慧榮科技 (SIMO) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter Silicon Motion Technology Corporation's Q3 2013 earnings conference call.

My name is Desmond 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've been asked to read the following forward-looking statement.

This press release contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements include, without limitations, statements regarding trends in the semiconductor industry and our future results of operations, financial conditions and business prospects.

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

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

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

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

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

I would now like to hand our presentations over to our host, Mr. Jason Tsai, Director of IR and Strategy.

Please proceed.

Thank you very much, and good morning, everyone.

Welcome to the Silicon Motion third-quarter 2013 financial results conference call and webcast.

My name is Jason Tsai, and 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 third-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 the market yesterday.

This webcast will be available for replay on our website at 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 would now turn the call to Wallace.

Thank you, Jason.

Hello everyone and thank you for joining our earnings call.

In the third quarter, I'm pleased to report that our mobile storage revenue grew sequentially SSD+embedded sales further and our card controller sales rebounded.

Over the last several years, we have been investing aggressively in our SSD+embedded solution and I'm delighted that our eMMC controller sales have continued to successfully scale.

And then in the second quarter of this year, this product line has already become our largest.

I'm also delighted that our SATA III client controller which we recently launched and have received very favorable third-party benchmarking reviews has already entered initial sales for a few of our customers sell to both retail channel and Chinese or PC OEMs.

Overall, I'm pleased that we continue to make good progress in transitioning our mobile storage products from mature external storage solution to longer-term growth opportunity in the embedded storage space.

Additionally, we believe our card controller sales have stabilized.

The risk relating to card debundling has largely played out.

Overall, our revenue declined slightly due to [rev 2] LTE product transition ramp down.

Excluding LTE sales, our revenue would have increased modestly this quarter.

Our growth in our operation profitability on the other hand increased in the third quarter.

Earnings per ADS in the third quarter grew to $0.32, up from $0.27 in the second quarter.

Riyadh will go into our financials later in the call.

RSD +embedded products are the future of mobile storage business for the consumer electronic devices are increasingly smart devices, thus requiring embedded memory.

SSD are rapidly replacing HDD in PCs.

And more and more category of devices, whether for industrial, automotive or commercial application are now seeking specialized embedded memory solutions.

We've been developing a variety of SSD plus embedded solution to target these markets.

Our EMC controller has successfully scaled and is already our largest product line.

We are now in initial phase of scaling our SATA III client SSD controller business.

This quarter, our SSD+embedded revenue grew by nearly 10% sequentially and now accounts for about 55% of our total mobile storage revenue, up from about 50% the previous quarter.

Our eMMC controller sales grew well in excess of 10% this quarter as OEM device makers increased their procurement for end-of-the-year holiday sales.

Year to date, our eMMC sales are already up over 150% compared to the same period a year ago.

We supply performance in cost competitive eMMC controller to Samsung -- in this case, Hynix -- and through our partners we have been able to significantly expand our market share this year.

In 2012, our first year of eMMC revenue, we achieved around 5% to 10% market share and we are on track this year to more than double our share and achieve 15% to 20% global eMMC market share.

eMMC memory modules without controllers are widely used in 8 of the top 10 now iOS smart phone OEMs.

We have exceptionally strong presence in China where we have almost 50% of this eMMC market.

We offer controllers for eMMC 4.41 and 4.5 products that are built into global flagship devices as well as low-cost smartphones, whether they're running Android, Windows or BlackBerry OS.

Our eMMC 4.5 controller accounted for nearly 25% of our shipments in the third quarter, and we are on track to begin sampling our next-generation eMMC 5.0 controller this quarter, and for this to enter mass production in the first quarter of 2014.

In the third quarter, our flash partner used our eMMC controller to secure 15 new design-ins and design wins, the majority of which are eMMC 4.5 controllers.

This will include numerous Android smartphones and tablets, including the previous mentioned new Google Nexus 7, as well as Windows 8 tablet from global top three PC OEMs.

Last quarter, we expanded our eMMC NAND flash partnerships with the addition a third flash partner, and I'm pleased to confirm that while this engagement with this flash maker for TLC-based eMMC controller has been progressing as expected.

