慧榮科技 (SIMO) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter Silicon Motion Technology Corp Q2 2015 earnings conference call.

(Operator Instructions) I must advise you that this conference is being recorded today.

Before we begin today's conference I have 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 limitation statements regarding trends in the semiconductor industry and our future results of operations, financial condition and business prospects.

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

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

Potential risks and uncertainties include but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressure on prices; unpredictable changes in technology and consumer demand for multimedia consumer electronics; the state of and any change in our relationship with our major customers; and changes in the 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, Valerie, and good morning, everyone.

Welcome to Silicon Motion's second-quarter 2015 financial results conference call 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 second quarter financial results and provide our outlook.

We will 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 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 will turn the call over to Wallace.

Thank you, Jason.

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

I'm pleased to announce another solid quarter for Silicon Motion, with revenue in the second quarter increasing by 8% sequentially to $87.2m, our highest quarterly revenue in our Company history.

Our revenue growth was led by client SSD controller sales, which grew by approximately 40% sequentially and is now 15% of our total sales, up from about 10% last quarter and more than what we sold all of last year.

We are excited about the success that we have been achieving in SSD, and believe we are well positioned for further growth from now through next year.

Our eMMC controller sales have been solid in growth.

Growth will pick up over the next two quarters, and on July 1, we closed our acquisition of Shannon Systems, China's leading enterprise-class PCIe SSD company.

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

Let me start by talking about our client SSD controller solutions.

Early last year we started shipping client SSD controllers, and all of our sales were to module makers for channel markets.

Earlier this year, in addition to expanding sales to module makers, we also started shipping our client SSD controller to two flash makers and a storage OEM.

And soon our OEM started shipping to global Tier 1 PC OEMs.

We expect our multiple program wins with our two flash partners to scale further as the year progresses.

And towards the end of the year, we expect to begin initial sales of our client SSD controller to two additional flash makers.

We believe that, based on our pipeline of design wins, by the end of this year, we will be the world's largest merchant supplier of client SSD controllers.

We currently have multiple client SSD platform wins at the four NAND flash vendors and have already started shipping to Micron and another US flash maker.

We have been shipping to Micron since early this year [our] controller for their very successful and highly rated Crucial BX100 SSD.

We have won numerous awards for value and performance.

More recently, we started shipping our unique DRAM-less SATA3 client SSD controller to our other NAND flash partner for their SSD targeting PC OEMs and embedded applications.

While most of our client SSD controllers sold are for MLC NAND flash, early this year we started initial sale of our client SSD controller for TLC NAND flash.

TLC NAND, as you may recall, is roughly 15% to 20% cheaper on a dollar per gigabyte basis than MLC NAND flash.

But it's much harder to manage effectively.

This quarter, we announced the availability of the world's first turnkey SATA3 SSD controller for managing Micron's new 16-nanometer TLC NAND flash.

In the third quarter, we will ship our TLC client SSD controller to at least six module maker customers and our flash partner.

And we believe our TLC client SSD controller sales could account for roughly 10% of total client SSD controller sales by the end of this year.

We are delighted that the SSD industry is increasing its use of TLC, as this will lead to increasing adoption of SSD, because of better affordability and play to our strengths as the industry's merchant controller technology leaders.

Secondly, we remain on track to introduce our PCIe client SSD controller later this year, and SSD controller for our NAND flash partners 3D NAND including TLC's 3D NAND, beginning in the first half of next year.

We believe we have been successful winning sockets at our NAND flash partners because we are able to deliver from our customers' need for higher performance, higher reliability solution cost-effectively, and are able to meet critical time-to-market targets.

NAND flash makers continue to bring newer, more competitive, but increasingly harder to manage NAND flash components to market every 9 to 12 months.

We offer our partner a unique combination of, first, industry-leading NAND flash management technologies; second, deep understanding of NAND flash necessary to identifying some issues; and third, highly customizable turnkey controller solutions.

Our flash partners have been taking advantage of our turnkey hardware plus firmware solution to develop eventually SSD solution quickly, so they can bring to market new SSD using their latest generation NAND flash components, concurrent with the launch of this new NAND component.

These are competitive advantages that we believe our competitors are lacking, and the reason why our flash partners are outsourcing to us.

We are also excited about the client SSD market, because SSD adoption by PC OEM is beginning to accelerate with increasingly availability of cost-effective SSD solutions.

