Silicon Motion Technology Corp (SIMO) Q4 2020 Earnings Call Transcript

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Silicon Motion Technology Corp (SIMO 0.88%)
Q4 2020 Earnings Call
Feb 4, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Silicon Motion Technology Corp's Q4 2020 Earnings Conference Call. [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 Securities Exchange Act of 1934, as amended. Such forward-looking statements include without limitation, statements regarding trends in the semiconductor industry and our first -- for the results of operation, financial condition and business prospects.

Although, such statements are based on our own information and information from the 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 risk 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 of multimedia consumer, electronics, the state of and 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 the 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 your first speaker today, Mr. Chris Chaney, Director of Investor Relations and Strategy. Thank you. Please go ahead, sir.

Chris Chaney -- Director of Investor Relations & Strategy

Thank you, A.J. Good morning, everyone, and welcome to Silicon Motion's fourth quarter 2020 financial results conference call and webcast. As AJ mentioned, my name is Chris Chaney, Director, Investor Relations, and joining me today on this call are Wallace Kou, our President and CEO and Riyadh Lai, our Chief Financial Officer. Following my comments, Wallace will provide a review of our key business developments, and then Riyadh will discuss our fourth quarter results and our outlook. We will then conclude with a question-and-answer period.

Before we get started, I'd like to remind you of our safe harbor policy, which was just read at the beginning 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. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on our Form 6-K after the close of the market yesterday. This webcast will be available for replay in the Investor Relations section of our website 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. For more consistent year-over-year comparison for this quarter and our upcoming fourth quarter, we are internally measuring our performance based on non-GAAP less FCI, which was divested in May 2019. 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.

Now with that, I'd like to turn the call over to Wallace.

Wallace C. Kou -- President, Chief Executive Officer

Thank you, Chris. Hello, everyone, and thank you for joining us today. In the fourth quarter, we deliver $144 million in sales, about 4% more than the high-end of our guidance range. Compared to the third quarter, revenue was up 14% sequentially. Earnings per ADS for the fourth quarter were $0.86, up from $0.76 in the third quarter. For the full year, revenue was $540 million, up 20% compared to last year. Earning per ADS was $3.24, up 25% from a year ago.

Our fourth quarter results were stronger than expected, the consumer procurement continue to be robust. Sales of our eMMC+UFS controller for smartphones and IOT devices were especially strong and our SSD controller continued to benefit from strong PC demand. Sales of our SSD solution were however seasonally soft.

Based on purchase orders received from our customers, we are expecting the strength of our fourth quarter to strengthen further through the first quarter and stay robust through the rest of the 2021. Purchase order received for the first quarter already exceed our first quarter sales guidance and purchase order for the full year already meaningfully exceed our full year guidance. Our ability to meet customer order is however, limited by our product supply. Our first quarter sales are limited by availability of product in inventory, and our full year sales growth is limited by the current foundries supply shortage, that is also affecting much of the overall semiconductor industries today.

Demand of our SSD and eMMC+UFS controllers remain very strong, we continue to see robust sales of PC-driven, especially by the need of working from home and online learning. Additionally, OEM adoption obviously in PC and other devices continue to grow as more low cost NAND for SSD were prepaid, the replacement of HDD.

And furthermore, we expect our SSD controller market share gains to accelerate based on our pipeline of design wins, those with NAND flash makers and module makers for the OEM market. We are expecting stronger SSD controlled sales growth this year compared to last year. We continue to see OEM smartphone build activity improve. More meaningfully the transition from the legacy eMMC mobile embedded storage to newer UFS technology continue to increase rapidly, as OEM pair UFS with new generation application processors and the higher spec cameras.

Additionally, sales of the eMMC controller to module maker, who are building cost effective storage solution for low cost smartphones, Chromebooks, smart speakers and other IOT devices remain strong. As previously discussed, NAND flash maker have being turning over legacy eMMC business to module makers and then we benefit from this. We are also expecting stronger eMMC+UFS controller sales growth this year compared to last year. We believe our SSD and the eMMC+UFS controllers market share again will accelerate because of our growing design win pipeline. Currently, foundry capacity shortage is also affecting NAND flash makers with captive controller programs, as well as other emerging controller suppliers. Because of the shortage issue, we are seeing NAND flash makers rationalize internal controller programs and seek to outsource more. We are also seeing merchant controller competitors who are all meaningfully smaller than us face more adverse foundry supply shortage issues, which had not several of their customer to redirect business to us.

