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DATE

Wednesday, April 29, 2026 at 8 a.m. ET

CALL PARTICIPANTS

  • President & CEO — Chia-Chang Kou
  • Chief Financial Officer — Jason Tsai
  • Moderator — Thomas Andrew Sepenzis

TAKEAWAYS

  • Revenue -- $342.1 million, representing 23% sequential and 105% year-over-year growth, and marking the second consecutive quarter of record revenue.
  • Gross Margin -- 47.2%, above the guided 46%-47% range, attributed to new product introductions.
  • Operating Expenses -- Increased sequentially to $99.2 million, reflecting expanded investment in MonTitan AI, enterprise SSD controller, and boot drive storage solutions.
  • Operating Margin -- 18.2%, exceeding guided expectations due to higher revenue and gross margin.
  • Earnings per ADS -- $1.58, calculated on a non-GAAP basis.
  • Cash, Cash Equivalents, and Restricted Cash -- $210.9 million at quarter end, versus $277.1 million in the prior quarter, with the decrease attributed to a $16.9 million dividend payment and inventory build to support forecasted growth.
  • Embedded eMMC and UFS Business -- Mobile business grew 30%-35% sequentially, and over 140% year over year, driven mainly by share gains, with sector demand outpacing smartphone unit pressures.
  • SSD Controller Business -- Revenue declined approximately 10% sequentially, in line with seasonality, but increased 45% year over year, supported by early PCIe 5 impact and MonTitan controller ramp.
  • Ferri and Boot Drive Storage -- Segment delivered what was described as exceptional performance, with multiple new automotive and enterprise projects scaling, and boot drive shipments ramping, including to a leading AI GPU manufacturer.
  • MonTitan Ramp -- Two customers currently in production; five more major cloud service provider customers, including three from Asia and two from the U.S., expected to begin ramping later this year.
  • NAND Pricing and Supply -- NAND prices increased 55%-60% sequentially, with persistent supply constraints and shortages anticipated throughout 2026 and into 2027.
  • Q2 2026 Outlook -- Revenue expected to grow 15%-20% sequentially to $393 million-$411 million, driven by all product segments and ramping MonTitan and boot drive businesses.
  • Q2 Gross Margin Guidance -- 48.5%-49.5%, with improvement attributed to MonTitan and PCIe 5 mix.
  • Q2 Operating Margin Guidance -- 21%-22% expected, reflecting continued profitability improvement.
  • MonTitan Market Share Target -- Expected to reach 5%-10% of total revenue in 2026, with broader growth forecast into 2027 as enterprise market entries scale.

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RISKS

  • Kou stated, "NAND prices continue to rise sharply with a sequential increase of about 55% to 60%" and described significant supply scarcity, noting that this negatively impacts smartphone and low-end PC markets.
  • Kou said, "the smartphone market is likely to stay pressured due to ongoing NAND and DRAM supply constraints. Chinese handset OEMs are expected to face greater headwind than Apple, given Apple's purchasing scale and Samsung given its captive memory supply."
  • Kou projected, "we projected global smartphone unit volume will decline by 5% to 10% in 2026. However, recent estimates suggest the decline could be more than 10% year over year with a greater weakness concentrated in China."
  • Kou indicated, "we estimate that the PC market will experience unit decline of 5% to 10% in 2026, given the tightening NAND and DRAM supply and increased prices. Current expectations are a bit lower with anticipate unit decline now in the 10% plus range."

SUMMARY

Silicon Motion Technology (SIMO +0.12%) delivered record quarterly results with accelerating revenue, gross margin, and profitability, supported by substantial share gains in embedded storage and SSD controllers. Management disclosed robust customer pipeline expansion, including immediate contributions from MonTitan controllers and broadening wins in automotive and AI storage boot drive markets. The company guided for 15%-20% sequential growth in the next quarter, projecting margin improvement and sustained topline momentum, while reiterating expectations for record annual revenue. Strategic partnerships with NAND suppliers enabled secure sourcing amid industry-wide shortages, positioning Silicon Motion Technology to fulfill rising demand in both legacy and AI-centric verticals.

  • Management expects boot drive and Ferri segments to become more meaningful contributors to overall revenue over the course of 2026, as deployments with enterprise, automotive, and telecommunication customers accelerate.
  • Kou highlighted that UFS controller growth remains closely tied to handsets, but eMMC controllers are diversified across automotive, smart TV, IoT, and industrial applications, mitigating the impact of smartphone unit declines.
  • MonTitan PCIe Gen5 and upcoming Gen6 controllers have already secured multiple Tier 1 design wins, including both NAND makers and cloud service providers, with volume shipments projected to ramp from late 2026 through 2028.
  • Kou described a market shift where "Module makers have stepped in to fill this gap," underscoring a transition away from NAND makers providing integrated solutions and towards external controller partnerships.
  • Operating expenses will trend higher through Q3 2026 due to ongoing MonTitan and boot drive development, but management anticipates this will be more than offset by increased revenue and gross margins, leading to full-year operating margin improvement versus 2025.
  • Silicon Motion Technology maintained a well-differentiated supply position by securing NAND allocations from three major flash makers, a capability management said is critical to navigating the current and future supply-constrained environment.

