慧榮科技 (SIMO) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter Silicon Motion Technology Corp.

Q1 2014 earnings conference call.

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

At this time all participants are in 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 risk 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.

Thank you and good morning, everyone.

Welcome to Silicon Motion's first-quarter 2014 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 first-quarter financial results and provide our outlook, we will then conclude with Q&A.

Before we get started I would like to remind you of our Safe Harbor policy which was read at the start of this call.

For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the US SEC.

For more details on our financial results, please refer to our press release which was filed on Form 6-K after the close of market yesterday.

This webcast will be available for replay on our website, www.SiliconMotion.com, for a limited time.

To enhance investors' understanding of our ongoing economic performance we will discuss non-GAAP information during this call.

We use non-GAAP financial measures internally to evaluate and manage our operations.

We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results.

The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday.

We ask that you review it in conjunction with this call.

With that I turn the call over to Wallace.

Thank you, Jason.

Hello, everyone, and thank you for joining our earnings call.

We are off to an excellent start for 2014.

I am pleased to report solid first-quarter results that reflect strength from across most of our products.

I am also delighted to report on our progress in delivering the three new products and new customer milestones, which we had previously outlined that are important for growth this year and beyond.

These important milestones relate to our new growth products, specifically eMMC, SSD and LTE.

As a summary, in the first quarter revenue for our SSD+embedded products, our largest productline, increased sequentially and grew by over 60% year over year.

Our card controller business were relatively stable, sales on many legacy products normalized and gross margin remained stable at 49%.

Later Riyadh will talk more about financials.

This quarter our SSD+embedded sales grew to account for 50% to 55% of mobile storage revenue.

This quarter we started shipping our eMMC controller to our third NAND flash and the security design win as both the global Tier 1 PC OEM and a NAND flash maker [called] SATA3 client SSD controllers.

These are important achievements of major milestone which we had laid out and had communicated to you early this year.

These achievements are testament of major global OEMs confidence in the strength of our technology and value of our solutions.

We bring considerable value to our customers by leveraging our advanced NAND flash hardware and firmware controller technologies in that understanding of NAND flash, close range (inaudible) flash makers and expansive customer support infrastructure.

Our customers create value by using us to address expanded market opportunities accelerating new business programs (inaudible) our market proven event controller technology and improve profitability by reducing their cost structure.

In the first quarter we started initial commercial sales of our eMMC controller to our (inaudible).

This is EMC 4.5 controller designed specifically for our flash partners, TLC NAND flash.

And there TLC eMMC solutions are initially targeted at China's rapidly expanding very low-cost smartphone and tablet market.

While (inaudible) has already started shipping the TLC eMMC with our controller to selected OEMs in China and we expect our TLC eMMC controller sales to scale meaningfully in the second half of this year as our flash partner converts strong OEM customer interest into design wins and sales.

Our flash partner is currently only one of the two flash makers offering TLC eMMC solutions to OEMs and we are delighted that they recognize the value of our TLC and eMMC expertise and have selected us as their partner.

We continue to believe the eMMC market should grow by about 25% this year.

And our business with the two initial (inaudible) partner should enable us to grow our eMMC controller sales at least as fast and for us to maintain at a minimum our 15% to 20% market share.

We remain the only meaningful merchant supplier of eMMC controllers.

Flash makers using our controller are shipping eMMC to eight out of 10 leading non-Apple smartphone OEMs.

This quarter flash makers using our eMMC controllers have secured at least 30 new design wins in this.

And one of these are for eMMC 5.0.

This quarter over 50% of our eMMC controller sales are for eMMC 4.5, up from 25% last quarter.

And we have started shipping in volume our eMMC 5.0 controllers, which as you may know, has two to three times faster IOPS performance as compared to eMMC 4.5.

This migration to eMMC 4.5 and 5.0 is being led by smartphone and tablet application processor suppliers seeking to offer faster and better embedded memory solution of their latest generation of processor marketed to OEMs.

Now turning to our client SSD controller business, which is currently our second most important area of focus.

The PC market is large and with NAND flash prices that have fallen to roughly $0.50 per gigabyte, we are beginning to see acceleration in adoption of SSD by PC OEMs and increasing interest from consumers.

We believe SSD will quickly become the largest application for NAND flash consumption and has become the NAND flash makers very important application of focus.