Let me now share with you key objective for our three-year strategic plan. With the growing trends of our business and better visibility for our expanding OEM program, we are increasingly confident that we can achieve our strategic plan of delivering USD1 billion of sales by 2023. With a stable 50% gross margin, 30% target operation margin and EPS growing meaningfully faster than revenue.

Our orders booked to-date, unconstrained by foundry capacity elimination will already take us to considerable way beyond our full year guidance toward this $1 billion sale objective. Resale growth primarily for our clients would be on eMMC+UFS controllers, plus additional contribution to our Ferri industrial SSD. With our new PCIe Gen5 enterprise SSD controllers sampling in the second half of next year, we are not expecting our enterprise SSD controller to be a material contributor to our $1 billion sale objective. We are planning on material enterprise SSD controller sales contribution only after 2023.

In the 500 plus gaming units a year client device market, primarily SSD supply to PC, consumer electronics and industrial OEMs, as well as into aftermarket channels, SSD adoption has increased rapidly and will continue to increase rapidly as HDD are further replaced. With our design win pipeline, we expect a roughly double our SSD controller sales in three years, while our combination of SSD adoption in client devices, increasing from 60% to 65% last year to 80% to 90% by 2023, and our overall market share increasing to about 40%.

Our market share in Smaller Channel segment is already high, while our share in the Larger OEM Sector segment is low. We expect to maintain our high shares of the channel market and drive faster growth with OEM, the segment where we have a large and growing pipeline of design wins, and rapidly gain market share in the OEM segment. We expect to deliver our SSD controller growth objective just based on sales to the existing NAND flash and module maker customers.

Our eMMC+UFS controllers, we are expecting our sale to more than double by 2023, driven by a combination of our market share reverting to about a quarter from meeting last year, as well as UFS adoption in smartphones and other devices increasing from 45% to 50% last year to at least 80% in three years time. Again, we are also expecting to deliver our eMMC+UFS controller growth objective just based on sale to existing NAND flash and module maker customers.

Separately, we are also expecting meaningful sales growth from our Ferri SSD, a part of our SSD solutions. In past years both of Ferri SSD was so into diversified set of industrial, commercial equipment and data networking applications. More recently, we also start selling to automotive component suppliers building infotainment system and dashboards for Japanese and German car brands. I expect meaningful growth over the next three years from sales to these customers.

To summarize, we have high confidence in delivering to our strategic plan, not only because our brand NAND flash and module maker customer base and the extensive pipeline of business engagement, but also because our orders book that is not limited by foundry supply of the ability will already take us to considerable way toward our $1 billion sale objective. I would like to thank the TSMC for their continued support, without which our ability to support our broad customer base and the extensive NAND flash ecosystem this year, will be in jeopardy, and our customer for their understanding of the extraordinary supply constraints, that we are temporarily facing.

Now, I would turn the call over to Riyadh to discuss our financial results and our outlook.

Riyadh Lai -- Chief Financial Officer

Thank you, Wallace, and hello everyone. I will discuss additional details of our fourth quarter results and then provide our guidance. My comments today will focus primarily on our non-GAAP results less FCI, unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included with the earnings release issued yesterday. In the fourth quarter, revenue was $144 million, 14% higher sequentially and 6% lower year-over-year. For the full-year revenue of $540 million was 20% higher than a year ago. In the fourth quarter, earnings per ADS were $0.86, 12% higher sequentially and 11% lower year-over-year. For the full year earnings per ADS are $3.40 and $3.24 or 25% higher than a year ago.

Now for some details, starting with performance of our three key products. SSD controller sales increased 5% to 10% sequentially, in line with our sales plan. Full year sales were up 15% to 20% meaningfully faster than client SSD controller market revenue growth. SSD controller sales remain 50% to 60% of total revenue, similar to the prior year. eMMC+UFS controller sales rebounded 65% to 70% sequentially after a sharp decline in the prior quarter as our large NAND customer worked down its inventory and started actively restocking.

Full year sales grew 35% to 40%, sequentially faster -- substantially faster than market revenue growth. eMMC+UFS controller sales increased to 25% to 30% of total revenue from 20% to 25% in the prior year. SSD solution sales were seasonally soft and declined 30% to 35%. Full year sales grew 35% to 40% with positive contributions from both Shannon and Ferri. SSD solution sale increased to 10% to 15% of total revenue from roughly 10% the prior year.

