慧榮科技 (SIMO) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter Silicon Motion Technology Corp Q4, 2014 earnings conference call.

(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 the 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 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 multi-media consumer electronics; the state of any change of 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.

Good morning, everyone.

Welcome to Silicon Motion's fourth 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 the review of some of recent business developments.

Riyadh will then discuss our fourth 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 6K after the close of the 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.

A 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 will turn the call over to Wallace.

Thank you, Jason.

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

I am delighted to be speaking with you today.

2014 was an outstanding year for Silicon Motion and we achieved record revenue and profitability.

Our strong performance was driven primarily by continuing strength of our embedded storage products, with eMMC sales growing over [50%] this year.

And this is [the tracking] as a rating with new OEM SSD pipeline wins.

While our fourth quarter was seasonally soft, as expected, revenue nevertheless increased 53% year over year and EPS increased 58% year over year.

Riyadh will discuss our financials in greater detail later in the call.

Several years ago, I had discussed with you that solid state storage would be both creating new storage solutions for new classes of devices as well as taking over storage currently provided by mechanical [magazine] solutions such as HDD.

Over the last few years, we have been seeing a proliferation of NAND-size-based storage solutions from eMMC and SSD going into these devices, from consumer-oriented smartphone, tablet and PC to SSD and embedded memory industrial, commercial, communication and enterprise applications.

For Silicon Motion, we have been building beachheads and scaling one product silo after another.

Our eMMC and SSD controllers are now in most of these applications.

By the second half of this year, we are also going to start supplying SSD controller for enterprise applications.

Last year, our overall embedded storage products already account for over half our total corporate sales.

In the [future] period, sales growth of this embedded product will continue to drive Silicon Motion's growth for the foreseeable future.

We started shipping client SSD controller about a year ago, and in our first year sold about [$15m] of SATA 3 client controllers, primarily to module makers for retail channel business.

Last year we also laid the groundwork to SSD growth in 2015 and 2016 by securing SSD platform wins with OEMs for SSD design for retail channel, PC OEMs, hyperscale data centers and enterprise applications.

We believe we are well positioned to scale our client SSD sales three to four times this year.

In the first quarter to date, our client SSD controller has already achieved a number of important milestones.

Micron and another NAND flash vendor announced that they will start shipping SSD with our controllers.

Our storage OEM partner has already started shipping SSD with our controller to three global tier-one PC OEMs.

Our turnkey TLC SATA 3 client SSD controller is the world's first merchant solution which began commercial assembly in August last year, began initial commercial sales to a module maker's customers, the first of many module maker expected in the first quarter.

Additionally, we secured a SSD platform win at another NAND flash OEM which brings the total number of NAND flash partners that will enter production in 2015 with our client SSD controllers to four.

Our NAND flash partners are initially using our SATA 3 client SSD controller for retail channel products such as Micron's crucial VX100 SSD.

Our upcoming pipeline of the SSD project with NAND flash OEMs that will ship this year include SSD designed specifically for PC OEMs and enterprise-grade SSD designed specifically for hyperscale data centers.

Many of the upcoming data centers SD projects relate to the use of our unique controller for managing TLC NAND flash to deliver low latency and high endurance at efficient -- effective cost.

Separately, we have already started work with several NAND flash vendors for their SSD solutions that will use TLC 3D NAND and will be introduced to the market early next year.

We believe our TLC client SSD solution, whether for planar NAND flash or upcoming 3D NAND, target important trends relating to increasing SSD adoption and in creating new usage models.

NAND flash maker are aggressively working to drive down dollar per bit to closer to parity of the hard disk drive.

For example, by using TLC NAND flash, vendor can develop 256 gigabytes SSD at target $60 or lower price point.

Using SSD is especially compelling when attractive economic support the other benefit of SSD such as faster speed, lower power consumption, smaller form factor and higher reliability.

This year PC OEMs are expected to increase their adoption of SSD for Wintel Notebook PC from current low sub-20 rate to higher rate.

For [enterprise application], recent third party industry survey suggests that about 40% of the small to large corporates in US and Europe are already using SSD in their storage and server infrastructure and usage will increase.

The use of planar in the TLC 3D NAND flash components by SSD OEM will be important for broader and deeper market adoption because of TLC's significant cost advantage.

The use of TLC however comes with tradeoffs, including reliability, retention, endurance and speed.

Well-designed sophisticated hardware plus software controller solution, tuned for OEM SSD application, like the ones developed by Silicon Motion, are critical for market success.

