Hi, good day everyone. Thank you for joining us today for Phison's fourth quarter result conference call.

My name is Astoria Chen and I am semi analyst from SinoPac Securities. Today we are very honored to have K.S., the CEO of Phison, with us today.

In this call, K.S. will first provide some updates on Phison's fourth quarter results, business highlights, and the NAND market outlook.

After that, we will open the floor for the questions. As a reminder, if you have any questions during the call, you can write down your questions in the chat box and we will raise the questions for you.

Now, I would like to turn over K.S. for comment.

Thank you, K.S.

Thank you. Good afternoon, good morning, ladies and gentlemen.

Let's restart today's 2025 CQ4 and '25 earning call. This is our 4Q breakdown of our revenue.

I'd like to share a few minutes here. Controller itself, actually the amount of revenue increasing, but the ratio declining just because the revenue base increased too much.

Consumer-wise, you may be a little bit surprised why the CQ4 the ratio increased, just because at CQ3 we have many retail customers they worry the CQ4 market may turn down. They place order, they no want to push in, they push out.

Eventually, they pull in by CQ4 with the price raising. That's why this increase quite a big significant number, but from CQ1 this number was slightly going to a single digit, because now we are mainly focused to the non-consumer business.

Enterprise CQ4 was 10%. This actually Phison we did a lot of design with that I will share with you.

A lot of design wins starting from last year CQ3, CQ4. In this CQ1, the ratio of enterprise SSD will be over 30% of Phison revenue.

In 2026, I believe the biggest portion of revenue coming from enterprise. We met so many design wins.

We also accumulate a lot of components for enterprise business. Go to the embedded ODM, which mainly is mobile and the PC.

The supply is so tight. We gained almost every brand design win and design in and China mobiles.

This also played a really big portion of the revenue. Industrial-wise, it's very stable, around 13%, 17%.

我們在去年的這個主要的這個營業活動呢，controller是營收增加的，但是佔比減少。消費類呢，主要是因為CQ3很多客戶不看好，就把訂單push到CQ4，但是後來在漲價情況底下，他們把它拿走，所以呢金額就增加了。在企業級部分呢，我們其實工作了很努力，那CQ4從10%開始，CQ1已經看到超過30幾%的一個營收，這個比例呢會非常的一個快速的一個成長。So the gross profit in the 4Q is 9.5 billion, is all-time high. The revenue-wise 22 billion, also all-time high.

Gross margin 41.6% is good. Some investor may question, "Hey, why Phison gross margin only 41%?

Why not, like other module house 50 something?" I want to share with you: Phison business is not trading.

We are design in, and design win, and long-term supply. A lot of order we ship in the CQ4 mainly we get the orders CQ2 and CQ3, which is a design-in, design-win business.

If my business is trading, I'm easier. I can buy last month $10, I can ship today $30.

We won't do trading business. The CQ4 with the 41% of gross margin, we believe CQ1 we are going to improve because the order ship in the CQ1 mainly collect the order from CQ4.

因為一直有被問到說這個為什麼全年的毛利率第四季呢會是這個41%，不像其他的是什麼40幾%、50%等等的。我首先要澄清一下，群聯電子的生意呢，我們不是貿易體系喔。貿易體系其實很簡單，我買一個顆粒進來5塊錢，下個月20塊錢把它賣掉，那就馬上實現獲利。我們最主要呢，我們的這個元件呢都是design in在用的，那更多的系統呢我們的訂單是接在第二季、第三季，那以那時的單價出貨出在第四季。所以我們的庫存主要呢要給長期的這個design in客戶使用。那由此可預見呢，其實第一季我們的毛利率一定會再持續的成長。那有分析師擔心我們的什麼低價庫存呢，我只能說他在睡覺講夢話，想太多了啦。這個呢很長時間不會發生啦。So the earning EPS is 21.7, because later we'll share with you we also have increased our CapEx, R&D expense in the R&D activity and also the new mask tape-out. This earning per share, I think to Phison is really we are proud and comfortable, but again, in CQ1 this year, we can see the slightly improved on this because the shipment in CQ1, the order coming from CQ4.

