慧榮科技 (SIMO) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter Silicon Motion Technology Corporation quarter-two 2012 earnings conference call.

My name is Maryann and I will be your conference moderator for today.

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

Later, we will conduct a question-and-answer session.

(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 the presentation over to our host Mr. Jason Tsai, Director of IR and Strategy.

Please proceed.

Thank you very much, and good morning everyone and welcome to the Silicon Motion second-quarter 2012 financial results conference call and webcast.

My name is 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 second 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 is 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.

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 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 now like to turn the call over to Wallace.

Thank you, Jason, and thanks to everyone for joining us on this second quarter earning call.

I'm happy to report another strong quarter with revenue increasing by 9% sequentially to $69.7 million in the second quarter.

While our overall market condition continued to be challenging, the strong realm of our New Growth Products were able to offset the unfavorable market condition relating to the sales of Core Products and contribute strongly to our second quarter growth.

This quarter, we delivered $0.42 in diluting earning per ADS, an increase from the $0.29 diluted earning per ADS a year ago.

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

In the second quarter, our New Growth Product grew by a strong 75% sequentially and accounted for 32% of our revenue in the second quarter, compared to only 20% of our revenue in the previous quarter.

The 32% mix of our revenue from New Growth Product is significantly more than our previous targets of 25% by the end of 2012.

For full year 2012, we now anticipate our New Growth Products to account for 30% to 35% of our revenue and roughly 40% to 45% next year.

For many years, we have been investing in new products that will enable us to deliver sustainable longer-term growth as the growth of our Core Products show sign of deceleration.

The market of our Core Products, card and USB flash drive controllers, mobile TV and the CDMA RF and graphic processors are now increasingly mature.

The products that will drive our longer term growth are our New Growth Products, specifically our SSD plus embedded and LTE solutions.

These New Growth Products leveraged the underlying leading edge NAND flash controller technology and mobile transceiver technology that we have been developing for our Core Products.

In addition, these New Growth Products leverage our existing business model, which involve supporting our closed OEM partners such as Samsung with our very competitive low-cost performance solution and our extensive customer support infrastructure.

I will now discuss our three key New Growth Products.

First LTE.

LTE sales in the second quarter increased by 23% sequentially as Samsung began shipping five new devices, four LG smartphone and one tablet using our transceivers.

Two are for the US and three for Korea.

The three Korea smartphone are all flagship, Galaxy SIII smartphone for Korea's three wireless carrier, LGU Plus, KT and SK Telecom.

The two Galaxy SIII smartphone for KT and SK Telecom are for the WCDMA plus LTE networks, a first for us.

Previously Samsung LTE smartphone using our LTE transceiver were only for CDMA plus LTE networks.

This new one chip transceiver that we are providing to Samsung handles 4G LTE as well 3G HSPA and HSPA plus and also 2G GSM for roaming outside Korea.

New sales of our LTE transceiver for the new Korea Galaxy SIII LTE phone, our second half LTE revenue will be significantly more than in the first half of this year.

Looking to next year, we have already secured our first LTE transceiver wing with Samsung for new smartphone that we'll launch with one of the larger US wireless carrier in the first half of 2013.

We believe Samsung continues to be solidly committed to a long-term development of their internal LTE baseline program.

And we are working on delivering more advanced solution with better performance, lower power, more integration and cheaper costs to support Samsung's evolving LTE roadmap and mobile devices.

One of our longer term deliverable to Samsung includes transceiver for LTE advance.

Now, turning to our eMMC products, our other major New Growth Product, we're excited to announce that our eMMC controller for our first NAND flash partner that went into production towards end of the first quarter rapidly ramped this quarter.

Furthermore, this quarter we began mass production with our second flash vendor partner.

Our two eMMC flash partner today are Samsung and SK Hynix.

And through these two partner, we're now supporting much more smartphones and tablet projects at 11 OEMs, an increase from 7 OEMs that we're now in the first quarter.