INDUSTRY GLOSSARY

  • ADS: American Depositary Share, a U.S.-traded equity share representing underlying shares of a foreign company.
  • eMMC: Embedded MultiMediaCard, a type of embedded non-volatile memory widely used in smartphones, automotive, and IoT devices.
  • UFS: Universal Flash Storage, a high-performance interface for flash memory used in mobile devices, automotive, and computing.
  • PCIe: Peripheral Component Interconnect Express, a high-speed interface standard for connecting components, including SSDs, in computers.
  • MonTitan: SIMO's enterprise SSD controller platform, designed for use in data center and AI infrastructure applications.
  • KVCache: Key-Value Cache, a storage solution optimized for rapid retrieval of key-value data, typically utilized in AI and high-performance computing workloads.
  • TLC/QLC NAND: Triple-Level Cell/Quad-Level Cell NAND, flash memory storing three (TLC) or four (QLC) bits per cell, used in differing performance and capacity storage devices.
  • DRAMless Controller: SSD controller design that operates without integrated DRAM, reducing component cost and power usage.
  • DPU: Data Processing Unit, specialized processor used to offload data-centric tasks from CPUs in high-performance computing and networking.
  • CMX: Content Memory eXtension, a specialized cache or storage enhancement for AI workloads, referenced as a new SSD/compute storage design by NVIDIA and others.
  • LDPC: Low-Density Parity-Check, an advanced error correction technology deployed in SSD controllers for enhanced data reliability.

Full Conference Call Transcript

Thomas Andrew Sepenzis: Good morning, everyone, and welcome to Silicon Motion's First Quarter 2026 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments, and then Jason will discuss our first quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we begin, I would 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 U.S. Securities and Exchange Commission.

For more details on our financial results, please refer to our press release, which was filed on 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 consistent with 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.

Chia-Chang Kou: Thank you, Tom. Hello, and thank you for joining our call today. I'm pleased to report another quarter of better-than-expected results, highlighted by record revenue of $342.1 million. Growth and operating margin both exceeded our guidance as stronger-than-anticipated revenue drove improved overall profitability. We saw strong performance across embedded eMMC and UFS as well as our Ferri and boot drive solutions, driving solid growth this quarter, following an exceptional start and given our current pipeline of win across all our markets, I'm confident that we will deliver meaningful growth throughout what should be a record revenue year for Silicon Motion. Now let me first address the current market environment.

The memory and storage market continue to create significant challenges across the market in which we operate. NAND prices continue to rise sharply with a sequential increase of about 55% to 60% in the first quarter of 2026. AI adoption has driven significant demand across all memory and storage technologies, including HBM, DRAM, NAND and HDD. Growing demand from hyperscalers and cloud service providers for AI infrastructure deployment, combined with the low NAND bit growth and insufficient DRAM capacity have led to significant scarcity, negatively impacting many markets include smartphone and PC, particularly in the low end.

Despite these challenges, we executed well in the first quarter with our backlog design win and new opportunity ramping throughout the year, we are confident in our ability to deliver solid growth. We have spent many years developing deep relationship with the NAND flash makers, which have allowed us to gain share as NAND makers outsource more of their controller requirement. These strong relationships have also allowed us to secure NAND in the difficult environment as we ramp our Ferri and enterprise boot drive business and help our module maker and AI smart storage system customers secure NAND, making us an even more valuable and strategic partner.

While we expect the NAND shortage will remain challenging throughout 2026 and '27, we have never been better positioned. We have and will continue to benefit from the fundamental shift by the NAND maker towards higher-end and high-capacity enterprise and data center solutions, driving a greater reliance on Silicon Motion to serve the consumer market and opening a new opportunity in automotive and lower density storage solution. As a company, we are at the start of the wholesale transformation as we scale our new cloud AI opportunity with our enterprise MonTitan controller and boot drive storage products, which will drive meaningful growth to both our top and bottom line going forward.

We are also benefiting from our edge AI opportunity, including smartphones, PC, automotive, IoT and other applications where we are seeing a rapid shift toward next-generation storage capabilities. Silicon Motion is playing a pivotal role with an expanding pipeline of products spanning edge AI and cloud AI platform in 2026 and beyond. Given our current backlog and design win pipeline, we expect sequential growth across our product portfolio in 2026 as we capitalize on our investment, gain share in existing markets and benefit from our diversification strategy, starting with another strong sequential quarter of growth of 15% to 20% in June.

