Good morning, everyone, and welcome to Silicon Motion's first 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 first 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 US 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, and thank you for joining the call today.

I'm pleased to report another quarter of better-than-expected results, highlighted by record revenue of $342.1 million. Gross and operating margin both exceeded our guidance, as stronger-than-anticipated revenue drove improved overall profitability.

We saw strong performance across embedded eMMC and UFS, as well as our Ferri and BootDrive solutions, driving solid growth this quarter. Following an exceptional start and given our current pipeline of wins across all our markets, I'm confident that we will deliver meaningful growth throughout what should be a record revenue year for Silicon Motion.

Now let me first address the current market environment. The memory and storage market continue to create significant challenges across the market in which we operate.

NAND prices continue to rise sharply, with a sequential increase of about 55% to 60% in the first quarter of 2026. AI adoption has driven significant demand across all memory and storage technologies, including HBM, DRAM, NAND, and HDD.

Growing demand from hyperscalers and cloud service providers for AI infrastructure deployment, combined with low NAND bit growth and insufficient DRAM capacity, have led to significant scarcity, negatively impacting many markets, including smartphone and PC, particularly in the low end. Despite these challenges, we executed well in the first quarter.

With our backlog, design win, and new opportunities ramping throughout the year, we are confident in our ability to deliver solid growth. We have spent many years developing deep relationship with NAND flash makers, which have allowed us to gain share as NAND makers outsource more of their controller requirements.

These strong relationships have also allowed us to secure NAND in the difficult environment as we ramp our Ferri and enterprise BootDrive business, and help our module maker and AI smart storage system customers secure NAND, making us an even more valuable and strategic partner. While we expect NAND shortages will remain challenging throughout 2026 and 2027, we have never been better positioned.

We have and will continue to benefit from the fundamental shift by NAND makers toward higher-end and higher-capacity enterprise and data center solutions, driving a greater reliance on Silicon Motion to serve the consumer market and opening a new opportunity in automotive and lower-density storage solutions. As a company, we are at the start of a wholesale transformation as we scale our new cloud AI opportunity with our enterprise MonTitan controller and BootDrive storage products, which will drive meaningful growth to both our top and bottom line going forward.

We are also benefiting from our edge AI opportunities, including smartphones, PC, automotive, IoT, and other applications, where we are seeing a rapid shift toward next-generation storage capabilities. Silicon Motion is playing a pivotal role with an expanding pipeline of products spanning edge AI and cloud AI platforms in 2026 and beyond.

Given our current backlog and design win pipeline, we expect sequential growth across our product portfolio in 2026 as we capitalize on our investment, gain share in existing markets, and benefit from our diversification strategy, starting with another strong sequential quarter of growth of 15% to 20% in June. I will now discuss our embedded eMMC and UFS business, which include controllers for smartphones and other IoT and connected devices.

AI is fundamentally reshaping how memory and storage makers are allocating capital. Memory and storage makers are increasingly redirecting internal resources toward DRAM, HBM, and other high-performance memory technologies for AI workloads, and stepping back from edge markets, including phones and other smart devices.

For the first quarter, our mobile business was up between 30% to 35% sequentially and over 140% year-over-year, significantly outperforming the industry as share gains further fuel strong growth for our business. The mobile market is undergoing a rapid shift as NAND manufacturers accelerate the outsourcing of controller to third party, especially Silicon Motion.

Some NAND makers are also finding it increasingly attractive to monetize wafers rather than investing in development of complete eMMC and UFS solutions for smartphones. Module makers have stepped in to fill this gap, and they rely heavily on Silicon Motion controller and firmware.

Our relationship with NAND suppliers and our ability to assist our module maker customers in securing NAND put us in the best position to benefit from the rapidly shifting landscape in the mobile market. Looking ahead, the smartphone market is likely to stay pressured due to ongoing NAND and DRAM supply constraints.

Chinese handset OEMs are expected to face greater headwind than Apple, given Apple's purchasing scale, and Samsung, given its captive memory supply. At the start of the year, we projected global smartphone unit volume would decline by 5% to 10% in 2026.

However, recent estimates suggest the decline could be more than 10% year-over-year, with the greatest weakness concentrated in China. Importantly, much of this unit pressure is occurring at the low end of the smartphone market, where we have limited exposure.