Gross margin in Q4 increased slightly to 49.3% from 49.1% in the prior quarter. For the full year, gross margin decreased to 49.2% from 50.1% in the prior year due to a higher mix of lower gross margin SSD solution sales, as well as a slight decrease in controller gross margin. Operating expenses in Q4 were $39.5 million, $6.6 million higher than the prior quarter primarily, due to higher R&D tape-out related expenses. Also opex was roughly 4.5% higher because of NT dollar and RMB foreign exchange appreciation. For the full year, operating expenses were $147.7 million, 14% higher than the prior year, primarily due to higher headcount and compensation-related expenses, but also due to higher R&D tape-outs. 60%, 65% of our operating expense is headcount-related and roughly half of the remainder is relating to -- is related to R&D tape-out IP and other project-related expenses. Last year, over 80% of our R&D project expenses were for SSD controllers and roughly a quarter of this was for enterprise SSD controllers. For the full year, operating expenses were roughly 1.7% higher because of the NT dollar and RMB foreign exchange appreciation.

Operating margin in Q4 was 21.9%, slightly lower when compared to 23% in the prior quarter due to higher operating expenses. Full-year operating margin was 21.8%, up from 21.2% in the prior year. Our effective tax rate in Q4 was 7.5% below our 15% to 20% tax rate guidance due to certain one-time benefits and timing differences. Stock-based compensation in our operating expenses, which we exclude from our non-GAAP results was $8.7 million in Q4, within our $8.4 million to $9.4 million guidance range.

We had $369.2 million of cash, cash equivalents, restricted cash and short-term investments at the end of Q4, compared to $368.4 million at the end of the prior quarter. We paid $12.1 million in dividends to shareholders, the first quarterly installment of our $1.40 per ADS annual dividend that was announced last October.

Let me update everyone about our Shannon product line, which has continued to underperform in terms of sales, profitability and cash flow. The Shannon was an acquired asset we are required to test for asset impairment at least annually. Given our recent assessment, we determined that our asset was impaired and wrote-off the remaining $17.5 million of Shannon goodwill on our balance sheet. Additionally, we wrote-down $4.9 million of inventory, primarily NAND flash components to fair market value in Shannon SSDs for obsolescence. Although, sales of our Shannon data center SSDs grew last year sales significantly underperformed internal plans.

Gross profitability was also significantly lower and excluding the inventory writedown, our Shannon product line incurred an operating loss of about $5 million. sales of differentiate Open Channel SSDs to Alibaba were in line with expectations, but sales of standard and NVMe SSDs to other data center customers were off considerably, because of the soft demand environment in China for enterprise SSDs and brutal competition from the NAND flash makers.

We continue to restructure our Shannon operating team, which included the departure of many senior managers last year and are working to restore this product line to growth and profitability. We expect Shannon sales in 2021 to contract meaningfully, as our large customer worked down it's elevated inventory of SSDs procured from us and other suppliers last year before restocking, and we focus on fewer, but higher margin sales. With lower levels of sales, we are also expecting our Shannon operating loss to widen further this year.

Now let me to turn to our first quarter and full-year guidance and forward-looking business trends. For the first quarter, we expect revenue to increase 7% to 12% sequentially to approximately $154 million to $161 million. For full-year 2021, we expect revenue to increase 20% to 30% to $650 million to $700 million. As Wallace had discussed, we already have purchase orders for significantly more than our revenue guidance range, but are limited by foundry capacity available to us. If more foundry capacity were made available to us, we could grow even faster.

The guidance range that I had just provided is based on current uncertainties, primarily relating to foundry capacity allocation. In the first quarter, we are expecting strong SSD and eMMC+UFS controller sales growth and more modest SSD solutions sales growth. For the full year, as Wallace had highlighted, we are expecting both our SSD controllers and eMMC+UFS controller sales to grow much faster than last year and our SSD solution sales to be flat.

First quarter gross margin should be in the range of 48% to 50%. For the full year, based on certain assumptions, we are expecting gross margin in the 47% to 49% range. The assumptions are substrate and packaging costs are increasing and we expect to hold prices flat, unless they are subject to contractual pricing arrangements in supply agreements. However, our gross margins could be higher if we're able to negotiate higher prices and separately successfully execute initiatives to reduce product costs. If we're able to increase our prices and lower our costs, our gross margin could be higher than guidance. We expect first quarter operating margin to be in the range of 21% to 23%. For the full year, we expect operating margin in the 24% to 26% range.