We are aggressively going after the SSD market opportunity by offering OEMs a module maker, one of the most competitive SATA3 controller solutions available in the market today.

And shown by many third-party benchmarking analysis and are making solid progress in securing design wins and delivering sales.

This quarter we secured two important OEM design wins.

I am pleased to announce that our SSD OEM partner, which is one of the leading suppliers of SSD to global PC OEMs, has secured the first design win with a Tier 1 PC OEM and this has been with our controller a strategy to enter production in the third quarter.

I am also pleased that we have secured our first SATA3 SSD controller design win with one of our NAND flash partners and their SSD with our controller expanded to enter mass production in the fourth quarter of this year.

Separately, we have been actively marketing our SATA3 SSD controller to leading module makers based in the US, Taiwan and China.

And we are already seeing SSD manufactured by this module makers consuming using our SATA3 controller available to consumers today.

We are excited about this opportunity because our customers are aggressively bringing affordable SSD directly to consumers and many of the SSD are retailing for $100 or less for 256 gigabyte of storage capacity.

Transcend and [PMY] are two of our leading customers currently marketing these very attractive prices SSD to consumers.

We are also [bothering] our portfolio to seek controller solutions.

In the second quarter we will bring to market our SATA3 controller designed for managing TLC NAND flash suitable for SSD manufacturers targeting the more cost sensitive segment of the market.

Later this year we will be releasing our PCIe SSD controller for OEMs focused on high-performance premier segment of the market.

On a very preliminary basis, based on what is a very limited end market visibility relating to our customer's SSD sales, we believe we should be able to achieve $10 million to $15 million of SATA3 client SSD revenue this year.

With our current pipeline of SSD controller solution customer and design wins we are confident that our SSD controller will be a strong contributor of growth in 2015.

Now let me talk about our LTE transceiver, which, as you know, is designed specifically for pairing with Samsung LTE base bands.

We released our new LTE Advanced transceiver to Samsung in the second half of last year and this part was in final stage of testing at the beginning of this year.

In March we announced that we had completed testing and had secured our first LTE-Advanced transceiver design win, which will start shipping volume in the second quarter.

Samsung is currently evaluating us for several other LTE programs and I look forward to updating you on our progress in the upcoming months.

We believe we are on track to achieve our LTE revenue target of $12 million in 2014.

To conclude, we are off to strong start and are slightly above 2014 and next year.

We are executing well across our growing portfolio of SSD plus embedded products and are building an expanding pipeline of design win activity, which will (inaudible) in momentum in the second half of the year and carry over to next year.

Also, we believe we are benefiting from having an attractive mix of unique technology differentiated solutions at leading customers and gross market.

I will now turn the call over to Riyadh to discuss our financial performance and (inaudible) outlook.

Thank you, Wallace.

First I will outline our financial results for the first quarter and then I will provide our second-quarter guidance.

In the fourth quarter revenue increased 1% sequentially to $52.8 million.

Our controller sales declined 4% sequentially and within our controller sales our SSD+embedded products increased modestly, card controller sales were stable and UFD controller sales declined temporarily due to a product part transition.

Our specially RFIC sales increased 47% sequentially as mobile TV SOC sales rebounded to more normalized levels following fourth-quarter seasonal decline.

Our corporate gross margin declined slightly to 48.6% in the first quarter from 48.8% in the prior quarter.

During this quarter we wrote off about $1 million of obsolete UFD controller parts.

Without this write-off gross margin would have been a little over 50%.

In the first quarter our operating expenses increased to $16.9 million as compared to $13.8 million in the fourth quarter.

In the fourth quarter, as you may recall, our operating expenses were unusually low due to lower compensation expenses, much of this bonus related.

This quarter operating expenses reverted to more normalized levels.

We ended the first quarter with 738 employees, seven more than at the end of the previous quarter.

Due to higher operating expenses corporate operating margin decreased to 16.7% in the first quarter from 22.5% in the fourth quarter.

Earnings per ADS in the first quarter were $0.16, a decrease from the $0.30 in the fourth quarter.

Stock-based compensation in the first quarter were $1.5 million, significantly lower than the $4.9 million in the fourth quarter.

Our fourth-quarter stock-based compensation was much higher, as you may recall, due to a catch-up payment to offset unsustainably low amounts in the previous three quarters.