Elevated memory and storage costs make it increasingly difficult to produce low-cost smartphones, a dynamic we expect to persist through at least the end of 2026 to 2027. Our eMMC business remains stronger than expected, driven by multiple markets, including automotive, smart TV, AI glasses, smart watches, next-generation set-top box that demand higher-capacity storage, and many others.

The market for eMMC are large and growing, at over 900 million units sold every year. With major flash makers essentially gone from this segment, competition is decreasing, and our revenue contribution from these markets growing.

Based on our current backlog, customer forecasts, and continuing share gains, we expect another very strong year of growth in our embedded eMMC and UFS business, with share gains dramatically outpacing the macro pressure on smartphone unit sales. Moving on to our SSD business, which include edge SSD and enterprise controllers.

In the first quarter, our overall SSD controller business revenue declined approximately 10% sequentially, in line with seasonal trends, but was up approximately 45% year-over-year as we benefited from the early impact of PCIe 5 on our mix and early ramp of our MonTitan controllers. For edge SSD business, our client SSD controllers are utilized in a variety of products, including PC, gaming console, and PC workstation.

The PC market has been a challenging area so far this year, given supply constraints and high prices associated with both NAND and DRAM. PC manufacturers are lowering specifications for new computers and passing on higher NAND costs to consumers, which we expect will contribute to overall unit decline in the PC market in 2026, especially at the low end.

Fortunately for Silicon Motion, our products span markets from value line to the high end, and we continue to gain share across the range of devices as the NAND makers exit the consumer segment. 2026 will be a defining year for our client SSD business.

PCIe 5 began to displace older technologies. Our eight-channel PCIe 5 controller leads the market in performance and ramped steadily throughout 2025.

While we expect that DRAM supply constraints could limit growth of this high-end controller in 2026, it is still highly sought for its unmatched power and performance. In December, we launched our four-channel DRAM-less PCIe 5 controller aimed at the mass market, and we expect this to become the volume-leading PCIe 5 chip in our portfolio this year.

This controller brings PCIe 5 performance to a broader audience at a more accessible price point, and remove a significant component hurdle for our customers at a time when DRAM availability is constrained and costs are elevated. We have all NAND flash maker customers for each of our PCIe 5 controllers, as well as nearly all the module makers, and expect it to drive higher ASP and improved margin in our client SSD business throughout 2026 as PCIe 5 grows as a percentage of our sales mix.

Entering this year, we estimated that the PC market would experience unit decline of 5% to 10% in 2026, given the tightening NAND and DRAM supply and increased prices. Current expectations are bit lower, with anticipated unit decline now in the 10% plus range.

Despite this, we expect to grow our edge SSD business through a combination of increased market share and higher ASPs as our PCIe 5 controllers continue to ramp, and as NAND flash makers retreat from edge markets in favor of enterprise and cloud AI. For our MonTitan enterprise controller business, our cloud AI opportunity in the data center and AI infrastructure are growing rapidly, and we are in the early inning.

NAND is a central part of enterprise and AI infrastructure deployment, spanning warm storage, compute storage, and increasingly near-CPU and near-GPU storage applications. The need for speed, lower latency, greater power efficiency is driving a technological shift in the data center, and MonTitan is squarely in the middle of that transition.

MonTitan, when paired with TLC NAND, powers high-performance CMX, KB cache, and compute SSDs used in near-CPU and near-GPU environments. When paired with QLC NAND, MonTitan enables high-capacity, high-performance enterprise and AI data storage.

During the December quarter, end-user qualification of TLC-based and high-performance compute SSDs powered by MonTitan began with multiple customers. These qualifications have been progressing well, and these end customers are now expected to begin volume commercial ramp in the current quarter, one quarter earlier than expected.

Currently, we see greater demand for TLC-based CMX compute and the KB cache SSD controller than for QLC, given a slower rollout of 2Tb NAND than initially expected. While we anticipate more initial revenue contribution to come from TLC-configured MonTitan solutions, we believe QLC-configured solutions will begin contributing more meaningfully later this year and long-term.

Higher-capacity warm storage SSDs leveraging QLC NAND will represent the largest addressable market for MonTitan, and we expect to begin ramping multiple customers as broader availability of next-generation 2Tb QLC NAND dies become available from nearly all NAND makers, and as supply returns to more normal levels. Our QLC solutions offer meaningful advantage over HDDs for AI inference workloads: faster access, higher speed, lower power consumption, and an improving cost trajectory.