Our innovative TLC client SSD controller are the only merchant solutions available in the market; our solution, combined with hardware and firmware, which in our opinion is significantly, in order of magnitude, more complicated and harder to develop and implement well than hardware alone.

While our proprietary hardware silicon is unique, our firmware is specifically for NAND flash management algorithms, is a critical differentiator of our controller solution.

Our firmware hardware enable OEMs to rapidly bring effective SSD solutions to market and provide the basis for OEM customization and market differentiation.

By owning our firmware and qualifying at our OEM customers, we also know in advance these end-customer requirements, and by designing towards this requirement, we are de facto pre-qualified for upcoming product cycles.

We believe these are important Silicon Motion's competitive advantage over current SSD controller merchant leaders.

Our strategy to win long term with NAND OEM is to provide an SSD controller road map that matches with their own SSD and NAND road maps.

Our cost-effective, high-performance, low-power SSD controller offers flexible platform to supplement their own capability, to fill in the gaps that allow them to offer broader portfolio of solutions, bringing them value to mainstream to high end.

Our controller is supporting multiple generation of NAND and offer multiple configuration that allow our OEM partner to work with the same platform across a broader range of products for multiple generation of NAND.

We are able to secure multiple project wins with one controller, address multiple SSD end markets with our family of controller and with a multi-year engagement that maximizes the NAND OEMs' R&D and qualification process investment.

While our client SSD controller growth is important for our Company's future growth, we expect our eMMC controller, our largest product, to continue growing solidly and with increasing market share.

Our eMMC controller sales grew well over 50% in 2014 to account for about 40% of total corporate sales.

We believe we are the only meaningful merchant supplier of eMMC controllers and our market share is at least 25%.

We remain very well positioned and continue to believe that we should be able to grow our eMMC sales in 2015, at least in line with the market growth.

Most industry analysts are forecasting [non-iOS] smartphone and tablet to grow 15% to 20% this year.

SK Hynix was the vast majority of our eMMC sales.

Our high-performance, very reliable, cost-effective eMMC controller have helped Hynix rapidly scale its eMMC memory business over the last three years.

In 2012, our eMMC market share was only 5% to 10%.

In 2013 it grew to 15% to 20%; last year to over 25%.

And we believe that, over time, we should be able to grow our market share to 40%.

We have successfully transitioned our eMMC controller solution from one generation after another, on eMMC 4.41 to 4.5 to 5.0 and have just begun sampling our eMMC 5.1.

We expect to begin sampling our UFS2 in the second half of this year in terms of broader smartphone OEM product launch in 2015 using UFS 2.

We have also been introducing unique technology, such as our industry-leading 4K firmware algorithm which overcomes embedded memory performance degradation to enable sustained, high performance throughout the device's lifecycle, a critical requirement for handset OEM and allow our flash maker customer to offer differentiated, high-performance eMMC solutions.

Separately we believe we will see greater use of TLC NAND flash eMMC this year, given TLC cost advantage and the diminished reputational risk following endorsement from Apple with TLC, building certain higher capacity iPhone models.

TLC eMMC were less than 5% of our eMMC sales last year.

And we expect TLC to increase to 5% to 10% of our eMMC sales in 2015.

Overall, we are very pleased with the progress we have made with our eMMC business.

Our partnership with SK Hynix has never been stronger and our pipeline of new eMMC projects continues smoothly.

To deepen and broaden our SK Hynix partnership, we recently brought over to Silicon Motion Mr. Gihyun Bae who was previously SK Hynix's Senior VP in charge of their eMMC and SSD solution development and who was part of a team that has established SK Hynix's NAND flash business 15 years ago.

Let me now turn to our LTE transceivers.

In the second half last year, our LTE transceiver production entered production with a number of Samsung flagships, including Galaxy Note 4, Note 4 Edge and Galaxy Alpha.

Some of our LTE programs will continue into 2015 and we are working to secure additional wins for 2015.

As many of you know, we have very limited LTE design win and sale visibility.

And so, until we have confirmation that suggests otherwise, we continue to believe our 2015 LTE sales should be similar to last year's $12m.

Overall 2014 was an outstanding year for Silicon Motion and set the stage of our continued growth in 2015, driven by our ramping client SSD and solid eMMC sales.

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

Thank you, Wallace.

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

And then I'll provide our first quarter and full-year 2015 guidance.

In the fourth quarter revenue decreased 7% sequentially, as expected, to $80.5m.