在這個所謂的EPS部分呢，我們在第四季其實也大量的這個在獎金啦，在我們的這個新的tape-out，我們認列了這個光罩，所以在費用上面增加的不少。但是對於這部分呢我不擔心，因為後面呢我們的這個負擔會越來越輕，因為很多光罩要tape-out的都認列掉了，所以後面的負擔變輕之後呢，獲利相對的變的比較好。So income statement, I think I'd like to share with you mainly our R&D expense. In the CQ4, is a 5.2 billion.

I think it's a close to 40% growth QoQ. Just we have a better profit, we need to have a more compensation to our staff and also increase a few mask tape-out and also increase some test equipment.

This is the reason the expense increased. Phison is a different with other company.

When we make good money, we make investment. This to create our better future.

Okay. 在這個研發費用部分呢確實增加，主要是因為公司好了獲利，獎金自然要提列，然後新的光罩，我們明年有大量光，就從去年看今年，今年有大量光罩，我們開始部分呢就來認列，把費用呢先認列掉，那讓後面呢這經營的變得比較的這個輕盈。This is '25 our income statement.

Revenue is all-time high. R&D expense is go to the 13 billion, still increase, but I need to keep a highlight: '26, 2026, R&D expense definitely increase because we have more new design in the advanced design, the 4-nanometer and some other new technology development.

Overall, we believe this investment will bring us Phison the better return in the future. This is what's the difference between Phison and other company.

In the balance sheet, cash flow, we still doing good. Inventory-wise, we have around 35 billion inventory by end CQ4.

This inventory, to be honest, is not low-cost inventory, is a very low-cost inventory, because we accumulate this for many, many months. I no want to keep highlighting low cost, but since analyst question about low cost, right?

I want to highlight: we have a good enough low cost, but Phison's value is not only coming from low cost. We coming from our design, our products, and our innovation.

We also share the non-TIF, what's the difference. I think the gap is slightly small, just because we issued a stock option to our staff, and this we need to depreciate by monthly.

This increased some overhead. We just highlight to everyone here.

No other difference, only mainly is the stock option expense. TIF跟non-TIF的差別呢，主要是群聯電子在去年下半年有執行了一個庫藏股給所有的幹部，那希望呢可以讓幹部呢有更好的動力來發展這個公司的這個前進。那這部分的費用的這個比例呢沒有太大，相對的還是比較小，但是呢這個可以刺激給同仁更多的誘因，創造呢更多的動力來達到我們的成長。February working days is smallest in the year, but we hit the top billion revenue.

Definitely March, we can see the other big growth, because we can't stop it. 那個整個人力，我們現在停不下來，那個整個市場需求真的是現在不需要再花時間講缺貨了啦，講缺貨浪費時間。那我們的這個努力的希望呢能夠不要出貨出得太急急，但是擋不下來。Okay, some business highlight.

Client controller, you surprise, Phison's controller shipment growth 490%, 490% YoY. Revenue will grow 450%.

This means what? We win the share.

We gain the share. 我們得到了市佔率。You may agree the NAND Flash is getting tight supply, means the shipment of SSD is going to decline, but our controller still growing, means we win the market share.

One thing I want to highlight: '26, coming quarters, the controller shipment definitely, obviously is going to declining. Controller在2026年一定會下降，沒有Flash，誰會買controller？如果有人說2026年controller會成長，我必須說那可能在講夢話，因為沒有Flash。But Phison, we're okay.

Why? Because we have a controller business, we also have our module business, which can compensate our revenue.

We grow from the modules and we can grow from our gross profit. In the client SSD, we win the share, we win the gross margin, we also win the business.

We are very comfortable about this performance. Going to the mobile, Phison is the biggest mobile controller supplier at the year 2025, and this is our shipment growth.

Again, if you keep reading the report, '26, the mobile phone may decline more than 200 million sets. 2026年手機可能會減少接近兩億顆，表示減少兩億顆controller，所以controller成長性會有問題。But Phison 2026, the mobile controllers, by forecast, we still increase, because we win the design win, we win the share.

Also our module shipment, you can see is unbelievable, but of course shipment 10 times growth YoY, revenue 12 times growth. Why?

