Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation's First Quarter 2024 Earnings Conference Call. [Operator Instructions].

This conference call contains forward-looking within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended.

Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial condition and business prospects.

Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them..

These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons.

Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices; unpredictable changes in technology and consumer demand for multimedia consumer electronics; the state of and any change in our relations with our major customers; and changes in political, economic, legal and social conditions in Taiwan..

For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements, which apply only as of the date of this conference call.

Please be advised that today's call is being recorded..

I would now like to hand you over to the Interim Chief Financial Officer, Mr. Jason Tsai. Please go ahead. .

Thank you, and good morning, everyone, and welcome to Silicon Motion's First Quarter 2024 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO; Wallace will first provide a review of our key business developments, and then I will discuss our first quarter results and outlook.

Following our prepared remarks, we will conclude with a Q&A session. .

Before we get started, I'd like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the 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. .

The 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. The reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. .

With that, I will turn the call over to Wallace. .

Thank you, Jason. Hello, everyone, and thank you for joining us today. We had a good start to 2024. We delivered sequential revenue growth ahead of our expectations, achieved gross margin at the high end of our guidance range and exceeded our operation margin outlook. .

Our SSD controller business was better than expected, primarily driven by demand from 2 of our flash maker customers. We continue to improve our pricing in the quarter, which is driving the steady improvement in our gross margin and profitability. .

Our results this quarter reinforce our leadership position in controller technology and our products continue to be in high demand because our customer recognized how important our technology, innovation and service are to their business. .

[indiscernible] Micro environment remains uncertain, I'm pleased by our teams execution in this quarter. We are taking the right steps to efficiently navigate in market dynamics, remain steadfast in delivering the products and solutions our customers need and focus on continuing growth, improving profitability across our platform. .

Let me start now with an overview of NAND market and dynamics we are in today.

We have seen NAND flash prices continue to increase since the late last year and more recently, have seen flash maker gradually increase utilization in their past, but more meaningful capacity increase from the build out on next generation NAND flash is unexpected until next year. .

Demand remained robust, especially with Chinese handset OEMs as well as with enterprise and data center storage markets, while PC demand has been steadily increasing. All of this will continue to drive NAND flash prices higher throughout this year. .

We are seeing some near-term pricing fluctuations in the China's SSD market, that may cause some uncertainty with our customers that are more focused on the retail aftermarkets. But demand for our controller for PC OEM and SSD remain robust, especially with our flash maker customers. .

Our leadership in controller technology continued to drive stronger demand across the board with our customers. It is becoming [ serious ] each day that our experience and expertise with QLC NAND is a defining differentiator that has resulted in significant wins with the flash makers and other customers across all product categories. .

With the 3D NAND layer continue to increase, managing QLC NAND become even more challenging and continue to require more sophisticated controller technology to ensure high-data retention and we do rewrite if there are any issues. .

Our advanced LDPC in the 3D Ray technology are the best in class to protect data during high-speed data transfer between the controller and the NAND and operate on the wide temperature range.

We can deliver controller that enables a no-compromise, high-performance and low-cost solid state storage solution incorporating the latest generation of QLC NAND, especially with the rapid adoption of AI, whether it's in edge devices like PC and smartphone or in the data center and enterprise storage..

QLC star devices are becoming increasingly central to AI application and growth going forward. OEM no longer need to choose between high performance or lower cost.

With QLC, especially upcoming 2 terabyte [ mono die ] QLC NAND, we're able to have high sequential read performance, high density and lower cost solution to meet their ever-increasing AI compute and store requirement. .

Now let me start with our SSD controllers. We are seeing strong traction with our new PCIe Gen5, 8 channel controller we tape out last year. This is the first 6-nanometer 8-channel PCIe Gen5 controller available in the market, and we are winning, it is virtually every top module maker in addition to our 3 flash maker customers..

The result from our early testing has been very good. This is a premium product that will be ideally, solely for high-end notebook and desktop, AI, PC as well as for gaming and workstation PC that offer unparalleled performance with ultra-low power consumption..