As many of you know, the NT dollar and RMB had strengthened considerably, especially in the second half of last year. If exchange rates are maintained at year-end rates for the rest of the year, which we are assuming, we estimate that the impact to our operating expenses compared to last year is approximately 2% to 2.5%. In the first quarter, we expect stock-based compensation in the range of $3.1 million to $3.3 million. Amounts consistent with the seasonal timing of RSU grants in past years.

For the full year, we expect stock-based compensation in the range of $14 million to $16 million consistent with the prior year. We expect our effective tax rate for the year in the 15% to 20% range with tax rate in the first quarter in the lower half of the range. On February 24th, we will break ground for the construction of our Hsinchu office building. We spent $59 million in 2018 for the purchase of land.

Construction is budget to cost $77 million with $7 million spent this year and $34 million spend next year. We expect to complete construction in 2024. Upon completion, we plan on a sale and leaseback of the building. This concludes our prepared remarks, and now we'll open the call to your questions.

Questions and Answers:

Operator

Certainly. [Operator Instructions] we have the first question from the line of Karl Ackerman from Cowen. Please go head.

Karl Ackerman -- Cowen & Co -- Analyst

Good evening, gentlemen, and good morning on the West Coast. First question from me. I appreciate the full-year outlook you provided and in your prepared remarks Wallace spoke about how competitors are facing challenges with supply enabling you to bring some new customers on your platform, and you also spoke about how some NAND OEMs are easing on their willingness to move to internal solution.

So my question is, are these volumes adhoc and opportunistic or what sort of volume commitments are you able to secure that would help support both your full-year guide and view through 2023?

Wallace C. Kou -- President, Chief Executive Officer

So as we state our current communal wafer supply for our foundry makers, we are -- can fulfill our full-year guidance 20% to 30%, there is no question. If we have additional incremental wafer allocation for our foundry makers, our guidance will be higher.

Karl Ackerman -- Cowen & Co -- Analyst

Okay, I appreciate that. I guess, then relative to your SSD solution business, could you discuss how the shift in the consignment model will impact at least qualitatively your revenue and profitability in 2021 versus 2020. I guess, the -- is the widened operating loss expectation coming only from enterprise SSD? That's my question. Thank you.

Riyadh Lai -- Chief Financial Officer

Yes, that's related to the operating loss and the consignment that relates specifically to our Shannon data center SSD product line. So as we talked about in the call, the -- our Shannon product line had under delivered in terms of revenue growth, profitability and cash flow generation and so we -- as part of our regular testing of our acquisition, the valuation of our acquisition, we had determined that the assets were impaired until -- to go forward writedown over the remaining goodwill.

So in terms of the profitability of our business, our gross margins have been below our corporate average by significant amount because of the products that we're building, requiring the purchase of NAND. So as part of that -- this issue, last year we started for one specific customer for Alibaba, moving to a consignment business model where Alibaba procures NAND and we build SSDs based on what they -- on a NAND they give us. And so our margins -- our gross margins are significantly improved because of this.

But we also have a lot of other customers. Most of -- majority of our sales for -- of our Shannon products are in fact standard NVMe SSDs to non-Ali customers, and for these customers, we're buying NAND, and so our gross margins are a lot lower.

Karl Ackerman -- Cowen & Co -- Analyst

Thank you.

Operator

Thank you. We have our next question coming from the line of Rajvindra Gill from Needham & Company. Please go ahead.

Rajvindra Gill -- Needham & Company -- Analyst

Chris, thank you, and congratulations on the momentum, very impressive. Wallace and Riyadh, when you are putting up this $1 billion sales target, which is very ambitious, I just wanted to get a sense in terms of how to think about the cadence of that. If you look at your full year guidance in 2021, it's $675 million at this midpoint, I believe that's the highest in recent history for your company in terms of overall revenue. Correct me if I am wrong there, but it's extremely high, and that could be higher if you get more weight for allocation.

So wanted to get a sense from working off that base to get to a $1 billion, that's about 50% growth, how do we think about the cadence on a kind of year-over-year basis? And is this really being driven by the combination of kind of higher attach rates that you're seeing other with adjacent markets outside of PCs? It is being driven by consistent sustainable market share gains? I'm just curious in terms of some of the color there.