Our controller sales decreased 9% sequentially and accounted for 81% of our total revenue.

Within our controller sales, our embedded storage products, our eMMC and SSD controllers, declined by 15% sequentially due to the expected seasonal decline in our eMMC business.

Sales of our removable storage products, our card and USB flash drive controllers, were flat sequentially, as strong high-end, UHS card controller sales were offset by China's low-cost card weakness.

Our specialty RFIC sales increased 5% sequentially, and accounted for 16% of our fourth quarter revenue.

Our corporate gross margin decreased slightly to 52.5% in the fourth quarter from 52.9% in the prior quarter due to lower revenue contribution from our higher gross margin eMMC controllers.

In the fourth quarter, our operating expenses decreased to $21.4m as compared to $22.1m in the third quarter.

We ended the fourth quarter with 824 employees, 41 more than at the end of the previous quarter.

Due to lower revenue and gross margins, our operating margin decreased to 25.9% in the fourth quarter from 27.3% in the third quarter.

We achieved quarterly net income of $16.6m and earnings per ADS of $0.48.

Stock-based compensation in the fourth quarter was $4.2m, similar to the $4.3m in the third quarter.

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

Inventory days increased to 118 days in the fourth quarter from 112 days in the third quarter.

DSO decreased to 37 days in the fourth quarter as compared to the 42 days in the third quarter.

Payable days decreased to 44 days in the fourth quarter from 57 days in the third quarter.

Our cash, cash equivalent and short-term investment increased to $194.9m in the fourth quarter as compared to $165.2m in the third quarter.

Primary sources of cash in the fourth quarter came from $16.6m in net earnings, $18.1m released from working capital.

Primary uses of cash in the fourth quarter were routine purchases of software and design tools, consumed $1.9m.

Dividend payments consumed $5.1m.

I will now turn to our guidance.

For the first quarter we are expecting our revenue to decrease 5% to zero percent sequentially.

We expect our first quarter eMMC sales to be relatively flat sequentially.

Our SSD controller sales are expected to grow sequentially.

Removable storage controllers are expected to decline sequentially.

Gross margin in the first quarter is expected to be 50% to 52%.

Operating expenses in the first quarter is expected to be $22m to $23m.

Stock-based compensation in the first quarter is expected to be $1m to $2m.

For the full year 2015 we are expecting revenue to increase 15% to 25% as compared to 2014.

We expect our eMMC controller sales to grow 15% to 20%, in line with market growth.

Our SSD controller sales are expected to grow 3 to 4 times to $45m to $60m.

Removable controllers are expected to be flat to down 10%.

LTE transceiver sales are expected to be $12m, similar to 2014.

Full-year 2015 gross margin is expected to be 49.5% to 51.5%.

Full-year operating expenses are expected to be $91m to $97m.

Stock-based compensation for 2015 is expected to be $11m to $13m.

Our model tax rate remains at 18%.

We will now open the call for your questions.

Daniel Amir.

Thanks a lot.

Thank you for taking my call.

So, a couple of questions here.

First of all on the guidance, can you give a bit of better information on the margin outlook for 2015 given that the range that you provided is a bit lower than what you've posted in the past couple of quarters, and what goes into that?

And the second is related to the operating expenses.

That, as well, looks like there is a bump up here in 2015 compared to your recent run rate of low 20s as you guided $91m to $97m, and what factors go into that.

And then I have another follow up; thanks.

Daniel, for our 2015 full year gross margin, we're expecting 49.5% to 51.5%.

As [most] of our revenue comes from embedded storage products, we're seeing an uplift to our gross margins.

However our long-term target remains at 50%.

And we expect to manage our gross margins by adding in additional lower gross margin businesses to mix our overall corporate margins closer to our longer-term 50% target.

Our fourth quarter gross margin was slightly higher than expected due to product mix, even though more of our revenue did come from removable storage products.

But within this product loop, we also have higher versus lower gross margin products.

And in the fourth quarter we saw the mix skew towards higher end, higher margin retail card controllers which provided the overall uplift.

Longer term, we look at our business from a portfolio approach and from time to time we have the opportunity to mix down our gross margin slightly by being more aggressive in pursuing additional sales in the removable storage market, our card and USB Flash drive products which we have very strong market positions in and which we can more aggressively defend.

To your other question about operating expense, Daniel, we are expecting $91m to $97m for the full year.

This is -- we're going to be continuing to increase our operating expense by a certain amount.

We'll continue to manage our operating expense carefully and scale our resources in markets where we see significant growth for example, our SSDs.