I will now discuss our embedded eMMC and UFS business, which include controllers for smartphone and other IoT and connected devices. AI is fundamentally reshaping how memory and storage makers are allocating capital. Memory and storage makers are increasingly redirecting internal resources towards DRAM, HBM and other high-performance memory technologies for AI workload and stepping back from edge market, including phone and other smart devices. For the first quarter, our mobile business was up between 30% to 35% sequentially and over 140% year-over-year, significantly outperforming the industry as share gain further fuel strong growth for our business. The mobile market is undergoing a rapid shift as NAND manufacturers accelerate the outsourcing of controller to third party, especially Silicon Motion.

Some NAND makers are also finding increasingly attractive to monetize wafer rather than investing in development of complete eMMC and UFS solutions for smartphone. Module makers have stepped in to fill this gap, and they rely heavily on Silicon Motion controller and firmware. Our relationship with the NAND supplier and our ability to assist our module maker customers in securing NAND put us in the best position to benefit from the rapidly shifting landscape in the mobile market. Looking ahead, the smartphone market is likely to stay pressured due to ongoing NAND and DRAM supply constraints. Chinese handset OEMs are expected to face greater headwind than Apple, given Apple's purchasing scale and Samsung given its captive memory supply.

At the start of the year, we projected global smartphone unit volume will decline by 5% to 10% in 2026. However, recent estimates suggest the decline could be more than 10% year-over-year with a greater weakness concentrated in China. Importantly, much of this unit pressure is occurring at the low end of the smartphone market, where we have limited exposure. Elevated memory and storage costs make it increasingly difficult to produce low-cost smartphone, a dynamic we expect to persist through at least the end of '26 to '27. Our eMMC business remains stronger than expected, driven by multiple markets, including automotive, smart TV, AI glasses, smart watches, next-generation set-top box that demand higher capacity storage and many others.

The market for eMMC are large and growing at over 900 million units sold every year. With major flash makers essentially gone from this segment, competition is decreasing and our revenue contribution from this market is growing. Based on our current backlog, customer forecast and continuing share gains, we expect another very strong year of growth in our embedded eMMC and UFS business with share gains dramatically outpacing the macro pressure on smartphone unit sales. Moving on to our SSD business, which includes edge SSD and enterprise controllers.

In the first quarter, our overall SSD controller business revenue declined approximately 10% sequentially, in line with the seasonal trend, but was up approximately 45% year-over-year as we benefited from the early impact of PCIe 5 on our mix and the early ramp of our MonTitan controllers. For our edge SSD business, our client SSD controllers are utilized in a variety of products, including PC, gaming console and PC workstation. The PC market has been a challenging area so far this year given supply constraints and high prices associated with both NAND and DRAM.

PC manufacturers are lowering specification for new computers and passing on higher NAND cost to consumers, which we expect will contribute to overall unit decline in the PC market in 2026, especially at the low end. Fortunately, for Silicon Motion, our products span the market from value line to the high end, and we continue to gain share across the range of devices as the NAND market makers exit the consumer segment. 2026 will be a defining year for our client SSD business. PCIe 5 began to displace older technologies. Our 8-channel PCIe 5 controller leads the market in performance and ramp steadily throughout 2025.

While we expect a DRAM supply constraint could limit growth of this high-end controller in 2026, it is still highly sought for this unmatched power and performance. In December, we launched our 4-channel DRAMless PCIe 5 controller and at a mass market, and we expect this to become the volume leading PCIe 5 chip in our portfolio this year. This controller bring PCIe 5 performance to a broader audience at a more accessible price point and remove a significant component hurdle for our customers at the time when DRAM availability is constrained and the costs are elevated.

We have our NAND flash maker customer for each of our PCIe 5 controller well as nearly all the module makers and expected to drive higher ASP and improve margin in our client SSD business throughout 2026 as PCIe 5 grow as a percentage of our sales mix. Entering this year, we estimate that the PC market will experience unit decline of 5% to 10% in 2026, given the tightening NAND and DRAM supply and increased prices. Current expectations are a bit lower with anticipate unit decline now in the 10% plus range.

Despite this, we expect to grow our edge SSD business through a combination of increased market share and higher ASP as our PCIe 5 controller continue to ramp and as NAND flash maker retrieve from edge market in favor enterprise and cloud AI. For our MonTitan enterprise controller business, our cloud AI opportunity in the data center and AI infrastructure are growing rapidly, and we are in the early innings. NAND is a central part of enterprise and AI infrastructure deployment spanning warm storage, compute storage and increasingly near CPU and near GPU storage applications.

