Silicon Motion Technology Corporation (SIMO)

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Silicon Motion Technology Corporation (SIMO)

Q2 2017 Earnings Conference Call

August 1, 2017 8:00 A.M. ET


Jason Tsai - Senior Director, Investor Relations and Strategy

Wallace Kou - President and Chief Executive Officer

Riyadh Lai - Chief Financial Officer


Mehdi Hosseini - Susquehanna International

Mike Burton - Longbow Research

Rajvindra Gill - Needham & Company

Suji Desilva - Roth Capital

Mike Crawford - Riley

Charlie Chan - Morgan Stanley

Donnie Teng - Nomura Securities

Tom Sepenzis - Northland Capital Markets



Good day, ladies and gentlemen, and welcome to the Second Quarter Silicon Motion Technology 2017 Earnings Conference Call. My name is Annie 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 statements.

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 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 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.

Now I would like to hand the conference over to your first speaker today, Mr. Jason Tsai, Senior Director of Investor Relations and Strategy. Thank you. Please go ahead.

Jason Tsai

Thank you. Good morning, everyone. Welcome to Silicon Motion's second quarter 2017 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 our key recent business developments. Riyadh will then discuss our second quarter financial results and provide our outlook. We'll then conclude with Q&A.

Before we get started, I'd like to remind you of the Safe Harbor policy that 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 U.S. 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 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. As you know, overall NAND availability continues to be very tight. While hindered supply has been improving gradually, continuing strong demand in cellphone, enterprise, and hyperscale data center application continue to limit availability. Hindered supply constraints have been affecting our module maker customers, hyperscale customers, and even NAND flash partners.

As a result, despite our strong pipeline of SD design wins with customers and growing portfolio of unique solutions, our ability to grow sales has been limited. Our second quarter sales, therefore, came in slightly below our expectation and second half sales will also be impacted. We believe this is a temporary issue caused by NAND industry supply transitioning to new 3D technology.

By the end of the year, we expect our growth to start to rebound. And in a few quarters' time, as the industry supply accelerates, this headwind should turn to a tailwind. Riyadh will discuss about our financial performance in greater detail later on this call.

Let me talk more about NAND industry supply condition as this the biggest factor limiting our near-term growth. As you know, NAND flash makers are already in commercial production of 64-layer 3D NAND flash. For example, our controller already is shipping in the world first commercially available client SSD using 64-layer 3D NAND, Intel's 545 SSD.

64-layer 3D NAND components from Intel, Micron, Samsung, Toshiba and WD are now all commercially available. This flash maker has been reporting smoothly improvement in manufacturing yield and industry supply has been gradually increasing. However, initial 64-layer 3D supply remains inadequate. And for the time being, supply continues to be tightly rationed.

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