And these are investments that will generate good ROI for our R&D.

Our goal is to continue to grow revenue at above market rates, but to increase our operating expenses at a more modest pace.

So we are -- while we are targeting 20% operating margin, we are not putting a -- 30% operating margin I'm sorry, we're not putting a timeframe on reaching this target.

Great.

Just a follow-up question on the SSD business.

So you now have a fourth partner here, a NAND partner to use SSD.

Can you -- what sort of visibility do you have in the client SSD business?

And also you mentioned that the enterprise SSD you're going to start shipping in Q4.

How big of an opportunity is that for SiMo in the enterprise, given that historically the Company is more focused on the consumer client side?

Thanks.

Hi, Daniel.

I think we have now secured a fourth Flash OEM for our SATA 3 client SSD controller as well as Flash OEM.

I think we have mentioned two of these Flash OEMs has already entered production in the beginning of the first quarter.

We are very happy with the progress we are making and look forward with the multiple projects, multiple design wins and pipeline.

And our expectation to grow this business 3 to 4 times is based upon the rollup of the forecast we have received from our customers.

And how quickly we can grow SSD revenue will be largely depending on how aggressively OEMs are pushing their product and how quickly PC OEM push PC SKU with SSD.

Regarding the enterprise application as we mentioned, all kinds of these solutions, the controller with tailored firmware with the enhancement, with the latency will be perfectly positioned for hyperscale application in datacenter.

As you know the hyperscale solution is a very low density, high endurance and very low cost.

So TLC-based SSD will be the ideal solution to serve this market and this is a very high growth market.

And we believe with our technology working with the NAND maker together, we can provide a very different solution to catch all the upcoming market.

And we, as of today we do not plan to enter the main storage for enterprise market because in that market we need to provide the solution.

Currently we don't have the infrastructure ready.

But when the market grows, we will make the proper decision to sustain our growth for the future growth.

Daniel, let me also add that the enterprise SSD market, while this is a very significant move for us into this space, in partnership with our NAND Flash partners, in the near term you should not expect this to be a significant revenue contributor to our business especially for this year, 2015.

Okay, thank you.

Jaeson Schmidt.

Hi guys.

Thanks for taking my question.

Just wondering if you could talk about your outlook on the supply and demand environment within the NAND Flash market and how you view your visibility within -- into that market.

We have seen Flash visibility improve in the second half 2014 and our module maker customers are taking advantage of the lower costs in Flash to build more cards and flash drives.

For 2015, we believe there could be some oversupply imbalance this year.

We are seeing a bit of the oversupply now with the seasonal weakness in smartphone and tablets.

We could see this continue throughout the year depending on the availability and adoption of the 3D NAND later this year.

Okay.

And then do you still expect your PCIe SSD controller to launch in the second half of this year?

And I'm wondering if you could talk about your expectations for revenue contribution this year.

I think for -- we believe PCIe will enter the market by second half of 2015.

However, the percentage will be very small.

We believe PCIe will come to bigger scale in 2016.

But even then we believe the market percentage will be around 15% to 20%.

But moving forward, I think PCIe will become a bigger business for our Company and regarding industry.

We're working with three of the NAND makers together we believe will deliver TLC based 3D NAND solutions beginning of 2016 to the market.

Let me also add our PCIe SSD controllers while it's going to start going into the market for 2015, you should not expect it to be a significant revenue contributor.

It will be a more important source of revenue contribution for next year.

Okay.

Thanks, guys.

Anthony Stoss.

Hi, guys.

I had a couple of questions.

First off, congrats on adding the fourth NAND Flash maker to the roster.

Given your guide for the full year, does that contemplate existing design wins which you have in hand right now?

I guess, moreover would additional wins be accretive to that revenue guide for the full year?

Secondly, Riyadh, if you wouldn't mind talking about your position or exposure on the China smartphone market and how you think you guys are exposed and how you think you'll benefit.

And then the last question is you're talking about taking share in quite a few or most of your businesses.

Do you have to use price or is it purely on the performance of your products?

Thanks.

To your first question about the number of design wins, platform wins that we have with Flash OEMs, and OEMs for our SSD programs, we're sticking to our 3 to 4 times increase in our SSD revenue to the $45m to the $60m for the full year.

Our outlook takes into consideration a number of variables including the visibility of our customers' businesses and how quickly some of these relationships and sell-through to their customers will ramp.

If any of these variables, these factors vary significantly from what we've been discussing with our customers, we could see some variations to our guidance.