In addition, we have a strong pipeline of design activity with several flash makers for PCIe Gen4 SSD using in their next-generation TLC and QLC NAND. This deliver a high performance, high-density, low-cost SSD ideal for rapidly growing AI PC market..

Beyond the PC market, we also have automotive-grade PCIe Gen4 controller win with 2 of our flash maker customers that will ramp with a leading electrical car platform next year.

We also expect to tape out our due for PCIe Gen5 controller for the automotive market next year for several of our flash maker customers to further our leadership in the market..

We are confident that our broad based SSD controller solution will continue to scale this business meaningfully this year and into 2025, as many of these new products in platform begin to ramp..

Moving to our eMMC+UFS controller. We have successfully tape out our first UFS 4.0 controllers in the first quarter and are on track to start qualification with this new controller in the second half of this year.

We also continue to see stronger than ever demand for our UFS 3.1 and 2.2 controllers, especially to support new generation of low-cost NAND..

In addition to several top module markers serving the smartphone market we started ramping up a new flash maker customer for UFS 3.1 and 2.2 this quarter. And this customer is expected to ramp with our UFS 4.0 controller next year..

While the smartphone market has predominantly used QLC NAND. We are now seeing increasing interest of QLC NAND, especially in mainstream handset where the OEM can offer higher density without significant increase in cost..

We are collaborating with one of the leading handset OEMs directly for QLC UFS solution that is expected to come to market later this year for their mainstream smartphone.

We expect the demand for QLC UFS product especially in mainstream and entry-level 5G smartphone will continue to increase this higher-density low-cost UFS solution will be required to drive adoption of AI beyond the premium segment of the smartphone market over the next few years..

In addition, we are seeing a significant traction with our eMMC and UFS controller in the automotive market as well as in commercial, industrial and other connected and smart devices. This non-smart qualification account for more than 40% of the overall eMMC+UFS market today..

With the market automotive application growing faster than smartphone market, we are working with several flash makers and building eMMC and UFS controller for this customer, especially for the automotive market and expect this to scale meaningfully in the next years to come..

Now let me turn to our MonTitan platform that we have talked about before, the enterprise data center starting market are tremendous opportunity that we believe we now have a truly differentiated solution with MonTitan to scale with the flash makers and solid solution enabler as well as directly with data centric and enterprise customers..

Based on market data from Gartner and IDC as well as our own analysis, we anticipate the market for enterprise SSD for both enterprise storage and data center will grow by more than 50% to approximately 35 million units by 2027.

But more importantly, the market for PCIe Gen5 SSD is expected to increase more than 5 times to more than 60 million units in 2027..

QLC based SSD are expected to account for nearly 30% of the total paid-up volume in 2027, up from less than 10% in 2023, representing a huge growth opportunity that we are uniquely positioned to lead. .

Our first MonTitan PCIe Gen5 controller, well-managed TLC or QLC NAND on the single platform, enabling the seamless transition and adoption of QLC NAND with enterprise and data center solid application long term..

I'm excited to announce that we have won 2 Tier 1 customers in the first quarter for the MonTitan PCIe Gen5 controller, 1 in the United States and 1 in China and are expected to begin ramping later next year..

We continue to [ suffer ] with more than a dozen additional customers expect to secure more wins throughout this year. We are on track to begin mass production late this year and ran more meaningfully next year..

Our earnings success here has been our ability to differentiate with our high performance and power efficient controllers that support more NAND including TLC and QLC for high-capacity SSD than any other platform in the market today..

Using our patented performance and power shipping technology, we enable our customers to dynamically adjustable peak performance versus low power consumption, depending on the various workload requirements to achieve the best results.

We are seeing inbound interest from the world-leading data center providers because of our ability to deliver high density, high performance, low-cost TLC and QLC SSD for the increasingly data-hungry AI compute and storage needed..