Wallace C. Kou -- President, Chief Executive Officer

Yeah, I think you have very good questions, but we doubt we've been prepared to answer the questions. We have a very strong confident to achieve our financial objective $1 billion within three years, through our major design pipeline from clients SSD controller as well as mobile eMMC+UFS controller. I think we start to really cook the design win pipelines seeing that two years ago, and we're really gaining momentum in market share, focus on technology for new product development, moving to 16 and 12 nanometer, mobile, we're going to move to 7 nanometer, three years from now.

But I think for a lot of R&D investment that's why you see our increased R&D expense in the last two years, year-by-year. I think from the current design pipeline, from the backlog in our hand peeling our hand, our sales, there is no restriction constrained for wafer supply will be much higher than our current full-year guidance, 20% to 30%. That's why that give us significant confidence, and we can continue to carry the momentum from this year to next year. Yes, that's why we start to work with TSMC right now for 2022 wafer supply for all the different technology node, from 55, 40 nanometer to a 28,15,12 nanometer and make sure we can get a sufficient supply to meet our major OEM customer requirements for 2022.

But of course, I think you see we have a long-term relation with TSMC, and we have a significant good support from them in the past 10 years than we probably can get a more allocation in second half of this year. There is no commitment right now. So we can only base on that communal wafer supply to make a full year guidance to the investor. But for three years, for $1 billion target, we have a much better confidence to achieve the goal, maybe it will be earlier.

Rajvindra Gill -- Needham & Company -- Analyst

Thank you for that, that's excellent news. And Riyadh, I know it might be hard to quantify, but just if you could give us some sense, if you get more wafer allocations from TSMC, which you have a great relationship with to begin with, anyway to think about what the potential upside would be on that 675 target?

Riyadh Lai -- Chief Financial Officer

All right, That's a -- that's another excellent question. The way to think about this is our operating infrastructure has the ability to have considerable operating leverage. The operating expense infrastructure that we have built are our R&D teams, our sale and marketing teams, the rest of our operating infrastructure, it's a infrastructure that we can load a lot more revenue on. And so for what we have today and if we are able to achieve much higher levels of revenue this year, in the event we are able to secure additional wafer. There is no -- beyond what we have guided. If we're able to secure additional wafer, this would just flow through our P&L and deliver the incremental profitability on our bottom-line.

Rajvindra Gill -- Needham & Company -- Analyst

Thank you.

Operator

Thank you. Can we move to the next question, sir? The next question comes from the line of Craig from B. Riley Securities. Please go ahead.

Carlin Lynch -- B. Riley Securities -- Analyst

Hi guys, this is Carlin Lynch on for Craig, congrats. And I just wanted to drill down on something that Wallace said in the last question. Did -- Wallace, when you said the 20% to 30%, is that the amount of supply constraints that you're currently seeing right now? So in theory if there were no supply constraints, the guidance would have been 20% to 30% higher, did I understand that right?

Wallace C. Kou -- President, Chief Executive Officer

No, I'm saying is, we've guided 20% to 30% growth from 2020 based on our current variable wafer committed. We can grow much higher and guide much higher, if we can get a incremental wafer allocations for our foundry supplier.

Carlin Lynch -- B. Riley Securities -- Analyst

Got it. Okay, sorry about them miscommunication. So my second question is on the new -- you mentioned that a bunch of smaller suppliers or a bunch of customers have kind of come your way due to the supply constraints. What are you guys doing and how confident are you that you can hold on to this new -- these new customers as they come toward you given that you're already supply constraints?

Wallace C. Kou -- President, Chief Executive Officer

Most of these new demand are really another major customers. As you know, some of our customer may be 80% is our controller 20% is other controller maker, in order to park in the play with us in the past, many years. But now because wafers shortage globally, so many small player, controller player they even probably cannot get a -- even worse wafer supply, two to three year demand. That's why a lot of the customer before, maybe 80% come to us, now give us the 90%, 95% order to us, but that is now our really main goal.

I think from the existing original estimation for our business is stronger than 30% growth year-over-year, but with additional fee demand, it just make our allocation even worse than what we can offer to the customers.

