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Silicon Motion Technology Corporation (SIMO)

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Silicon Motion Technology Corporation (SIMO)

Q4 2017 Earnings Conference Call

February 07, 2018 08:00 AM ET

Executives

Jason Tsai - IR

Wallace Kou - President and CEO

Riyadh Lai - CFO

Analysts

Mike Burton - Longbow Research

Rajvindra Gill - Needham & Company

Charlie Chan - Morgan Stanley

Mike Crawford - B. Riley & Co

Suji Desilva - Roth Capital

Mehdi Hosseini - Susquehanna International

Presentation

Operator

Ladies and gentlemen, thank you for standing by. 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 success, we believe to be reliable, you should not place any 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.

I would now like to hand the conference over to Mr. Jason Tsai. Please go ahead, sir.

Jason Tsai

Thank you. Good morning, everyone and welcome to Silicon Motion’s Fourth 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 business developments. Riyadh will then discuss our fourth 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 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. 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 on 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 us today. Let me update you on our business and markets. Riyadh will then review our financials and provide our outlook later on this call.

2017 was a challenging year as NAND flash industry’s supply tightened and the high NAND prices limited our growth. These two issues were especially tough in the first half of 2017. Tight supply of NAND limited our ability to procure components, to build Shannon and FerriSSD solution. More critically, tight supply also drove up the price of NAND. High price for NAND in turn affected the affordability of the client SSD and reduced demand of our SSD controllers.

By the second half of the year, however, NAND was no longer tight as supply had increased meaningfully from the ramp of a new 3D NAND capacity. And the price was softening. By the fourth quarter, sales of our SSD solution were continuing to grow and our client SSD controller had started to rebound. Overall, we expect NAND supply and lower prices will continue to improve further in 2018.

We believe NAND industry supply will continue to grow in 2018 due to a number of factors. First, our 64 and 72-layer 3D NAND manufacturing yields continued to improve. Flash maker will further accelerate production and be output throughout this year. Additionally, several NAND flash makers have already started sampling their [indiscernible] and industry supply will growth, as these QLC components enter commercial production by mid-year.

By the end of this year, NAND supply will grow further as new 96-layer 3D NAND enters production. Recently, as a result of increasing expectation of industry supply growth, NAND makers have across the board been increasing the industry supply growth forecast for 2018. The cost per bit of new generation of NAND is falling rapidly, a 64-layer has ramped up over the past few months. We have already seen pricing begin to soften. We expect that 64 and 72-layer production ramping further supplemented by the introduction of QRC in the migration to 96-layer later this year. Each of these new generation of NAND will further drive down the dollar cost per bit of NAND, improving our affordability and adoption across many end markets.

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