I'm excited to announce that our MonTitan customers plan to begin ramping of three Tier 1 Asian CSPs and two US Tier 1 CSPs later this year with both TLC compute and QLC warm storage SSD solutions. In the third quarter, we expect to tape out our first 4nm controller, a PCIe Gen 6 MonTitan controller targeting hyperscalers and CSPs.

It has been developed in close collaboration with multiple partners and customers, and we expect it to drive the next phase of MonTitan growth beginning in the 2027-2028 timeframe. Importantly, we have already secured design wins with multiple Tier 1 customers, with volume expected to ramp meaningfully in 2028.

Given the traction we are seeing and the progression of end-user qualifications for both TLC and QLC implementations of MonTitan, we are increasingly confident that the business will grow rapidly throughout this year and exit at our target run rate of 5% to 10% of our now expanded 2026 revenue expectations, with further growth anticipated in 2027 and beyond, as our entry into the enterprise market scales meaningfully over time. Finally, I would like to provide an update on our Ferri and BootDrive storage business.

Our Ferri and BootDrive storage business delivered exceptionally performance in the March quarter as we began scaling several new projects in Ferri for automotive, as well as in our emerging enterprise BootDrive business. Both these businesses are growing rapidly this year.

Sourcing NAND is becoming more critical to our long-term success. Our unparalleled relationship with NAND makers has become a key differentiation and has enabled us to secure NAND from three different makers, which will ensure we will remain a resilient supplier of Ferri solutions and BootDrives for our customers, despite the increasing supply constraints.

NAND supply allocations for 2026 were largely finalized by all flash makers by mid last year. Our ability to secure NAND has given us a meaningful competitive advantage, as we are one of few suppliers globally able to consistently source NAND to support our customers' accelerating requirements.

BootDrive storage is rapidly becoming one of our most exciting growth opportunities, as we are actively engaged with multiple customers to build solutions that operate across a variety of platforms. This includes leading DPU, Ethernet, and NVLink switches, and other opportunity across different AI infrastructure architecture.

In the fourth quarter of 2025, we began volume BootDrive shipments to a leading AI GPU manufacturer for their current DPU product. In the first quarter, we worked with that customer to qualify next-generation DPU designs, as well as Ethernet and NVLink switches of their new GPU-CPU platforms to be launched in the second half of this year.

As our customer transitions to the next-generation GPU-CPU platforms, our opportunity is increasing rapidly, with a much broader footprint beyond the DPU BootDrive and with the density that increased 2 to 4 times from the previous generation. We anticipate strong revenue contribution and growth with this customer this year and throughout 2027.

In addition to this customer, we have recently won a design with the leading telecommunication infrastructure provider, and will be ramping initial scale with them later this year. We are also sampling with a leading search engine company for its TPU architecture as well, and we will continue to develop a new BootDrive storage device built around our leading controller to drive future growth.

Our Ferri business is experiencing strong demand from automotive and industrial customers as the NAND makers continue to shift away from lower-density solutions to focus on higher-ASP, higher-density enterprise solutions. Our more than 10 years of developing automotive-grade Ferri solutions provides significant differentiation by offering reliable supply, proven technology, dedicated technical support, and qualification expertise tailored to the automotive market.

As a result of these investments, demand from global automotive OEMs and their sub-system suppliers continue to accelerate across the US, Europe, China, and Japan. We are gaining meaningful share, creating a strong pipeline of near-term revenue and long-term sustainable growth opportunities.

In conclusion, the first quarter was exceptional, delivering our highest quarterly revenue at Silicon Motion as we continue to drive meaningful share growth across our markets. Despite ongoing supply constraints and price increases associated with NAND and DRAM, we continue to expect that we will deliver sequential growth throughout 2026 as we reap the benefits from the investments we have made over the past few years.

This growth will cross all our major business, propelled by our growing cloud AI opportunity with our enterprise AI products, including MonTitan, and our emerging BootDrive storage business that are just beginning to ramp. We are in the strongest position in our company history, with a deeper product portfolio, growing foothold in edge and cloud AI, with multiple opportunities growing in tandem in the legacy and new markets.

The successes we have made through the partnership with all the NAND makers over the past many years have given us an unparalleled advantage as we leverage these relationships to gain access to NAND supply. These relationships are the strategic differentiation for our company, and I am extremely confident in our ability to deliver broad-based, sustainable growth as we scale both established and emerging opportunities across the 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, everyone, for joining us today. I will discuss additional details of our first 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. The reconciliation of our GAAP to non-GAAP data is included in the earnings release issued yesterday.

