慧榮科技 (SIMO) 0 Q0 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the second quarter Silicon Motion Technology Corp. Q2 2014 earnings conference call. My name is [Han], and I will be your conference moderator for today. (Operator Instructions).

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 conditions, and business prospects.

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

These statements involve risks and uncertainties, and actual market trends and our own 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 the Silicon Motion second quarter 2014 financial results conference call and webcast. My name is Jason Tsai. With me here is Wallace Kou, our President and CEO; and Riyadh Lai, 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 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 is filed on form 6K, after the close of market yesterday.

This webcast will be available for reply 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 earnings call.

We are excited by our outstanding operating results in the second quarter, and the positive direction of our business for the balance of the year, and going into the next year.

This quarter, revenue grew 31% sequentially. And our sales will likely grow another 15% to 20% sequentially in the third quarter.

[Two, we delivered] the highest quarterly revenue level in our corporate history. Already this quarter, our NAND flash controller-only business, which accounts for 85% of total sales, has already achieved the highest quarterly revenue in our history.

With our growing pipeline of what we believe are high quality business opportunities, we are increasingly confident that our current strong revenue growth momentum will continue from this year through to next year. Riyadh will talk more about our financials and guidelines, later in the call.

This quarter, revenue grew 31% sequentially, backed by a very strong 55% sequentially SSD plus embedded sales. Our SSD plus embedded products are now well over 50% of our total sales.

Within our SSD plus embedded products, both our eMMC controllers and SATA 3 client SSD controllers grew strongly. Our eMMC sales grew 65% sequentially this quarter; much more strongly than we had originally expected, as our Korean partner, SK Hynix, further increased its global market share, a [low] multiple [amount].

Hynix (inaudible) is a very cost competitive mobile DRAM part to build eMCPs, which are a type of memory solution that are packaging NAND flash with our EMC controllers and mobile DRAMs.

These eMCPs are targeted at smartphone OEM that are building [neater], to low cost devices, [building] QUALCOMM and MediaTek [present] designs that use (inaudible) eMCPs.

Hynix's large build of eMCP coincided with its large 50% NAND flash (inaudible) [growth] in the second quarter.

Hynix is also rapidly building discreet EMC 5000 (inaudible) memory modules for high-end smartphones, and has a growing business presence in the world's largest smartphone OEM.

Our EMC sales also grew strongly this quarter because of a new NAND flash partner, who we started shipping, during the first quarter (inaudible) TLC/EMC [scale further] as procurement of our EMC controllers. This partner's, EMC, are still yielding is very cost-competitive TLC NAND flash and has been qualified for [verification products] supplied by MediaTek, as well as leading low-cost Chinese vendors, such as Rockchip and Allwinner.

We are confident this customer's TLC/EMC business will scale much more rapidly next year, based on our existing program wins in production, as well as new program wins, which will enter production in first half 2015.

However, in the next two quarters, our sales' growth with this customer will be limited, due to our partner's temporarily internal NAND flash allocation decisions. This shuffling back is temporary and we are increasing our EMC resource to this partner.

Our EMC project with Samsung, on the other hand, are for legacy technologies. We are winding down this business and reallocating our resources to better support our TLC NAND flash partner. The impact from this winding down is small, as our annual EMC revenue from Samsung is less than $5 million.

We expect our EMC revenue from our TLC NAND flash partners this year, even with a [throttle] back, to exceed our accumulated EMC revenue with Samsung.

As we add additional EMC R&D resources, we could explore re-engaging with Samsung for next-generation embedded memory controllers.

Our second-half EMC revenue is expected to grow at least 35% compared to the first half of this year. SK Hynix is growing its EMC business very successfully and continue to expand its market share in China and in other markets.

We believe we are on track to grow our EMC sales by 50% this year, double the market's 25% growth rate, and increase our market share to 25% for the full-year 2014.

Our EMC controllers are now shipping in all of top-10 non-iOS smartphone OEM devices, two more than in the previous quarter. We believe our strong EMC growth will continue next year, based on successful business momentum of our Korean NAND flash partner, as well as the [fast] growth for our multiple program wins [of] our TLC NAND flash partner, when it reverse its a flash allocation decision early next year.

