Silicon Motion Technology Corp. Q3 FY2024 earnings call

Key Developments

• Delivered sequential revenue growth and gross margin in the high end of guided range, sixth consecutive quarter of gross margin expansion.
• NAND maker revenue grew over 60% YOY, winning more programs in mainstream PC, smartphones, automotive, industrial, etc.
• Introduced PCIe Gen5 8-channel controllers, first 6-nanometer 8-channel PCIe Gen5 controller in market, 4 flash maker design wins. Automotive-grade PCIe Gen4 controller received ASPICE Level 2 certification, on track for Level 3 in 2025.
• eMMC and UFS business strong, significant new product ramps in UFS and eMMC next year, support for QLC NAND, customer diversification strategy working.
• MonTitan platform as significant opportunity, secured initial Tier 1 customers, expects to announce 2 additional design wins by end 2024, targeting 5%-10% of revenue from this business by 2026-2027.

In the third quarter, Silicon Motion's NAND maker revenue grew more than 60% year-over-year. SSD controller sales were approximately flat sequentially in Q3 '2024 as share gains were offset by weakness in SSD aftermarket sales and lower-than-expected holiday ramps from PC OEMs. eMMC controller sales were up slightly in Q3 '2024 and up over 44% year-over-year. The NAND maker revenue growth was driven by customers sourcing controllers externally. SSD controller revenue from NAND flash maker customers saw over 60% YOY growth, while eMMC and UFS business continued as a strong growth area with more share capture.

Fourth Quarter Guidance

• Revenue expected to be down 5%-10% sequentially to $191 million to $202 million, driven by weaker-than-seasonal smartphone and PC sales and SSD aftermarket weakness.
• Gross margin expected to be 46.5%-47.5% due to improving product mix towards newer products.
• Operating margin expected in range of 15.6%-16.6% as operating expenses expected to decline. Effective tax rate approximately 18%.
• Fourth quarter stock-based compensation and dispute-related expenses in range of $13.4 million to $14.4 million.

• Continued competitive pressure in the semiconductor industry and effect on prices.
• Unpredictable changes in technology and consumer demand for multimedia consumer electronics.
• State of and any change in relationship with major customers.
• Changes in political, economic, legal and social conditions in Taiwan.

Q: Mehdi Hosseini asked about confidence in Q1 2025 not sustaining weakness and capital return.

A: Wallace Kou said current position and design pipeline give confidence in 2025, but retail weak demand due to inflation, etc., makes Q1 outlook hard to guarantee. Regarding capital return, Board evaluates share buyback and dividend strategy.

Q: Craig Ellis inquired about 2025 growth, gross margins, OpEx.

A: Wallace Kou discussed PCIe Gen5 8-channel controller ramp, UFS 4 growth, MonTitan potential. Jason Tsai said gross margins expected to return to 48%-50% early next year, OpEx planned to have 2 more advanced controller tape-outs next year similar to 2024.

Q: Suji Desilva asked about PCIe 5 ramps and MonTitan.

A: Wallace Kou said PCIe 5 ramps align with PC OEM requirements, some ramping late 2024 and Q1 2025. For MonTitan, some Tier 1 developed firmware themselves, others joint development, ideal for data center and server use.

Q: Matt Bryson asked about Q1 seasonality, inventories, and gross margins.

A: Wallace Kou said too early to comment on Q1 outlook, but focused on Q4 and optimistic about Q1. Jason Tsai said historic gross margins 48%-50% expected to return early next year, with higher ASPs from PCIe 5 and MonTitan contributing to gross margin improvement.