This was an outstanding start to the year for Silicon Motion, as our investments over the past several years are bearing fruit. We are gaining share across our entire portfolio in a difficult macro environment and rapidly expanding into new opportunities in edge and cloud AI applications, we should continue to drive significant top- and bottom-line outperformance.

In the March quarter, sales increased 23% sequentially and 105% year-on-year to $342.1 million, coming in well above the high end of our guided range, delivering our second consecutive quarter of record revenue. Outperformance in the quarter came primarily from our embedded eMMC and UFS controllers and strong growth in our Ferri and BootDrive storage business.

Gross margin was 47.2%, above our guided range of 46% to 47% as we capitalized on new product introductions. Operating expenses increased sequentially to $99.2 million, given increased investments in our emerging MonTitan AI and enterprise SSD controller and BootDrive storage solutions.

Operating margin was 18.2%, above our guided range, driven by higher-than-expected revenue and gross margin during the March quarter. Earnings per ADS was $1.58.

Total stock compensation, which we exclude from non-GAAP results, was $8.4 million in 1Q 2026. We had $210.9 million cash, cash equivalents, and restricted cash at the end of the first quarter, compared to $277.1 million at the end of the fourth quarter 2025.

Cash decreased in the first quarter due to a combination of dividend payment of $16.9 million and an increase in inventory to support our expected strong business ramp. Our team is executing exceptionally well in this challenging NAND and DRAM pricing and supply environment.

We continue to invest in advanced geometry products for both our established markets and our emerging enterprise markets, including MonTitan SSD and enterprise BootDrive storage solutions. These investments will continue throughout 2026 as we support the growing demand for our enterprise portfolio.

For the second quarter 2026, we now expect revenue to grow 15% to 20% sequentially to $393 to $411 million. We see strength across nearly all our product segments, with an emphasis on continuing market share gains and new cloud AI opportunities with our MonTitan and BootDrive business as they ramp.

Gross margins are expected to increase sequentially to 48.5% to 49.5% in the June quarter, given the product mix, assisted by greater contribution from MonTitan and our PCIe 5 controllers. Operating margin is expected to be in the range of 21% to 22%, and our effective tax rate is expected to be 19%.

Stock-based compensation and dispute-related expenses is expected to be in the range of $3.6 to $4.6 million. 2026 is on track to deliver record revenue for Silicon Motion, with strength across all of our major product lines.

We expect sequential top-line growth for the remainder of the year, with further improvements in profitability. We still anticipate additional development costs, which will drive higher operating expenses in the second and third quarters of this year, which will be more than offset by higher revenue and gross margin performance.

We anticipate our full year 2026 operating margin to improve as compared to '25, despite our higher investments this year. We are navigating the current memory and storage supply constraints and high pricing environment with remarkable success, driven by a relentless strategy of relationship-building with NAND flash makers over the past 20-plus years.

We're also beginning to reap the benefits of our multi-year investments in eSSDs for enterprise and AI with MonTitan, and our growing BootDrive storage business beginning to ramp in volume. Our leading position in merchant controller, combined with unmatched NAND maker partnerships, will drive higher share across eMMC and UFS, client SSDs, enterprise, automotive, BootDrives, and the high-performance, high-capacity enterprise and data center storage markets.

We expect this will lead to significant revenue growth for Silicon Motion in 2026 and the years to come. I look forward to sharing more detail on our progress when we report next quarter.

This concludes our prepared remarks. I'd like to open up for questions now.

Operator?

Hey, everyone. Thank you for letting me ask a question.

It obviously sounds like everything is supposed to grow quarter-on-quarter throughout the year. Maybe specifically looking to 2Q, could you sort of rank the segments on what you think should grow the most and what you think should grow the least?

Thanks.

We anticipate growth, as I said, across all of our business segments. I think, obviously we've had some very strong growth in eMMC and UFS earlier on the year.

If you take a look at our automotive, Ferri, and our BootDrives, we're just in the early stages of that ramping. We do anticipate stronger growth from those products.

Then certainly the rest of the other products continue to grow as well for the quarter.

Thanks. Then I have a follow-up.