We believe, next year, our EMC business should grow at least in line with the markets expected, 15% to 20% growth.

Over the last few years, we have successfully scaled our EMC controller business, and extended our leadership over potential merchant competitors by raising competitive barrier to entry by the internal technology; track record; market credibility; cost competitiveness; customer support; data OEM relationship; all economics of scale.

We are now seeking to bring the same success to our SATA 3 client SSD controller business.

For our relatively new SATA 3 client SSD controller business, we achieved a number of important objectives in the second quarter. You may remember, last quarter, many module maker, including PNY and Transcend, launched SATA 3 client SSD, using our controller to aggressively bringing to market, sub-$100 SSD with density speed of up to 256 gigabyte.

We are seeing continued strong demand for our [multimedia] customers, as retail demand for these products, at this attractive price point, has been stronger than expected.

Because of stronger multimedia sales, we are increasing our SSD sales' goal this year from $10 million to $15 million, to $15 million to $20 million. SSD revenue forecast also includes contribution from SATA 3 controller sales to our SSD OEM, which will begin shipping in the third quarter. This is the OEM excluding [flash] SD for one of leading PC OEMs in the US. Revenue from this project this year will likely not be big.

But this SSD OEM recently awarded us a significant program win, where all the new SSD on their PC OEM customers will be using our controllers, while sales relating to these new programs will start in early 2015.

Previously we have communicated that we had a secure SATA 3 controller design win with one of our NAND flash partners for fourth quarterly initial production. Initial sales to this customer have been pushed back by a few months to the first quarter of next year.

In addition to the first SSD program, this partner has awarded us a second SATA 3 controller program win, which should start mass production in the middle of next year.

We have also secured a SATA 3 controller program win with a second NAND flash partner. We expect to begin mass production with a second NAND flash partner in the first quarter of next year.

To summarize, we have three SATA 3 client SSD OEM customers, with multiple program wins that will go into production in first half 2015. We also expect our current module-maker channel SSD business to continue to scale through next year.

To [trial] longer term growth, we are [simply borrowing] our SSD portfolio, and we'll be introducing several key partners in the coming months. We will launch our SATA 3 client SSD controller specifically for supporting TLC flash in the third quarter.

Later this year we will introduce our PCI [HM] 2, SSD controller, and next year our PCI [HM] 3, SSD controllers.

Our TLC SATA 3 controller will be the first of the kind on merchant controller vendors, and is complete hardware and controller solution that supports 1x, 1y and 1v TLC NAND flash.

The other ability of TLC (inaudible) SSD controller will improve affordability and further expand the addressable market, both for [D] and PCs. We have already secured design wins for this upcoming controller with a NAND flash partner.

This TLC SSD controller brings together technology that are not available elsewhere in the merchant market. Our solution delivers [OSD] manufacturers need to overcome the problem of using cheaper, but weaker, TLC flash by utilizing proprietary LDPC algorithm (inaudible), and [SLC] caching firmware to extend the overall endurance and improve the reliability of TLC-based client SSD solutions.

With our growing EMC and new SATA 3 SSD controller business, we are making a solid progress in transitioning to become the leading merchant embedded solid state [SATA] controller vendor in the market today.

Now let me turn to our LTE transceiver business. In the second quarter we began mass production of our new LTE-Advanced transceiver with the design win we secured in the first quarter.

I'm happy to announce today that we have secured two additional design wins that expands these two projects to enter mass production in the third quarter.

We are pleased by the renewed traction we are seeing with Samsung for our new LTE-Advanced transceivers. And remain on track to deliver $12 million in revenue for this year.

This has been an outstanding quarter for Silicon Motion, but we believe this is just the beginning. Our portfolio of SSD plus embedded product and customers are building in momentum and we are well positioned to deliver strong second-half and full-year 2015 growth.

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

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

In the second quarter, our revenue increased 31% sequentially to $69.4 million. Our controller sales increased 30% sequentially within our controller sales, our SSD plus embedded products grew by over 55% sequentially, while sales of our removable storage products, our card and UFD controllers, were roughly flat sequentially.