For several years, SSD has been making inroads at high-end ultra-portable notebook PC, targeting the commercial market.

SSD are now increasingly designed to consumer model notebook PC, and OEM are also exploring using SSD in desktop PCs.

We believe a quarter of all notebook PCs shipping last year use SSD.

Right now, a third of all notebooks is likely already shipping with SSD.

And our NAND flash partners are targeting half of all notebooks to use SSD next year, as SSD cost is further reduced through the use of TLC NAND, 3D NAND and TLC 3D NAND.

We are already seeing SSD becoming increasingly affordable relative to HDD as 128 gigabytes SSD now sell for about $40.

And we expect to see 256 gigabytes SSD to reach a similar price point over the next 18 to 24 months.

Annually 600m HDDs are sold.

A significant proportion of the market could be replaced with SSD over the next few years.

We believe we are well positioned to support our flash partners in this replacement cycle.

In the start of this year, we were confident that based on our pipeline of SSD design win, we could increase our client SSD controller sales 3 to 4 times over last year's sales to $45m to $60m.

We are now tracking towards the high end of this range.

Based on our pipeline of design wins, we are confident we should be able to increase our client SSD controller sales by at least 30% next year.

Let me now turn to our eMMC controllers.

This quarter, our eMMC revenue was unchanged as compared to the first quarter, primarily due to weaker than expected global demand for smartphones and tablets.

Despite this, we secured over 60 product design wins for our eMMC controller in the second quarter, more than any other period in our past, and all are expected to enter production in the second half of this year.

Based on these wins, and all the forecasts we see, we expect our eMMC business to grow sequentially in both the third and the fourth quarters of this year, a change from seasonality we had traditionally seen for this product.

We continue to believe we will achieve eMMC revenue growth this year in line with an industry market growth expectation of around 15%, though potentially it would downsize to 10%, if smartphone demand does not improve.

As we talked about last quarter, we are well underway with Hynix in developing controllers to support their upcoming NAND flash components for next-generation embedded memory.

We are working with Hynix to support their new 16-nanometer TLC for their eMMC solution that will be launched later this year.

We believe TLC NAND expected to be meaningful portion of Hynix NAND flash output going forward, and Hynix are keen to use TLC for the eMMC solution.

We are also working on controller solutions to support their upcoming 3D NAND flash.

We continue to sample our next-generation eMMC 5.1 controller, expect flagship smartphone and tablet next year to broadly adopt eMMC 5.1.

We are on track to introduce our UFS 2 solution early next year, and expect to commercialize this in the second half of next year, when UFS 2 adoption by smartphone OEMs increases.

Let me now talk about our Shannon Systems acquisition, which we completed on July 1. We are excited about this new addition to our embedded storage product portfolio.

As you may remember, Shannon is a leading enterprise cloud PCIe SSD company in China.

The addition of Shannon enables us to selectively benefit from faster NAND flash density growth, in addition to unit growth relating to controller sales.

We see Shannon as a unique opportunity to expand into the high end enterprise SSD market without competing against our flash partners.

Shannon is China's hometown enterprise-class PCIe SSD leader, but is also a global technology leader.

Shannon was the first to make 6.4 terabyte PCIe SSD with prerequisite fast IOPS and low latency.

Additionally, because of Shannon's unique PCIe SSD architecture, our SSD is both highly scalable and has a very low power [amilobe].

As a result, we were able to easily scale density and are already shipping 30-terabyte PCIe SSD solutions.

To this day, our 6.4 terabytes PCIe SSD set the lowest power benchmark for the industry.

Shannon's technology leadership has been recognized by increasing number China leading Internet companies, as well as telcos and leading corporates.

We now have over 100 customers beginning to adopt our PCIe SSD, and this provides a strong base and pipeline for long-term revenue growth.

We believe Shannon's market leading position will allow us to participate in China's fast-growing enterprise SSD market.

Shannon's focus on China market also gives us distinct advantages.

China is sourcing less and less foreign black box technology, and relying more and more on white box domestically developed technology.

Since Shannon's technology is entirely developed in China, it's one of the very few companies that meet China's domestic procurement needs for enterprise SSDs.

Our Shannon acquisition has been well accepted by our NAND flash partners.

They are excited about participating in China's large and rapidly growing enterprise SSD market as supplier of NAND flash to Shannon.

Our team has been working hard to build a solid foundation to continue delivering rapid growth in sales and profitability to our shareholders.