Managing low cost with a weaker TLC flash without compromising data storage reliability and high performance requirement of the eMMC 4.5 application is challenging.

But we believe our customers is on track to begin commercial sampling of their eMMC solution using our controller in November, and we expect to see initial conversion revenue in the first quarter of next year.

This third flash partner complements our existing partnership with Samsung, in this case Hynix, by enabling a competitive TLC-based eMMC solution that targets a low-cost devices.

Overall, we are pleased with successful execution of our eMMC partner this year.

This year, we will grow our eMMC sales well around 150% significantly faster than eMMC market growth.

Next year, we believe the market with eMMC should grow about 25% and we believe our sales to Samsung (inaudible) Hynix should grow at least as fast.

Sales to our new third flash partner will contribute incremental growth.

For the fourth quarter, however, we expect our eMMC revenue to decline sequentially due to seasonally strong build in the third quarter ahead of the fourth-quarter holiday buying season, but expect strong growth to resume in the first quarter as new OEM program begin.

Let me now turn to our SSD controller business.

As we have discussed, our new SATA III client SSD controller began sampling in the third quarter and based on customer feedback as well as independent third-party testing and benchmarking.

Our controller offers very competitive performance, but with power consumption that is substantially lower than any other SSD controller available in the market today.

Lower power consumption is one of the key factors for OEMs in their decision-making process for choosing SSD controllers.

I'm pleased to announce that we have started initial sales of our SATA III client SSD controller to several market-maker customers with design wins for both the retail channel and local Chinese notebook PC OEMs.

Additionally, we are also working with OEMs packaging longer Tier 1 global PC OEM qualification and design cycles and are targeting sales to these customers beginning in the second quarter of next year.

Until the second quarter of next year, we do not expect our SATA III client SSD controller sales to contribute meaningfully.

Overall, I'm pleased with our expanding portfolio of SSD+embedded products and business activity and expect sales from this segment to continue to scale.

Already, our SSD+embedded sales are about 55% of our mobile storage sales.

Our next milestone is for SSD+embedded to account for the majority of our overall corporate revenue.

Now, let me turn to our card and USB flash drive controller business.

As we had talked about for some time, the market for these controllers are mature and has been in secular decline.

The debundling of the memory card for smart phones and continuing weak PC sales have limited market opportunity for our card and USB controller this year.

Let me talk about the card and USB trend separately; first, cards.

We believe further downside risk to our card controller business is limited.

We believe the smart phone card debundling risk has largely played out.

Very few smart phones are now sold with a bundled card.

Several years ago, as you may recall, most smart phones were sold with a bundled memory card.

This is no longer the case.

In addition to the bundled card market, the other majority market -- major market for memory card is the retail channel.

We are seeing stability in the retail market, specifically for high-performance cards, such as UHS SD cards for digital and video camera as well as smart phones that can record high frame rate full HD video.

Our card controller sales rebounded marvelously this quarter and over 1/3 of our SD card controller sales now are high-performance UHS SD cards.

In this quarter, we began controller production for Samsung for its new multi-quarter UHS SD card program during its 19-millimeter TLC NAND flash.

Our USB flash drive controller sales have dropped sharply since last year.

USB are popularly used as external storage with PC.

We believe the market for USB has been negatively affected by declining PC sales; growing sales of tablets, which do not use USB and increasing adoption of card storage.

We do not believe we have yet seen the bottom of the declining trend.

Our USB sales, however, are relatively small compared with our memory card sales.

We sell roughly 2 to 3 card controllers for each USB.

For the fourth quarter, which is typically our strongest quarter in the year for card and USB controllers, this year we are only expecting flat revenue growth but overall flash availability has improved slightly from early this year.

Availability to market makers is still tight and end consumer demand remains weak.

I will now speak to our LTE transceiver progress.

We have complete our LTE advanced transceiver development at roughly the same time as Samsung with their new LTE advanced baseband, and Samsung mobile recently started testing our new transceiver with their new baseband.

We remain committed to our LTE transceiver business where we believe Samsung remains committed to further development of their own baseband platform as part of the long-term strategy of offering our differentiated products.