Carlin Lynch -- B. Riley Securities -- Analyst

Got it, OK. And then one last quick one for me. Obviously I understand what's going on with gross margin given the higher kind of inputs this year and not wanting to provide any insight about price increases at this point. But as I look out to fiscal '22 and you mentioned the 50% gross margin target with Shannon now kind of a much smaller percentage of sales expected moving forward. Would it be fair to say that gross margin in the calendar '22 can get back to this 50% maybe quicker than expected beyond all -- assuming that all of the things that are impacting gross margin this year come out of the model. It just seems to me that. And then ultimately, why isn't that number -- why could that number be higher, we saw 50.1% in calendar '19, just trying to get the sense of upside gross margin from the 48% guided to in calendar '21?

Wallace C. Kou -- President, Chief Executive Officer

I think you are correct. Theoretically, we definitely should improve our gross margin in 2022. I think this is all the go we're looking for. However, I think we will all have some major program with contract price is all depended on our foundries, provided whether they will continue some regular wafer discount annually because of severe shortage, they are not going to reduce the wafer price, instead they increase the wafer price. So we have to prepare all the different scenario to play conservative model. I think that's our obligation to the shareholder to make sure, we give you conservative guidance, then we can have a better results than expectation.

Carlin Lynch -- B. Riley Securities -- Analyst

Got it. Okay, thanks guys.

Operator

Thank you. We have the next question from the line of Gokul Hariharan from J.P. Morgan. Please go ahead.

Gokul Hariharan -- J.P. Morgan -- Analyst

Yeah, hi, thanks for taking my question, and congrats on the great results. So just to understand, when we think about our $1 billion revenue target, do you think that the product mix is going to be reasonably similar to what we have right now? I think right now we have probably about 55% to 60% SSD controllers, roughly about I think 25% mobile or 30% mobile and about 10% to 15% SSD solution. Is the mix going to be fairly similar when we get there? Could you talk a little bit about how you think about that? And then I have a follow-up of question.

Wallace C. Kou -- President, Chief Executive Officer

I think roughly, the mix will be maintained the same. As I said in our statement, we don't count the new customer or customer we don't have today, we're based on existing NAND maker and module maker customers, we are able to achieve the $1 billion target within three years. So we have enough design pipeline from PCIe Gen3 to PCIe Gen4, from eMMC to UFS 2.0, 3.0. We don't even count enterprise controllers, we don't count even UFS 4.0, we think we can achieve $1 billion target within three years.

Riyadh Lai -- Chief Financial Officer

Gokul, let me also add that while -- when we achieve a $1 billion sales, the product mix should be quite similar to what it is today, but I would also add that our mobile controllers our eMMC+UFS, we're expecting to grow a little bit faster than our SSD controllers over the next three years.

Gokul Hariharan -- J.P. Morgan -- Analyst

Got it. Just related questions. What gives you the visibility? And pardon me for asking, but revenues have essentially been in the $500 million to $550 million range for probably three to four years, right? So just wanted to understand, what gives us the visibility given the business nature, especially for the mobile side and to some extent for the module makers also in consumer have been fairly volatile. So what is the confidence interval on this and what gives you that visibility suddenly to change that?

Second, when we had foundry shortages like this in the past in, let's say, 2017 or 2014, we've clearly had a lot of kind of concerns about inflated orders from customers, especially like PC module customers, eMMC customers etc. How do you discount for that fact when you think about your forecast and your appeals from customers?

Wallace C. Kou -- President, Chief Executive Officer

Okay. Let me just give you answer first. For first question, the reason we have a high confidence to achieve the $1 billion target by 2023 is based on current -- the booking backlog appealing our hand for 2021. As we said already, we based on our variable wafer, communal wafer supply, we have the 100% confidence to reach 20% to 30% growth from 2020. But our backlog and the appealing hand are much bigger than this number. So this can carry continue to 2022. And because that is a major design pipeline, very hard to customer major customer to change the design and we also continue work with TSMC. Hopefully, they can provide more wafer. But as you know very well is it's very difficult this moment.

And as to the -- to answer at your second question, yes, we suffer one of the major NAND makers for eMMC business from the peak of 2016 and they started using internal controller, then we suffer the sale revenue decline. A down to very, very slow last year then that actually were begun. For UFS 2.0, 3.0, I think this is going to stay for next three years. UFS 4.0 will start to picking up from 2024.