Given our proven-track record of managing more QLC NAND than any one other vendor in the market over the past decade, we can leverage our unparalleled experience expertise with QLC into the MonTitan controller platform. To build SSD solution that can effectively display portion of the new line HDD with high-capacity new line SSD..

These solutions offer a lower [ TCO ] compared to legacy HDD due to their smaller compacted, higher storage densities, lower power consumption and higher reliability and resiliency.

We see an incredible market opportunity here to differentiate with our MonTitan platform and deliver solutions that are critical to the further build out and adoption of AI in the enterprise and data center, driving a multiple-year growth cycle for the company..

Overall, I'm excited by a strong start to 2024 and the achievable opportunity on our horizon for the rest of the year. Beyond our strong results, our underlying business momentum continue to accelerate as we add more products and more wins to drive a sustainable long-term growth of our business..

We continue to see very strong traction across the board with the controllers. We are beginning -- bringing to the market and have greater confidence that our strategy to diversify beyond DC and smartphone aimed to new opportunity in the enterprise and automotive market will soon scale meaningfully with our Tier 1 customers..

We are very proud of this, and it gives us good confidence in our pipeline, our ability to serve our current and new customers to drive long-term growth..

Now let me turn the call over to Jason to go over our financial results and outlook. .

Thank you, Wallace, and good morning, everyone. I will discuss additional details of our first quarter results and then provide our guidance. 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 with the earnings release issued yesterday. In the first quarter, sales increased -- actually sales decreased 6% sequentially to 189 million. SSD controller sales increased slightly by 0% to 5% sequentially. eMMC and UFS controllers declined 10% to 15% sequentially.

SSD solutions sales decreased 5% to 10% sequentially..

Gross margin in the first quarter increased to 45%, reflecting both better mix and higher ASPs. Operating expenses in the first quarter were $62.5 million, $1 million higher than the prior quarter, primarily due to higher R&D expenses to support our technology leadership.

Operating margins in the first quarter was 12%, down from 13.8% in the fourth quarter..

Our effective tax rate in the first quarter was 16%, an increase from the 2.3% tax rate in the fourth quarter, primarily due to a tax reversal benefit we had in the fourth quarter..

Earnings per ADS were $0.64, down from $0.93 we reported in the fourth quarter. Total stock-based compensation, which we exclude from our non-GAAP results, was $3.2 million in the first quarter.

We had $349.3 million of cash, cash equivalents and restricted cash and short-term investments at the end of the first quarter compared to $369 million at the end of the fourth quarter..

Inventory increased sequentially in the first quarter to $253 million from $217 million in the fourth quarter to support revenue growth in the second quarter and the rest of the year..

Let me now turn to our outlook. As Wallace mentioned, the continuing success we are seeing with flash makers and providing more clarity around the improving fundamentals of our business.

We're seeing strong demand in smartphones and coupled with improving demand in PCs, our design wins for this year are well positioned to drive better growth than we had anticipated just 3 months ago..

While the strength we are seeing with our current products as well as the increasing interest in monetizing products, we are prudently increasing investments in R&D primarily through higher head count to support increasing programs we are engaging in with our customers..

Now let me turn to our second quarter outlook. Revenue is expected to increase 5% to 10% sequentially to approximately $199 million to $208 million. We expect eMMC+UFS sales to increase and SSD controller sales will be stable sequentially.

Second quarter gross margin is expected to continue to improve and be in the range of 45% to 46% and second quarter operating margin is expected to improve and to be in the range of 16.5% to 17.5%..

Second quarter effective tax rate to be approximately 19% and second quarter stock-based compensation and dispute-related expenses in the range of $2.5 million to $3 million..

For the full year 2024, we are increasing our outlook given the strong momentum we are seeing from our customers. Revenue is now expected to increase 25% to 30% sequentially to approximately $800 million to $830 million..