Our embedded storage business, which was previously mainly our eMMC controllers, is now joined by our growing rapidly client SSD controllers and Shannon enterprise SSD solutions.

We believe that by the end of this year, our embedded storage product sales will likely account for about two-thirds of our total revenue.

And this significance will increase further next year.

Over time you should expect us to add other meaningful growth drivers to our portfolio of embedded storage products.

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 second quarter and then provide our third-quarter and full-year 2015 guidance.

In the second quarter, revenue grew 8% sequentially to $87.2m and grew 26% on a year-over-year basis.

Our storage product sales increased 11% sequentially and accounted for 81% of total revenue.

Within our overall storage products, our embedded storage products primarily are eMMC, client SSD and industrial SSD controllers, plus our Ferri products, increased by about 10% sequentially and accounted for well over half of our total revenue.

Sales of our removable storage products, our card and USB flash drive controllers increased by about 15% sequentially as this segment rebounded from the seasonally weak first quarter.

Our specialty RF IC decreased 5% sequentially.

Our corporate gross margin decreased to 51% in the second quarter from 52% in the prior quarter, due to the increase in sales of our removable storage products.

In the second quarter our operating expenses increased to $22.9m as compared to $22.5m in the first quarter.

We ended the second quarter with 852 employees, 14 more than at the end of the previous quarter.

Due to the higher revenue and stable operating expenses, operating margin increased to 24.8% from 24.1% in the previous quarter, despite slightly lower gross margins this quarter.

We achieved quarterly net income of $17.8m and earnings per ADS of $0.51.

Stock-based compensation in the second quarter was $0.3m, lower than the $1.5m in the first quarter.

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

Inventory days decreased to 103 days in the second quarter from 106 days in the first quarter.

DSO increased to 48 days in the second quarter as compared to the 40 days in the first quarter.

Payable days increased to 51 days in the second quarter from 42 days in the first quarter.

Our cash, cash equivalents and short-term investments increased to $201.6m in the second quarter as compared to $200.5m in the first quarter.

Primary sources of cash in the second quarter came from $17.8m in net earnings; increase in AP added $5.3m.

Primary use of cash in the second quarter included: increase in inventory consumed $4.1m; increase in AR consumed $8.9m; $2.9m of routine purchases of software and design tools; $5.4m lent to Shannon shareholders to finance pre-acquisition restructuring -- this was repaid on July 1; $5.1m of quarterly dividend payments.

I will now turn to our guidance.

Beginning with the third quarter, our financial guidance will include contributions from Shannon, the acquisition of which closed on July 1. As you may remember, Shannon's full-year revenue is expected to be between $14m to $18m, and we expect to consolidate at least half of this full-year revenue.

For the third quarter, we are expecting our revenue to increase 5% to 10% sequentially, and continue to grow sequentially again in the fourth quarter and the following.

Our eMMC controller sales to grow sequentially in both the third and fourth quarters.

Our client SSD sales to scale and grow strongly sequentially in both the third and fourth quarters.

Shannon to begin contributing in the third quarter with sequential growth in the fourth quarter.

Our removable storage controllers to decline sequentially in both the third and fourth quarters due to the continuing secular decline of this mature market.

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

Operating expenses in the third quarter is expected to be $25m to $27m.

Stock-based compensation in the third quarter is expected to be $5m to $6m.

For the full year 2015, we are expecting revenue to increase 22% to 27% as compared to 2014, higher than our previous guidance of 17% to 25%.

Our new forecast includes the benefit of our Shannon acquisition.

Full-year estimated gross margin remains within the range of 50% to 52%, slightly higher than our previous guidance of 49.5% to 51.5%.

Full-year estimated operating expenses is expected to be in the range of $98m to $102m.

This includes the added operating expenses from our Shannon acquisition.

Full-year stock-based compensation is expected to be $12.5m to $14.5m.

Our model tax rate remains at 18%.

We will now open the call for your questions.

(Operator Instructions) Mike Burton, Brean Capital.

Hey, thanks for taking my question.

Hoping you could help us understand the current dynamics in the eMMC market a little bit better.

How do those revenues track across the June quarter?

And then it appears some suppliers like Qualcomm got some negative surprises towards the end of the quarter, and I was wondering if you saw that, and to help us understand if you see either too much inventory in your channel or further downstream?

