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Good day, and thank you for standing by. Welcome to the Silicon Motion Technology Corporation Second Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. This conference call contains forward-looking statements 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 relationship with our major customers, and changes in political, economic, legal and social conditions in Taiwan. For additional discussion 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 obligation to update any forward-looking statements, which apply only as of the date of this conference call. And with that, I'll now hand you over to Mr. Tom Sepenzis, Vice President of Investor Relations and Strategy. Please go ahead.
Good morning, everyone, and welcome to Silicon Motion's Second 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 second 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 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. A 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 the call today. We delivered another outstanding quarter, achieving record revenue of $451 million and gross margin above 50%, driven by continued growth across all our core markets. Stronger operational performance translated into record earnings per ADS, reflecting our ongoing evolution from the leading NAND-side controller maker into a diversified supplier of controllers and solutions, spanning AI infrastructure to the edge. During the June quarter, we grew our embedded eMMC & UFS portfolio, delivered both sequential and year-over-year gains in edge SSD controllers, began the initial commercial ramp of our MonTitan enterprise lead products and posted strong growth in our Ferri for Automotive & Enterprise Boot Drive solutions business. With expanding consumer market share and a rapidly broadening suite of enterprise and AI controllers and solutions, our competitive position keeps strengthening. We expect to deliver record revenue in 2026, up more than 100% year-over-year, setting the foundation for sustained growth in the years ahead. With the right product in the right market at the right time, we have never been better positioned to capitalize on the accelerating demand for intelligent storage from the data center to the edge. I would like to take a moment to address the current market environment. The AI super cycle has fueled significant demand for HBM, DRAM, NAND and HDDs, driving substantial price increases over the past year and creating mounting substrate and supply pressure across memory and storage technology. As component prices, NAND and DRAM in particular, continue to climb, OEMs are finding it increasingly difficult to build affordable consumer products such as smartphones and PCs, especially at the low end. We expect this scarcity to persist likely until 2028 when new fabs come online and help bring NAND supply back to reduce the supply-demand gap. While the NAND environment will stay challenging through 2028, we have a clear path to deliver significant top- and bottom-line growth. Silicon Motion is in the early inning of a complete transformation to a diversified supplier of NAND flash controllers and solutions from AI infrastructure to the edge where there is accelerating demand for next-generation storage. I will now discuss our embedded eMMC & UFS business, which includes controllers for smartphones and other IoT and connected devices. This business continued to thrive and grow significantly, outpacing the industry despite the supply headwind as NAND makers increasingly rely on third-party controllers while focusing their own resources on DRAM and HBM solutions. Our outperformance was driven primarily by market share gains as NAND makers deemphasize these solutions to the benefit of our module-maker customers. Across the many markets where we sell our embedded eMMC & UFS products, OEMs are trimming specifications to offset some of the rising costs of memory and storage. While we still expect smartphone units to be down 10% to 15% in 2026, we anticipate strong growth in our mobile business in 2026, driven by continued market share gains and ASP improvement from a mix shift toward newer UFS controllers. Our eMMC business is delivering strong results as we win new business across a range of markets, including automotive, smart glasses, watches, drones, robots, next-generation cable set-top boxes, smart TVs and more. With NAND makers less interested in these markets, we are operating in an environment of stronger pricing power and profitability. Overall, we expect strong revenue growth in our Embedded eMMC & UFS segment in 2026, and I'm pleased with the exceptional performance our team delivered in the first half of this year. We expect our growing portfolio of new product transitions to next-generation solutions and expansion into additional markets to drive share gains and keep outpacing the macro pressure in the smartphone market. Moving on to our SSD business, which includes edge and enterprise SSD controllers. Our edge SSD business improved significantly in the second quarter following a seasonally soft first quarter, delivering 40% to 45% year-over-year growth. We are beginning to see payoff from our PCIe 5 investment at the edge with our 4-channel PCIe 5 controller ramping steadily since its introduction in the fourth quarter of last year. However, the transition from PCIe 4 to PCIe 5 is proceeding more slowly than we anticipated six months ago. OEMs are increasingly pairing the latest generation more cost-effective NAND with PCIe 4 SSDs in value and mainstream PCs. This offers a way of reducing the overall bill of materials. We are securing a meaningful share of this business across both NAND makers and module manufacturers with our leading controllers. Despite the slower pace of the PCIe 5 