Silicon Motion Technology Corporation 2026 Q3 Earnings Call

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 third 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.

Thank you, Tom. Hello. Thank you for joining us to the call today. I am pleased to report that we delivered another quarter of strong growth with revenue of $560 million and gross margin of 53.7%, driven by the growth in Ferri for automotive, Edge AI, and boot drive storage, our Edge SSD business, and our emerging MonTitan controller for enterprise SSD. We drove another quarter of higher operation performance, delivering the second consecutive quarter of record earnings per ADS, as we continue to capitalize on our product and market diversification strategy. We are on track to deliver record revenue in 2026 with over 100% top-line growth. Our strategy is simple, deliver real value to customers and focus where we are uniquely differentiated so we can generate strong ROI for shareholders. For our edge controllers, we have become the de facto standard for mobile, IoT, and PC controller solutions.

For NAND makers and virtually every module maker with outsourcing become a much more meaningful portion of the market. Our matched controller technology and design expertise deliver solutions that are better performing, consume less power, and are more cost-efficient than either in-house or other merchant solutions. Our strong share gains are driving significant growth despite end market weakness, and we expect this to continue. Our MonTitan enterprise SSD controllers are winning across the ecosystem with leading NAND makers, hyperscalers, and CSPs, and with the module makers that supply AI server to hyperscale and enterprise customers. Our success is based on our unique combination of two decades of controller and firmware design experience and our history of managing more NAND than anyone in the industry.

This has created an incredible, solid foundation for our leading enterprise controller products. We expect our MonTitan revenue ramp to accelerate as we introduce our next generation PCIe 6 controller next year. Lastly, for our storage solution segment, our strategy has always been to focus in areas that are underserved by NAND makers. We are rapidly growing share in this vital low density, smaller volume market that require more design and customization work. We have spent more than a decade building one of the industry's broadest automotive-grade portfolio, supported by dedicated quality and supporting team. Today, that foundation positions us to capture fast-growing compute and storage demand across cars, drones, and increasingly robotics.

For our enterprise boot drive solution, our unique combination of broad controller platforms, best-in-class firmware, technical know-how, NAND suppliers relationship, and manufacturing capability put us in an ideal position to serve the growing need of AI infrastructure market. As a result, we are rapidly evolving to much more balanced and profitable company as a new enterprise in AI product enhance our leading consumer controller share, strengthening our competitive position from AI infrastructure to the edge to deliver long-term sustainable revenue and earning growth. I would like to take a moment to address the current market environment. The AI super cycle has driven robust demand of HBM, DRAM, NAND, HDDs for the past several quarters, with no sign of slowing down. Prices have risen sharply over the past year and the strained substrate supply across memory and storage enterprise market remain relatively insensitive to price.

PC, smartphone, and other consumer device OEM are struggling to bring affordable product to market, given today's memory and storage cost, and the consumer unit volume are declining as a result. We expect conditions to stay difficult until bit supply come back into balance with demand. New NAND fabs are planned for 2028, and NAND makers continue to add bit through higher layer count. We do not see this changing the current supply-demand imbalance to any great degree. Flash makers continue to prioritize enterprise and high-capacity solution, creating new and expanding opportunity for Silicon Motion. Our growth is benefiting from more outsourcing and larger opportunity in enterprise and the storage solution market that we are uniquely positioned to win. We are at the beginning of the journey in the enterprise and AI market, and our early success will drive accelerating demand for our next generation storage technologies.

Let me now detail our embedded eMMC and UFS business, which include controller for smartphone IoT connected devices. Our eMMC, UFS business was up over 100% year-over-year in the first half of 2026 as the NAND makers are shifting their resources toward DRAM and HBM solutions, allowing module makers to take share in the mobile market. This has helped drive our market share gains as module makers look to third-party controller partner to make their mobile solution. In the third quarter, eMMC and UFS revenue declines modestly from the prior quarter, reflecting customer launch timing and the challenging smartphone OEM face in offering affordable device amid the higher NAND and DRAM prices. We expect the headwind to persist in the near to mid terms, until additionally memory and storage supply comes online.

Across the markets that we sell our eMMC, UFS controller, OEM are reducing specification to try to offset the rising memory and storage cost. We expect our eMMC, UFS business to remain relatively flat in the near term given the current market challenging, but I do believe we can return to growth next year and beyond as our new UFS 4.1 controller and UFS 5 controller ramp and driving higher ASPs. Now turning to our SSD controller business, which include Edge and MonTitan enterprise SSD controllers. This business delivers strong sequential and year-over-year growth. In Edge SSD, our PCIe 5 investment continue to pay off, with growth in both our four-channel and eight-channel controllers. PCIe 5 currently represent approximately 10% of the PC market, and we expect this will grow to 20%-25% of market by the end of 2027.

Providing a strong runway for further growth. Our leading position in PCIe 5 is driving greater market share gains within the PC market. As the industry transition from PCIe 4 to PCIe 5, we expect to see further top-line improvement given the higher ASP associated with these next-generation products. We are currently working with all the major NAND makers and most of the leading module makers to deliver compelling SSD solutions that leverage PCIe 4 and PCIe 5 controllers. We are tracking well ahead of expectation to achieve our market share goals of 40% through Apple by 2028, and believe we will continue to improve our position. While PC unit headwinds associated with the higher memory and storage prices present challenges, we believe we will drive further top-line growth through the market share gains and ASP increases as the market shift to PCIe 5 continues.

I would now like to provide you with an update on our new MonTitan enterprise SSD business. NAND remains a critically important technology across enterprise and AI storage ecosystem, and MonTitan is positioned for rapid growth in the coming years. This eSSD solution delivers high speed, low latency storage that targets compute and data storage application for enterprise AI platforms. Our first two customers began shipping TLC eSSD for compute that leverage our MonTitan controller in the second quarter. All seven of our announced customers are on track to begin commercial ramp in 2026 with both TLC-based compute and QLC-based data storage products. TLC-based compute eSSD using MonTitan are expected to grow more quickly than QLC-based data storage eSSD in the near term, until greater supply of 2 terabit die become available.