I'm just asking relative to your guidance for Q3 and Q4, where you're expecting an unseasonal Q4 pickup.

In the second quarter global smartphone sales were flat sequentially.

Demand is weaker than we had expected in the start of the year.

We have taken down our market growth expectation from 15% to 20%, to 10% to 15%.

With a record number of design wins secured for the second half of this year, many of these new wins already entering production.

And we believe that with a broad range of design wins for the balance of the year, and the current order pattern and the backlog, we are on track to meet our original goal of growing at least in line with the market, albeit with a slightly different seasonality than what we have normally seen.

Finally, we'll begin ramping eMMC using the new cost effective 16-nanometer TLC NAND paired with our controller in the fourth quarter this year.

We have already secured design wins that will enter mass production by the end of this year.

Great, thanks.

And then looking at the client SSD ramps and how that's expected, are you expecting within that -- what's your expectation for market growth within PCs in the second half?

Are you expecting really a pickup there or is it really more of some of the design wins that you have in the second half?

I think we have a very broad range of SSD design pipeline.

We have announced we are winning with the four NAND flash partners and one OEM maker.

We enter multiple design wins to PC OEM.

We do see a very strong backlog, and we see the confirmed POs from OEM.

We see we continue growth.

As you can see we have ample new products and the growth drivers that will add to our revenue growth and share gain for next year.

We believe we can continue to grow at least 50% next year, above the market growth rate in 2016.

Great.

Then last one for me.

Sorry if I missed this but did you break out the contribution by Shannon in Q3, or how that business is tracking towards the second half?

Thanks.

Mike, our Shannon guidance for the full year, this is the full year including the portion where we're not consolidating, they're due to deliver $14m to $18m for the full calendar year.

As you know, we are going to only start consolidating starting on July 1, so we'll be consolidating for both third and fourth quarters.

So we should be consolidating at least half of that full-year revenue target amount.

In terms of impact to our overall financials, as you've seen from our guidance for growth profitability, there is no impact to our financials.

And as we've previously mentioned, we expect Shannon to be very mildly EPS accretive to our business this year, and more accretive next year.

Perfect, thanks.

Charlie Chan, Morgan Stanley.

Hi, Wallace, Riyadh and Jason.

Congratulations for a good second-quarter results.

So for third-quarter guidance, if we exclude Shannon's contribution, I think you already give us a lot of guidance.

What would be the revenue growth in 3Q?

And do you think that is normal for your [existing] business?

Charlie, there's some moving pieces in our business.

As you've seen, the previous seasonal patterns that we've seen in our business in past years did not quite fit this year's business plan.

So this year we're going to have sequential growth in the third and fourth quarter very different from what we've seen in the past.

And what we've seen in the past is stronger growth in the third quarter and sequential decline in the fourth quarter.

We don't believe that's going to happen this year.

Instead, we'll have sequential growth in the third quarter and again, sequential growth in the fourth quarter again, because of the pipeline of business wins that Wallace had talked about earlier today, including our eMMC continued sequential growth as well as strong client SSD sequential growth, and of course laying in the Shannon business.

Yes, so just according to our calculation, if we exclude the Shannon season contribution, the third-quarter growth could be only flat to up, like 5%.

So I'm not sure how much that's accompanying -- discount the recent end-demand weakness, because essentially we are seeing some very weak data points across PC and China smartphones.

So I just want to make sure that the Company has discount some of conservativeness and weak demand in the third quarter already?

There are some pieces of weakness in our business, Charlie.

The key part that's weak within our portfolio of products is our removable products.

Our removable storage will be down sequentially in both the third and fourth quarter.

And so that will impact our overall numbers.

But I've said, we will have sequential growth in the third and the fourth quarter.

And if you were to exclude Shannon, we would still be expecting sequential growth in our business both in the third quarter and the fourth quarter.

Okay, understood.

Thank you very much.

Mike Crawford, B. Riley.

Thank you.

In the eMMC or embedded controller market, previously I think you had an opinion that UFS 2.0 might be a short-lived market solution given impending adoption of PCIe controllers in the second half of 2016.

Is that a timeline you still fear?

Or does that PCIe seem to be later down the road?

So I think during last quarter's earnings call, we do have certain OEM customers, they [surveyed] PCIe solution for BGA.

But I think now we confirm UFS will become in the high-end premium line for 2016.