Within the eMMC and UFS business, it sounds like it's diversifying a little bit away from handsets. Could you maybe update us on the mix of handset revenue in the business versus sort of the broad markets that you talk about?

Thank you.

For eMMC and UFS controller business, UFS majority is in handset, and eMMC majority is in the smart devices, such as smart glasses, and IoT device, smart TV, new set-top box, and smart door lock, and many others is going to the automotive. I think although the smartphone unit shipment will decline, but our overall eMMC plus UFS controller shipment will continue grow throughout the year.

Neil, we also anticipate MonTitan to begin to ramp more meaningfully in the second quarter starting in the second quarter as well. That'll be another growth factor for our second quarter.

Okay. Thank you.

Hi. This is Amy filling in for Mehdi.

Thanks for taking my question. The first one is with the new SM8008 product launch in March, can you give a bit more color on the BootDrive revenue trajectory?

I know the contribution of revenue is small this year, how should we frame the ramp from here? What does a more meaningful contribution year look like?

I have a follow-up. Thanks.

We don't break out those segments specifically, but as I said before, we do anticipate BootDrives and Ferri to be more meaningful contributors of revenue in the second quarter, as well as throughout 2026. SM8008 is a BootDrive controller that was introduced, and that will be part of the portfolio of solutions that we have in this category of products.

We have other solutions here as well that have been ramping.

Let me add some comments. For SM8008, our PCIe Gen 5 high-end BootDrive controller, it primarily were sold as a controller and firmware to the customer who make a BootDrive solution.

For this year, most of our BootDrive solution were not based on 8008 controller. This is only ship specific to certain customer, major customer, but will start to ship by late this year.

Got it. Really helpful.

My next question is regarding the revenue diversification. Do you remain on target to have a 20% of your total revenue from a mix of MonTitan, BootDrive, and auto?

Yes, we are definitely, sir, will reach the goal. I think we're quarter-by-quarter, because we didn't give a full year guidance, but wait for our next quarter result and the guidance for Q3.

Got it. Thank you.

Hi, Wallace, Jason, Tom. Congratulations on the progress here.

Perhaps you can give us some fundamental color here. Maybe understanding how the second half versus first half half-over-half revenue would be this year perhaps versus typical years, and is 50% gross margin potentially in the near future or any puts and takes there would be helpful.

I think first of all, 50% gross margin is definitely achievable. We're confident for this year.

Second is we just say quarter-by-quarter sequentially. We continue grow quarter-by-quarter, but we cannot give you percentage regarding first half and second half.

Okay. Jason, can you remind us what a typical year is or do you have that data?

Typically we're about 45/55, somewhere in that ballpark.

Great, thanks. Then my other question is around MonTitan.

Can you give us an update on how many customers are ramping today, that are going to ramp, start near term, and how many you have, or pipeline? Any update on MonTitan number of customers would be helpful.

MonTitan, we are ramping today in production with the two customers, but we are going to have a five additional major customer from CSPs by late this year, three from Asia, two from US.

Excellent. Thank you, Wallace.

Thanks, guys.

Hi. Great results.

Wallace, just wanted to dig in a little bit on your comment about having more interest on the MonTitan solution from TLC NAND and KB cache, especially for the CMX piece of the equation. Could you talk a little bit about what has changed there, given previously I think you were a lot more optimistic about the QLC NAND solution, and that was kind of like the key selling point for MonTitan, given Silicon Motion's experience in managing QLC NAND.

In addition to that, can you also talk a little bit about how is the adoption that you're seeing from a lot of these customers on the CMX solution, or the previously called ICMX solution? Is that largely the five customers or at least the two non-Asia customers that you're seeing ramping up among the CSPs, is that related to the CMX solution?

You have a very long and good questions. Let me try to answer one by one.

Because NAND price increase dramatically, and because of NAND supply shortage, and see most of majority output is taken away by the CSP customer. Now, because the NAND price increase dramatically, the customer who originally designed with the QLC with a 128TB even higher capacity, they have certain drawback because the price increase almost 5 to 10 time compared to a year ago.

It's a very, very unlikely. We see more demand, either the QLC capacity reduce, or they shifting more for compute storage.

As everybody know, compute storage we say is the compute SSD, which is next to CPU, and the new compute SSD, which is calling by NVIDIA CMX, content memory storage, is for KB cache for AI inference, is also used TLC, because the latency very, very important. We're seeing more and more customer and moving to TLC with a smaller capacity, like 8, 4, and 16TB, and this is really benefit for Silicon Motion, because we ship more controller.