Some OEM with products that have just gone into production using eMMC with our controller include HTC, Huawei, Lenovo and ZTE.

Many more smartphones and tablets using our eMMC controller would go into production over the next few quarters.

We are pleased to announce that our eMMC controller will be used in a majority of all major non-Apple tablets that are expected to be launched in the second half of this year.

We believe eMMC is a perfect solution as SSD for mobile devices, whether a smartphone, feature phone, tablets or other arm-based devices and whether Android or Win 8 OS.

Our eMMC controller already in volume production for large number configuration.

Our controllers are using both eMMC with a NAND flash in all controllers as well as the MCP that incorporate mobile DRAM with NAND flash and our controllers.

Memory (inaudible) using our eMMC controller range from sub-1 gigabyte to 34 gigabyte with most of our sales in the 4 gigabyte to 32 gigabyte range.

Our eMMC solution already is certified for all the major application processor platform including those for NVIDIA, Qualcomm, TI, MediaTek, Marvell and others.

We are currently shipping controllers supporting eMMC version 4.41 and our flash partner already evaluating our next-generation eMMC 4.5 solution, which we expect to enter mass production by the end of this year.

The (inaudible) of our New Growth Product is our PC SSD controller business where our focus is on controller for NAND cache designed to enhance and accelerate the performance of PC, N number using HDD.

Last quarter, I mentioned that we have secured design win with one of the larger NAND flash vendor for their PC SSD projects.

Two of these projects are now in production an All in one PC with 1 terabyte HDD and a 32 gigabyte NAND cache using our controller is now available at Walmart and other major US retailers.

This is our first PC NAND cache controller to enter production and was developed in conjunction with our flash vendor partners, a strategy that we have proven successful with our eMMC and other controller products.

Although the revenue contributions of our PC SSD product is currently very small, we expect more significant revenue contribution next year.

We have been investing a sizeable part of our resource on this SSD product including development of our own high performance, low cost data storage solution using our own (inaudible), which should be available by the end of this year.

Let me now turn to our Core Products, while our New Growth Products are strong sequential growth this quarter, revenue for our Core Product declined by 7% due to unfavorable market conditions.

Our card controller sales were affected by continued ramp in NAND flash price degradation, which were affecting module maker engines in building cards of other flash maker engines in both releasing NAND component and NAND wafers to the spot market and producing a finished card to sell to module markets.

In addition, slower growth of the overall smartphone market this quarter affected our bundled card sales.

USB flash drive controller sales, however, increased robustly sequentially as the result of increased of the availability of 19 to 21 nanometer TLC NAND flash.

Our mobile TV in China CDMA EVDO transceiver business declined this quarter, due to competition.

NAND flash prices fell [drastically] this quarter but stabilized at the end of the quarter.

We believe flash prices may decline more moderately in the third quarter, and so we are, therefore, more confident that we should see gradual recovery of our card controller sales and first improvement in our USB controller sales in the third quarter.

We are already seeing gradual improvement in inches by flash maker to sell flash and make cards as well as the gradual improvement of module maker inches in buying flash.

We believe smartphone sales will improve a lot more in the second half especially low-cost smartphone with little embedded memory, which have a very high bundle [tariff].

And we are also looking to increase a mix of a higher-performing cards and USB, such as the UH-1 cards, a high-speed card and USB 3.0 drive and more differentially application-specific cards.

Well, we believe that the overall NAND flash market will remain challenging over the next two quarters, where we are executing well with our OEM customer and continue to maintain our technology lead in supporting the latest generation NAND flash, both of which will help us maintain market leadership.

For example, Samsung remain our largest card controller customer this quarter and we believe that for the full year of Samsung card controller business should increase about 50%.

We believe we also continue to take market share from our competitors.

Overall, I believe that we acted well in the second quarter despite a challenging operating environment.