So we have very high confidence, our business model and growing our eMMC customer are very, very strong. We are dominating eMMC provider, all size of NAND makers, so we probably own 80% of market share, if you don't count on NAND maker customer. That's why we have confidence to grow mobile controller business as well client SSD business, which are very strong today. And that gave us the confidence to show how we can reach the outline for $1 billion sales target.

Gokul Hariharan -- J.P. Morgan -- Analyst

Got it. Could you also tell us -- like I think, are you taking some discount or something for the POs that you get from your module maker customers or OEMs, even at times like this when we hear about shortage across the board. Clearly, there is some degree of inflated order books that is usual. So could you talk a little bit about how you think about the PO and the book -- order book and how you think about the health of that order book?

Wallace C. Kou -- President, Chief Executive Officer

I think some module maker POs has a very small portion, for to -- as a contribution for revenue. The major visibilities are OEMs because they also worry, they cannot get a supply. That's why they give us visibility much better because normally they only give us three months, PO and the six-month forecast, now they give the full year, PO that's why we can see through 2021 demand for our major OEM customer.

Gokul Hariharan -- J.P. Morgan -- Analyst

Got it, thank you.

Operator

Thank you. We have the next question from the line of Anthony J. Stoss. Please go ahead.

Anthony Stoss -- Craig-Hallum -- Analyst

Hi, guys. Going to 10 years of covering Silicon Motion. I've never seen this kind of visibility from you guys and excitement. Maybe you can talk about -- if you've scrubbed the pipeline for 2021, if you think there's a chance that there is double ordering in that pipeline or if it's just mainly market share strength from you guys. And then also not including the enterprise controller in the 2023 revenue goal, I'm just curious, maybe you can give us more detail. Is that behind plan or any more color would be helpful. And then lastly, maybe for Riyadh, if Shannon continues to underperform, why not just walk away from Shannon? Why do we still keep it in operational? Thanks.

Wallace C. Kou -- President, Chief Executive Officer

So let me comment for your first question, I think last year, we have so many major designs for PC OEM, not just on NAND maker but also for module maker and they all start to ramp-up in 2021. That's why we see -- we gain market share for global clients SSD controllers and we expect to ship much more for this year. However, due to the wafer shortage from the foundry makers we can only provide such a guidance, but we originally expected to have either much stronger momentum that we can get a full supply from our TSMC major partner. As I've said, see this depends on how we see the migration from the technology know from start of the PCIe Gen3, from PCIe Gen3 to PCIe Gen4, I think we will continue the momentum pipeline for client SSD.

Regarding the mobile controller for eMMC and UFS, and we -- as I state, we have a more than 80% of global design outside the NAND makers and a lot of these module makers has been prepared practice in the past five to six years now finally they are entered design into smartphone in low value line smartphone and from Chromebook and to set-top box and smart TV, they are gaining market this year. And please understand these module maker and mobile controller revenue add together are close to the NAND maker sale revenue. So it's not like a very big gap between module maker and NAND maker, so we see the transition is very, very strong and some module maker our eMMC customer also turning to UFS.

They give us a much broader angle looking for the pipeline, not just 2021, also beyond this year to 2022 and 2023. We also have several major program, which we cannot comment right now. When it's become materialized, we would talk to our investors.

Riyadh Lai -- Chief Financial Officer

Tony, let me also address your third question about Shannon. Shannon clearly has been the -- a disappointment to us, but we are -- it's also a strategically important piece of business to us, and so we're actively working to restore this product line's growth and profitability. What I mean by strategically important is because without Shannon, we would not be able to sell SSD controllers, enterprise grade SSD controllers directly to to Chinese hyperscalers, as they do not have the engineering capabilities to develop their own SSDs using merchant controllers.

So Shannon designs these SSDs using our controllers and therefore helps facilitate our sell into this market and also provide street credibility to our enterprise grade controllers. We're as you know, we are new to the enterprise SSD controller market and so it's important to develop street credibility in Shannon. So our experience exposure at Shannon was the Chinese hyperscalers, we're also gaining a lot of street credibility.

So it's important for us to -- strategically important to us. We're are working to fix the financial profiles of Shannon, but eventually, if we cannot fix this and we may have to consider strategic options.

Wallace C. Kou -- President, Chief Executive Officer

Let me add a comment to Riyadh, I think we underestimate to ask people enterprise controller, and enterprise SSD business. Our competitors and NAND maker they've spent 20 years experience in the front end than they are leading in the technology and product. We are just about four to five years and we only focus on enterprise controller just about two years. So we learned so much from Shannon customers especially for Alibaba, Baidu and Biden and several leading hyperscalers.