transition, our 4-channel PCIe 5 controller continues to gain adoption among customers seeking leading performance in the mid- to high-end segment of the PC market. We, therefore, expect to further increase SSD average selling price as we progress through the remainder of the year. I would now like to provide you with an update on our MonTitan enterprise SSD business. Our new enterprise SSD business entered commercial production in the second quarter with two Tier 1 customers, and we expect to ramp five additional Tier 1 customers in the second half of the year. This is an exceptionally strong start after several years of investment in our enterprise AI-class controllers. NAND is an essential and growing technology across the enterprise storage ecosystem, spanning warm storage and compute storage applications, and MonTitan is well positioned for rapid growth. Our first customers are targeting the compute market using TLC NAND, which is in growing demand for next-generation AI platforms that leverage NAND to support compute-storage solutions that deliver high-speed, low-latency storage dedicated for near-GPU and near-CPU KV cache. Several customers are leveraging MonTitan to target this market and will be ramping production throughout the remainder of this year. We continue to believe that the TLC MonTitan solution will ramp faster than QLC-based solutions until 2-terabit QLC NAND dies become more broadly available. High-capacity single-story SSDs leveraging TLC NAND remain a large addressable market for MonTitan for long-term growth, and we expect TLC-based solutions will begin their initial ramp in the second half of the year with multiple customers. We are seeing increasing inbound interest in our MonTitan solution to drive long-term growth. Finally, we are completing the tape-out of our next-generation 4-nanometer PCIe Gen 6 controller in August of this year, targeting hyperscalers and cloud service providers. We developed this controller in close collaboration with several customers, and we have already secured multiple design wins with both flash makers and cloud service providers. We expect this new controller to be a significant growth driver in 2028. With MonTitan and TLC MonTitan controllers already in customer qualification and a clear rollout plan in place, I'm confident we will hit our revenue target this year, and I expect significant growth in 2027 and beyond as the business scales. Our customer base is strong and expanding and MonTitan is well positioned to drive meaningful revenue growth from here. I look forward to sharing further updates. And finally, I would like to provide an update on our Ferri for Automotive & Enterprise Boot Drive storage business. Our Ferri for Automotive & Enterprise Boot Drive storage business is growing rapidly across automotive and AI infrastructure markets. NAND makers are leaving the automotive market as the volumes are not meaningful to their business and the quality and technical support demand are significantly greater than in other markets. As the NAND makers exit automotive, the module makers seem like likely successors, but they do not have the infrastructure, the resources, the certification process or the expertise to deliver automotive-grade products. This has benefited Silicon Motion significantly as we know the automotive market, the customers and supply chain extremely well. We have developed our automotive product and certification for over a decade and already support three of the NAND makers with our automotive controller and firmware. Our success in automotive has generated interest in our Ferri solution for additional large and growing markets, including robots, drones, advanced networking and other applications. In the emerging robotics market, we are now actively engaged with multiple companies that want to leverage our storage product. We believe there are multiple opportunities in the emerging physical-AI market for storage in humanoid robotics, including vision systems, LiDAR, compute-storage, sensor systems and many others. In fact, from our initial conversations, the opportunity in robotics may be larger than automotive, and our Ferri solution will be ideally suited to support this future opportunity. Moving on to our growing enterprise Boot Drive business. This is a new and growing market. Enterprise Boot Drive for server CPU has been around for over 30 years, and NAND makers have supported this market with solutions that employ both DRAM and NAND. As we move into the next generation of AI and enterprise applications, enterprise CPU customers will continue to use enterprise Boot Drives with DRAM to enhance system performance and reduce latency. Most other customers, including GPU, CPU and switch makers, are looking for enterprise Boot Drive solutions which our unique DRAM-less technology can offer with enhanced security, and this is our primary focus today. While some NAND makers may choose to continue the support of conventional architectures, they do not have DRAM-less PCIe SSD controllers, and they are not likely to dedicate the resources necessary to develop them for a comparatively low-volume market. Silicon Motion has the right technical know-how, the leading controller and firmware technology and the right leadership to deliver turnkey enterprise Boot Drive solutions, and this is why we are winning in the market. The Ferri and Boot Drive storage solutions segment is growing rapidly, and we expect new customer design wins in both automotive and AI infrastructure to drive strong growth for the future. One of the most important reasons for our success in the solutions business has been our long-term relationships, which have allowed us to secure NAND from multiple suppliers despite recent supply shortages — a significant and enduring differentiator. In the second