While the market for our Core Products have been soft, we believe there remains select growth opportunity especially with OEM customers.

We believe the market of card and USB flash while mature will likely continue to grow at a modest rate for the next few years, driven primarily by demand from continued low-cost smartphone growth.

Our future growth, however, will come from our New Growth Product.

This quarter highlights the importance of our New Growth Products, which are now a significant part of our business and our fast growth.

We are delighted that our investments over the past years are beginning to pay off.

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

Thank you, Wallace.

First I will outline our financial results for the second quarter and then I'll provide our third-quarter and full-year 2012 guidance.

As Wallace had mentioned, we delivered $69.7 million in sales this quarter, a 9% increase compared to the prior quarter and a 38% increase compared to the second-quarter 2011.

In the second quarter, sales from our New Growth Products increased 75% sequentially.

New Growth Products accounted for 32% of total sales, up from 20% of sales -- of total sales in the prior quarter.

I wanted to note that due to some internal product reclassifications, our revenue contribution from our New Growth Product in the first quarter is now 20% compared with the 18% we had previously announced.

Let me recap the performance of our two key product lines.

Mobile storage.

Mobile storage revenue increased 10% sequentially and 49% year over year.

Mobile storage controller shipments decreased 7% sequentially, but increased 32% year over year.

Mobile storage controller ASPs increased by 19% sequentially and 13% year over year, our tenth consecutive quarter of annual ASP increases.

Our card controller revenue decreased by 18% sequentially and our USB controller revenue increased by 14% sequentially.

Over 25% of our controller sales are for 19 to 21 nanometer NAND flash.

As comparison, in the first quarter, controllers for 19 to 21 nanometer NAND flash was just beginning to ship and generated only nominal revenue in the first quarter.

TLC controller revenue in the second quarter increased 3% sequentially and continued to account for nearly 50% of our controller sales in the quarter.

OEM revenue increased by 22% sequentially and accounted for over 50% of our controller sales in the second quarter.

Moving to mobile communications.

Mobile communications revenue increased 4% sequentially and 22% year over year.

Our LTE product revenue increased 23% sequentially.

Sales of transceivers for China EVDO phones and mobile TV solutions both declined sequentially.

Our corporate gross margin decreased slightly in the second quarter.

Gross margin fell 40 basis points from 49.5% in the previous quarter to 49.1% this quarter.

In the second quarter, operating expenses increased to $17.2 million from $16.8 million due primarily to higher R&D tape-out expenses.

Headcount at the end of this quarter was 670 employees, 14 more than at the end of the previous quarter.

Operating margin increased to 24.3% this quarter from 23.3% last quarter.

We generated diluted earnings per ADS of $0.42 in the second quarter, up slightly from $0.41 per ADS in the first quarter, but up significantly from $0.29 per ADF a year ago.

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

Stock-based compensation in the second quarter increased to $3.4 million from $1.6 million in the first quarter due to the exploration of previous employee RSU programs in the first quarter and issuance of new RSU programs in the second quarter.

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

Inventory days decreased to 87 days in the second quarter from 92 days in the first quarter.

DSO decreased to 54 days in the second quarter compared to 57 days in the first quarter.

Payable days increased to 42 days in the second quarter compared to 54 days in the first quarter.

In the second quarter, our cash balance increased by $18.8 million to $113.6 million at period's end.

In terms of primary sources of cash, we generated $14.6 million in net earnings, $2.3 million from a decrease in inventory and $4.9 million from an increase in our accrued expenses.

In terms of primary uses of cash, a decrease in payables consumed $2 million and an increase in accounts receivable consumed $0.2 million.

We invested $1.3 million for testing equipment software and design tools.

I will now move on to our guidance.

We expect that our New Growth Products will continue to deliver strong revenue growth in the second half of 2013 as we scale our eMMC controller business further and increase our shipment of LTE transceivers to Samsung.