Currently probably only Samsung Galaxy S6 carries the UFS, but we believe that UFS probably will enter the high-end premium line model in second half 2016 or 2017.

Right.

And previously I think you thought that that solution had certain disadvantages in terms of difficult to interact with the memory and placing more burdens on designers versus PCI Express.

What's different now?

Why does that UFS solution seem more palatable today?

Let me try to explain this.

From the software layer point of view, PCIe has been established for many years as more robust.

There's no doubt about it.

I think customers can adopt PCIe as a beginning processor support PCIe.

However, as you can see, the market trend moving to the lower cost.

PCIe-based BGA solution was still more expensive than UFS.

And UFS is also much more expensive than eMMC.

So that's why although it's challenging for UFS, because of software layer structure, but we believe that premium line in late 2016 or 2017 will adopt for UFS as the current trend.

But PCIe may be going the way of further -- maybe 2018 as the Intel pushing harder for PCIe to enter mobile phones.

Cost is everything.

Okay.

Thank you.

And then separately, your industrial SSDs and your Ferri branded products, what was the volume of that line of products in the second quarter?

Do you expect that to be slow growing still?

Yes, Mike, we don't break out those products.

Those are much smaller.

But those products will continue to grow.

They've been growing and will continue to grow, full year probably grow around 10%, 20%.

Thank you, Riyadh.

And then a final question is just on the RF transceivers.

Do you see any change to that business in this year versus last and maybe outlook for next?

Thank you.

As you know, our LTE forecast this year, the revenue expectation this year is $12m, so similar to last year as well as the prior year.

So that remains unchanged.

We also have our mobile TV products, where we've got an uplift to our business in the first quarter.

At the same time, it was unusually high in the first quarter, and now we're coming back to more normalized levels in the second quarter, and therefore you saw the sequential decline in our RF sales in the second quarter.

But overall our RF business is not a -- they're not going into growth markets so you should not be modeling growth for those products.

They're pretty stable but certainly not for growth markets.

Thank you very much.

Tom Sepenzis, Northland Capital.

Thank you for taking my questions.

I'm just wondering in the second half of the year, Q3, Q4, how Shannon looks.

Is it going to be relatively linear?

Should we expect the same amount of revenue or near the same amount of revenue for both quarters or will Q4 be higher than Q3?

Any help you can give us there would be appreciated.

Q4 will be higher than Q3 for our Shannon revenue.

Okay, thank you.

Given the (multiple speakers).

Given the size of the business we're not going to be breaking out the details of the Shannon revenue contribution, and also for competitor reasons.

Okay.

Then given the strength in the removable storage in the June quarter and how that led to the declines in the gross margins, wouldn't you expect the gross margins to come back in Q3 as that drops off again as a percentage of the mix?

Well, for the balance of the year we are expecting our gross margins to be fairly stable so we'll be delivering based on the guidance that we have provided.

So there's not going to be any abrupt or sharp changes to our gross margin profile for the rest of the year.

Okay, so I guess my question really is in June quarter was all of the weakness in the margin relative to the removable storage products or was some of that pressure in some of your other product lines?

The increased sales of our removable storage, those were up about 15% sequentially, is a big factor for the slightly lower gross margin compared to the prior quarter.

Prior quarter was 52%, this quarter was 51%.

Great, thank you.

And then lastly, just in terms of any visibility you might have in Q3 and Q4.

You've mentioned that your eMMC business will increase both quarters.

This is not really market growth or driven by the market itself, this is driven by product rollout.

Is that correct?

I think because we have 60 new design win pipeline and some just going into production and we have firm PO and backlog from our major flash partner so we're pretty sure about there is sequential growth Q3, Q4 with eMMC in both client SSD product line.

So it's less market growth related and more your particular product portfolio related in terms of the growth?

The market for eMMC while the growth -- we're taking the growth numbers for the market, we're still expecting the market to grow 10% to 15% this year.

So part of the contribution will be coming from market and ideally we'd like to do more than the market.

But as a base case we're expecting to grow in line with the market.

That's very helpful.

Thanks very much.

Anthony Stoss, Craig-Hallum.

Hi guys, a couple of questions, Riyadh, probably for you.

Can you give us a general sense of what you expect in 2016 over 2015 just from the Shannon Systems growth rate?

Also is the Shannon Systems gross margins higher than what you're reporting on a corporate average for Q2?

And then lastly, given your guide, you're calling for a higher OpEx in Q4.