The need for speed, lower latency, greater power efficiency is driving a technological shift in the data center, and MonTitan is squarely in the middle of the transition. MonTitan when paired with the TLC NAND power high-performance CMX, KVCache and compute SSD using near CPU and near GPU environment. When paired with the QLC NAND, MonTitan enable high-capacity, high-performance enterprise and AI data storage. During the December quarter, end user qualification of TLC-based and high-performance compute SSD powered by MonTitan began with multiple customers. This qualification have been progressing well, and the end customers are now expected to begin volume commercial ramp in the current quarter, one quarter earlier than expected.

Currently, we see greater demand for TLC-based CMX compute and KVCache SSD controller than for QLC given a slower rollout of 2 terabit NAND than initially expected. While we anticipate more initial revenue contribution to come from TLC configurate MonTitan solution, we believe QLC configure solution will begin contributing more meaningful later this year and long term. High capacity storage SSD leveraging QLC NAND will represent the largest addressable market for MonTitan, and we expect to begin ramping multiple customers as broader availability of the next-generation 2-terabit QLC NAND die become available from nearly all NAND makers and as supply returned to more normal levels.

Our QLC solution offer meaningful advantage over HDD for AI inference workload, faster assets, higher speed, lower power consumption and improving cost to jatterory. I'm excited to announce that our MonTitan customer plan to begin ramping of 3 Tier 1 Asian CSP and 2 U.S. Tier 1 CSP later this year with both TLC compute and QLC1ory SSD solutions. In the third quarter, we expect to tape-out our first 4-nanometer controller, a PCIe 6 MonTitan controller targeting hyperscaler and CSPs. It has been developed in close collaboration with multiple partners and customers, and we expect it to drive the next phase of MonTitan growth beginning in the 2027, '28 time frame.

Importantly, we have already secured design wins with multiple Tier 1 customers with volume expected to ramp meaningfully in 2028. Given the traction we are seeing and the progression of end user qualification for both TLC and QLC implementation of MonTitan, we are increasingly confident that the business will grow rapidly throughout this year and at our target run rate of 5% to 10% of our now expanded 2026 revenue expectation with further growth anticipated in 2027 and beyond as our entry into the enterprise market scales meaningfully over time. And finally, I would like to provide an update on our Ferri and the boot drive storage business.

Our Ferri and boot drive storage business delivered exceptional performance in the March quarter as we began scaling several new projects in Ferri for automotive as well as in our emerging enterprise boot drive business. So this business are growing rapidly this year. Sourcing NAND is becoming more critical to our long-term success. Our unparalleled relationship with the NAND maker has become a key differentiation and has enabled us to secure NAND from 3 different makers, which will ensure we will remain a resilient supplier of Ferri solution and boot drive for our customers despite the increasing supply constraints. NAND supply allocation for 2026 were largely finalized by all flash makers by mid last year.

Our ability to secure NAND has given us a meaningful competitive advantage as we are one of few suppliers globally able to consistently source NAND to support our customers' accelerating requirements. Ultra storage is rapidly becoming one of our most exciting growth opportunity as we are actively engaged with multiple customers to build solutions that operate across a variety of platforms. This includes leading DPU, Ethernet and NVLink switches and other opportunity across different AI infrastructure architecture. In the fourth quarter of 2025, we began volume boot drive shipment to a leading AI GPU manufacturer for their current DPU product.

In the first quarter, we worked with that customer to qualify next-generation DPU design as well as Ethernet and NVLink switches of their new GPU CPU platform to be launched in the second half of this year. As our customers transition to the next-generation GPU CPU platform, our opportunity is increasing rapidly with a much broader footprint beyond the DPU boot drive and with the density that increased 2 to 4x from the previous generation. We anticipate strong revenue contribution and growth with this customer this year and throughout 2027. In addition to this customer, we have recently won a design with a leading telecommunication infrastructure provider and will be ramping initial scale with them later this year.

We are also sampling with a leading search engine company for its TPU architecture as well. And we will continue to develop a new boot storage device built around our leading controller to drive future growth. Our Ferri business is experiencing strong demand from automotive and industrial customers as the NAND maker continue to shift away from lower density solution to focus on higher ASP, higher-density enterprise solution. Our more than 10 years of developing automotive-grade a solution provides significant differentiation by offering reliable supply, proven technology, dedicated technical support and qualification expertise tailored to the automotive market.

As a result of this investment, demand from global automotive OEMs and their subsystem supplier continue to accelerate across the U.S., Europe, China and Japan. We are gaining meaningful share, creating a strong pipeline of near-term revenue and long-term sustainable growth opportunities. In conclusion, the first quarter was exceptional, delivering our highest quarterly revenue at Silicon Motion as we continue to drive meaningful share growth across our markets. Despite ongoing supply constraints and price increases associated with the NAND and DRAM, we continue to expect that we will deliver sequential growth throughout 2026 as we reap the benefit from the investments we have made over the past few years.