Our specialty RFIC sales increased 54% sequentially, as sales from our mobile TV SOC increased. And, to a lesser degree, we started initial sales of our LTE transceivers to Samsung.

Our corporate gross margin increased to 52.2% in the second quarter from 48.6% in the prior quarter, due to much higher revenue contribution in the second quarter from our high gross margin, new growth products, specifically eMMC and SATA3 SSD controllers.

In the second quarter, our operating expenses increased to $19.9 million, as compared $16.9 million in the first quarter, due to higher compensation expenses and R&D take-out expenses.

We ended the second quarter with 751 employees, 13 more than at the end of the previous quarter.

Due to higher revenue and gross margins, our operating margin increased to 23.5% in the second quarter from 16.7% in the first quarter.

Earnings per ADS in the second quarter were $0.41, an increase from the $0.16 in the first quarter.

Stock-based compensation in the second quarter was $0.4 million, lower than the $1.5 million in the first quarter, due to the timing of share grants.

I will now move to our balance sheet and cash flow. Inventory days decreased to 105 days in the second quarter from 108 days in the first quarter. DSO decreased to 52 days in the second quarter, as compared to the 59 days in the first quarter. Payable days increased to 58 days in the second quarter from 48 days in the first quarter.

Our cash, cash equivalent and short-term investments increased to $160.9 million in the second quarter, as compared to $158.6 million in the first quarter.

Primary sources of cash in the second quarter were $14.1 million from net earnings. And an increase in payables contributed $13.7 million. An increase in inventories consumed $14.2 million; an increase in receivables consumed $4.3 million. And our dividend payment consumed $5 million.

We invested $1.5 million for the purchase of software and design tools; increased our security deposit at TSMC by $4.5 million.

I will now turn to our guidance. For the third quarter, we are expecting our revenue to increase 15% to 20% sequentially. For the full-year 2014, we are increasing our guidance to 22% to 27% revenue growth, as compared to 2013.

For our eMMC controller business, we are now expecting over 50% revenue growth this year, double the rate of market growth; and expect to increase our market share from 15% to 20% in 2013 to about 25% in 2014.

We expect to see strong sequential growth in our eMMC business in the third quarter, with seasonal decline in the fourth quarter and grow at least in line with 15% to 20% market growth in 2015.

Our SATA 3 client SSD revenue for the full year is now expected to be $15 million to $20 million, higher than our previous expectations of $10 million to $15 million.

We expect to see strong sequential SSD growth in both the third and fourth quarter and for this revenue to scale 3 to 4 times next year.

We expect our removable storage revenue to remain flat sequentially for the rest of the year, but decline 5% or 10% for the full year. We believe our removable storage revenue will likely remain flat or decline very mildly next year.

We continue to target $12 million in sales for our LTE transceivers this year. And believe our LTE sales in 2015 will at least deliver $12 million.

For the third quarter, we expect our gross margin to be in the 50% to 52% range. And for the full year, we expect our gross margin to be in the 49.5% to 51.5% range.

Blended gross margin in third quarter will be a little lower than in the second quarter, because the planned volume-related pricing actions offsetting more favorable product mix.

Fourth quarter blended gross margin will be lower than the third quarter, because of the fourth quarter eMMC seasonality.

We expect third-quarter operating expense of $21 million to $23 million and full-year operating expense of $78 million to $80 million. Expenses will be higher in the second half, due to higher R&D project take-out expenses and compensation expenses.

Stock-based compensation in the third quarter should be $4 million to $5 million; and for the full year $10 million to $11 million.

Our model tax rate remains at 18%.

We will now open the call for your questions.

(Operator Instructions). Suji De Silva, Topeka.

Congratulations on the results here. Can you, Riyadh, repeat what your expectation was for 2014 for SSD growth and what kind of share that implies for the market?

Our SATA 3 SSD, we're expecting a revenue that is higher than what we had originally expected. Originally, we were expecting $10 million to $15 million for the full year. We're now expecting $15 million to $20 million for our SATA 3 client SSDs.

No, Riyadh, I thought you gave 2014 guidance as well, in terms of a multiplier.