For QLC, we also still have a two customer continue and ramping later this year, and we help them to secure NAND supply. Because the QLC 2Tb today only have a three NAND maker can provide the production.

I think wait for one more year, we'll see all the NAND maker can produce 2Tb QLC, availability will be better, we'll see more demand for high-capacity QLC, and supply will become more normal. That's the situation we see.

Regarding the CSP customer, because MonTitan are one of unique technology called performance shaping, which is very, very good for AI inference, because when AI inference goes to KB cache, you need to manage multiple tokens, and our MonTitan have the architecture can handle four tokens simultaneously. That's why the many, many leading customer and CSP like the great architecture.

That's why we see demand is very, very high from US to Asia.

Got it. That's very clear.

Thank you. Just on the client SSD controller side, I do notice that the strength is still very, very robust, even in a reasonably challenging PC market.

Do you sense any pull-forward demand from some of these customers, because this is something that we hear from some of the other vendors that even though end demand has been not that great, there's been some pull-forward demand, customers trying to stock up inventory ahead of cost hikes and price increases? Is that something that you're seeing among your customers?

Secondly, when you talk about NAND makers exiting this market, does it change the threshold in terms of what kind of market share you could eventually have of client SSD? I think previously we've talked about maybe 50% or 40% to 50%.

Is that threshold increasing, given the industry trends that you're seeing?

I think you ask a very good question. As everybody know, the NAND supply is shortage, and the NAND maker allocate less SSD to PC OEM customer.

This trend benefit for Silicon Motion, because, first of all, we get a more outsourcing project from NAND maker for PC OEM. Second, and because the module makers, they step up to fill the gap, because we own almost majority module maker to design our controller for PC OEM.

That's why, although we see the PC unit shipment might decline 10% or more, but we will continue gain market share, and we see the client SSD business continue grow. When the PCIe 5 moving from high-end to mainstream, and PC OEM and shipping more PCIe 5, we benefit much more, because ASP higher, and also we dominate for PCIe 5, more than 50%.

We see our market share gains continually when PC OEM start to ramp the four-channel DRAM-less PCIe 5 controller.

Got it. Thanks, Wallace.

Thank you very much.

Yes, thank you. Good morning, and congrats on the strong results and guidance.

My first question is on the share gain momentum that you're seeing, particularly in the mobile and PC markets. How do you think about the trajectory of those share gains?

In other words, have you seen maybe more meaningful share gains been front-loaded here, Q4, Q1, Q2 of this year, or is there significantly more runway for you to keep taking share as we move into the second half and even into 2027?

Our goal is continue gaining market share. When NAND maker, now they have limited R&D resources, and they probably will outsource more project to Silicon Motion.

We try to reserve all the R&D, and we're very busy to catch all this outsourcing opportunity. We see we continue gain embedded eMMC and the UFS controller business, as well as client SSD for PC OEM.

Because retail for client SSD almost gone, it's very, very low. We see the PC OEM, but we have a much broader customer to provide the SSD solution to PC OEM, not just NAND maker.

There'll be more module maker coming, too.

Great. That's nice to hear.

Then my follow-up is just on the BootDrive opportunity. Can you just remind us what the competitive landscape looks like, who else might be in a position to provide these types of BootDrive controllers, and then relatedly, how should we think about your share in that market?

Should it be higher than in some of your other subsegments or should it be pretty similar? Any pointers there?

For our first engagement for the DPU BootDrive 3, there will be a three maker provide the solution. Two other NAND maker also use a Silicon Motion controller, but different controller, different NAND, and we also with our additional different controller to support.

I think through the engagement, I believe the customer would like to focus on the new-generation DPU, and also provide much more deeper NVLink and Ethernet the 69 switches project to us. Because for the new-generation BootDrive, security become very critical.

I believe today we're probably only one have a specific security in our RoT and hardware in our controller. We have a unique firmware to manage the NAND into a pseudo-SLC mode, provide specific function for the end customer.

That's why we believe we probably have a majority of the new-generation BootDrive in this particular customer.

Great. Thank you very much, and congrats again.

Thank you, gentlemen, for taking my question, and congrats on the great results. My first question would be, could you share with us your latest view on the TAM for the MonTitan or the overall eSSD market, and also your targeted market share in the overall market?