Then we understand silicon plastic LML 5 time in client SSD, so we are improving pieces. We are filling the gap. We are gaining the confidence and continue improving our firmware Alder and our AC architecture. That's why we are so exciting about enterprise to PCIe Gen5 controller, which we will have paid out in early next year and sampling in second half of 2022. We believe, this will bring us a big momentum and coming to enterprise.

As you know well clients SSD in the next three to five years, will be slowing down and saturated after five years from now, so we're preparing for another moment and to grow for enterprise controller. It is very important for the company maintain that growth momentum continually and to the shareholders.

Anthony Stoss -- Craig-Hallum -- Analyst

Thank you for that. Wallace, but if I'm not mistaken, didn't you say that you're not including any revenue from the enterprise controller in your $1 billion 2023 forecast. Is that just to play conservative given what you just said.

Wallace C. Kou -- President, Chief Executive Officer

Exactly, exactly. That's correct.

Anthony Stoss -- Craig-Hallum -- Analyst

All right. awesome. Great job, guys, congrats.

Operator

Thank you. We have our next question from the line of Mehdi Hosseini from SIG. Please go ahead.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Yes, this is Mehdi Hosseini from SIG. Just to follow-up, Riyadh, did you say that any wafer price increase is already dialed into your gross margin guide for 2021?

Riyadh Lai -- Chief Financial Officer

Mehdi, we are not expecting wafer cost increase this year. We are however expecting cost from substrates and in packaging and that's reflected in the gross margin guidance that we have provided.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Okay, clear. Just curious if there is incremental capacity becoming available, but at a higher cost. Would you be able to offset that?

Riyadh Lai -- Chief Financial Officer

Depends upon the line. For very important mobile product line, high end we definitely need to because our customer desperate need need more supply.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Okay, got it. And then I joined the call little bit late, so I apologize if the question has already been asked. But when you think about mobile opportunities UFS and comparing it to SSD controller for 2021, which segment do you expect to offer higher growth?

Wallace C. Kou -- President, Chief Executive Officer

I think, Riyadh had already mentioned. For total dollar amount clients SSD is still bigger, but for the grocery, mobile controller will be a little higher and faster because the base is smaller. And and we -- because -- I think for mobile major it's only three NAND maker has a mobile DRAM, so it's very easy to figure out that's why the momentum will grow stronger. We have designed in the three major NAND maker with the mobile DRAM.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Great, thank you. And then, would you expect your your mobile mix, especially from China or contribution from China to increase as the NAND capacity comes online -- NAND capacity from domestic players?

Wallace C. Kou -- President, Chief Executive Officer

When the China NAND maker increase their output, we definitely would benefit from this output because a lot of our module customers will also use their NAND from the China NAND makers. But I'm not sure how much they're doing that for the mobile business because there probably will be value line eMMC, but now in the high-end eMMC or UFS.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Got it, OK. Thank you.

Operator

Thank you. And there are no further questions, I would like to hand the call back to our presenters for any closing remarks.

Wallace C. Kou -- President, Chief Executive Officer

Thank you everyone for joining us today, and for your continuing interest in Silicon Motion. I would like to leave you with some final stuff. Our business continues to be quite resilient in spite of the volatility to our business caused by the pandemic we continue to achieve well. I have never been more confident about our business. We look forward to a safer world free of devastation caused by the coronavirus. We also look forward to sharing with you the expected rapid growth of our business this year and our progress toward our 2023 $1 billion revenue target. We will be attending several virtual investor conferences in the next few months. The schedule of which will be posted on our Investor Relationship website. Thank you for continuing and for listening to our call. Goodbye for now.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Chris Chaney -- Director of Investor Relations & Strategy

Wallace C. Kou -- President, Chief Executive Officer

Riyadh Lai -- Chief Financial Officer

Karl Ackerman -- Cowen & Co -- Analyst

Rajvindra Gill -- Needham & Company -- Analyst

Carlin Lynch -- B. Riley Securities -- Analyst

Gokul Hariharan -- J.P. Morgan -- Analyst

Anthony Stoss -- Craig-Hallum -- Analyst

Mehdi Hosseini -- Susquehanna International Group -- Analyst

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