quarter of '26, Ferri and Boot Drive solutions more than doubled sequentially and represent near 30% of our total revenue, up from 4% a year ago, and we are just getting started. In conclusion, we reported our second consecutive quarter of record revenue for Silicon Motion as we executed across our rapidly diversifying business. We are fundamentally a much stronger company today than we were just a year ago with a broad suite of products to support the increasing demand from AI, from the data center to the edge. This gives us a strong balance across our markets and greater flexibility to capitalize on pockets of strength while overcoming end-market challenges like those we are seeing today in PC and smartphones. I'm extremely proud of our teams for building a durable, diversified business that benefits from best-in-class technology, expanding share and entering new end markets, all while monetizing the strong relationships we have built with OEMs, module makers and NAND makers over the past two decades. I'm more confident than ever that we will deliver broad-based sustainable growth across our business in 2026 and beyond. Now let me turn the call to Jason to go over our financial performance and outlook.
Thank you, Wallace, and good morning to everyone joining us today. I will discuss additional details of our second 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. A reconciliation of our GAAP to non-GAAP data is included in the earnings release issued yesterday. Our second quarter performance was even stronger than expected. Sales increased 32% sequentially and 127% year-on-year to $451 million, coming in well above the high end of our guided range of $393 million to $411 million, delivering our third consecutive quarter of record revenue. We experienced strong growth across all our businesses in the second quarter with standout growth in Ferri for automotive, enterprise Boot Drives and embedded eMMC & UFS. Gross margin was 50.2%, exceeding our guided range of 48.5% to 49.5% as we capitalized on new product introductions. Operating expenses increased sequentially to $122.1 million, given increased investments in new controller and solution development, new tape-out-related expenses and higher headcount. Operating margin was 23.1% and exceeded our guided range of 21% to 22%, driven by higher-than-expected revenue and gross margins during the second quarter. Our earnings per ADS was $2.43. Total stock-based compensation, which we exclude from non-GAAP results, was $3.4 million in the June quarter. We had $181.8 million in cash, cash equivalents and restricted cash at the end of the second quarter compared to $210.9 million at the end of the first quarter. Cash decreased in the second quarter through a combination of dividend payments of $16.9 million and an increase in inventories to support our growing business. We continue to navigate the memory and storage supply challenges effectively. Investments in new advanced geometry products for both our established markets and our emerging enterprise markets are ongoing, and we are building a balanced and resilient portfolio of products that target everything from AI infrastructure to the edge. These investments will continue throughout 2026 as we support the growing demand for our new enterprise portfolio and fuel our growing market share across our consumer portfolio. For the third quarter of 2026, we now expect revenue to grow 15% to 20% sequentially to $519 million to $541 million. We expect growth across nearly all our product segments, led by Ferri for Automotive, Enterprise Boot Drive solutions and our new MonTitan enterprise SSD controllers. Gross margins are expected to increase sequentially to 50% to 51% in the September quarter, given the product mix and greater contribution from MonTitan and our PCIe 5 controllers. Operating margin is expected to grow substantially to 27.5% to 28.5% as strong revenue growth drives leverage to the bottom line. Our effective tax rate is expected to be 22%. Stock-based compensation and dispute-related expenses are expected to be in the range of $14.9 million to $15.9 million. 2026 is on track to deliver record revenue for Silicon Motion, with the top line expected to more than double this year. While we continue to invest heavily in R&D this year to expand our portfolio with leading-edge solutions, we're confident that along with much higher revenue and improved gross profitability, our operating margins can exceed 30% exiting this year. We are navigating today's memory and storage supply constraints and elevated pricing with remarkable success, a direct result of the relationships we spent more than two decades building with NAND flash makers. At the same time, our leadership in the merchant controller market and our multiyear investments in enterprise and AI SSDs are starting to pay off with MonTitan and our enterprise Boot Drive storage business now ramping in volume. Our diversification strategy to expand beyond consumer-centric applications into automotive and enterprise is beginning to yield outsized results. Our wins in these new markets are for solutions that bring much better visibility, much longer product cycles and much higher barriers to entry that ensure strong long-term revenue and profitability growth for Silicon Motion. We will be less subject to consumer cyclicality as these new wins scale in a diverse range of end markets and our visibility and predictability will further improve significantly. Together, these drivers are the foundation of the transformation Wallace spoke about earlier and will set the stage for significant revenue growth at Silicon Motion in 2026 and well beyond. I look forward to sharing more on our progress next quarter. This concludes our prepared comments. I'd like to open it up for questions. Operator?
