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Silicon Motion Technology Corporation (SIMO)

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Silicon Motion Technology Corporation (SIMO)

Q3 2016 Results Earnings Conference Call

October 28, 2016, 08:00 AM ET

Executives

Jason Tsai - Senior Director of IR and Strategy

Wallace Kou - President and Chief Executive Officer

Riyadh Lai - Chief Financial Officer

Analysts

Mehdi Hosseini - Susquehanna Financial Group

Anthony Stoss - Craig-Hallum Capital Group LLC

Charlie Chan - Morgan Stanley Research

Rajvindra Gill - Needham & Company, LLC

Mike Burton - Brean Capital, LLC

Suji Desilva - ROTH Capital Partners

Jaeson Schmidt - Lake Street Capital Markets, LLC

Mike Crawford - B. Riley & Co., LLC

Tom Sepenzis - Northland Securities, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Silicon Motion Technology Corporation Q3 2016 earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions].

This conference call 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 limitations, 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 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 the technology and consumer demand for multimedia consumer electronics, the state of and any changes 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 conference call.

I must advise that this conference call is being recorded today, Friday, 28 October 2016.

I would like to hand over the conference to our first speaker today, Mr. Jason Tsai.

Thank you. Please go ahead, sir.

Jason Tsai

Thank you and good morning, everyone. Welcome to Silicon Motion’s third quarter 2016 financial results conference call and webcast. My name is Jason Tsai. And with me here is Wallace Kou, our President and CEO, and Riyadh Lai, our Chief Financial Officer.

The agenda for today is as follows: Wallace will start with a review of some of our recent business developments. Riyadh will then discuss our third quarter financial results and provide our outlook. And 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 market closed is today.

The 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.

Wallace Kou

Thank you, Jason. Hello, everyone, and thank you for joining our earnings call. This year has been an outstanding year for us and the third quarter is no exception. Revenue increased this quarter by 13% to a record $139 million, our seventh consecutive quarter of revenue growth.

Our $135 million revenue is equivalent to 36% a year-over-year growth. Growth was led by our client SSD controllers, eMMC controllers, and SSD solutions.

In addition to record sales this quarter, we also delivered record high quarterly EPS of $1.07, our first quarterly EPS over $1. Riyadh will discuss our financial performance in greater detail later on the call.

Let me now update everyone on the progress of our key growth drivers, starting with our client SSD controllers, which has become our largest product, with sales now even bigger than our eMMC controllers.

Sales of our client SSD controllers increased 25% in the third quarter, our eighth consecutive quarter of sequential client SSD controller growth. For full year 2016, we’re on track to grow our client SSD controller sales by approximately 175%. In the third quarter, our client SSD controller sales to our flash partners was especially strong. These sales increased over 50% sequentially, with our flash partners accounting for well over half of our overall client SSD controller revenue.

Sales of SSD controllers to module maker customers, despite facing tight NAND flash supply conditions, also increased sequentially, though more modestly. We are confident our client SSD controller sales will very likely grow further in the fourth quarter, with continued growth led by sales of our flash partners.

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