Our transceiver remains integral to this strategy and is preferred pair to their baseband.

We believe that we will have better sense of the scale of design wins for 2014 in January and look forward to updating you then.

To conclude, I'm pleased by the progress that we have been making in transitioning our controller from external storage solution to embedded storage solution.

I'm proud of the successes our team has had in bringing eMMC controller to market and making it our largest product line.

Next year, I'm confident about delivering further eMMC growth and optimistic that we are well-positioned to scale up our SATA III client SSD controller business.

And I feel good about our new LTE-Advanced transceiver.

I will now turn the call over to Riyadh to detail our financial performance.

Thank you, Wallace.

First, I will outline our financial results for the third quarter, and then I'll provide our fourth-quarter guidance.

For the third quarter of 2013, we delivered total revenue of $51.1 million, a 2% decrease compared to the prior quarter.

Let me recap the performance of our two key product lines; first, mobile storage.

Mobile storage revenue increased 4% sequentially.

Mobile storage controller shipments increased 7% sequentially.

Mobile storage controller ASPs decreased by 3% sequentially but increased 8% year-over-year, our 15th consecutive quarter of annual ASP increases.

Our card controller revenue increased by 8% sequentially and our USB controller revenue decreased by 23% sequentially.

OEM revenue again accounted for nearly 70% of our controller sales in the third quarter, similar to the second quarter.

Moving to mobile communications.

Mobile communications revenue decreased 27% sequentially due to the continuing technology transition of Samsung LTE smart phones.

Our corporate gross margin increased from 48.4% in the second quarter to 48.8% in the third quarter.

Our corporate operating margin increased from 19.7% in the second quarter to 22.7% in the third quarter.

In the third quarter, our operating expenses decreased to $14.9 million as compared to $16.8 million in the second quarter due to lower accruals of compensation expenses.

We ended the third quarter with 711 employees, 17% more than at the end of the previous quarter.

Earnings per ADS in the third quarter were $0.32, an increase from the $0.27 in the second quarter as a result of higher gross margins and lower operating expenses.

Stock-based compensation in the third quarter was $1.5 million, up slightly compared to the $1.4 million in the second quarter.

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

Inventory days increased slightly to 91 days in the third quarter from 88 days in the second quarter.

DSO remained unchanged at 50 days in the third quarter as compared to the second quarter.

Payable days decreased to 46 days in the third quarter compared to 54 days in the second quarter.

Our cash, cash equivalents and short-term investments increased to $163.4 million in the third quarter from $156.4 million in the second quarter.

Primary sources of cash in the third quarter were $10.8 million from net earnings, and a decrease in receivables generated $1.7 million.

A decrease in payables consumed $2.7 million and our dividend payment consumed $4.9 million.

We invested $1.2 million for the purchase of testing equipment, software and design tools.

We did not repurchase any shares in the third quarter.

Our Board has still not given us a green light to continue with our previously authorized but suspended share repurchase program.

I will now move on to our guidance.

We expected our fourth-quarter revenue to decline because of LTE product transition, eMMC seasonality and falling mobile TV sales.

I'll briefly talk about each of these three factors.

LTE product transition -- we completed our last residual sale of our end-of-life LTE programs in the third quarter, and so we will not have any material LTE sales in the fourth quarter.

For the full year, we will deliver almost $12 million in LTE revenue.

eMMC seasonality -- smartphone and tablet OEMs have been building devices for fourth-quarter holiday sales, and since sales of our eMMC controllers are several steps removed from OEM sales of devices to end consumers, the seasonal tapering off of our eMMC sales happens earlier.

As you know, we sell our eMMC controllers to the flash makers who in turn sell their eMMC (technical difficulty) solutions to device OEMs, who in turn build the devices for retailers to stock for holiday sales.

We expect our eMMC sales to rebound strongly in the first quarter of next year as new OEM programs kick in, and we expect our first-quarter eMMC sales to recover to levels close to the fourth quarter.

Falling mobile TV sales -- our mobile TV sales declined due to falling Korea TDMB and Japan ISDB-T SoC sales.