This growth was across all our major business propelled by our growing cloud AI opportunity with our enterprise AI product, including MonTitan and our emerging boot drive storage business that are just beginning to ramp. We are in the strongest position in our company history with a deeper product portfolio, growing foothold in edge and cloud AI with multiple opportunity growing in tandem in the legacy and new markets. The successes we have made through the partnership with all the NAND makers over the past many years have given us an unparalleled advantage as we leverage these relationships to gain access to NAND supply.

This relationship as a strategic differentiation for our company, and I am extremely confident in our ability to deliver broad-based sustainable growth as we scale both established and emerging opportunities across the business in 2026 and beyond. Now let me turn the call to Jason to go over our financial performance and outlook.

Jason Tsai: Thank you, Wallace, and good morning, everyone, for joining us today. I will discuss additional details of our first quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. The reconciliation of our GAAP to non-GAAP data is included in the earnings release issued yesterday. This was an outstanding start to the year for Silicon Motion as our investments over the past several years are bearing fruit. We're gaining share across our entire portfolio in a difficult macro environment and rapidly expanding into new opportunities in edge and cloud AI applications, which should drive -- which should continue to drive significant top and bottom line outperformance.

In the March quarter, sales increased 23% sequentially and 105% year-on-year to $342.1 million, coming in well above the high end of our guided range, delivering our second consecutive quarter of record revenue. Outperformance in the quarter came primarily from our embedded eMMC and UFS controllers and strong growth in our Ferri and boot drive storage business. Gross margin was 47.2%, above our guided range of 46% to 47% as we capitalized on new product introductions. Operating expenses increased sequentially to $99.2 million, given increased investments in our emerging MonTitan AI and enterprise SSD controller and boot drive storage solutions. Operating margin was 18.2%, above our guided range, driven by higher-than-expected revenue and gross margin during the March quarter.

Earnings per ADS was $1.58. Total stock compensation, which we exclude from non-GAAP results, was $8.4 million in 1Q '26. We had $210.9 million cash, cash equivalents and restricted cash at the end of the first quarter compared to $277.1 million at the end of the fourth quarter of 2025. Cash decreased in the first quarter due to a combination of dividend payment of $16.9 million and an increase in inventory to support our expected strong business ramp. Our team is executing exceptionally well in this challenging NAND and DRAM pricing and supply environment.

We continue to invest in advanced geometry products for both our established markets and our emerging enterprise markets, including MonTitan SSD and enterprise boot drive storage solutions. These investments will continue throughout 2026 as we support the growing demand for our enterprise portfolio. For the second quarter of '26, we now expect revenue to grow 15% to 20% sequentially to $393 million to $411 million. We see strength across nearly all our product segments with an emphasis on continuing market share gains and new cloud AI opportunities with our MonTitan and boot drive business as they ramp.

Gross margins are expected to increase sequentially to 48.5% to 49.5% in the June quarter, given the product mix assisted by greater contribution from MonTitan and our PCIe 5 controllers. Operating margin is expected to be in the range of 21% to 22%, and our effective tax rate is expected to be 19%. Stock-based compensation and dispute-related expenses is expected to be in the range of $3.6 million to $4.6 million. 2026 is on track to deliver record revenue for Silicon Motion with strength across all of our major product lines. We expect sequential top line growth for the remainder of the year with further improvements in profitability.

We still anticipate additional development costs, which will drive higher operating expenses in the second and third quarters of this year, which will be more than offset by higher revenue and gross margin performance. We anticipate our full year 2026 operating margin to improve as compared to '25 despite our higher investments this year. We are navigating the current memory and storage supply constraints and high pricing environment with remarkable success, driven by our relentless strategy of relationship building with NAND flash makers over the past 20-plus years. We are also beginning to reap the benefits of our multiyear investments in eSSDs for enterprise and AI with MonTitan and our growing boot drive storage business beginning to ramp in volume.

Our leading position in merchant controller, combined with unmatched NAND maker partnerships will drive higher share across eMMC and UFS, client SSDs, enterprise, automotive, boot drives and the high-performance, high-capacity enterprise and data center storage markets. We expect this will lead to significant revenue growth for Silicon Motion in 2026 and the years to come. I look forward to sharing more detail on our progress when we report next quarter. This concludes our prepared remarks. I'd like to open up for questions now. Operator?

Operator: [Operator Instructions] We will now take our first question from the line of Neil Young of Needham & Company.

Neil Young: So it obviously sounds like everything is supposed to grow quarter-on-quarter throughout the year. But maybe specifically looking to 2Q, could you sort of rank the segments on what you think should grow the most and what you think should grow the least?

Jason Tsai: We anticipate growth, as I said, across all of our business segments. I think, obviously, we've had some very strong growth in eMMC and UFS early on in the year. If you take a look at our automotive, Ferri and our boot drives, we're just in the early stages of that ramping. So we do anticipate stronger growth from those products. And then certainly, the rest of the other products continue to grow as well throughout the -- for the quarter.