分析師問答
We will now take our first question from the line of Neil Young of Needham & Company.
It sounds like there's a larger contribution from Ferri than people expected. Could you give us the approximate Boot Drive revenue contribution in Q2, or an idea of the percentage split between enterprise Boot Drive and Ferri? And what of that split is embedded in the Q3 guidance? I have a follow-up.
Yes. Neil, we're not giving out that level of granularity. I can tell you, though, that we are seeing tremendous growth across both of those categories. So this isn't really driven by one or the other. It's driven by both. For Q3, again, we're not going to be providing that much detail. But certainly, from the backlog that we've talked about and the order patterns that we're seeing, we're seeing very strong contributions across all of these SSD solution products.
Okay. Great. That's helpful. And then on MonTitan, you obviously gave the update on the customers in production, sort of what you're expecting the rest of the year. Are you still guiding to that 10% revenue run rate exiting 2026? And then maybe helpful if you could distinguish the timing of the TLC compute and the KV Cache programs from the QLC warm storage programs, just what you're seeing there?
Yes, we're still on track. I think Wallace had mentioned that we're well on track to achieve that 5% to 10% of our overall revenue coming from MonTitan exiting this year. So we are confident that we can achieve that. In terms of where we're seeing more contribution, certainly, initially, we're seeing more contribution from TLC-based solutions. But we are seeing early QLC shipments that will begin late this year. We don't expect QLC to become more meaningful until probably late '27 into '28 as 2-terabit dies become more affordable.
And the next question comes from the line of Mehdi Hosseini from SFG.
I think it will be very helpful for us and the investment community if you guys could elaborate on the revenue mix by end market, like enterprise, consumer and auto and how it would map to specific products? And I understand you don't want to be specific, but any kind of a qualitative view on how end market and products are mapping will be great. And I have a follow-up.
I think as we said in the past, all our product lines are growing in 2026. Of course, SSD I think because the PC market units declined. However, due to market share gain, we continue to grow 50% compared with the last year's first half. Our enterprise business, because the base is small, is growing faster. And for Ferri and for automotive and Boot Drives, we do have multiple major customers supporting our growth trends. So we expect to see continued growth through 2026 and into 2027.
I think another way to look at it also is the majority of eMMC & UFS is really going to be consumer-centric. Today, SSD controller sales, the majority of that is going to be consumer-centric going to edge SSD controllers. But certainly, as we exit this year, getting to that 5% to 10% coming from MonTitan contribution. Ferri and Boot Drives, Ferri for automotive and enterprise Boot Drive solutions, again, you can imagine those are going to be less consumer-centric.
Okay. Moving on to my next question, the 2-terabit die and the timing of the QLC ramp. It's been more than a year of waiting. And I'm just wondering if Wallace could share with us, is there a qualification that is an issue? Is that the capacity? Or is there something else? And I'm asking this question in the context of would this actually provide an opportunity for controller suppliers like Silicon Motion? Or is it just a manufacturing ramp that is delayed? Any color would be great.