Gross margin is expected to be in the range of 45% to 47%. Operating margin is expected to be in the range of 14.7% to 16.7% as we further invest in our technology leadership, 2024 tax rate to be approximately 19% and 24 stock-based compensation and dispute-related expenses in the range of $30 million to $32 million..

With a strong start to the year and the building momentum in our backlog, we expect to see sequential revenue growth and profitability improvements around the balance of the year.

For operating expenses, we take out our new 6-nanometer UFS 4.0 controller in the first quarter, and expect to tape out our 6-nanometer PCIe Gen5 4 channel SSD controller in the third quarter..

We expect our operating expenses to decline sequentially -- but to increase again in the third quarter to support the technology leadership investments we continue to make.

We have accelerated some R&D hiring, especially in our MonTitan enterprise controller group to support the opportunities we are seeing with our sampling customers as well as an increasing amount of inbound interest..

This concludes our prepared remarks. We will now open the call to your questions. .

[Operator Instructions] Our first question comes from the line of Mehdi Hosseini from SIG. .

Two follow-ups. First, for Wallace. Can you give us an update or review some of the key milestones determining your penetration into the enterprise segment with the PCIe Gen5? I think in the past, you've talked about evaluation in the second half of '24, vision by '25.

Where are we with those milestones? And then for Jason, what are your thoughts on the longer-term growth and operating margin targets?.

We see the very strong momentum for demand for MonTitan. Q1, we had a 2 Tier 1 customer [indiscernible] one from United States, the other from China. We also have some ongoing module maker design as we will start to see some revenue by end of 2024, become [indiscernible] 2025, with the 2 Tier 1 customers were [indiscernible] by late 2024.

But we had announced our goal is to win minimum 2 Tier 1 U.S. and 2 Tier 1 in China is on track. We might have more than what we really can support. We believe 2025, late 2026 will be much more meaningful sales revenue growth for our MonTitan business for enterprise. .

And Mehdi, in terms of gross margin and profitability, certainly, our goal is to continue to gradually improve our gross margins. We believe we can return back to our historical gross margins level by early next year..

And then in terms of operating profitability, again, as we scale our revenue, as we see our gross margins further improve, we believe we can continue to improve long-term operating profitability and get back to our historical range of 25% plus as well. We don't have a specific guidance around timing at this point.

But certainly, as we continue to execute and deliver, we expect to get closer and closer to that journey each quarter. .

Just a quick follow-up.

Given the mix in your revenue, could you hit the 25% operating margin at a lower revenue run rate?.

Look, I think if you take a look at our products today, our revenue -- our SSD controller business, those SSD controllers tend to be above corporate average gross margins. while our eMMC and UFS controllers are below corporate average gross margins..

There is certainly a number of growth vectors in both of these businesses. But typically, what we've seen historically is that SSD controllers account for anywhere from half to 2/3 of our business in any given period and eMMC and UFS account for about 1/4 to 1/3 in any given period..

So we don't see that percentage changing much. And certainly, if we see automotive or MonTitan becoming a bigger portion of revenue, then that can skew our gross margins to be better than longer than what historical average has been.

But it's too early to say what those long-term targets are yet given that we have had to scale those products meaningfully. .

Our next question comes from the line of Quinn Bolton from Needham & Company. .

Wallace, Jason, congratulations on the nice results and particularly on the MonTitan wins. Wallace, I am wondering if you might try to size the opportunity for us for MonTitan for Silicon Motion in 2025. Is this something that you see contributing tens of millions of dollars as the 2 Tier 1 ramp next year.

Could you try to help level set us on what's a reasonable expectation for MonTitan revenue next year?.

Yes. We need a 2 Tier 1 customer would run in late 2025. They were probably more meaningful in 2026. But we believe MonTitan enterprise controller revenue will be around meaningful 2026 or '27. Meaningfully is at least 5% to 10% of total revenue. .

Perfect. And then I think you commented in the script but also in the press release about increasing backlog and visibility. I'm guess wondering, I guess I would think the NAND controller space would typically be a pretty short sort of lead time business because it's just the market can change pretty quickly.