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

Inventory days increased to 108 days in the first quarter from 105 days in the fourth quarter, a decrease in dollar terms due to a draw-down.

DSO increased to 59 days in the first quarter as compared to 53 days in the fourth quarter due to first-quarter payment seasonality.

Payable days remained unchanged at 48 days in the first quarter as compared to the fourth quarter.

Our cash, cash equivalents and short-term investments decreased to $158.6 million in the first quarter as compared to $162.5 million in the fourth quarter.

Primary sources of cash in the first quarter were $5.4 million from net earnings and a decrease in inventories contributed $2.7 million.

An increase in accounts receivable consumed $6.3 million and our dividend payment consumed $5 million.

We invested $1.7 million for purchase of test equipment, software and design tools.

I will now turn to our guidance.

For the second quarter we are expecting our revenue to increase 10% to 15% sequentially.

For the full year we are maintaining our 5% to 15% revenue growth guidance.

As Wallace had described, we are expecting strong eMMC controller sales this year and are expecting our second-quarter eMMC controller sales to reach a revenue level similar to third quarter last year, our 2013 peak quarter.

For full-year 2014 we believe our eMMC controller sales should at a minimum go in line with the markets 25% growth.

Currently our full-year revenue growth guidance does not include revenue contributions from our third NAND flash partner as they have only began selling their eMMC memory solutions with our controllers to OEMs.

We will include our third NAND flash partner's revenue projections when we have better visibility relating to their sell-through patterns.

For our SATA3 client SSD controller sales we are expecting $1 million to $2 million in sales in the second quarter.

based on our fairly limited visibility regarding our module maker SSD customers expected sales, we believe these sales could generate $10 million to $15 million in sales this year.

Previously our full-year guidance did not include the SATA3 SSD controller revenue contribution.

Our card controller sales were stable in the first quarter and we expect sales to be fairly flat going into the second quarter.

Our UFD controller sales declined in the first quarter due to a product part transition, but should rebound in the second quarter as we roll out a new controller.

In the second half of this year we believe that was the SSD market growing rapidly, NAND flash demand will likely face industry supply shortage and our card and UFD business could be negatively affected.

We will believe the scale of our potential second half card plus UFD decline could be comparable to our $10 million to $15 million of incremental SSD revenue.

For our LTE transceiver sales, as Wallace had mentioned, we are on track to $12 million of sales this year with up to $1 million of sales in the second quarter.

For the second quarter and full-year we expect our gross margin to be in the 48% to 50% range.

While we expect a larger proportion of our sales to come from SSD, eMMC and LTE, products with above corporate average gross margins, a significant portion of our sales are still coming from removable storage controllers and mobile TV SOCs, products with lower gross margins.

We expect second-quarter operating expense of $18 million to $20 million and full-year operating expense of $74 million to $79 million.

Expenses will be higher in the second quarter due to higher R&D project tape-out expenses and compensation expenses.

Our full-year operating expense this year will be significantly higher than last year primarily because of three reasons -- we are building up our engineering headcount to support our growing SSD plus embedded business programs and are planning to increase our headcount by up to 10% this year because we currently do not have sufficient engineering resources to meet the needs of all our customers proposed projects.

We are currently turning away business.

Last year, due to weak business performance, we did not incur any cash bonus expenses.

This year our business has been improving and we have been meeting performance targets and so have restarted accruing for cash bonuses.

R&D tape-out expenses are going to be about 50% higher this year as most of our tape-outs are for extensive 55 nanometer or more advanced designs.

Stock-based compensation and the second quarter should be $0.5 million to $1 million and for the full year $8 million to $10 million.

Our model tax rate remains at 18%.

Let me note that our actual effective tax rate, however, may vary considerably from this model rate and may vary considerably from one period to another due to temporary operating losses at some of our legal entities, temporary foreign-exchange gain or loss positions that arise from local currency tax accounting, certain one of items such as those related to deferred tax assets and permanent differences between our US GAAP reporting and our legal entity local tax accounting.

We will now open the call for your questions.

(Operator Instructions).

Anthony Stoss, Craig-Hallum.

Can you provide a little bit more clarity, Riyadh, in terms of your full-year 2014 rev guide?

I guess my question is, prior to today your SSD potential revenue was not included in the guide.

Did I hear you correctly given your expected shortage on NAND and weakness on the -- potential weakness on the card side you are now including that $10 million to $15 million in your full-year revenue guidance?

