Silicon Motion Technology Corp. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 saw over 25% revenue growth, gross margin improved from 43% to over 46%, and operating margin increased to 15.3%.
• Faced challenges in the consumer market with weak end-user demand in H2 2024, but secured new project wins in enterprise and automotive.
• NAND industry: Consumer-grade NAND pricing declined, production cuts in consumer-grade NAND, focus on enterprise-grade NAND. QLC becoming a growth driver, with Silicon Motion well-positioned to capitalize.
• Client SSD controllers: Grew 20%, gained market share, high-end PCIe 5 controller has wins, portable SSDs are dominant.
• eMMC and UFS: Grew 70% in 2024, market shifting to discrete mobile DRAM, scaling with flashmaker customers.
• Enterprise: Made progress in 2024, targeting 5%-10% of revenue by 2026-2027, developing Mount Titan solutions.
• Automotive: Reached 5% of revenue in Q3 2024, ASPICE-certified PCIe 4.0 controller, aiming for ~10% by 2027.

Segment Performance

• Client SSD controllers: Grew approximately 20% in 2024, with market share increasing to over 30%. The high-end 10-nanometer eight-channel PCIe 5 SSD controller has secured design wins, and portable SSD solutions are dominant. Revenue contribution from client SSDs is significant as they continue to expand market share.
• eMMC and UFS: Grew approximately 70% in 2024, rebounding from a weak 2023. The market is shifting to discrete mobile DRAM, creating opportunities. Revenue contribution from eMMC and UFS is increasing as they scale with flashmaker customers.
• Enterprise monetization platform: Made progress in 2024, with plans to reach 5%-10% of total revenue by 2026-2027. Developing Mount Titan solutions for enterprise storage, targeting high-performance and high-density needs. Revenue contribution from enterprise is expected to grow significantly in the coming years.
• Automotive: Reached 5% of revenue in Q3 2024, with ASPICE-certified PCIe 4.0 controller. Aiming for ~10% of revenue by 2027 as automotive applications expand.

Guidance

• Q1 2025 revenue expected to decline 12.5%-17.5%, gross margin in range of 47%-47.5%, operating margin 7.7%-9.7%.
• No full-year specific guidance, but expects mid-single-digit revenue growth in 2025 as demand rebounds and new products scale.
• Anticipates $1 billion annual revenue run rate by Q4 2025.
• Gross margins expected to steadily improve towards 48%-50% range as new products scale.
• Operating expenses expected to grow in line with revenue, CapEx ~$65 million in 2025.

Risks

• Continued competitive pressure in the semiconductor industry.
• Unpredictable changes in technology and consumer demand for multimedia consumer electronics.
• State of relationship with major customers.
• Changes in political, economic, legal, and social conditions in Taiwan.

Question and Answer

Q: Mehdi Hosseini asked about OpEx, CapEx, and strategy.

A: Jason Tsai said OpEx should grow roughly in line with revenue, CapEx ~$65 million with $29M routine and $36M for construction. Wallace Kou discussed NAND makers' scaling back creating opportunities for growth in enterprise and automotive.

Q: Craig Ellis asked about Mount Titan and enterprise SSD.

A: Wallace Kou said 6 customers secured, initial production late 2025, ramp from mid-2026, demand for high-density QLC in US and TLC in China.

Q: Nick Doyle asked about gross margin and auto competitors.

A: Wallace Kou mentioned PCIe 5 eight-channel driving gross margin, auto market focus on core technology and strategic M&A to expand core business.

Q: Suji Desilva asked about 2025 guidance and inventory.

A: Jason Tsai said 45-55 split between H1 and H2, more back-end loaded, channel inventory healthy.

Q: Matt Bryson asked about M&A and Mount Titan.

A: Wallace Kou said M&A focused on core technology to grow enterprise SSD, capital allocation strategy includes dividend, share repurchase, and reinvestment.