased.

I mean these are bundled rates by -- of phones by models.

For android phones it has decreased from about 85%, say six months plus to go to about 75% of -- 75% bundled rate that you're seeing right now.

But if you were drill deeper into this reduction in bundle rate, what you see is some interesting trends.

The most interesting one is that for the lower density phones, the bundle rate remains very high.

For example, the 2 gigabytes or less it's still roughly about 100%.

But as you move into a higher density, say, 32 gigabytes, smartphones with 32 gigabytes of embedded memory, those phones the bundled rate is effectively zero.

So through the product mix that you're seeing, the sales of higher density products, those phones would have lower tax rates of cards.

But the big growth driver that we're seeing are the phones, the low-cost smartphones, especially the ones that are being produced in China for the domestic market as well as for exports to other parts of the world, those type of low density, phones with low density embedded memory, the tax rate of cards is still very high.

In the U.S.

it's approximately 100%.

I think in addition you look at bigger picture although overall our growth was still down in 2012.

But we believe we will get more outsourcing business from major flash makers.

So that will support our continued growth on our card business in 2012.

Even when the tax rates could be kind of slowing down a bit, to outsource more?

That's correct.

Okay, that's interesting.

In the second quarter I think historically mobile storage was kind of up 5% to 10%.

It's going to be down this quarter.

What do you -- what are some of the reasons that you think they could tick back up again in the second half?

Raji, we have not said that our mobile storage was going to be down sequentially.

Our total revenue we're expecting to be flat to up 10%.

Mobile storage business will continue to do very well, especially since we have our eMMC products that are ramping.

So we're expecting great things from our mobile storage in the second quarter and --

No, I just wanted to clarify.

I meant the flash card controllers specific segment might be.

Any color there?

Actually as you rephrase is that any color on the specific segment in the second quarter being --

While we can only say is that we are ready for all the 19 to 21 nanometer TLC NAND, and we are probably the only one controller vendor who are ready for all the different kinds of NAND flash and ramping.

So we do see we gain more (inaudible) business and we believe we gain more outsourcing opportunity from NAND flash maker because card become more commodity business.

Okay, thank you.

Mike Crawford, B.

Riley & Company.

Thank you.

Can you talk a little bit more about your SSD business?

So it's been a bit over a year since you first introduced your industrial solid state drives, the FerriSSD.

So what's from there?

And then what are your prospects for your mSATA chips that I think are targeting more of a consumer market?

So regarding SSD business strategy, we're very clear in what we're doing now.

In the past we focused on embedded SSD.

Regarding Ferri, we're doing very well.

We're going to see the transition from design win to mass production.

So we're going to see good revenue trends in the second half of 2012.

Regarding mainstream SSD, our focus would be mSATA nationally would be (inaudible) for the ultra book as well as potentially desktop.

We believe I think in last quarter we mentioned where one major design in the Ultra book for full-size SSD; however, our value and our future growth rely on [cache SD] which is between 24 megabytes to 34 -- 32 megabyte cache SD for fast boot and fast resume.

This will become major trend for Ultra book as well as potential desktop application.

Okay, thank you.

Also on the LTE transceiver front, how many iterations of designs have you gone through with Samsung?

For a given carrier, they require different backward compatibility.

So we have LTE transceiver, also LTE with HSD plug and GSM or with EVDO.

We're also developing all-band transceiver and we're also prepared for the next generation LTE advance with Samsung.

So there are many different versions and fit in different carrier different region.

Okay, thank you.

On the competitive front I see Skymedi continuing to fade out chord coming on.

But they seem to be, I don't know four to six months at least behind you.

They are still developing USB 3.0 solutions and hoping to come out with eMMC solutions.

A, do you see your lead increasing or decreasing over competitors like this, and -- well, that's part one of the question.

Regarding flash controllers competitive landscape we really did not see strong competitor in our market today.

Although there are many, many several players announced some new products, but we really don't see near competitor in terms of OEM bundled business.

USB 3.0, as I said, this year the overall percentage of the USB controller probably is small, maybe around only 20%.

But next year it could be much higher.

But we are well positioning our strategy USB 3.0.

We start ramping from last month and we believe second half we're going to ramp more quickly.

Okay, thanks.

And then part two of that is so it seems in Q1 you benefited a little bit from some weak NAND industry dynamics where a bunch of flash got dumped to module makers and that drove some business your way.

But to what extent do you worry of a decline in capital investment from the NAND manufacturers that then would slow the pace of a technology adoption and give your competitors the chance to catch up to you?

We cannot comment particularly related to any particular NAND manufacturer, but however, at the moment still a lot of actual inventory NAND wafer in the market, the demand still is soft.

So we do maintain a very hard position.

As you know we have a very, very broad range of customer base, we're almost in every major module makers design blue print for the reference design.

