Silicon Motion Technology Corporation (NASDAQ:SIMO) Q3 2023 Earnings Call Transcript

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Wallace Kou: As you know very well this year is very challenging for NAND flash makers as well as the controller makers because before September 90% of our customers are selling product below cost. And thanks to the price increase in the last two months many NAND makers their gross margin is still negative. And we definitely as a leading controller maker we have to share the pain. But we believe when the NAND price gradually recover to breakeven and become profitable our certain controller segment and we will also gradually increase the ASP. But I think the PCIe Gen5 eight channel controller as we stated the ASP is two-times than Gen4 eight channel controller. And this would be much more competitive in helping for both gross margin and also ASP.

And we also believe the PCIe to UFS 5.0 — 4.0 also gaining — help us gaining mix regarding both gross margin as well as ASP. So, we do have other new products coming and also create a more positive regarding the product mix by helping our ASP and gross margin.

Gokul Hariharan: Okay. Thank you very much.

Operator: Thank you. Our next question comes from the line of Matt Bryson from Wedbush Securities. Please ask your question, Matt.

Matt Bryson: Yes. Good morning, guys. Thanks for taking my question. First question is, I think in the prepared remarks you mentioned that there’s still some inventory getting worked down at your customers. I guess in Q4 is the expectation with that guide that inventory is fully worked down? Or is there a potential that there’s still some incremental revenue that you’ll see in forward quarters because inventories are normalized in future periods?

Jason Tsai: Hey Matt, it’s Jason here. I think we’re very close to normalized inventory levels if not there already. There may be — I mean it varies by product by product. It varies customer by customer end market. But by and large we see inventory has normalized for the vast majority of the end markets and customers that we work with.

Matt Bryson: Thanks. And I guess my second question is around new products. So it sounds like both in terms of returning pricing and margins — or returning margins to more traditional historic levels as well as potentially seeing some revenue growth tied to higher ASPs that the new products are very important. I guess is there any help you can give us in terms of thinking about how those parts roll out either in terms of time after tape-out the revenue starts to become meaningful? Or if you could give us some color around when you think customers start shifting to either Gen5 PCIe or UFS 4.0 solutions. That would be really helpful. Thanks.

Jason Tsai: Yeah. So our first 8-channel Gen5 controller is getting taped out right now. We’ll start sampling that here shortly and then we expect to start seeing the first shipments late 2024. UFS 4.0 is getting taped out in the first quarter. We’ll start seeing shipments of that late 2024 into 2025. And then the 4-channel Gen5 SSD controller, that’s really more of a late 2025 — mid to late 2025 into 2026 type event for us.

Matt Bryson: Thanks. That’s all I got.

Jason Tsai: Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Craig Ellis from B. Riley Securities. Please go ahead, Craig.

Ethan Widell: Hi. This is Ethan Widell calling in for Craig Ellis. To start you provided some good color on the near to intermediate term slope of OpEx as you focused on strategic investments. I was wondering to what extent the timing of those investments is sensitive to the slope of recovery in end market demand? Thanks.

Jason Tsai: I’m sorry. What’s the slope of the OpEx? And how does it tie to the end market recovery? Is that what you asked?

Ethan Widell: Right.

Jason Tsai: Yes. So obviously we’re seeing strength in the end markets. The guidance we provided for Q4 is stronger than seasonal. And then certainly we expect to continue to grow in 2024 as well. The OpEx should stay at these levels for Q4, Q1 and Q2 and then that will come down a little bit in the second half of next year but that’s depending on the number of additional tape-outs that we’ll be doing can vary a little bit. So we’ll provide more color around that next earnings call.

Ethan Widell: All right. Thank you. And then, given your cash position, I was hoping that you could just broadly speak to your cash deployment plans?

Jason Tsai: Yes. So for cash deployment as you may have saw earlier this week we instigated our $2 per year dividend. That will be paid quarterly. The first quarterly payment will start here in November. And with regards to share repurchase, it’s something that historically we’ve been opportunistic about. We don’t have a program in place today but the Board is always looking at ways of returning cash to shareholders and it’s something they’ll continue to evaluate.

Ethan Widell: Thank you. That’s all for me.

Operator: Thank you. [Operator Instructions]

Jason Tsai: Okay. I think — Wallace?

Wallace Kou: All right. Very happy to talk to you guys have been 1.5 year. Thank you everyone for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of this event will be posted on our Investor Relationship section of our corporate website. Thank you everyone for joining us today. Goodbye for now.

Operator: That concludes today’s conference call. Thank you for participating. You may now disconnect.

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