This is for next year. Next year, we're expecting this revenue to scale further 3 to 4 times.

3 to 4 times, right. And what kind of share does that growth imply for the marketplace?

We do not have a particular market share target at this moment. This business is new. Our revenue is now entirely based on program wins that we have secured so far, which include one SSD OEM, targeting the PC industry, as well as two NAND flash partners with multiple design at all three OEMs.

Okay, great. A question on the SSD as well. In terms of these follow-on programs you're getting from the OEMs and the flash vendors, are they larger programs than the initial one? Was the initial one something of a test and the newer ones are kind of upping to more of the platform there? And how does the revenue in 2014 for SSD ramp? Is it linear or is it back-end loaded?

We believe our engagement with the NAND makers SSD program are the major projects inside their programs. And the revenue growth will be significant in 2015.

Let me add. Some of these program wins are for the entire SSD family. So the volume could be quite significant.

Perfect. And maybe a last question on the OpEx here, do you expect that to grow the headcount and R&D to support these programs in 2015? Or is the run rate from exiting 2014 relatively the rate for 2015?

We are hiring very aggressively, such as I think every company (inaudible) shows can now recruit enough talented people as you wanted. But we started a very aggressive program. And through the recruiting to the school, the referral program, we try to increase our R&D development force as quickly as we can.

Great. And again, congratulations on the result, thanks.

Anthony Stoss, Craig-Hallum.

My congrats as well on the results and guide. Riyadh, if you wouldn't mind taking us through what you're thinking now in terms of 2015 OpEx. Do you think that will moderate a little bit here heading into 2015?

Also longer term, in terms of your gross margins, what are the ticks and tacks on how you think they'll shake out over time? Thanks.

We're trying to manage our operating spend as effectively as we can. There are dual requirements. On one hand, we would like to have such an earning positive operating leverage, where we can start piling on more revenue and then having more of that drop into the bottom line.

On other hand, we have a lot of new programs in our SSD and embedded space, whether eMMC or SSD. We have a whole slew of new SSD programs and multiple OEM customers, whether the major device OEMs or the NAND flash partners of ours, for a multiple generation of products. And these are all expecting to acquire a lot of resources.

So in [sum], we're seeing more and more opportunities; and based on our current headcount and available resources we are required to turn all these opportunities, even from large OEMs.

So it's important for us to scale our investment in headcount and infrastructure to match the level of interest in business activities that we're seeing.

Also (multiple speakers), I'm sorry. Let me also answer your gross margin question.

Our target gross margin is 50%, and while this quarter it's been higher, because of the greater mix of our new growth products, specifically our high gross margin eMMC and SATA 3 eMMCs are -- what we're trying to do is manage our overall gross product mix that it's coming in at our long-term target of 50%, which remains our focus.

We expect to see some pricing declines as some of our products scale- and volume-related pricing and terms kick in. We also expect our gross margin to fluctuate from quarter to quarter, due to mix and timing of new products, but believe that 50% is a healthy long-term target for us.

And then as a follow-up, Riyadh, anything to be concerned about in terms of sourcing, given the very strong revenue ramp? How you're finding your component supply? Thanks.

Our primary component supply is in foundry. TSMC is our primary foundry partner. We also use SMIC. As the leading supplier of SSD plus embedded in this space, we have strong support from our foundry partners. They like to back the leaders in each of the spaces that require their services.

But -- one of the indicators of the support and the relationship with our foundry partners is we've made a $4.5 million security deposit at TSMC, in order to ensure that we have the security of our foundry services.

Perfect, thank you. Appreciate it. Congrats.

Jaeson Schmidt, Lake Street Capital.

Congrats as well. I just wondering if you could talk a little bit about current competition, and if you're seeing any pricing pressure out there?

Regarding the eMMC, we believe we're the only meaningful emerging eMMC controller providing the market today. We partner with flash OEM to extend their already resource and R&D capability.

I think some of our friends in TLC flash management and with LDPC ECC engine, the (inaudible) code, and the L -- [SLD] caching and (inaudible) [algorithm], that's very unique. It's a complementary to our flash partner. They will continue to outsource more mainstream and high-volume product, or they focus on their own general resource for most [profitable] high-end solution for major OEM.