Neil Young: Okay. And then I have a follow-up. So within the eMMC and UFS business, it sounds like it's diversifying a little bit away from handsets. Could you maybe update us on the mix of handset revenue in the business versus sort of the broad markets that you talk about?

Chia-Chang Kou: So for our eMMC and UFS controller business, UFS majority is in handset. I think eMMC majority is in the smart devices such as smart glasses -- and IoT device, smart TV, new set-top box and smart door lock and many others is going to the automotive. So I think the -- although the smartphone unit shipment will decline, but our overall eMMC UFS controller shipment will continue to grow throughout the year.

Jason Tsai: Neil, we also anticipate MonTitan to begin to ramp more meaningfully in the second quarter -- starting in the second quarter as well. So that will be another growth vector for our second quarter.

Operator: We will now take our next question from the line of Mehdi Hosseini of Susquehanna Financial Group.

Unknown Analyst: So this is Amy filling in for Mehdi. The first one is with the new SM8008 product launch in March, can you give a bit more color on the boot drive revenue trajectory? I know the contribution of revenue is small this year. So how should we frame the ramp from here? And what does a more meaningful contribution year look like? And I have a follow-up.

Jason Tsai: So we don't break out those segments specifically. But as I said before, we do anticipate boot drives and Ferri to be more meaningful contributors of revenue in the second quarter as well as throughout 2026. SM8008 is a boot drive controller that was introduced, and that will be part of the portfolio of solutions that we have in this category of products, but we have other solutions here as well that have been ramping.

Chia-Chang Kou: So I mean, let me add some comments. For SM8000A, our PCIe Gen5 high-end boot drive controller, primarily selling the controller and the firmware to the customer who make a boot drive solution. So for this year, most of our boot drive solution were not based on 8000A controller. This is only ship specific to certain customer, major customer, that will start to ship by late this year.

Unknown Analyst: Got it. Really helpful. And my next question is regarding the revenue diversification. Do you remain on target to have 20% of your total revenue from a mix of MonTitan boot drive and auto?

Chia-Chang Kou: Yes. We definitely will reach the goal. I think we quarter-by-quarter figure. We didn't give a full year guidance, but wait for our next quarter results and the guidance for Q3.

Operator: We will now take our next question from Suji Desilva of ROTH Capital.

Sujeeva De Silva: Wallace, Jason, Tom, congratulations on the progress here. Perhaps you can give us some fundamental color here. Maybe understanding how the second half versus first half-over-half revenue would be this year perhaps versus typical years? And is 50% gross margin potentially in the near future? Or any puts and takes there would be helpful.

Chia-Chang Kou: I think, first of all, 50% gross margin is definitely achievable. We're confident for this year. The second is we cannot give you the -- we just say quarter-by-quarter sequentially. So we'll continue to grow quarter-by-quarter, but we cannot give you a percentage regarding first half, second half.

Sujeeva De Silva: Okay. Jason, can you remind us what the typical year is? Or do you have that data?

Jason Tsai: Yes. I mean, typically, we're about 45, 55, somewhere in that ballpark.

Sujeeva De Silva: Great. And then my other question is around MonTitan. Can you give us an update on how many customers are ramping today that are going to ramp start near term and how many you have or pipeline? Any update on MonTitan number of customers would be helpful.

Chia-Chang Kou: So MonTitan, we are ramping today in production with 2 customers, but we are going to have 5 additional major customers from CSP by late this year, 3 from Asia, 2 from U.S.

Operator: We will now take our next question from Gokul Hariharan of JPMorgan.

Gokul Hariharan: Great results. So Wallace, I just wanted to dig in a little bit on your comment about having more interest on the MonTitan solution from TLC NAND and KVCache, especially for the CMX piece of the equation. Could you talk a little bit about what has changed there, given I think previously, I think you were a lot more optimistic about the QLC NAND solution, and that was kind of like the key selling point for MonTitan given Silicon Motion's experience in managing QLC NAND.

And in addition to that, can you also talk a little bit about how is the adoption that you're seeing from a lot of these customers on the CMX solution or the previously called ICMS solution -- is that largely the 5 customers or at least the 2 non-Asia customers that you're seeing ramping up along the CSPs? Is that related to the CMX solution?

Chia-Chang Kou: Okay. You have a very long and good questions. Let me try to answer one by one. First of all, because the NAND price increased dramatically and because the NAND supply shortage and the most of the majority output and taken away by the CSP customer. Now because the NAND price increased dramatically, so the customer who originally designed with the QLC with 128 terabyte, even higher capacity, they have certain drawback because the price increased almost 5 to 10x compared with a year ago. It is very, very unlikely. So we see more demand, either the QLC capacity reduced or they're shifting more for compute storage.