We believe that our strong New Growth Product sale should continue and offset softness in some of our Core Products.

Specifically, we expect our card and USB-controlled revenue to improve modestly in the third quarter as NAND flash market conditions stabilize and smartphone sales improve.

However, we expect our mobile TV and China EVDO transceiver sales to deteriorate further because of competition.

For full-year 2012, we expect sales from our New Growth Products to account for 30% to 35% of total sales for 2012.

We currently expect New Growth Products to scale further next year and account for 40% to 45% of our sales next year.

For our third-quarter guidance, we expect second quarter revenue to be up 5% to 8% sequentially.

We expect, I'm sorry, our third quarter revenue to be up 5% to 8% sequentially.

We expect gross margin to be within the 47% to 49% range.

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

Stock-based compensation expenses should be approximately $3 to $3.5 million.

Our target model tax rate remains as 15%.

For the full-year 2012, our previous guidance remains unchanged.

We will now open the call for your questions.

(Operator Instructions).

Anthony Stoss, Craig-Hallum.

You talked about 11 OEMs that you signed so far.

Is there anything that's preventing you -- Riyadh, you talked about scaling.

Can you -- is there anything that's holding you back in terms of scaling faster?

Also, if you wouldn't mind just talking about why you are winning on the embedded controller side versus the competition.

Thanks.

I think our eMMC solution is very cost performance competitive.

And this in turn market of our flash component more competitive.

It will help our component to grow the market.

Our eMMC solutions have already been designed to multiple products at 11 OEM, as we mentioned, which including most smartphone OEM and many of the all key non-Apple tablets.

The reason why we can win more is because we are qualified with all major (inaudible) processor platform with our NAND flash component together in going Qualcomm, NVIDIA, TI, MediaTek and Marvell and others in advance and also as well as operating system like Android and Windows 8 OS platform in advance.

eMMC is a part of a system solution not a single standalone component so the development is much more complicated than the card controller or USB controller.

We have been successful winning eMMC projects in OEMs with a very fast pace because of our deep understanding of system level requirements combined with different types of interface and application processor, operating systems and other factors.

And I think the -- our relationship with flash maker will add tremendous value because we had worked closely during the development side including also supporting side.

That's why we can continue winning and gaining eMMC design win and market share.

Okay.

Thanks.

Daniel Amir, Lazard.

Can you expand a little more about the SSD business?

Where do you see your opportunity going from here?

Kind of what's your [CAM] in terms of the opportunity there?

And how should we look at that in the next couple of years?

And then I have a couple of other questions.

Thanks.

So Dan, we have partnering with one of the large flash vendor providing SD controller for PC and ultrabook for the NAND cache drive.

I think as we mentioned, we are beginning production of our 32 gigabyte NAND cache controller for an all-in-one PC that is currently available in major US retailers.

But volume are small.

This is our first NAND cache controller volume production.

And our focus would be in cash-based SD controller to enhance PC boot up performance.

And we do believe our revenue in this year will maintain small.

However, because our [put tremendous resources] in investment our SD development.

We believe our ASD revenue will grow seasonally in the year 2013 based on our own (inaudible) solution.

Okay.

And then you talked about your solution in eMMC and how successful you are there.

I mean how should we be looking at -- you commented a bit about your legacy micro SD business.

There has been a lot of talk on the changes in the market there.

How should we look at that business going forward?

Should we look at it as a mature, possibly not going to grow anymore or any commentary around that would be helpful?

Thanks.

Dan, it's, our belief that while the card and USB flash drive business is mature.

We will -- we expect that there is still growth -- modest growth expected over the next few quarters, modest growth expected for the next few years.

We do not believe that the card and USB flash drive business is in decline.

They are still growing.

And so from our revenues perspective, we are still expecting modest revenue growth for our USB flash drive and card business in Q3 as well as modest growth, further modest growth in Q4 and modest growth next year too.

Okay, great.