So I think you asked a very good question. We have been waiting for a very long time as well. The 2-terabit QLC was supposed to be the darling for the NAND industry and to drive QLC-based storage SSD to the next level. However, due to the price increase and supply shortage, I think high-capacity data storage drives are less attractive because the price is too high. We also see the DRAM and NAND makers putting more focus and CapEx into DRAM and HBM. That's why the development for 2-terabit had to fine-tune the quality to the next level and is taking a much longer time. From the NAND makers' perspective, DDR5 and HBM are more attractive and driving higher profit. It just takes some time. We believe because there's still high demand for AI inference and data storage, demand for storage is much bigger than the current supply. With new CapEx, we see the expectation that 2028 will see meaningful recovery from NAND supply, and we expect the NAND makers to have 2-terabit QLC by that time.
And I want to make it clear, Mehdi, that the delays here are on the availability of the NAND side. Our controllers are here. Our controllers are ready. As we said, we're going to be starting to ramp early shipments of some of the QLC-based solutions with our customers by the end of this year. So this isn't something that's a controller issue. This is an industry availability issue of the NAND.
And the next question comes from the line of Matthew Bryson of Wedbush.
Congratulations on the great results. Just with gross margins, given how strong the embedded piece was and that's typically a lower gross margin segment for Silicon Motion. I would have expected a little bit of a headwind there. Can you talk a little bit about the puts and the takes that affected the gross margin line in Q2?
Yes. So I think what we've always said is that our MonTitan controllers are margin accretive. And so as those have begun to ramp, that's been able to help offset and drive strong gross margins for us here in the second quarter as well as into the back half of the year. The back half of the year, we're also going to benefit from additional growth in our PCIe 5 controllers, for example. So those items are margin accretive and will offset some of the margin pressure that we see from the solutions business.
And Jason, just when we're thinking about things moving forward with MonTitan seemingly being as successful as it's been. I know longer term, you talked about kind of gross margins being a little bit below 50%. Should we be rethinking that if MonTitan is going to ramp like this? Any commentary there would be really helpful.
Yes. I think we're still comfortable with the 48% to 50% range. As I think we've said in the past, we're going to see a little variability to that depending on mix in any given period. So we're still targeting 48% to 50%. Certainly, in certain periods like Q2 and Q3 when we're seeing a little bit above that, we're going to be able to take advantage of some of these mix benefits in the near term. But long term, we still expect to be in that 48% to 50% range.
The next question now comes from the line of Sebastien Naji of William Blair.
Congrats on another quarter of record results here. First, I just wanted to ask about what you're seeing in the mobile market and specifically at the Chinese smartphone makers. Last night, Qualcomm reported and posited that calendar Q2 will be the trough for China handset demand in their business. And given your exposure to some of those vendors, could you maybe just comment on whether you're seeing the same signals that point to a potential recovery in the second half or if you're seeing anything different?
Yes. We see the China smartphone market is very challenging due to the price increases of both LPDDR5 and storage products. Especially the value line is suffering because when you consider DRAM and NAND, almost 50% or more of the total BOM cost can be memory and storage for low-end smartphones. So this is a challenge. However, because we work with the NAND makers who are outsourcing to us in certain models and module makers continue to gain market share, we benefit from collaborating with smartphone makers directly through UFS development. So we see our demand for smartphone UFS and eMMC continuing to grow from Q2 and moving into the next quarter. We do not have a significant market share in the very low end, which is why the impact to our business is relatively small.
Got it. Okay. That's helpful. And then maybe for my follow-up, just on the Boot Drive business. Can you comment on whether you're starting to see the benefit of BlueField-4 sales in either Q2 or your Q3 guidance as NVIDIA starts to ramp their Vera Rubin platform? Or has much of the growth so far been tied to the first-generation BlueField-3 program?
We cannot comment on specific customer timelines, but I can say BlueField-4 will follow the customers' announcements. We do have a pretty large share of BlueField supply for Boot Drives. So we're very happy when they ramp up in the second half of this year.
And our next question comes from the line of Craig Ellis of B. Riley Securities.