How far does your backlog extend? Do you have pretty good visibility now into the second half or is your backlog shorter term in nature, really only cover say, 90 or so days?.

Yes. So our backlog, we obviously have some long-term customers, especially with our NAND makers, where we have much better clarity on what their demand profile looks like over a longer term. These are rolling forecasts, and we do get updated on that pretty regularly..

So it does vary depending on the end markets they're serving. They're serving PC OEM customers. There's certainly a little bit better visibility there. But I would also point out that from an inventory management standpoint, it does take us about 3 months to get products in and out of our manufacturing partner stores..

So we do need that advanced notice in order to build inventory to support those upcoming products, those upcoming sales, those upcoming ramps, especially going into the back half of the year, where NAND is typically stronger, we need to make sure that we've got adequate inventory to support that revenue growth. .

Let me add a comment, if we are able to increase our annual sales guidance, which mean we have better visibility for the second half of this year. .

Got it. And then lastly, Wallace, you mentioned price -- the NAND price sort of fluctuations might cause some perturbations in the retail SSD market.

Just wondering if you could sort of expand on those comments? Is it just the pricing is coming up pretty quickly, and that could create sort of lower demand temporarily in the retail channel? Or were you trying to imply some other behavior?.

Well, I think the current situation like this, the NAND maker have pretty high confidence because demand from data center and enterprise is very, very strong. So that's why they definitely continue see the supply shortage going to increase the wafer price and we see it going to increase gradually throughout whole year.

However, for certain channel market while demand for SSD, see the demand is not that strong as the wafer price increase..

That's why some fluctuation. But overall, we see it stabilized and we see the demand for our controller is still strong and stable. So I think primarily because a lot of our module customers have acquired quite many inventory last year, so they can balance for their cost. .

Our next question is from Craig Ellis from B. Riley Securities. .

Congratulations on the very strong start to 2024. Wallace, I wanted to start with a higher level question for you that helps put into context what you're seeing with NAND OEM controller outsourcing. So if we take a look at where we are today and compare it to January and early February..

Can you talk about the incremental design wins that you've seen with NAND OEMs that would ship in 2024? And it seemed from your prepared commentary that you're also being actively engaged with some 2025 projects.

So the question is, what have you seen in the last 3 months that impacts this year's revenues? And what are you seeing that kind of starts to give at least project visibility for 2025?.

I think that the 3 years don't really have a major changes, but we really start to see the NAND makers, they all focus on profitability. Every NAND maker have their own strategy and how to really [ invest in ] CapEx for the equipment.

But we're definitely working even since from last year for several 2025 OEM project covered from clients for UFS for automotive eMMC, automotive PCIe, for SSD, multiple projects with individual NAND makers.

So they're quite busy and MonTitan also working with quite a -- we have 2 major design wins for Tier 1 customers, we have several in the process incorporating engagement. So we're quite busy this year, and we are pretty confident of our design pipeline for 2025. .

And on that on MonTitan point to follow up Mehdi and Quinn's questions. It seemed like you were saying, if we look in 2027, at market projections with QLC, where you have just an amazing history with product development and performance that -- that part of the market would be about 1/3 of the market or maybe 25 million units..

The question is, given your history with the technology, given the solution you've developed what might be a reasonable share position that investors could look at even if it's a fairly wide range for 2027, Wallace?.

Yes, we cannot comment regarding our market share for 2027. While I can give you a certain guidance regarding why MonTitan meaningfully get tremendous traction and interest from the Tier 1 customer. The main reason is because the AI cloud and AI server demand is very, very strong. And we see many Tier 1 customers from the U.S. and China.

They really try to export the QLC based SSD for enterprise storage solutions because QLC base it will be cheaper and can build us much bigger capacity we see so many demand [indiscernible] high density for future SSD..

So that will be suitable for AI data process, especially sequential rate and low latency. So because we have a very, very strong position and know-how in QLC so that we get a tremendous interest from customers to engage with that for quantification and joint development.