That is correct.

We are -- first of all, we are maintaining our full-year guidance for 2014, even though we believe we can achieve the $10 million to $15 million in incremental SATA3 SSD revenue this year, we are expecting a similar dollar downside relating to our card and UFD controllers in the second half.

Assuming if NAND flash supply goes into shortage.

That is why we are not taking off for the full year guidance.

Let me also say that we have a growing pipeline of SSD+embedded design wins which should convert into a growing revenue momentum.

We believe that momentum should pick up in the second half and carry over to next year.

But based on our current portfolio of products and customers we believe that we are well placed for multiple years of solid growth.

Okay, and then your expected OpEx increased, did I hear you correctly that you are turning away business?

So you are right now building up your infrastructure to take on additional customers, is that the correct way of thinking about OpEx going forward?

That is correct.

We are reverting to a more normalized level; we have increasing headcount that we need to put in place in order to build -- to take on the projects that we are currently turning away.

So we certainly need more engineering resources to take on more projects to carry us for the foreseeable future.

Another element is last year we did not incur any bonus expenses in our P&L because of the weaker than expected business performance.

This year our business is improving and we are beginning to meet our performance milestones and so we are also beginning to accrue for bonus payments.

And so for these two reasons our OpEx is going to be higher.

And then on top of that our project expenses are also going to be about 15% on higher due to a lot of 15 nanometer tape outs.

Okay and then my last more housekeeping question on your tax rate for Q1 effectively about 40%.

Can you give us a little bit more clarity, I know it was non-cash, but just curious what impacted it in the quarter?

Thanks.

Sure, that is a very good question.

Our primary operating companies are in Taiwan and Korea.

In Q1 our consolidated tax expenses were effectively our Taiwan tax expense and our Taiwan only reported effective tax rate was only 17%, Korea made a loss.

Let me add a little more color.

Our Q1 effective tax rate was however much higher than our Taiwan only tax rate of 17% and our -- and also higher than our model tax rate for very complicated reasons, mainly related to higher tax expenses that arise from higher taxable income under Taiwan tax accounting versus lower income recognized under US GAAP.

Taiwan tax accounting income was much higher because of temporary balance sheet related foreign-exchange gain.

This gain and results in tax expenses are temporary and will unwind when the NT to US dollar exchange rate moves in a different direction.

Furthermore, in Q1 Korea made a loss, which depressed our overall operating profit with no tax benefits.

Great, thank you.

Suji De Silva, Topeka.

A couple of questions on the growth opportunities here.

First of all for the TLC partner that is ramping up.

Should I understand those are Tier 2 to 3 cell phone OEMs or are there opportunities there in the Tier 1 as well for smart phones?

I think our design win with our NAND flash partners initially were doing the phase one with Tier 2, Tier 3 for tablet smartphone, phase two we are moving to an MTK base smartphone, phase three moving to (inaudible) based smartphones and tablets.

So there is the different phases.

But it will all happen within one quarter.

Okay, great.

And then in your press release I saw you talk about the LTE transceiver working on securing additional wins.

Can you clarify what that means?

I know you have a significant partner there; are there multiple SKUs of that partner that you're trying to win designs at?

Thanks.

I think we -- in March we announced we secured software design wins early this year and be working with (inaudible) on the model.

We believe Samsung will continually consider internal solutions versus third-party solution.

But we believe at the moment we have a high confidence to win additional model for the LTE [Samsung] smartphone.

Okay, I am clear now.

So additional models at Samsung versus additional transceiver ones.

Great.

And then the third one is what is the TAM you think for the SSD that you are targeting here and what are the ASPs for the SSD units versus the (inaudible) to understand the differential and pricing?

Thanks.

The (inaudible) we are addressing is pretty much the PC industry as a whole.

Based on the increasing affordability of SSDs, especially with NAND flash prices now down to roughly $0.50 per gigabyte, NAND flash is increasingly cheap, SSDs are increasingly affordable.

And so we're seeing an acceleration of adoption by PC OEMs that use SSDs.

And so, this (inaudible) for us a large and growing market opportunity.

Now in terms of ASPs, we are looking at roughly $5 to $10 in terms of an ASP range.

Great.

Thanks, guys.

Mike Crawford, B. Riley & Company.

Could you please talk directionally about ASPs across the various lines of business, how they have moved maybe sequentially and/or year over year?