And then my last question, just on the gross margin should we be looking at future profile, the margins?

Should it change in any way given that your mix is obviously going more and more towards these new products or should we be looking at the same range?

Well, 50% is still our long term target gross margin.

In the short term, however, due to product mix shifts and product cycle transitions, margins may around a bit.

So, for example, in Q3, our gross margins are going to be a little bit below but will be in the 47% to 49% range.

But 50% is still kind of the range we should longer term?

That's correct.

50% is still our long term target gross margin.

Okay.

Thanks a lot.

Rajiv Gill, Needham & Company.

Congrats on good results.

Just a one quick clarification on the flash card controller business, Riyadh.

Did you say that that controller business was down 18% sequentially in the second quarter?

Did I hear that correct?

That's correct.

Our card control business revenue had declined in Q2, but at the same time our USB flash drives business revenue grew quite robustly in Q2.

How much was USB up sequentially in Q2?

USB was up 14% sequentially whereas our card control decreased about 18% sequentially.

So, could you maybe comment -- you talked about the pricing stabilizing and module makers perhaps coming back and buying NAND flash.

But the supply environment is going to remain tight for quite some time.

All the major flash vendors, as you know, are pausing capacity, in some cases cutting capacity.

How do you look at the NAND supply environment in the second half and maybe into the first half and do you see any risk that the card controller business could maybe fall off faster than maybe you are anticipating?

Well, I think we -- we expect to see more demand of the flash in the second half with the new product such as a smartphone, tablet and ultrabook, as well as stronger consumer demand to help achieve a healthy and supply demand balance.

The temporary, I think, flash maker, they cut some capacity and production was because they are quite different than 2008, because in 2008 everyone wanted to gain market share.

Now they are focused more on profitability.

I think they keep high discipline to keep the NAND industry and more balance on supply and demand.

It's a very healthy move.

And we did not see really shortage from the sale site.

Quite frankly in the July, we see a moderate increase for the cards, the NAND phones and the module maker for our customer.

OEMs also card business picking up.

Major reason because the low cost smartphone below 2 gigabyte embedding in really demand bundled card.

The bundled is very high, almost 100%.

Now, your commentary on kind of moderating bundled card growth and USB growth going forward, you grew significantly over the past couple of years, year over year.

Is the basis of the comment just kind of law of large numbers you are just seeing a deceleration in that growth rate.

What is making you make those comments?

Why you expect moderate growth rate in the card controller business over the next two to three years?

What's the dynamic that's happening there?

I think that's a very good question.

We believe the NAND is moving towards really close to the technology edge, so the next generation NAND, next year we are moving to from 1a to 11 nanometer.

In the 11 nanometer, it doesn't matter if it is TLC, MLC.

You do need new advanced error correction technology, which is in LDBC.

Today, we are really leading provider in developer for LDBC, ECC engine.

We believe we can make a more cost effective, maintain high performing controller to support upcoming new next generation NAND technology and we also see major OEM to more outsourcing to the also controlling (inaudible).

So we see both side that really increase our market share in the card growth in the next two to three years.

Thanks and congrats again.

(Operator Instructions) Mike Crawford, B. Riley & Company.

In the past you have talked about ASPs and the transceiver business.

I think at first they were as high as $5 you've disclosed.

We expect that to go down over time, but can you talk a little bit about that cost, the path?

Mike, our transceiver ASPs -- we have talked about a pair, LTE plus EVDO in $5 to $10 range.

So, per each individual component they would then be half of that, so roughly $2.5 to $5 range.

We are not going to be giving more specific pricing indicators given that these components are our custom design, specifically for Samsung, and we are confidentiality obligations.

For longer term, this is part of our commitment to Samsung is to produce components that will allow Samsung to be more cost competitive and so as part of our design cycles we need to continuously figure out how to design our transceivers to be even more cost effective.

Okay.

Thank you.