Team, congratulations on the AI solution evolution that you're engineering with the business. Wallace, I wanted to start by seeing if you could characterize the growth that we could expect to see in the Ferri and DPU business over the next few quarters versus what we've just seen that 110% rise. And similarly, help us frame the right expectations for MonTitan. And I wanted to see if in so doing, you could also help us understand if you thought the MonTitan business could over time rise to the size of what you're seeing with Ferri and DPU?
We cannot comment on specific customers. But what I can tell you is our Boot Drive business is going to grow very strongly, not just through one customer but through multiple customers. As we said last time, our Boot Drive is not only winning for DPUs but also for TPUs and telco companies, and we are engaged with leading server makers too. So our Boot Drive will grow broadly. With the leading GPU company, it will strengthen even further next year. Our MonTitan is very exciting. We have two Tier 1 customers ramping in the second quarter, we added five more customers coming in the second half, and we believe next year we're going to ramp much more revenue growth than this year. With our PCIe Gen 6 development and much broader design wins even before tape-out, we have very high confidence MonTitan Gen 5 and Gen 6 will carry significant growth for the company for long-term growth and profitability.
I'd also point out that our solutions business in Boot Drives is controller plus NAND. So ASPs are going to be naturally much higher than what you're going to see on a controller-only basis. So while we're excited about the scale and opportunity for MonTitan, just keep that difference in mind where ASPs are going to be lower on MonTitan relative to the Boot Drive side.
And that really relates to my follow-up question, Jason. Thanks for the color. Given the company's unusually long-and-broad expertise with NAND makers as a controller designer and given the evolution we're seeing in the memory industry, where customers really want full solutions, to what extent are customers asking for more of a full solution beyond what you're providing today in businesses that may be auto-related or associated with MonTitan? And to what extent would that look attractive for you as a way to further evolve the business model?
You raised a good question. Today, MonTitan controller business is largely independent of Boot Drive business. However, in certain cases we see added value when packaged together for customers as integrated solutions. Our Boot Drive solution business has a unique position because, first, NAND makers do not have an enterprise SSD controller for certain segments. Second, they have less interest to invest in these lower-volume markets compared with enterprise SSD. So we are in a unique position to grow the enterprise Boot Drive business. At the same time, we can offer MonTitan controllers to support Tier 1 customers who can't secure sufficient NAND supply directly. MonTitan already has very strong momentum and R&D demand is high; we don't even have enough R&D resources to support so many projects. It's very exciting to be in this position, and we'll continue to invest and expect much stronger growth in 2027.
Our next question now comes from the line of Shubham Sigania from JPM.
Yes. This is Gokul from JPMorgan. So first question on the Boot Drive market, Wallace, could you help us kind of size this market a little bit because it seems like this market is growing much faster and becoming much larger than what we would have expected or even you would have expected maybe a year back when you outlined this market for us? And secondly, could you also address how the market share and competition you're expecting to shape up here, given it looks like right now, Silicon Motion is kind of a large majority of the market, do you feel like there will be some competition entering this market in the next maybe one or two generations?
I think the Boot Drive business has a very wide opportunity. First of all, near-CPU Boot Drives with conventional enterprise controllers with DRAM together provide better random write performance and low latency. That's for server CPUs — Intel, AMD and Vera — and those businesses traditionally belong to NAND makers. We don't compete in that sector broadly. However, some server makers come to Silicon Motion for solutions, and we provide controllers to either NAND makers or module makers to support that portion with DRAM for Boot Drives. For other sectors like DPU, TPU, NPUs, switches and NVLink switches, customers favor DRAM-less solutions because the cost is better. We have specific security support and strong performance for DRAM-less designs. As long as we can secure NAND supply, that portion is really our crown jewel for growth in the next few years. The number of Boot Drives per server rack can be quite large — depending on architecture, more than 30 to 40 — so this is a great opportunity. Not only will the number of Boot Drives grow, but capacity per Boot Drive may increase in the next few years, which can boost our top- and bottom-line growth.
Any thoughts on competition, Wallace, from either regular NAND makers or any of the other module makers that you do see coming into this market? Or do you think you've got this largely locked down for the next couple of generations?
So far, we are comfortable in our current position. We do not see significant competition coming from NAND makers because Boot Drive densities are relatively small — 256GB, 512GB compared with enterprise drives of 16TB or 36TB — so the focus from NAND makers is different. We also do not currently see module makers presenting a significant threat. We believe our position is strong.