I'm sorry, could you please repeat again?

Yes.

For mobile storage, mobile com, SSDs, if you can, transceivers even -- can you talk about the ASP, the unit pricing, how that has changed sequentially and year over year?

Sure, sure.

Our mobile storage blended ASPs should blend up over time as our revenue mix includes more higher ASP products like eMMC and SSD controllers.

But let me also add on an apples-to-apples basis, the ASPs of our products have been fairly stable because of increasing span of the technological bridge that our controllers provide.

Wallace may have talked about earlier that a big part of our job in designing our controllers are about meeting the increasingly sophisticated needs of bridging the gap between OEMs expecting better and faster device performance but at the same time OEMs seeking cheaper next-generation flash components are getting weaker and weaker.

And the bridge that we are providing is the bridge -- the performance versus the cost.

And so as such we are seeing fairly stable ASPs for all our products on an apples-to-apples basis; even on the eMMCs we are seeing stable ASPs for our eMMC controllers as we now have a broader portfolio of controllers that include eMMC 4.41, 4.5 and now 5.0.

But generally from a modeling perspective we use flat ASPs as a trend as we have been able to successfully overlay higher ASP products against decreasing ASPs of our older generation products, which results in a flattish ASP trend.

Okay, thank you, Riyadh.

And is it accurate to state still that embedded ASPs are about 2X the attach storage ASP's controllers?

Roughly, roughly.

(Inaudible) is a much higher, especially when we moved to PCIe I think there will be about $10 ASP.

But we have delayed -- but it is ASP embedded controller is much more stable than removable [Star] controller.

And for your industrial SSDs, the Ferri branded products, are those growing at a low-single-digit rate or something else?

I think we believe FerriSSD will also grow.

I think second half we will update the policy needed to our shareholders.

Okay, thank you.

Tom Sepenzis, Northland Capital Management.

I was wondering if you could give us a little bit more clarity on the timing of the potential additional LTE platform wins, is that something that would happen this year or is that a 2015 event?

Yes, we believe Samsung this year they really have multiple models and even for example Galaxy is (inaudible) 20 different models selling to different regions.

They have different strategy for different purpose and also have many derivatives.

We believe we have opportunity to win in certain region (inaudible) with others.

And also Samsung bring new [applicating] processor and there baseband, we think we have a high opportunity.

We are in the final phase of qualification in bringing the new chip to meet the Samsung mobile requirement.

I cannot comment about the (inaudible) thing, but when we have secure designs we will update (inaudible) mention to all of the audience.

Okay, thank you.

And then the 47% sequential increase in the mobile communications product, is that mainly transceivers?

And if so is that LTE transceivers or was there a rebound in CDMA?

In the last two quarters we have had no LTE revenue since most of our mobile communication sales in the two most recent quarters have been from mobile (inaudible).

Our mobile communications sales dipped sharply in Q4 due to sales seasonality and in Q1 sales rebounded to normalized levels led by Korea, DTMB and Japan ISC BT mobile TBS OC sales.

So let me just reiterate we had no LTE sales and Q4 and Q1 impacting our mobile communication sales.

Great, thank you very much.

(Operator Instructions).

Rajvindra Gill, Needham & Company.

A question on the overall kind of NAND supply environment as we go into the second and third quarter.

If you can kind of update us there in terms of what you see in terms of supply and demand?

I see similar thing of their ability of flash supply today in the first quarter.

I think that is a trend to continue to the second quarter as well.

But beyond the first half our variability will depend on a number of factors especially demand relating to smartphone, tablets, SSD, this our primary application use NAND flash.

Another factor is related to NAND industry capacity especially for our 3D NAND.

I have seen currently the Samsung 3D NAND and have all the (inaudible) sourcing information and so that could be a floating factor impact of the supply.

And if you could just maybe talk about broadly -- more broadly about what do you think your strategy is long-term for the LTE transceiver business?

And what do think Samsung is doing with its own development of this LTE baseband?

Is this something that you see that Samsung can diversify away from QUALCOMM over time?

If you could just provide any insight in terms of how you look at that business longer-term.

We do believe Samsung's commitment to their own platform has change.

We believe that (inaudible) Samsung long-term strategy the units are more (inaudible) and with their own solution.

However, I think Samsung always tried to balance their solution in all different region.

And to serve the best need.