But we believe that barrier for entry to getting higher and higher. We're the only emerging supplier with a successful track record in shifting hundreds of millions unit annually. It's very difficult for any new competitor to come into the market, this point in time, with our type of track record, and to deflate our leading position in the market.

For SSD, we believe the (inaudible) go to (inaudible) also helped to clean up the market competitive landscape. We are very confident in our product, and increasing pipeline of design win OEM customers in a testament to the competitors of our SSD solution.

I think the -- our technology in SSD really builds on the ground, with a very, very [meaning effect], and with the engagement, the depth, the know-how for NAND we are in the very unique position to cover about 1v 1550 millimeter [MLC to TLC] and all the way to 3G NAND.

So we are in very good position, as no other NAND maker, [or even for emerging group that can compete with us today.

Okay. And then, are you at all concerned about any potential channel inventory glut in any of the product lines?

Regarding for EMC, I think our NAND maker partner, they monitor very carefully. They track every week about the channel inventory. So they will not really give a feel if the inventory is too high. They have reserved certain inventory in the factory.

But I think we monitor -- they monitor carefully. We also monitor channel and OEM side very carefully.

All right. Thanks, guys.

Rajvindra Gill, Needham & Company.

Congratulations on excellent results. I know it might be a bit too early to talk about 2015; but you gave some indication on some of the piece parts.

But in 2014 you guys grew 22% to 27%, or expected to grow. And arguably, as you go into 2015 you're starting to see a ramp in -- on the SSD side, as well as ongoing growth at eMMC as well from stabilization on the core -- on legacy business.

So I'm just wondering how we should look at the long-term growth rate? Is this a Company that could be growing at 15% to 20% plus, given some of the big markets that are open to you?

So, [currently] on pipeline, and product positioning, and our engagement with the NAND makers, we believe we will also continue to grow strongly in 2015 and beyond.

And it's a matter how quickly we see the embedded SSD, plus embedded storage controller, and how big market and grow, and how big [optimum] can take. We believe we can continually expand engagement opportunity with NAND maker in both eMMC as well as SSD.

Let me also add. It's perhaps a little premature for us to be giving a consolidated revenue growth target for next year. But what we can do right now, given all the various program wins that we've already out in place, and we're expecting revenue beginning in early half of -- start of next year, we can start giving you pieces where you can start getting a feel of how we're going to be growing our revenue next year.

Starting first on the eMMC side of the business, we have a very strong traction with Hynix. We've got a TLC NAND flash partner. Through these two we should at least grow in line with the market next year. And we believe the market for eMMC should grow about 15% to 20%.

Let me [move over] to the SATA 3 part of market. This year we'll probably do $15 million to $20 million of SATA 3 client SSD revenue. Next year, based on the traction that we have with our three OEMs and the multiple program wins that we have secured so far, we believe that we should be able to scale our business 3 to 4 times what we were able -- what we think we can achieve this year.

Now, on our other product, our LTE, we should -- we're on track to deliver $12 million of LTE revenue this year. Going into next year we think that we should be able to deliver at least $12 million for -- of LTE revenue next year.

On our older products, our removal of storage revenue relating to card controllers and UFD controllers, we really believe that part of our revenue should remain flat or decline mildly next year.

Okay, that's great; that's very helpful. With respect to some of the LTE programs, the two additional ones that you announced, the two additional programs, can you maybe elaborate a little bit further on the design wins?

And you talked about that you've seen renewed interest, I guess, in Samsung. Can you talk about what Samsung's strategy is in the development of their own LTE base band?

And as well, their ability to integrate into the app processor, can you talk a little bit about that?

As we said before, we do not believe that Samsung come into their own platform and change. We believe that is still part of Samsung's long-term strategy, to utilize more internal [strength] and data content, and capture value chain economics.

The percentage model using on baseline versus third party has varied over the past couple of years. But our understanding from our conversation with Samsung, they want to use their own baseband in more models. When their baseband end up being positive, become more mature, more cost competitive, they're going to ship more models for general solution.

And last question for me. Can you talk a little bit about the pricing by product and where you see that heading for the future? Thank you.