Our card and USB controller sales growth is expected to be flat in the fourth quarter due to weak end consumer demand.

Our guidance for the fourth quarter is as follows.

Total revenue excluding the LTE is expected to be down 4% to down 10% sequentially.

Including LTE, our revenue should be down 6% to down 12% sequentially.

Gross margin is expected to be in the 47% to 49% range.

Operating expenses are expected to be in the range of $16 million to $18 million.

Stock-based compensation is expected to be approximately $5 million.

We are adjusting our long-term taxable rate to 18%.

Effective tax this year will be a few percentage points higher than the 18% due to changes in some of our tax positions.

Looking into next year, and I will summarize what Wallace had previously discussed for the benefit of our audience, we believe our card controller sales have stabilized but our USB controller sales may continue to fall quarterly at a modest rate.

The eMMC market should grow about 25% and our eMMC business with Samsung and Hynix should grow at least as fast.

Revenue from our third flash partner will contribute growth incremental to this.

Our third flash partner sales should begin in the first quarter.

Our SATA III client SSD controller sales should contribute more meaningfully to revenue beginning in the second quarter.

We will update everyone on the progress of our LTE business in January.

It's still too early to talk about timing or magnitude of this LTE revenue.

We are confident next year will be a growth year for us.

We will now open the call for your questions.

(Operator Instructions) Suji De Silva, Topeka.

Can you talk about the impact you saw from the Hynix fire on availability of NAND for your customers?

I think the Hynix Wuxi fab produced DRAM.

The fire, therefore, directly affected DRAM supply and the price.

However, memory OEMs have converted from NAND fab capacity to DRAM in light of the higher DRAM prices in the market impacting the short-term supply of NAND.

We are monitoring the situation closely and continue to have conservative expectations in terms of near-term NAND supply growth.

I would like to point out that any availability times would impact our module makers and not our OEM business, which in the third quarter was nearly 70% of our controller business.

Okay, thank you.

And then the inventory correction you're seeing in the fourth quarter in handsets, is that evenly split between the Tier 1s in the China low-cost handset manufacturers, or is it more leaning towards one or the other?

Suji, could you please repeat your question so we can answer more appropriately?

Sure, the handset inventory correction for the fourth quarter -- is that more of a Tier 1 OEM, or the low-cost China handset OEMs?

We cannot comment on the end market for the smart phone, but we believe the inventory correction has started since mid-Q3, but we believe currently just because procurement of our customers, that's why it's the eMMC, our revenue, was declined shortly from Q3.

But we did not see any really smart phone volume decline.

We believe that we should see a strong rebound first quarter next year.

Suji, let me also add, our expectations about overall eMMC growth for this year is substantially higher than what we had originally expected.

As you may recall, originally we were expecting eMMC growth this year to be roughly around 30%.

Our latest view is now that eMMC growth will be about 55% for this year because of substantially higher low-cost smart phone volume ramping from China.

So these are obviously opportunity for our eMMC business.

Lastly, quick question -- what is the typical 4Q seasonality decline for eMMC?

Typical -- I guess it's still growing, but what would you expect typically?

Suji, we are still fairly new to the eMMC business.

We're going through our second -- just completing our second year of eMMC business, and so the seasonal patterns that we are seeing are still early days since we are ramping our business.

And so you know patterns that we're seeing probably are not going to be reflective of the longer-term patterns.

The longer-term patterns will probably be closer to what you would normally expect with the handset industry.

Thanks, guys.

Raji Gill, Needham & Co.

Thank you.

A question on the eMMC -- from a technology perspective as well as from a sales strategy, what is the difference in developing this type of controller versus a controller that would go into a bundled card?

Does it take longer to develop?

Is there more complexity?

And then how do you factor that in when you're looking at the growth rate next year?

The eMMC controller is designed for embedded solutions and, frankly speaking, we believe eMMC controller technology at least are three times complicated than the card controller technology because you have much more robust power management to prevent and certain power down.

And you have a much better algorithm for performance-driven spin, especially when you focus both (inaudible) rewrite and sequential rewrite.

And also, you have to recover any [unexpected] condition, and during the event user (inaudible) his operation.