And in the eMMC market, are you able to approximate what your share is of that market today and where you think that could be a year or two from now?

We cannot share what market we have today, but we definitely in the very fast pace to grow the eMMC market share.

Mike, let me also add that based on the 11 -- our design wins was 11 OEMs, this represents pretty much a large part of all the handset makers already.

We have qualification with a number of other handset OEMs.

So if you include the ones that we have design wins as well as qualification, it's almost pretty much all those handset makers, almost all of them and not to mention we have a majority, our design wins for the second half of the year that we talked about.

A majority of the upcoming tablets will be using our controllers too.

And outside of the OEMs, your competitors in that market would include (inaudible), which I believe is shipping some eMMCs today and who else?

I think the real eMMC business belong to the NAND flash manufacturers, because that's the solution.

There not just eMMC, there is MCP, you also require mobile DRAM and also different type of density and different type of NAND, some with SLC, some with MLC, even some with the TLC.

So we work closer with the NAND flash partner.

We believe today we work with the two major partner simultaneously when we -- we definitely will try to engage more in the near futures.

We cannot share information right now, but I think the price end, we cannot comment our competitor situation.

Okay.

And then, Wallace, at the beginning of this call you talked about your belief that Samsung remains committed to its long-term development of its 4G baseband program and you talked about something that you are working to help them develop for next year.

Could you just go into that more detail?

I couldn't quite hear what you said.

We believe Samsung remain commit to their own LTE platform.

This allow them to develop more differentiate in mobile devices.

We believe their recent acquisitions would demonstrate their desire to further integrate and use in-house solutions.

Also I think Samsung mobile generally has a multiple vendor strategy for key components with multiple vendor strategy and to increase competitive.

We are also working with Samsung with multiple future development.

The long term is LTE advanced.

That's next generation product platform for LTE, including Voice over IP to remove the voice network.

Great.

Thank you very much.

Tom Sepenzis, Northland.

Congratulations on the quarter.

Most of my questions have been answered, but I just to want to clarify, I think you had mentioned just about every tablet outside of Apple would be shipping with your eMCC controller product and I am just wondering if that includes what's the upcoming Windows 8 launch and how you see that unfolding.

Tom, I can't confirm which ones we are going to be in.

We are not going to be in all of them but we are going to be in a majority of the major non-Apple tablets.

Tom, we can only state we are pretty qualified supplier under the Window 8 for Microsoft.

Great.

Thank you very much.

Peter Liao, Nomura.

Congratulations on the good results.

And I have one quick question on the eMMC products.

I know you have -- just as you say, you have two partners, SK Hynix and also Samsung.

And actually Hynix, they just acquired a controller company about like a two month ago.

And Samsung, I know they have their own in-house solution for eMMC and SSD controller.

So I have a question, since it looks like the NAND flash makers, they may target -- have an in-house solution.

So how we -- Silicon Motion to compare with the in-house solution?

Let me answer you.

I'm very happy to answer your question.

Every NAND maker, they do need their internal development, because they need development to support their future generation NAND.

There are so many applications.

See I cannot comment the detail regarding acquisition for SK Hynix, because they have their own purpose.

But as there are so many different applications, there's application acquisition could be for SSD, could be for future development, could be for other in various solution developments, they have their own priority.

However, what we notice, they really don't have enough resources to do all the products themselves.

That's why they need to outsource to the strong and leading controller supplier to supply their needs to continue growth.

Samsung have the internal development team from day one and sometime we collaborate, sometime we compete each other.

However, Samsung will definitely need Silicon Motion to provide the low cost high performance solution to fill their gap to expand further for their market share.

Same thing for the SK Hynix, I think you're going to see we work with other flash maker in the future in other embedding and other application areas too.

So I think it's very natural for NAND flash maker to have their internal controller technology and solution, because there are so many applications and no one can develop all the solution.

Thank you.

That was clear.

And another question is about SSD controller.