But there are puts and calls, and overall on a blended basis, we feel fairly comfortable that we're going to be able to get to the 3 to 4 X increase for our SSD revenue this year.

And let me add a significant portion of our embedded eMMC controller business is targeting the Chinese smartphone and tablet OEM for their domestic and export market.

China OEMs are the primary suppliers for smartphone and tablets for emerging markets such as India and South East Asia and Latin America.

Although China domestic sales has decelerated, but we believe the export market still remains very robust.

And the taking share question, Riyadh, price or is it performance related?

I'm sorry.

Could you repeat your question again?

You've mentioned on the call several times about taking share in your various businesses.

Do you have to use price?

And is that kind of the thought basis on your gross margin guide being down from where you're currently at or is it purely performance is why you're winning and taking share?

For removable storage product, I think the price is very competitive.

So in order to gaining more market -- [available] market share, I think maybe we'll have to sacrifice some margin in order to gain more share.

For the embedded storage product, our margin looks very solid and we will grow with our OEM and NAND makers growth for SSD products.

So it's the product mix.

So we believe when NAND is more [available] we'll try to take more share for removable storage and we'll maybe sacrifice a little bit about the gross margin.

Okay.

Thank you, guys.

Mike Burton.

Hi guys.

Thanks for letting me ask the questions and congrats on that fourth OEM as well.

On the transceivers, we saw a nice sequential increase in mobile communications this quarter in a typically weak quarter.

Did you say that transceivers ended this year at approximately $12m [and the] the guidance for that business to be down in 2015 and how do you expect that business to trend in Q1?

I believe that first of all our LTE guidance with the full year $12m is based on the program we already win.

And we are secured program.

We'll continue trying to win 2015 models but before we secure the program, I think we'll stay with $12m with Samsung.

In addition we also will try to grow non-Samsung related business in the second half, but that will be probably not significant at this moment.

Okay.

And then on eMMC did you mention that you're already shipping to your second NAND Flash OEM?

If not, can you give us an update on the timing of that ramp and/or how do you expect seasonality of the eMMC business overall to look for this year?

Thanks.

I think the -- overall I think we're seeing more interest in using TLC eMMC from handset OEM.

As we mentioned, our -- the other NAND OEM business primarily focused TLC based eMMC.

But we have seen Apple recently adopt TLC Flash for their flagship devices and this has created additional interest by other smartphone makers.

So we expect to grow our TLC eMMC business this year from less than 5% last year to probably 5% to 10% or more.

The OEM began shipping in the first quarter 2014.

Thanks again.

Suji De Silva.

Hi, guys.

Nice job on the quarter -- on the year, a strong performance there.

In terms of SSDs, can you talk about whether the gross margin today is accretive to the business and whether as you scale that business if the gross margin improves there further?

Yes, our gross margin for SSD products are above corporate average just as our other new growth product gross margins are above.

But on a blended basis we manage our business on a portfolio approach, so by having more higher gross margin products, it also means that we can be aggressive in defending our businesses, our older businesses, the removable storage controller businesses that have lower gross margins.

We can be more aggressive in defending our market share in those products.

Okay, great.

And then for the 2015 guidance there, should we expect that that's -- for SSDs it's a sequentially -- sequential growth each of the quarters, or is there a back half load to that guidance, Riyadh?

It should be fairly consistent growth quarter after quarter.

Great.

And my last question on SSDs, can you talk about the competitive landscape there in terms of what your market share is and what it might be exiting 2015 and what competitors are doing versus you guys in that market?

I think we are very confident in our products and the increasing pipeline of design wins in OEM customers.

And it's very competitive, our SSD solution.

In light of the acquisition of SandForce, we're seeing a tailwind for our business, as OEMs look for alternative long-term controller supplier.

Our unique combination of performance and cost has opened up many opportunities for our controllers.

We are actively working with a number of new customers for current and future generation products and we're excited about the opportunities we see in the market today.

We offer fab-to-market capability and what NAND Flash OEM can do internally or any of our merchant competitor.

With the rapidly evolving NAND Flash market, the timely implementation of a new and more cost effective Flash is a competitive advantage that is critical to the long-term growth of SSD.

We believe our technology is very unique and our technology especially for TLC NAND and 3D TLC NAND is very, very unique.

And we believe this will make us a very [substantial] in the competitive landscape.

That's why it makes us very different, attractive to the NAND OEM customer.

Okay.

Thank you for the color.