As everybody know, compute storage, we say is the compute SSD, which is next to CPU and the new compute SSD, which is called by NVIDIA CMX content memory storage is for KVCache for AI inference is also use TLC because latency is very, very important. So we see more and more customers moving to TLC with a smaller capacity like 4 and 16 terabyte. And this is really a benefit for Silicon Motion because we ship more controller.

But for QLC, we also still have 2 customers continue and ramping later this year, and they are able -- we can help -- we help them to secure NAND supply because the QLC 2 terabit today only have 3 NAND maker can provide the production. I think wait for 1 more year, we see all the NAND maker can produce QLC availability will be better. We will see more demand for high-capacity QLC and supply will become more normal. So that situation we see.

Regarding the CSP customer, because MonTitan are one of the unique technology called performance shaping, which is very, very good for AI inference because when AI inference go to KVCache, you need to have managed multiple token and our MonTitan have the architecture can handle 4 tokens simultaneously. That's why the many, many leading customers and CSP like the great architecture. That's why we see demand is very, very high from U.S. to Asia.

Gokul Hariharan: Got it. That's very clear. Just on the client SSD controller side, I do notice that the strength is still very robust even in a reasonably challenging PC market. Do you sense any pull-forward demand from some of these customers? Because this is something that we hear from some of the other vendors that even though end demand has been not that great, there's been some pull forward demand, customers trying to stock up inventory ahead of cost hikes and price increases. Is that something that you're seeing among your customers?

And secondly, when you talk about NAND makers exiting this market, does it change the threshold in terms of what kind of market share you could eventually have of client SSD? I think previously, you've talked about maybe 50% or 40%, 50%. Is that threshold increasing given the industry trends we are seeing?

Chia-Chang Kou: Okay. I think you asked a very good question. As everybody knows, the NAND supply is shortage and the NAND maker allocate less SSD to PC OEM customers. But this trend benefit for Silicon Motion because, first of all, we get a more outsourcing project from NAND maker for PC OEM. Second, and because the module maker, they step up to fill the gap because we own almost majority module maker to design our controller for PC OEM. And that's why although we see the PC unit shipment might decline 10% or more, but we will continue to gain market share, and we see the client SSD business continue to grow.

When the PCIe 5 moving from high end to mainstream and PC OEM and shipping more PCIe 5, we benefit much more because ASP is higher and also we dominate for PCIe 5 more than 50%. So we see a market share gain continually when PC OEMs start to ramp the 4-channel DRAMless PCIe 5 controller.

Operator: We will now take our next question from the line of Sebastien Naji of William Blair.

Sebastien Cyrus Naji: On the strong results and guidance. My first question is on the share gain momentum that you're seeing, particularly in the mobile and PC markets. How do you think about the trajectory of those share gains? In other words, have you seen maybe more meaningful share gains been front-loaded here Q4, Q1, Q2 of this year? Or is there significantly more runway for you to keep taking share as we move into the second half and even into 2027?

Chia-Chang Kou: Our goal is to continue gaining market share. When NAND maker, now they have limited R&D resources, and they probably will outsource more projects to Silicon Motion. So we try to reserve all the R&D, and we're very busy to catch all this outsourcing opportunity. And we see we continue to gain the embedded eMMC and UFS controller business as well as client SSD for PC OEM because retail for client SSD almost gone. It's very, very low. We see the PC OEM, but we have a much broader customer to provide the SSD solution to PC OEM, not just NAND maker. There'll be more module maker coming too.

Sebastien Cyrus Naji: Great. Great. Okay. That's nice to hear. And then my follow-up is just on the boot drive opportunity. Can you just remind us what the competitive landscape looks like? Who else might be in a position to provide these types of boot drive controllers? And then relatedly, how should we think about your share in that market? Should it be higher than in some of your other subsegments? Or should it be pretty similar? Any pointers there?

Chia-Chang Kou: So for our first engagement for the DPU BlueField 3, there will be 3 makers provide the solution. Two other NAND makers also use the Silicon Motion controller, but different controller, different NAND. And we also -- with our additional different controller to support. But I think through the engagement, I believe the customer will like to focus on the new generation DPU and also provide much more deeper NVLink and Ethernet, the C69 switches project to us because for the new generation boot drive, security becomes very critical. I believe today, we are probably only one to have a specific security in our firmware and hardware in our controller.

And we have a unique firmware with -- to manage the NAND into a pseudo LC mode, provide specific function for the end customer. So that's why we believe we probably have a majority of the new generation boot drive in this particular customer.

Operator: We will now take our next question from Tiffany Yeh of Morgan Stanley.

Hsin Yeh: On the great results. And my first question would be, could you share with us your latest view on the TAM for the MonTitan or the overall eSSD market and also your targeted market share in the overall market? And I have a follow-up.