I have a follow-up. Thank you.

We see where MonTitan now get tremendous attention and very, very broad design win. Very, very happy in our progress.

We see we'll continue gain market share. We see MonTitan, even for PCIe Gen 5 and our associated product, we will grow to at least 5% to 10%, aligned with our expanded 2026 revenue and 2027.

Our PCIe Gen 6 MonTitan, even stronger, even before we tape out, we have a multiple design win from Tier 1 customer, including two NAND maker and several CSP customer. This is to bring a very, very broad and the long-term commitment and for development.

We see our PCIe Gen 6 MonTitan also have a very, very unique technology with 16KB LDPC and support both TLC and the QLC for next-generation QLC. We have a very, very broad customer waiting for the product, and will continue and ramping PCIe Gen 5 and waiting for PCIe Gen 6 for design win pipeline.

All right. Very clear.

Thank you, Wallace. My second question would be, as we see elevated material costs and also the OSAT costs, would you consider conduct price hike on your product to pass through all these costs to your customer?

I think we've developed a very good relationship with our backend packaging and testing, as well as our suppliers. Look, I think our goal here is to maintain our gross margins in this 48% to 50% range, and we're comfortable through our existing relationships with our suppliers, as well as our relationships with our customers, that we can maintain that pricing.

We're not going to go into specifics about pricing changes with customers, but we're confident that we can maintain our margin levels.

Let me add a comment. At the moment, our concern is not in the price increase regarding manufacturing side.

Our main concern is the T-con material for the BGA substrate, because it's very, very tight and supply is very limited. We have to fight with all the US Tier 1 customer, but our operation team work very hard.

We work with Japan customer directly and work with all the Taiwan manufacturers. We try to overcome the challenging and manage supply to make sure we can meet customer demand.

No, that's all from me. Thank you.

Thank you for taking the question, and congratulations on the great performance, guys. I wanted to ask an intermediate- to longer-term question.

Wallace, congratulations on what appears to be really significant MonTitan customer diversification through this year, and you've got a BootDrive position that seems to be broadening out significantly in next-generation drives through the year, and auto with Ferri is expanding nicely, as well. The question is this.

As we look at reports seeing that memory-related order pipeline is happening deep into 2027, and as you exit this year with a much broader customer and program footprint, how do you feel about supply availability next year, and are you seeing from your customers extended order visibility, and if so, where's that happening?

I think for this year, NAND supply is a little challenging to us. It's not because NAND maker won't provide NAND supply to Silicon Motion, because we provide the PO were late last year, because the NAND maker and DRAM maker, they almost finish allocation before August timeframe.

Through our strategic relationship and deep partnerships and personal relationship with the NAND maker, we're able to secure the full supply for 2026. Now, for next year, we will start to provide our demand to our NAND partner in advance.

We're pretty sure and we are able to secure all the NAND we need for '27 growth. I believe 2027 DRAM and NAND the supply will be more severe than 2026.

DRAM will get easier from late 2027 to '28, because all the new mega fab start to ramp from second half 2027. I think Micron, the second fab in Boise, will ramp from second half 2028.

I think the NAND will start to see release probably from early '28 or second half '28, but still in shortage. We will try to maintain the position, make sure we secure all the NAND in advance, meet our customer demand, and meet the growth demand.

Also keep in mind, Craig, we're sourcing from three different flash makers, we've got a really good range of suppliers to work with.

That's really helpful color, guys. Thanks.

Then for the second question, I think we're just thinking near term about how some of the hydraulics play out in the second half of the year with product-related investments. Sounds like there'll be some mask set costs for PCIe Gen 6, but you're also looking for much higher revenue and higher gross margin.

Can you talk a little bit more about the gives and takes that we should be thinking about in the middle of the income statement back half of the year? Thanks so much.

I think from an OpEx standpoint, we will have our OpEx obviously higher this quarter, and then that'll probably tick up a little bit in the third quarter as well as some of these tape-out costs come in. Then our expectation for timing is that fourth quarter, we should have a lot less those development costs, so that it'll come down.

Overall, we expect to see operating margins continuing to improve throughout this year.

Thanks so much, guys. Good luck.

Let me add some comment. Silicon Motion procured NAND, it's not like a normal customer.

We are strategic partner for NAND maker, because we have mutual business and we engage their project to many, many large-scale customer, too. They treat us a partner, not just a normal buyer for NAND.

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