So don't matter which flash maker and manage moving more for the inventory, I think we'll be there.

So we have very high confidence other market is soft and after inventorying, the marking channel, we can maintain opposition in market share and potentially getting more outsourcing opportunity from flash makers.

Okay, thanks.

And then finally just on the balance sheet maybe Riyadh, the working capital grew on the quarter with inventory up, receivables up, days out and payables down, so is that something you expect to reverse in this quarter or what -- how should we think about working capital management?

There are two big pieces to it.

One is on inventory side.

Last quarter our inventory was on the low side of what we normally have as safety stock.

You know, getting it back to about the three month level, that's more consistent with the amount of inventory we would hold in prior periods.

So this is all getting to a more comfortable level of safety stock at the three month level.

Turning to the other components of our working capital, we are expecting -- some are reversals.

So we should expect to generate better cash flow from some of the reversals of these positions over this quarter as well as the next.

Okay, thank you very much.

Tom Sepenzis, Northland Securities.

I was just wondering the gross margin decline, was that due to mix and how do you see that going forward?

It's a very small change.

Our gross margin came down by 30 basis points, so essentially still within our target area.

We have a long-term gross margin target of 50% for this year.

There are guidance as 48% to 50%.

So it's essentially in region, the gross margin region that we are very comfortable with.

There are some changes in our product as you would expect.

But it's -- the gross margin change is very small.

Okay, great.

And what you are thinking in terms of the controller ASPs going forward in the card and the USB business?

They've been up year over year, but they were down a little bit quarter over quarter probably due to seasonality and some weakness in the NAND flash business overall.

How do you see that going for the rest of the year?

Under today's very tough level market condition, we definitely face very challenging price pressure regarding ASP.

However, we see through our better product mix, support, the 2X as well as the 1X nanometer NAND technology, we should be able to maintain our product mix.

Especially the UHS-1 card is coming maybe more in the second half.

That will help to balance our gross margin.

So we believe ASP shall be decreased maybe a little bit, but overall we feel we can manage very well.

As capacity, people slowed down the capacity builds in the NAND business.

Do you this maybe it bounces back a little bit Q3-Q4?

I think we cannot comment who is really reducing the capacity because some they do increase their capacity for the NAND.

But overall, we see that new model smartphone going to try more -- absorb more than NAND inventory as inventory in the market today.

We believe the current situation probably would be gone by before end of Q2.

We are looking for a very more exciting in the second half of 2012 because there are a lot of new device that will consume new NAND including our Ultrabook and more tablet.

Okay, great.

And then lastly the mobile TV business.

Can you just talk a little bit about that and what your expectations are for that?

I think you said it was flat, above flat quarter over quarter.

Do you see anybody else adopting that and how do you expect that will go for the next 12 to 24 months?

Regarding mobile TV, I think probably unit wise we maintain flat or little, even increase a little bit.

However, ASP decline dramatically.

We stopped ASP declines on mobile TV, SLC as well as the tuner.

But we see there is a new trend for, potentially for the Korea, for advanced The-DMB as well as in Japan ISDB-T from one seg to multi-seg effect because that give them more chance to develop a new product, increase the ASP as well as the gross margin.

Okay, great, thanks very much.

Doug Freedman, RBC.

If I could just ask you to clarify a little bit what you're seeing in the marketplace.

A few of your past answers have sort of alluded an expectation improvement.

But when we look at SanDisk said specifically that they were going to stop supplying a certain portion of their product into the retail market, have you seen any impact of that yet?

And what are your -- what are their competitors doing in response to that, that makes you comfortable that you believe the environment improves in the back half?

We cannot comment about the issue with Scandisk.

We are also working very closely with Scandisk.

I can only say so is some card business or USB business will become more commodity.

So some flash maker fights to put their main R&D into the high growth product line.

They will consider outsource commodity product to third party controller just like in Silicon Motion.

But I think this is a very common channel for other flash maker.

So I cannot comment why Scandisk try to do, but we are looking forward.

We would like to become largest controller maker and supply all different type of NAND flash including future CD memory.

All right, thank you.

Thank you.

(Operator Instructions).

As there are no further questions at this time I would now like to hand the conference back to your presenters today.

Please continue.

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

We will be attending quite a few investor conferences over the next two months.

In May, we'll be presenting at Jefferies TMT conference in New York; Citi Taiwan investor conference in Taipei; B.

Riley annual investor conference in Santa Monica and Craig-Hallum Institutional Investor Conference in Minneapolis.

In June, we will be attending the RBC communication technology and semiconductor conference in Boston and UBS investor conference in Taipei.

Details of these events are available on our website.

Thank you and goodbye for now.

Thank you.

Ladies and gentlemen that does conclude our conference call today.

Thank you for participating.

You may all disconnect.