Understood. That's clear. My second question is on MonTitan. Could you talk a little bit about your market opportunity, especially as you migrate to PCIe Gen 6 with your next-generation MonTitan platform? What is the competitive landscape looking like? Because as I remember, several enterprise controller companies are kind of terminating or slowing down their development in PCIe Gen 6. So could you help us understand your market opportunity when it comes to MonTitan with PCIe Gen 6? I think originally, it was mostly about QLC, but it definitely seems like you've expanded beyond just the QLC opportunity to KV cache offloading and some of the TLC opportunities.
Our MonTitan Gen 5 has already set a foundation for our customers. As we develop Gen 6, we are attracting many Tier 1 customers from NAND makers and cloud service providers. There are more than a dozen Tier 1 customers waiting for MonTitan PCIe Gen 6 samples. Gen 6 will include a unique architecture focusing on AI inference, especially around NVIDIA's CMX architecture, and it will also support data storage use cases. It will support multi-host configurations and be very efficient for new AI workloads. We work closely with NAND makers and leading server makers as well as cloud providers, and many of the Gen 6 features are being developed in close collaboration with those customers. We believe when MonTitan PCIe Gen 6 starts to ramp it will be stronger, faster and larger than Gen 5.
Got it. Any idea about how much of the market you can address with the PCIe Gen 6 solution? Do you think you can address maybe 30% or 40% of the market already with that or is that too high an expectation?
Well, we set our initial target just a minimum of 15% to 20%. Hopefully, it can grow faster.
And next question comes from the line of Sujeeva De Silva of ROTH Capital.
Congratulations on the progress here. Maybe the first question for Jason. With the mix that's steadily shifting, would we think that seasonality would be more muted in the '27 time frame or '28 perhaps and linearity be greater, more steady? Or would that still be kind of a further out trend?
Yes. We're not going to comment on 2027 yet at this time. We're only guiding one quarter out. To your point, there are a lot of moving pieces depending on how quickly certain businesses scale, which could certainly limit the seasonality that we historically would see. But right now, given how much we're in the early stages of some of these businesses ramping and some of these new customers coming on, it's hard for me to say, and we're not guiding that far out.
Fair enough, Jason. And then maybe the second question for Wallace perhaps. The Ferri roadmap, how are you evolving that to support newer end markets like robotics? And when might that be a meaningful contributor? How far out can that be?
It's a very good question. We have been constantly monitoring the robotics space and engaging with robot developers from China and the U.S., including drone developers. We see drones may come earlier with higher volume and robots may come later. The opportunities are diverse and require multiple storage solutions per platform, so there are many ways to engage. We provide reference designs and custom designs to show differentiation for robot makers. For initial volumes, next year may still be small, but we believe by 2030 volumes will be much higher. We want to start early and capture market share while the market is developing.
Next is a follow-up question from the line of Mehdi Hosseini from SIG.
A couple of follow-ups. First one, would it be possible if you could just elaborate on the mix of eMMC & UFS, either the mix of the specific product or mix by like a smartphone versus other consumer electronics? And I do have another follow-up.
So within the eMMC & UFS business, the majority of revenue comes from UFS given that it's a much higher ASP product. Unit volumes in eMMC are still very strong, but given the much lower ASPs in eMMC, it's a smaller contributor to our overall revenue. The vast majority of our UFS business is going to smartphones. The majority of our eMMC business is going to IoT and other connected consumer devices.
Got you. And then I'm not asking for a guide, but when I look into 2027, your commentary and excitement around new product ramp suggests to me that Ferri and Boot Drive could at least be one-third of your revenue mix. Is that in the ballpark?
Look, I think certainly, given the backlog we have and the strength we're seeing in the pipeline with our customers and new customers ramping, I think that's certainly a possibility.
We have now reached the end of the question-and-answer session. I'll now turn the conference back to Mr. Wallace Kou for closing remarks.
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 these events will be posted on the Investor Relations section of our corporate website, and we look forward to speaking with you at these events.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.