So the I think embedded area for eMMC technology is much more complicated than removable storage controller technology.

So does that help you in terms of providing a value proposition to the flash vendors who don't necessarily want to develop the eMMC controller themselves?

I think we mentioned in the past, eMMC technology -- the success of eMMC technology remains --relies on several factors.

It's not just controller technology for the hardware SoC and its algorithm and firmware.

It's also in addition as a verification process and also the pre-tapped with system integrator.

And including the debugging technology and technical support in the field, how strong your team can debug the product when there's the issue of selling to OEM customers.

So they're relying on the NAND maker (inaudible) you're seeing overall not just controller technology, but overall scale in technology and provide a robust solution to them.

Thank you, and just last question on the LTE business.

I know Samsung is testing their baseband, but do you have any additional visibility into what the roadmap would be into 2014?

Because clearly this year, 90%-odd of Samsung LTE phones are using QUALCOMM.

I'm just wondering if you're -- what makes you more confident that that mix shift could -- or that split could go more to Samsung internally?

If you could elaborate a little bit further.

First of all, from a technology point of view, last year our LTE transceiver and Samsung baseband do not have carrier application and (inaudible) tracking features.

This year, our product meets the LTE-Advanced requirement, including carrier application.

And we really do not believe Samsung (inaudible) to their own platform have changed and they are actually working on their next-generation LTE-Advanced cable baseband and we are on track to pair our transceiver with their part later this year.

I cannot release the details to you, but we have the confidence, good confidence.

I think by the year, we could have more information update to you.

Thank you very much.

Mike Crawford, B. Riley & Co.

Thank you, can you please talk about the margin, expected margin impact on the shift to eMMC 5.0 solutions?

All of our new solutions have gross margins that are above corporate average, and so for this product as well as other products you should expect the same trend of higher gross margin being blended into our overall gross margin profile.

Okay, Riyadh, as eMMC 5.0 becomes more prevalent, say in -- I don't know -- Q2, would you expect margins to ever get above that 49% level on the gross margin side?

All of our products when they initially come to market they have much higher gross margin, but over time we are committed to delivering a cost-down program to our customer.

So our overall gross margin profile for our products is a combination of the individual product as well as the product mix of all the various parts that we have.

So the more of these new products we bring to market and the larger the significance, the better our gross margin is going to be.

But let me just add that our long-term targets still remains 50% for our gross margin.

Okay, thank you.

Regarding the LTE-Advanced, I think the statement was that Samsung remains committed to development of the baseband.

I think we can understand that, and what Silicon Motion is to preferred vendor to the baseband.

Would you expect to have a majority of attach rate with Samsung next year or still close to 100% share if they use their own LTE-Advanced baseband?

I think we are being very successful in meeting their requirement and so long as -- as long as we continue to meet this requirement, we do not believe we will see any significant competitive threat entering the market, whether internal or no.

But we believe our solution outperformed their internal other solution and we think Samsung is committed to use internal solutions as [possible] as they can.

Every internal solution have similar or better performance.

They will have more models using internal solution to differentiate their product.

Okay, thank you, and then last question -- on stock-based comp, I think it's been about $5.4 million through nine months.

You didn't say $5 million for Q4, did you; or, did I mishear that?

I'm sorry?

(multiple speakers)

Stock-based comp for Q4?

You heard right; it is $5 million.

(multiple speakers) It's sequentially higher than the previous quarter.

We've just -- are in process bringing up a new stock-based compensation program, and so the impact is going to be higher next quarter compared to the previous few quarters.

So final question, then, is what gets stock-based comp for next year?

You should look at it on a more annualized level, right?

Quarter by quarter, there are always some variations in terms of when programs are brought to our employees, so the right way to look at it is to look at it on a full-year basis.

Riyadh, so you are talking about $10 million of stock-based comp this year.

Is that a good number for next year as well?

Roughly.

If you were to add up a number for this year, then that would give you a sense of magnitude that you should expect next year, plus some scaling.

Okay, thank you.

(Operator Instructions) Bob Gujavarty, Deutsche Bank.

I have a question.

If I look at maybe a competitor to yours indirectly like SanDisk, they've been able to grow their USB and their flash card revenues.