If you've already factored in Shannon in Q3, can you help give more detail on why you expect OpEx to be up in Q4?

Thanks.

Shannon is expected to grow quite strongly next year, at least as fast as the market, if not much more fast, so much faster than the market.

The market for enterprise SSD is based on several analysts' studies that we've seen and suggest that on a CAGR basis it's still going to grow at least on a 30% basis, 30% CAGR for the next several years for the growth of the enterprise SSD market.

China market for enterprise SSD should grow faster and therefore our Shannon business should grow faster than that.

In terms of its impact to our gross profitability, it is a small part of our business so, as you've seen for the second half of this year when we started consolidating Shannon, the impact to our gross margin is negligible.

We're still going to be bringing in our gross margin at similar levels.

Regarding the increase for operating expense in Q4 because Shannon systems is going to hire more, recording more R&D and we have more then project tapeout.

That's why operating expense might slightly increase compared to Q3.

Thanks for that, Wallace, and lastly, have you guys seen much of a change in terms of your ASPs for the eMMC side?

Is it more competitive?

Is it pretty stable?

Just curious on pricing.

Thanks.

Our ASPs have been fairly stable for our products.

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

The blending of our ASPs for each one of our individual products such as eMMC has been stable.

Each generation product has a short lifecycle, as you may know.

Each starts life at a higher than average ASPs and then decays.

We're constantly bringing new generation of products to keep our blended ASP stable.

They've been stable and we expect our eMMC ASPs to continue to be stable.

Thanks, Riyadh.

Jaeson Schmidt, Lake Street Capital.

Hi guys, thanks for taking my questions.

Most of my questions have been answered but just wondering if you could talk a little bit what you're seeing from a pricing environment standpoint in the client SSD market.

Client SSD pricing definitely is very competitive today in both Shannon and OEM side.

That's why it's NAND maker try to bring the next generation technology and try to meet the customers' expectations.

That's why we're going to see more TLC NAND coming into the market for SSD but primarily it's for the channel for retail.

However, I think next year you're going to see 3D TLC NAND coming that targets for the PC OEM.

And we believe in the next -- currently the 128 gigabyte pricing range is about $40.

We believe the 250 gigabyte in the next 18 to 24 months will be moving to among that range.

So that's the price pressure and price trend.

But we definitely, you know 48 or 64 stack TLC 3D NAND is going to help to migrate to that range within the next two years.

All right, thanks, guys.

Suji De Silva, Topeka.

Hi Wallace, hi Riyadh, nice job on the quarter.

Just to understand the SSD guidance, you said $45m to $60m and now you're guiding to the high end.

Does that increase to the high end now comprehend Shannon versus before?

No it does not include Shannon.

Our $45m to $60m for SSD, that's for our client SSD controllers.

Shannon is for enterprise grade PCIe SSD; that's very separate, very different from the controllers that we're delivering to the likes of Micron and other customers of ours.

The $45m to $60m are just controllers for client SSDs.

We are now guiding towards the higher end of this range.

Okay, great.

Thank you for the clarification, Riyadh.

And then what do you think your SSD share opportunity can be in the 2016/2017 time frame versus today?

I think we target, we [definitely] target to around 40% maybe 2016 or 2017 for client SSD.

For client SSD, great.

And let me also add, by the end of the year we believe that our market share for client SSD -- we should become the market leader, the merchant market leader for client SSD.

So exceeding the market share of the current market leader.

Okay great.

And then last question.

You talk about UFS coming up the curve versus PCIe.

Can you talk about your product roadmaps and whether you have any UFS product on the roadmap and then the PCIe products and the timing of those?

Our UFS product will be available in early Q1 2016 and we are currently engaged with multiple NAND maker to prepare as the market becomes mature and enter into premium line for smartphone makers.

Our PCIe product for high end is available today.

I think we're going to show it in the Flash Memory Summit two weeks from now.

And our cost effective PCIe solution will be also available in late Q1 and Q2 next year.

That targets for mainstream PCIe and also can be used as a BGA solution.

Okay great.

Thanks guys.

(Operator Instructions).

Rajvindra Gill, Needham and Company.

Hi, this is Josh Buchalter on behalf of Raji.

Congratulations on the solid progress.

I was hoping you could provide a little bit more color on the two additional flash partners that are coming online towards the end of this year.

Should we expect them to be of a similar scale as what we've seen this year and also should we see a larger jump-up towards Q4 when they come online?