Because of price and we win the share. Then analyst may ask, "Oh, you consume too many your inventory."

Don't worry, don't worry. We still can use for many, many, many months.

Don't worry, okay? In mobile, we are the biggest controller supplier.

We also become the very niche, customized module supplier to the industrial, to the BMC, to a lot of automotive. This helping Phison to gain much much better the gross margin profit.

Then we go to talk about our enterprise. '25 CQ4 is a small business to us, but from now on, enterprise will be our biggest business.

Due to the AI, due to the every CSP, near-cloud, hyperscale, server makers, they're looking for a lot of SSD. Phison, we win many, many business.

This later I would like to break down to you. Phison now, we combine boot drive, main drive, customer drive, AI drive, eMMC, retimer.

We have almost every storage need in the AI ecosystems, and we are proud of that. We also putting our Pascari into the Tier 1 NAS customers.

Due to the NAND shortage, a lot of Tier 1, Tier 2, Tier 3, no matter what Tier, they came to Phison to ask for cooperation. Because of this, we win so many design windows.

My people, they are really working hard. That's why we need to pay more bonus to them.

This slide is very important for today's meeting. I'd like to share to you one by one.

This is mainly we call the boot drive. NAND makers, now they focus mainly to the main drive.

They walk away from boot drive. Phison now become the important supplier in the boot drive.

Here, I want to break down: we win the two Tier 1 CSP, big CSP, the big name. The shipment starting, one already start to ship, the other one start from coming May, means after two months.

It's a big CSP. The Tier 1 OEM who are selling the servers, we win their boot drive.

The shipment starting from second half. Today, they are auditing Phison in Phison headquarters.

Hyperscale, we got the two new design wins, US, mainly US customers. AI platform, you know who is AI platform, we got the one design win.

We are there, and we try to gain more design wins. A lot of project customize is ongoing.

Talking about the main storage, we also got the Tier 1 OEM who are making the server. We got two design wins, one, the other one is coming.

Due to the SSD shortage, we are getting more Tier 1s. Today, the Tier 1, their executive here in the meeting, they are really open-minded.

They say, "Hey," they never look to Tier 2, they don't know who is Phison, but few months ago, due to shortage, they have to, but they doubt Phison can make it or not. They visit here, stay few days, we open the lab, we work with them, they are surprised.

We win not only one project, we win all the potential supply chain projects. Not only one model, we almost win every models, because we have a good enough of engineers, supply chain, the product mix, and also we have a very good inventories to supply.

We also win the hyperscale, two. By the way, this two is big, it's big, okay?

By the way, it's very famous by now. The AI storage, seven.

Every storage supply to the AMD, Nvidia ecosystems, we almost win everyone, okay? We ship the main drive to them.

The infrastructure software is mainly provide software, we got two new design in. Hopefully shipment happen by CQ4.

Enterprise AI customers, two design wins. This also is a big guy, okay, mainly supply the brand AI server to the worldwide market.

We also win the big QLC qualify, and we shipping 1 exabyte of QLC enterprise SSD from February, from last month. And 1 exabyte have to ship until May.

This is our record: 1 exabyte enterprise SSD, 122 terabyte, we ship to the Tier 1 CSP. If you don't believe Phison can gain the revenue, the top line, the bottom line of enterprise, now we show you here.

This is all our design wins and more are comings, because the solution is ready, we have so many product mix, and we have enough R&D resources. By the way, we have the good supply from our NAND suppliers.

這邊中文總結一下。有曾經還是懷疑群聯電子在enterprise裡面的佈局，都說哎呀這個不可能、那個不可能，但是呢今天我們打出來。因為遇到市場的缺貨，他們不得不來試看看，試過之後呢才發現這個地方真的好用，所以我們不是做一個產品線，我們他要的，我們幾乎都，一個server裡面需要eMMC，需要SATA boot drive，NVMe boot drive，需要retimer，需要main drive，需要客製化，我們統統一次性，一站式的來供給他們。所以經過這個事件之後呢，我們會得到更多更多未來的生意機會。我們現在只是煩惱錢不夠用、庫存不夠用，那現在我們就要解決錢跟庫存的問題。This is something we'd like to share with you. If you go to the retail, the PC home or Amazon or to the retailer, the buying of SSD declining because price is going too high.