That's why we see that trigger the stronger demand than using process and we receive especially for 2 terabyte [ mono die ] QLC, they become a main, main product to enable the future near line SSD to replace portion of HDD. So we are very happy we can be part of it. .

That's really helpful color. And then, Jason, if I could follow up with one for you before hopping back in the queue. Appreciate the point on revenues rising sequentially through the year.

Any color as we look at the year's progression on how mix between SSD controllers and eMMC, UFS and some of the other segments might play out even at a high level?.

Yes. I mean, look, I think we anticipate growth this year from both of those segments. Obviously, eMMC, I think we obviously have a much more difficult year for eMMC and UFS last year given where inventory levels were in the smartphone market..

So I think you'll see certainly a stronger year-on-year growth given that it was a bit more depressed last year. SSDs were a bit more stable. And so while it will still grow, it's not going to grow at the same growth rates as we saw with -- as we expect to see in the eMMC and UFS this year.

But overall, again, the percentage of our business for SSDs and eMMC to UFS kind of typically stay in those bands that we talked about earlier, and we don't see that changing any time in the near future. .

I think, let me add some comment. We definitely both SSD and mobile eMMC UFS will gain market share this year. However, our mobile controller eMMC UFS last year, the base is smaller. So we have much bigger momentum to gain market share in mobile controller. .

Our next question will come from the line of Suji Desilva from ROTH. .

Wallace and Jason, congrats on the progress here and the strong start to the year. On the -- sticking on MonTitan and the AI opportunity, if it is supporting AI, do you have a sense of whether it's supporting inference or whether it's supporting training or traditional cloud instances.

Any specific color on those programs and where you're seeing traction?.

You asked a very, very good question, but naturally, we really don't know but I think that SSD today is not helping any for compute for AI, but they're supporting it for storage. But [ storage ] I think, fundamentally uses real data.

I believe when you really see the upcoming Flash Memory Summit in August in Santa Clara, you're going to see many NAND maker and enterprise these suppliers are going to tell you what exactly they see regarding supporting AI and associate..

So that is related to inference also related to training process. Also, it's really regarding the swapping between the LLM model and during the different application running. So I think the storage has a specific performance requirement and their certain feature, we can add especially for edge devices because there are limited in density.

SSD, mobile UFS, they have many, many technology we can help in the AI application. .

Okay. And then my other question is on the smartphone market. I heard you guys talk about a OEM that is trying to in-source the controller efforts versus using a merchant controller? I know some of the flagships have been doing that for years.

But curious if that's a trend you're seeing or if that's an exception and what that impact might be for SIMO in terms of opportunity?.

So it's very, very good that we see the momentum from some smartphone makers. They are considering a data QLC into the mobile solution. I think as you can see, Samsung is the one of the leading smartphone maker in the last 2 years and bring the solution to the market since the Q4 production last year.

And we are very happy to what we serve one major leading smartphone maker for QLC project, and we believe this will be in production by later this year and this is going to bring us real momentum..

I think a lot of the players in the smartphone segment, they are looking for how to bring the flagship model into the AI smartphone because everybody is looking for very high performance and how to maintain low power and to supporting different [indiscernible] model.

But in the other area, many smartphone makers also bring the mainstream smartphone into the AI arena..

So this is why we see the leading smartphone makers try to increase the density, but without increase the cost, and that's why QLC becomes the best candidate. And so many smartphone makers, we believe are going to try to export the potential opportunity to bring the UFS with a QLC solution and to try the market.

And I think eventually, they will become the key to enable smartphone -- AI smartphone from the flagship to mainstream and beyond. .

Our next question comes from the line of Matt Bryson from Wedbush Securities. .

I have a few. So on the enterprise SSD side, we've seen substantial demand for 32 and 64 terabyte SSDs recently. I guess it sounds like what you're doing with your technologies enabling QLC, so allowing other vendors beyond, say, [ Solodyn ] with their QLC solution to address this market with those capacities and higher capacities..

