Silicon Motion Technology Corporation Q2 FY2025 earnings call

• Exceeded Q2 revenue and operation margin guidance, benefited from new controller introduction and market share growth. - Mobile business outperformed expectations with eMMC and UFS controllers. - PCIe5 client SSD business saw strong growth, with 8-channel controller growing rapidly. - Automotive segment had strong design win activity, with expectation of automotive accounting for at least 10% of revenue by 2026 - '27. - Memory card revenue more than doubled YoY in H1 '25 due to Switch 2 launch. - Enterprise business expanding with MonTitan platform suitable for warm storage and new opportunities in compute storage market.

1. eMMC and UFS: Mobile business outperformed expectations in Q2. Module makers benefited from discrete eMMC and UFS solutions due to low-cost mobile DRAM. UFS controller for smartphones and IoT devices grew meaningfully, with new engagement for QLC UFS solutions. eMMC demand accelerated in multiple markets. 2. SSD: PC market stabilized, PCIe5 controllers saw strong growth. 8-channel controller launched in Dec '24 grew over 75% sequentially in Q2 and accounted for over 10% of client SSD controller revenue. Initial ramp of 4-channel DRAM-less PCIe5 controllers at end of '25, targeting broader PC and aftermarket SSD sales. 3. Automotive and other: Strong design win activity in automotive segment. Vehicle capacity increasing with demand for high-speed/low-latency storage. Memory card revenue more than doubled YoY in H1 '25 due to Nintendo Switch 2 launch. 4. Enterprise: AI era driving evolution of memory and storage needs. MonTitan platform suited for warm storage with QLC NAND, and new product pairing MonTitan with TLC NAND for compute storage market.

• Q2 sales increased 19.3% sequentially to $198.7 million, gross margin 47.7%, operating margin 12.8%. - Q3 revenue expected to increase 10% - 15% to $219 million - $228 million, gross margin 48% - 49%, operating margin 12.3% - 14.3%. - Target annual revenue run rate of approximately $1 billion by year-end. - Expect to improve gross margins as new products scale and enterprise business ramps in H2, aiming for gross margins towards 48% - 50% by end of year. - Pipeline of new design wins growing, committed to investing in next-generation products.

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

Q: Craig Ellis asked about quantifying the NT dollar exchange impact on 2Q and 3Q expenses versus growth-related R&D expenses.

A: Jason P. Tsai said the NT dollar strengthened meaningfully and quickly in Q2, up over 10% sequentially. Compensation is primarily denominated in Taiwan dollars, and if exchange rates were similar to Q1, operating margin in Q2 and outlook for Q3 would have been about 1+ percentage points higher.

Q: Mehdi Hosseini asked about revenue increase from Q4 '24 to Q4 '25 and BlueField impact.

A: Jason P. Tsai said incremental revenue was due to strength across board including eMMC, UFS, PCIe5 SSDs, and initial ramp of MonTitan and BlueField. Not commenting on 2026 guidance but still expect MonTitan to contribute to revenue in 2026 - '27. Chia-Chang Kou added strong backlog in H2 '25 gives confidence in financial goal.

Q: Suji Desilva asked about gross margin expansion and MonTitan firmware efforts.

A: Chia-Chang Kou said margin depends on product mix, above upside of guidance margin and expect better result in 2026. Jason P. Tsai said after a few customers are up and running, will have wide range of firmware capabilities, some wanting SDKs and some full turnkey requiring more resources.

Q: Gokul Hariharan asked about automotive margin profile and MonTitan roadmap.

A: Chia-Chang Kou said positive about automotive business due to design win pipeline and breakthrough in China market, confident automotive will account for at least 10% of revenue by 2026 - '27. Regarding MonTitan, 16-channel PGI Gen5 controller, 8-channel 8388 available end of '25, and developing PCIe Gen 6 MonTitan family with TSMC 4-nanometer. Also mentioned cold storage is conventional near-line HDD but Samsung's near-line flash initiative has potential and will engage with trend.

Q: Matt Bryson asked about operating margin target.

A: Chia-Chang Kou said operating expense may increase slightly due to R&D and tape-outs, but strong revenue growth will help operation margin, expecting to move back to 20% - 25% margin in late '26 and better in '27.

Q: Nicolas Emilio Doyle asked about mobile strength sustainability.

A: Chia-Chang Kou said mobile growth due to China market's affordable low-cost mobile DRAM, module maker expansion, NAND maker outsourcing for new NAND generations, and many projects in hand creating momentum for continued market share growth.