Some of it is ASP, but they've also grown units.

Is that a function do you think in this environment where NAND is very tight?

Is it that they are able to gain share in a tougher market?

Or is it just -- I'm just curious how you kind of explained the discrepancy between their performance and your performance.

Bob, you're right.

In today's market, NAND supply is very tight, so NAND maker have a privilege to control the product they want to sell.

I believe SanDisk definitely gain in their position in card and USB.

But I don't believe they gain much more volume in USB, but definitely the card business is doing very well.

And so if (inaudible) the NAND maker their strategy, some NAND maker, they don't want to supply the NAND to the card and USB business.

But overall, the NAND supply to module maker is limited.

That's why we're impacted by the module maker business.

Got it.

And then if I think about kind of -- you talked a little bit about the puts and takes in -- for Q1.

I mean, obviously, there is the eMMC customer coming back.

There's presumably some replenishment of inventory of existing eMMC customers after they draw it down in Q4.

What are some of the headwinds should we think about?

Can USB take another like down?

Flash cards are seasonally soft in 1Q, so can you talk a little bit about maybe the offsets of some headwinds that in Q1?

Because otherwise, I can only think of good things and I don't want to get the impression that it's going to be a big up quarter if that's not the proper way to think about it.

We cannot predict our USB product line, but we believe because PC market continue to decline, the demand for our USB flash drive also is very weak.

So the potentially we already mentioned the USB product line will moderately decline, but the ASP card we believe is stable right now.

We did see a very small rebound in the third quarter, and we it will be flat at any rate for Q4 and moving next year.

However, I think if we can gain more high-performance market share, the total units we may not increase, but it's the ASP because higher we can grow for the top line as well as profit.

But we also mentioned, we start to ship the SATA III client SSD from this quarter with small volume, but we believe into late Q1 or second quarter, we start to be -- the sale contribution will be more meaningful for our business.

So as you know, in 2013 we don't have any SATA III client SSD business this year.

Right, so net-net, a lot of good things potentially in 1Q and most of the bad stuff is largely gone.

Okay, great.

Thank you.

(Operator Instructions) Tom Sepenzis, Northland.

I think you mentioned earlier that you expect the embedded market to grow 25% next year.

That is just with the two existing customers, not including the third; correct?

That's correct.

That's the industry number.

That's the industry number.

We believe the industry as a whole will grow about 25%, the industry -- the market for eMMC.

So our business with Samsung SK Hynix, at a minimum it should grow as fast as the industry.

And when our third customer comes online, that will be incremental to what we expect to deliver with Samsung and Hynix.

Okay, great.

And then as far as operating expenses, do you have anything in the plan for next year that takes them back up?

Obviously, they were lower this quarter than expected.

So do we just use the current (technical difficulty) moving forward?

Our OpEx for the third quarter was a bit lower as a result of lower accruals of compensation expenses.

Our fourth-quarter OpEx on the other hand should be about $2 million higher than the third quarter because of higher tape-out expenses.

Looking a bit further out, OpEx for upcoming quarters should be a bit higher than this quarter, the third quarter.

We will continue to build out our R&D and other operating infrastructures to support our growing SSD plus embedded sales as these investments are critical to our long-term growth.

But from an operating margin perspective, if that's where you're heading, you should expect our operating margin target still to remain at 30%, a profitability level that is within reach and that we had achieved in the past.

Great -- and just in terms of tax rate for next year?

Our mobile tax rate is now 18%.

Great, thanks so much.

Thank you for your questions.

I would now like to hand the call back to Mr. Wallace Kou, President and CEO, for closing remarks.

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

We will be at the following conference this quarter.

In November 2013, we'll be presenting at (inaudible) [Securities] tech, media, telecom conference in New York; RBC Capital Markets technology, Internet, media and telecommunication conference in New York; Deutsche Bank conference in Taiwan, UBS global technology conference in San Francisco.

In January, 2014, we will be presenting at the 14th annual new Nomura CES conference in Las Vegas; (inaudible) growth conference in New York.

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 for today.

Thank you for your participation.

You may now disconnect your lines.