Right now there are few company that can provide SSD controller and I know Silicon Motion is a bit late.

Just as you mentioned, here we probably don't see your product.

It may have incurred a mis-production this year, they have contribution next year.

Will it be too late for you to enter the market potentially right now that's a matter of they start to use their startup ASP controller?

Yes I think SSD for the PC market, it was our just a weak area.

We did not put enough focus and resource, because our model is the unique growth, it's not the solution.

However, I think we have been spent for almost two years focusing in the area.

I don't think market would be late, because as we're just coming with high volume the cache SSD would become very popular for the ultrabook, some even used for the desktop.

We believe our solution will be very unique and our strategy is to work with major NAND flash maker as their total solution together and you definitely will see our solution in many leading PC maker next year.

Okay, thank you.

And final question about SSD controller, I'm not very sure.

Do you also collaborate with NAND flash makers?

Yes, we mentioned already -- that's correct, SSD we will work very closely with the NAND flash maker.

Okay.

Thank you.

Congratulations and thank you for taking my questions.

(Operator Instructions).

Monika Garg, Pacific Crest.

Just kind of in continuation with the cards question which has been asked before.

I mean Toshiba, when they cut the 30% production early this week, they said that's due to weak card market.

So my question is do you think this could lead to less supplies especially in the card market and then how do you think that could impact your card USB business and do you think this could impact the bundled card rate also?

Our module maker customer purchase most of their platform Micron, Toshiba, SanDisk, and Samsung.

Even with the temporary reduction in supply from Toshiba, we believe there is still adequate and diversify supply of a flash for both our card and UT controller business to grow moderately in Q3 and Q4.

We think really the -- we see with the strong growth with smartphone, especially with the lower density embedding NAND, and we believe the bundle card business will continue to grow in Q3 as well as Q4.

And this is what we can see today and although Q2, our bundled card business went down 18%, but we definitely -- now we see clear sign to the recovery and we are confident seeing our card business growing in Q3 and Q4.

Thanks.

Just one more question on the cache SSD controller for the PC side, could you provide kind of how you are seeing the penetration rate of this market?

Like exiting 2012 and exiting 2013, what do you think could be attached for cache SSDs and pure SSDs?

Well, I can give you my personal opinion.

I think that cost becomes very sensitive in the PC market.

So, the full side SSD (inaudible) things away more expensive than hard drive solution HDD, so we see there will be more interest in the market trend to select cache SSD for density between 20 gigabit to 32 gigabit.

That's also the Intel requirement for the spec.

We believe we will be able to develop very low cost high-performance solution with a density between the range and provide to the major OEM customers.

According to OEM request, there is 32 gigabit cache SD total band cost should be less than $20.

So within the $20, who ever has the controller portion will be very, very small.

So it will be very, very few control makers can compete with the low-cost high-volume market and Silicon Motion will be one of them.

Yes, very helpful.

Thank you so much.

And at this time, I would like to turn the call back over to management for closing remarks.

Before I turn the call back to Wallace for his closing remarks, I just wanted to add a comment about a question I believe some of our shareholders have been expressing directly to us, which is, which relates to the topic of a share repurchase program by Silicon Motion.

As you know, enhancing share value is very important to our Company and with the recent share price performance -- the recent performance of our share price, we're -- which is deeply of concern to our Board and our shareholders including Wallace and myself, we are actively exploring options to enhance our value and including share repurchase programs.

We've had discussions with our Board and we will take steps as appropriate.

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

We'll be the following conference this quarter.

In August, we'll be presenting at Pacific Crest Technology forum in Colorado, Jefferies Semiconductor and [Harvey Conference] in Chicago.

In September, we will be attending the Credit Suisse Conference in Taipei and Deutsche Bank Technology Conference in Las Vegas.

Detail of these events are available on our website.

Thank you and good bye for now.

Thank you for participating in today's conference.

You may now disconnect.