Chia-Chang Kou: We see MonTitan now get tremendous attention and a very, very broad design win. We're very happy in our progress. We see we'll continue to gain market share. We see MonTitan, even for PCIe Gen 5 and associate product, we will grow to at least 5% to 10%, aligned with our expanded 2026 revenue and '27. Our PCIe Gen 6 MonTitan even stronger even before we tape-out, we have multiple design wins from Tier 1 customers, including 2 NAND maker and several CSP customers. So this is bringing a very, very broad and long-term commitment and for development.

We see the -- our PCIe Gen 6 MonTitan also have a very, very unique technology with 160x LDPC and support both TLC and QLC for next-generation QLC. So we have a very, very broad customer waiting for the product, and we'll continue ramping PCIe Gen 5 and waiting for PCIe Gen 6 for design win pipeline.

Hsin Yeh: All right. Very clear. And my second question would be, as we see elevated material costs and also the OSAT costs, would you consider conduct price hike on your product to pass through all these costs to your customers?

Jason Tsai: I think we've developed a very good relationship with our back-end packaging and testing as well as our suppliers. Look, I think our goal here is to maintain our gross margins in this 40% to 50% range, and we're comfortable through our existing relationships with our suppliers as well as our relationships with our customers that we can maintain that pricing. We're not going to go into specifics about pricing changes with customers, but we're confident that we can maintain our margin...

Chia-Chang Kou: Let me add a comment. At the moment, our concern is not in the price increase regarding manufacturing side. Our main concern is the Ton material for the BGA substrate because it's very, very tight and supply is very limited. We have to fight with all the U.S. Tier 1 customer. But our operation worked very hard with both the Japan customer directly and work with all the Taiwan manufacturers. And so we try to overcome the challenging and manage supply to make sure we can meet the customer demand.

Operator: Do you have any follow-up question, Tiffany? We will proceed with our next question from the line of Craig Ellis of B. Riley Securities.

Craig Ellis: Congratulations on the great performance, guys. I wanted to ask an intermediate to longer-term question. Wallace, congratulations on what appears to be really significant MonTitan customer diversification through this year, and you've got a boot drive position that seems to be broadening out significantly in next-generation drives through the year and auto with Ferri is expanding nicely as well. So the question is this, as we look at reports seeing that memory-related order pipeline is happening deep into 2027. And as you exit this year with a much broader customer and program footprint, how do you feel about supply availability next year? And are you seeing from your customers extended order visibility? And if so, where is that happening?

Chia-Chang Kou: I think for this year, NAND supply is a little challenging to us. It's not because the NAND maker won't provide NAND supply to Silicon Motion because we provide the PO were late last year because the NAND maker and DRAM maker, they almost finished allocation before August time frame. And this is why we -- but through our strategic relationship and deep partnership and presentation with the NAND maker, we're able to secure the full supply for 2026. Now for next year, we will start to provide our demand to our NAND partner in advance. So we are pretty sure and we are able to secure all the NAND we need for '27 growth.

And I believe 2027 DRAM and NAND supply will be more severe than 2026. But the DRAM will get easier from late 2027 to '28 because all the new mega fab start to ramp from second half 2027. And I think Micron, the second fab in Boise will ramp from second half 2028. But I think the NAND will start to see release probably from early '28 or second half '28, but still in shortage. But we will try to maintain the position, make sure we secure all the NAND in advance, meet our customer demand and meet the growth demand.

Jason Tsai: And also keep in mind, Craig, we have -- we're sourcing from 3 different flash makers. So we've got a really good range of suppliers to work with.

Craig Ellis: That's really helpful color, guys. And then for the second question, I think just thinking near term about how some of the hydraulics play out in the second half of the year with product-related investments. It sounds like there'll be some asset costs for PCIe Gen 6, but you're also looking for much higher revenue and higher gross margins. So can you talk a little bit more the gives and takes that we should be thinking about in the middle of the back half of the year?

Jason Tsai: Yes. I think from an OpEx standpoint, we will have our OpEx obviously higher this quarter, and then that will probably tick up a little bit in the third quarter as well as some of these tape-out costs come in. And then our expectation for timing is that fourth quarter, those we should have a lot less development costs, so that will come down. Overall, we expect to see margins continue to improve, operating margins continue to improve throughout this year.

Chia-Chang Kou: Let me add some comment. Silicon Motion procure NAND is not like a normal customer. We are a strategic partner for NAND maker because we are a mutual business, and we engage their project to many, many large-scale customers, too. So they treat us as a partner, not just a normal buyer for NAND.

Operator: We have reached the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn back to Mr. Wallace Kou for his closing comments.

Chia-Chang Kou: Thank you, everyone, for joining us today and for your continuing 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, and we look forward to speaking with you at this event. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.