We do see the market demand lower cost, high-performing product and costs could be competitive. However, we believe, because we continue launching a new premium line through the better product mix, we believe our gross margin [NAC] could be relatively stable.

Great. Thank you very much.

Let me also add to your question. Our mobile storage blended ASPs should, over time, blend up as our revenue mix include more higher ASP products, like eMMC and SSD controllers.

But on the other hand, on an apples-to-apples basis, the ASP of our products has been fairly stable, because of the increasing span of the technological bridge that our controllers provide.

Wallace had mentioned about [our job is] in designing increasingly sophisticated controllers that bridge the gap between OEM's expectations of ever better and faster storage devices, better performance.

But at the same time, the components that they're using, they're seeking to use cheaper and cheaper next-generation; flash components are getting weaker and weaker. And so our controller -- the job of our controller is to bridge this ever widening gap and this represents value.

So we're seeing more stable blended ASPs, for example, on our eMMC controllers now that we have a broader portfolio of controllers and with a broader portfolio of controllers we're seeing stability and this is coming from having eMMC 4.41, 4.5 and 5.0.

But generally, from a modeling perspective you should think about modeling for flat ASPs. We've been able to successively overlay new higher ASP products against the decreasing ASPs of our older generation products, which should result in flattish ASP trends.

Great. Thank you.

Mike Crawford, B. Riley & Co.

Further regarding the ASPs, would you say that the embedded mobile storage ASPs are still about 2 times that of the removable storage controller ASPs?

As a rough benchmark, our eMMC is roughly $0.50, our -- this is a rough benchmark. Our products are not products that we supply to the market, so this is just a reference -- rough reference.

[Existing markets], it's the same generation of products (inaudible) decline for next year. However, we're also bringing the new generation, like we're going to have EMC 501 by end of this year. We're going to have USS by the second half next year. So through the proper product mix, we should be able to maintain a stable ASP for our flash controller.

Okay, thank you, Riyadh and Wallace. And then in 2012, Samsung, I believe, was 32% of revenue. About what percent of revenue is Samsung so far in 2014?

Samsung's presence has declined compared to past years for two reasons. They used to be a very big presence -- buyer of our controllers for bundled cards. We no longer do much bundled cards.

We have also reallocated our engineering sources in -- previously, we were supporting Samsung for eMMC. We've now reallocated that resource to support our TLC NAND flash partner for their TLC eMMC products, and so it's a declining trend. But this year, we expect Samsung still to be a 10% customer.

Okay, thank you, Riyadh. And then you talked a little bit about some of the consumer SSD controller products you'd be introducing, likely next month. Could you just add some more color onto what you intend to be bringing and showing?

Okay, we mentioned we have won a major development wins through the OEM customer, who bring the solution to one of top three PC OEMs. The first will be cache SD. Then I think the leader later of this year are going to enter two more major PC OEM.

So I think, from what we said, they [come in, the orders] (inaudible) they're all SATA 3 SSD solution to [SMI] controller and through 2015.

But in addition, I think we have been engaged with two NAND makers with multiple projects and most production since early 2013, which will -- some will cover entire product lines for the SSD products. So this will bring us great moment to growth from 2015 to 2016.

Okay, thank you very much.

(Operator Instructions). Tom Sepenzis; Northland Capital Management.

Congratulations on the results. I think in your prepared comments you mentioned that Samsung had gotten down to less than 5% of your eMMC revenue. Did I hear that correctly?

Less than $5 million.

Less than $5 million. And is that just market share loss or are they going in a different direction? What's driving that?

Well, I think we mentioned, this program, the legacy program, is being last for almost one and half years, so it's running down. And Samsung also moved to more about their internal solution.

However, I think Samsung were engaged with a longer-term project, because the market have uncertainty regarding USS, so some projects it probably take longer to materialize.

We allocate our R&D resource for much better near-term revenue growth. That's why we allocate more R&D resource to the other TLC-based EMC projects NAND maker for the near term.

But when we start to recoup more on resource than we can get with the more NAND for [volume] business.