Thank you.

I think additional NAND makers for SSD, I think the size could be a little bigger than what we are today but this depends, that means up to customer, their ramping speed.

I think we're going to provide a TLC solution as well as 3D NAND and hopefully I think because we are the leading provider for 3D NAND we can take advantage of the market trend, then can enlarge our market share and support our NAND maker.

Let me also add, with the pipeline of OEM wins with NAND flash makers, with our storage OEM, with our module makers, with various platform wins at all of these customers, we're very comfortable about coming in at the higher end of our $45m to $60m guidance range for our client SSDs.

We're also very confident that we're going to be able to scale our client SSDs by an additional 50% growth next year.

Okay, great.

Thanks, guys, and congratulations again.

Monika Garg, Pacific Crest Securities.

Hi, thanks for taking my question.

There has been news coming out that Hynix has developed its own UFS controller solutions.

Could you maybe talk about as market moves from eMMC to UFS in 2016/2017 how could that impact your eMMC revenue?

I think the Hynix have been developing their own UFS solutions since three years ago.

We're talking for very high end.

Actually I think they target for Gear 3 by 2. We target for Gear 3 by 1 for mainstream UFS market.

So as of today UFS remains very niche and only for one smartphone maker with one model.

We believe probably until late 2016 or 2017 UFS will enter in the premium line and high end model maybe very few smartphone makers will adopt it.

So I think we are still continuing to collaborate Hynix not only for eMMC but also UFS because there's a variety of memory.

I think because our UFS controller will support both TLC and 3D NAND and which expect to become major for the Hynix [direction] for NAND output for coming years and we do have many value-added functions and features in the product line to expand; and not just Hynix, also value to other NAND makers in 2016 and 2017.

Got it.

Just for clarification, did you say when you will be ramping another NAND flash maker in US for second half of this year?

Was it for 3D NAND TLC or planar NAND TLC?

We can only say we are engaging with multiple NAND makers for UFS 2 solution and they were ramping with different type of NAND as UFS 2 markets become mature and become meaningful in late 2016 or 2017.

Okay, thanks.

That's all from me.

Charlie Chan, Morgan Stanley.

Thanks.

So some follow-up questions on SSD business.

So do you expect some contribution of PCIe SSD product in your client SSD business this year?

No, we do not see any PCIe product will enter mass production for this year.

Okay.

Is this in line with your schedule because I thought in your coming design wins of new OEM some of this should be PCIe related?

Well, I think the [issue] for NAND OEM we do have multiple projects, not just one project.

And we'll start from SATA, eventually going with the PCIe.

I believe in 2016 PCIe still remains a relatively small portion compared with SATA3.

And as the market grows we believe PCIe will contribute more revenue for our Company.

But I think in consensus 2016 PCIe probably is still around 10% to 15% market share.

Okay, got it.

And I just want to make sure, for your eMMC business are you going to add a new customer besides Hynix?

Or there is already in your customer list?

I think we have been working with a small group of flash partners to develop eMMC controller for their embedded memory solutions, whether it's eMMC or eMCP.

Now we do have more R&D resource to do this and we do it.

And we have approached Chinese [VARs] and probably Chinese VARs to manage our different NAND flash partners proprietary projects.

Our non-Hynix business currently is very small but you should expect this to increase materially next year.

We'll brief you more on this as this project gets closer to production.

Okay, thanks.

So just lastly, I just want to confirm.

So in the second half you should add two new NAND flash OEM customers instead of just one, right, in the second half?

That's correct.

This is for SSDs, for client SSDs.

Currently we have design wins with four NAND flash partners, two are in production.

Of the two, one is Micron and by the end of this year we'll have two more NAND flash partners, so all together we'll have four.

These are all four client SSDs.

Okay, thanks.

There are no further questions and I'll hand back to Jason for closing remarks.

I would like to thank all of you for your continued interest in Silicon Motion.

We will be at the following conferences this quarter.

In August we'll be presenting at Pacific Crest Company in Vail, Jefferies Semiconductor and Hardware Conference in Chicago.

In September we'll be presenting at JPMorgan Asia CEO-CFO conference in New York, Citi Global Tech Conference in New York, Brean Capital Tech Conference in New York, Credit Suisse Tech Conference in Taipei and Deutsche Bank Tech Conference in Las Vegas.

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 participating.

You may all disconnect.