Mike Crawford.

Yes, Mike Crawford at B. Riley & Company.

Within eMMC I think you're shipping mostly the eMMC 4.5 controllers today, with probably 5.0 overtaking at some point during the year and 5.1 ramping later in the year.

Is -- are we at the point yet where margins are starting -- have peaked on the 4.5 controller side?

(multiple speakers).

Let me just rephrase this.

In the last year, 70% of our shipments about 4.5 and 30%, less than 30% is 5.0.

In this year we do see the 5.0 will continue to grow probably to 40% or 50%.

We also see 5.1 going to flagship model of several OEM customers.

But in addition for that, the legacy controller, the gross margin is going to decline.

However, we also develop a new cost effective 5.1 controller tailored for TLC and low density eMMC product.

This is going to help us balance our eMMC controller gross margin for the long term.

Mike, for this year you should expect our eMMC gross margins to be fairly stable throughout the year.

As you know, our eMMC gross margins are at above corporate average and will stay that way for this year.

Thank you.

And then as you come to market with a UFS part, I think would that -- are you going to skip UFS 1.1 and just go straight to UFS 2.0 that's a little bit faster or what's the plan there?

We're going straight to UFS 2.1.

2.1?

Yes.

Okay.

Thank you.

And then last question, if you could comment some more on your new SVP.

I believe perhaps only the second SVP you have in your Company.

Why he chose to leave Hynix to work with you at a time when the two companies' relationship has never been stronger.

Thank you.

Yes, I think we are very happy to have Mr. Bae joining our Company.

He has a very great experience and knowledge, very deep knowledge in the NAND industry, well-known person in Korea.

I think with his joining, we'll tighten our relationship with Hynix and also expand our business with all the other OEM customers.

Okay, thank you.

Tom Sepenzis.

Yes, good morning and congratulations on the nice results and the great year.

I'm just wondering if you can talk a little bit about your USB and card outlook for the full year in 2015.

Has it bottomed out here and going to be flat for the year?

How should we be looking at that?

Our removable storage controller business should be flat to down about 10% for the full year.

It looks like it's stabilized, but as you know these products are fairly mature.

Great, thank you.

And then on the last call you mentioned that there were other potential customers for the LTE (technical difficulty) business.

I'm just wondering if you can provide us with any color on how those negotiations are going and when we might expect some wins there or further news?

So I think the LTE market is very big.

We're also starting to engage non-Samsung OEM customers.

But the initial engagement is very small.

Until we have more meaningful design wins and sales revenue, we're going to report to the investors.

Great.

Thank you very much.

You should expect this to be insignificant.

We'll keep you posted if there are further developments.

Thanks, Riyadh.

Rajvindra Gill.

Hi, this is Josh Buchalter in for RG.

Congrats on a good year and thanks for taking my questions.

Most of them have been answered, but I was wondering if you could add more color on where some of the OpEx investments are going to be taking place.

That'd be helpful thanks.

On our operating expenses, I think the investments will be largely related to our SSD programs.

As you've heard from our call today, we have a lot of OEM programs.

We have four NAND Flash engagements.

We also have an engagement with a third OEM.

And all these programs require a lot of R&D resources.

And so our investments and our operating expenses are primarily related to headcount in support of these OEM programs.

To be more precise, 30% of the increased operating expense is really because of technology node transition from 55-nanometer to 40-nanometer and 28-nanometer.

So [the mask] cost is very expensive compared with the 2014 55-nanometer.

So we have probably more than 70% tapeout use 40-nanometer from TSMC.

Okay, thank you.

That's helpful.

And lastly, any kind of LTE traction at a bigger customer.

Should we think of that similar to how you just answered that previous question and look out for announcements when the time comes?

I guess just anything on timing would be helpful.

Thank you.

If the question is relating to LTE, we'll keep you posted.

We're at the early stages of engagement and if there's anything material we'll keep everyone posted on our developments on that front.

Okay, thank you.

(Operator Instructions).

As there are no further questions at this time, I would like to hand the call to Mr. Wallace Kou for closing remarks.

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

We'll be at the following conferences this quarter.

In February, we'll be presenting at Susquehanna Semi, Storage and Technology Summit in New York.

In March, we'll be presenting at Morgan Stanley Investor Conference in Hong Kong, Merrill Lynch conference in Taipei, Northland Capital Market Growth in New York.

Details of these events are available on our website.

Thank you and goodbye for now.

Thank you, sir.

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

Thank you for participating.

You may all disconnect.