Let me also add more color. As you know, we're eMMC engineering resource-constrained, so we're reallocating our resources from Samsung to our TLC NAND flash partner.

The impact of this reallocation is not big, because our annual eMMC revenue with Samsung is -- as Wallace pointed out, is less than $5 million some. We expect our eMMC revenue this year with our TLC flash partner to already exceed our cumulative eMMC revenue with Samsung.

As we continue to expand our R&D resources and continue our dialog with Samsung for next-generation controllers, it's possible that we could work with Samsung again in the future.

Thank you very much for the color. And then in terms of the new LTE platforms, is this three distinct handsets? Or is this just different geographies of the existing one that you had?

There's three different handsets; three different smartphones.

Okay. And then for next year then, the $12 million that you're targeting for next year is likely a conservative estimate if you're talking three different Samsung handsets? Are these all high-end handsets or are some of them targeting the low to mid-range as well?

For Samsung mobile, we're all [talking] to a high-end handset. But, however, in second half 2015, we are also [engaged] with a non-Samsung LTE transceiver business, which will be more mid to low end.

So is Samsung selling the solution externally? Did I get that right?

No, no. We're working with other LTE transceiver partners and baseband partners and so there's opportunity for this to go beyond just Samsung?

Okay great. Thank you very much.

Monika Garg, Pacific Crest Securities.

First, just a housekeeping; the inventory in the dollar amount increased quite substantially quarter over quarter. Anything particular reason or it's anticipated sales for the next quarter?

Monika, you're not coming through very clearly. Could you repeat your question more loudly, please?

Sure, sure; hopefully this is better. The inventory in dollar amount increased quite substantially. Could you just help us understand that?

You're talking about inventory. Our inventory days actually decreased. Our inventory decreased from 108 days to 105 days in the second quarter.

Okay. I was just looking at the dollar amount and looking through the last seven/eight quarters.

Yes, well, our revenue also increased quite significantly. Our inventory level has risen, but it's primarily as a function of our ramping revenue. Our revenue increased 31% this quarter.

Okay. Then could you help me. What was the eMMC revenue from Samsung last year?

Less than $5 million.

Okay, in last year; okay, okay. Thanks. Then for the LTE business, given basically the run rate of this business, have you thought about spinning off this business?

Well, we're always open to strategic opportunities. But as things stand, Samsung is still committed to this business. And this is an important part of our business. But if the business does not perform, if it does not continue to meet our strategic objectives, we could be open to more strategic options.

Okay. Riyadh, just could you help also understand, what do you think is the OpEx of running this business right now, any ballpark, any way to think about it?

You're talking about our total OpEx?

No, sorry, for the LTE part of the business.

The business, as an operating stance that is appropriate for its level of revenue. And we don't break out LTE specific operating expense.

Yes, okay; thanks. Just the last one on could you talk about what you're seeing in the NAND supply right now in the market? Last quarter you commented that you thought market could be tight in the second half. Is it the same viewpoint or your viewpoint talking to the NAND vendors?

Okay, Monika, so let me reply to your question. I think overall our visibility was good in the second quarter. But we believe the NAND market will experience tightness at the beginning of the third quarter. The growth of industry this year is still expected to be over 30%. The big demand is increasing very rapidly, largely from the greater adoption of the client SSD, as well as the continuing growth of smartphone tablets.

I think PC client SSD has become the largest end market for NAND flash and continues grow very rapidly. They're nearly doubling the base demand this year as compared with 2013.

We do not expect this tightness to impair our SSD or eMMC business. We think the NAND, the big growth, eventually will reach a balance by yearend.

All right. Thank you, that's all from me.

There are no further questions at this time. I would now like to hand the conference back to Mr. Wallace Kou, 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 conferences this quarter.

In August, we'll be presenting at the Pacific Crest 16th Annual Technology Leadership Forum in Vail; Jefferies Semiconductor and Hardware [Infrastructure] in Chicago.

In September we'll be presenting at the [Viditec] in New York; Brand Technology Conference in New York; JP Morgan Asia Pac equity conference in Boston; [next three] capital conference in San Francisco; and Credit Suisse Asia Pac conference in Taipei.

Details of these events 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.