So they may now only use one third-party like on QUALCOMM they might use two or three to balance their positioning and negotiated pricing.

But at the same time Samsung has a strong ambition to grow their intended solution including the baseband and applicating processor.

And we are part of the internal solution although they also have some internal design for their transceiver.

But we believe we have a better position and better technology to match Samsung mobile's requirements of that.

So I think we have been successful in meeting all the requirements.

And so, as long as we continue to meet these requirements we do not believe we will see any significant competitive (inaudible) enter this market (inaudible).

Thank you very much.

Monika Garg, Pacific Crest Securities.

I have (technical difficulty) could you maybe discuss your SSD controller solution?

Is it mainly for pure SSD or hybrid SSD?

And when are you seeing the more demand?

So let me add more color about our SSD positioning.

Our SATA3 SSD today primarily focuses on client SSD, but we also could be used for [cache] SSD as well as embedding industrial SSD with industrial grade.

By primarily selling volume we're pushing to support the PC OEM as well as module maker and engage with the NAND makers.

However, at the same time, without additional DRAM our (inaudible) developed for embedded solution as well as cache SSD to meet the customer need.

So we have a much more diversified approach to enlarge our market share expansion.

And then for the ASP (inaudible) the cache SSD will be about $5 range and the [FerriSSD] for bigger NAND density would be about $10 or is it dependent upon the interface (multiple speakers)?

Let me comment for that.

Our (inaudible) SSD at the price range of about $5 to $9 to $10 range.

Our cache SD, because the density is lower, so depending on the customers, so we will offer around $3.50 to $4.50 range.

For industrial it depends whether they need a security or not, the price range is a very wide range and could be from $5 to also $8 or $9 range, it depends whether they need (inaudible) 2.0.

So we add $2 more for security enabling.

Fine, on the same -- on the SSD front are you talking to the NAND vendors to be -- maybe to supply controllers for, the enterprise line of application which they are trying to target, on either the enterprise SATA SSD, much bigger density in terabytes of course?

Are you working with (multiple speakers)?

Enterprise segment is not our main focus at the moment.

To enter enterprise you need to deliver total solution in order to grow your revenue into profit.

So selling controller only is not as good a model.

However, to say that, we do -- we will offer a very compelling PCIe by end of this year solution, that PCIe [gen 2x4] and [gen 3x2] solution and resolve the security and LDPC error correction and the raid, we are able to cover nine pages simultaneously for multi block.

And we are working with one NAND vendor closely.

And we plan to bring the solution to the market before end of 2015.

And I have a question on the 3D NAND side.

You discussed in the call that Samsung expecting to have NAND availability is really dependent upon what NAND vendors (inaudible) NAND.

Now the question is, the second half of this year or next year the new NAND capacity with the industry like you see is for 3D NAND.

And at least currently it seems like given the very high-end (inaudible) of 3D NAND and high cost of production that it is only viable for enterprise line of applications.

So the question is, like this year you are seeing NAND kind of -- NAND tightness for your card and UFD drivers (inaudible).

Is it also possible that next year you might be in a similar situation?

I cannot comment individual NAND makers strategy (inaudible) 3D NAND.

However, I think the 3D NAND currently at this moment the yield issue is being proved, the cost expense because of 24 stack.

But when you move to a 36 stack it will be cost competitive.

And I think every NAND maker has different strategies, some will have development in another generation of floating gate, some going to transition to 3D NAND.

But the impact will be if 3D NAND moved to high-volume for their own SSD solution or eMMC there will be more floating gate NAND and come to the market.

So then they will be -- potentially have excess supply to the market.

So that is what we talk about.

I think that you probably won't see a lot of 3D NAND come to the market.

But because that is (inaudible) internal demand there is another (inaudible) output will come into the markets.

So that could changing the market situation for NAND supply.

That is all for me.

Thank you.

Thank you for your question.

There are no further questions at this time.

I would now like to hand the conference back to Mr. Jason Tsai.

Please continue.

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 May we will be presenting at the Jefferies & Company 2014 [PMC] conference in Miami.

B. Riley Annual Investor Conference in Santa Monica.

(inaudible) Institutional Investor Conference in Minneapolis.

In June we will be presenting at the UBS Investor Conference in Taiwan.

Details of this event are available on our website.

Thank you and goodbye for now.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for your participation.

You may all disconnect.