Historically, there hasn't been a ton of success for third-party controller vendors in the enterprise market. I mean do you see your advantage around QLC as enabling that opportunity for you, so you can get some success in this market.

Is that correct? And have you seen more momentum over the last 3, 4 months when it appears like these high-capacity SSDs have all of a sudden started to see incremental demand?.

I want to say that Silicon Motion will be the first in both QLC for enterprise SSD that mean we're the leader for client [indiscernible] with QLC, because lately, we got tremendous demand, but also because all NAND makers are going to have a QLC available in the market. .

And I believe all NAND maker going to have a 2 terabyte QLC in 2 terabyte QLC in [indiscernible] by late 2025. That's why that trigger, the strong interest from hyperscaler data center and server leader, we try to potentially adopt QLC for the upcoming strong demand for AI server, AI cloud services..

So the -- because QLC financial is built for new line SSD, it'll be much more attractive for new line HDD from data asset point of view. So with Silicon Motion because our controller can work with all NAND maker QLC. So we are in a very unique position for the customer directly work with Silicon Motion and we serve as different NAND supplier.

So I cannot say we are better in NAND maker, but we think we are in a very unique position to enable the trend adopt QLC to enterprise SSD. .

Got it. And Wallace it sounds like you're working with all of the different customers out there, in the sense you've talked about hyperscalers, OEMs, module makers, and I guess my question is, can you characterize what those first 2 customers of selective solution, which bucket they'd be fit into the OEM... .

We cannot comment on such [indiscernible] customer until they really announce that name. But 1 Tier 1 in U.S. and 1 Tier 1 in China, we believe by end of the year, we have a 2 more to add on the list. .

Awesome. And then I guess my last question is, I know this has kind of been asked.

But just in terms of the TAM on either -- on both that -- with that enterprise product, but also in the automotive market, can you characterize what you see those 2 TAMs as being versus your more traditional markets in UFS, eMMC and SSD controllers?.

In terms of the enterprise TAM, obviously, from a unit volume perspective, it's not going to be anywhere near as big as the PC market or the smartphone market, right? But however, ASPs for our MonTitan product are certainly several multiples higher than our client SSD controllers, margins certainly better than corporate average..

So it is a big opportunity, even though the unit volumes are much smaller compared to our PC and smartphones. On the automotive side, again, the total number of cars shipped today is a lot smaller than either of those other markets.

But what we're seeing now is multiple storage requirements and multiple storage devices required per car to run things like not just the infotainment system, but the ADAS, the sensors, the cameras, all those things require individual independent storage solutions that significantly balloon the size of the number of units..

I don't have that number handy. We can get back to you on that one Matt, but these are certainly much higher, more sticky engagements that we would be going into as opposed to the PC and smartphone market. .

My other comment regarding automotive. As you know, SIMO has 2 different approach to expand our automotive visibility. One is direct controller, the other are [indiscernible]. For controller, we have engaged 3 NAND makers and for PCIe also as well as the UFS eMMC development. I think some are in production today.

We have 2 makers going to production with PCIe Gen4, and we also have new eMMC with a NAND maker. And for [indiscernible] we already -- it's based on our own solution and engage with our multi customer..

And we already win, which we have set with Toyota and Honda, also including China BYD. So we have a multiple design win in the pipeline. We believe we will grow our automotive business very, very strongly from 2025. .

[Operator Instructions] I'm showing no further questions. I'll now turn the conference back to the President and CEO Wallace Kou, for closing comments. .

Thank you, everyone, for joining us today and for your continued interest in Silicon Motion. We will be attending several investor conferences over the next few months as well as the [indiscernible] Tech Conference in Taiwan in June.

The schedule of this event will be posted on the Investor Relationship section from our corporate website and look forward to speaking with you at this event. Thank you, everyone, for joining us today. Goodbye for now. .

This concludes today's conference call. Thank you for participating. You may now disconnect..