In the industry, they have to, because every equipment they have to buy. No matter if the price go up 10%, 10 times, 20 times, 30 times, they still have to buy.

Phison, now we put more our supply chain go to the embedded design-in business. This is mainly in automotive.

I think we got so many names here, I don't want to spend time here, I just show you. Almost every platform, every China OEM facing the shortage of storage, we have a good enough.

Again, I want to repeat: analyst saying, "Phison low-cost inventory." Let me remind you: we have a one component we keep over 30 million piece.

30 million piece, the cost from $2 now go to the $25, okay? This we keep this only supply to automotive.

So 30 million piece can ship for years, not months, okay? A lot of automotive, they came visit to Phison to ask Phison to supply to them.

Not only the low density, we also got the UFS, we got the BGA, we got a lot of design win with the US, Europe, Japan, and China automotive makers. Consumer products, portable SSD, we got the one project with the South Korean OEM partner, and they win the award, okay?

It's a Phison products. It's the first USB Gen 4 native controllers.

In the microSD card, SD card was the legacy, but we not anymore in the retail. We are mainly in the gaming, in the automotive.

We win the project in the one EV car. We also is going to get the more project for robot.

This is all about design-in activities, the customer they trust us. We also have again win the Tier 1 Japanese customers.

This we back to the retimer, redriver. Few key highlight here: Phison is the biggest 5.0 redriver supply in the world, okay?

Phison 6.0 redriver we start to ship to automotive, to server, okay, mainly to automotive. We got so many inquiry of this PCIe redriver Gen 6, okay?

Go to the retimer: due to the inference getting popular, recently we got a big project based on the B300 platform. It's a few hundred thousand piece of retimer.

Unfortunately, we don't have inventory, we begged TSMC to supply us. Now we start to shipping the retimer to hundred thousand piece per order.

This we win the business. By the way, due to a lot of CSP, the server OEM, they are facing the shortage of the storage, they come to call help to Phison.

Phison supply them the boot drive, supply them the main drive, we also bundle retimer. We wish they take our retimer.

Due to that, we gain the share. server呢現在缺SSD，缺開機碟，那他們找我們幫忙，我們很樂意幫忙，但是呢同時也有請求把retimer bundle在一起銷售，所以我們也因為這樣子打進去了好幾家的這個server公司開始使用我們的retimer，這個是我們新的生意。Okay, go to AiDAPTIV+, we keep talking about AiDAPTIV+.

DRAM shortage, DRAM price, last week saying the CQ2 price go up the other 50%, okay? AI need DRAM.

No DRAM, no AI. Phison, we use our AiDAPTIV+ store solution to enable the AI and this is proven.

I don't want to spend time to explain here anymore, this is happening, okay? A lot of PC, end devices, server, they want to compute to run the AI high model, big model, they need a lot of DRAM and DRAM is expensive, okay?

With Phison solution, lower DRAM with our solution lower the price, the whole system can run the AI, okay? 簡單重點就是，AI要走入低端，沒有DRAM就沒有AI，沒有AI，CPU賣不掉，PC公司賣不掉。那群聯呢把DRAM的容量降低，加上我們的方案，你本來呢96G只能賣一台，你現在96G可以賣兩台、可以賣三台、可以賣六台，把容量把它降低，加上群聯方案，它跑得動，你的產出就增加。這個誰高興？賣CPU的高興，做PC的高興，賣PC的更高興，因為有東西可以賣。那買PC的也高興，他買得到相對便宜的AI PC啦。所以這個已經在發生中了。Okay, Phison AiDAPTIV+, we already engaged with the every CPU companies, every GPU companies.

We also start to work with the mobile companies. We are engaged with the NAND makers.

We also engaged with the many PC OEMs. This is to show you CS, we have some joint demo, we have some products on the show.

This is a model is going to the market, okay? Computex this June, you can see Phison AI solution everywhere, every PC, every AI device.

Definitely they will bundle with the Phison AiDAPTIV+ solution because we can make this cost down and make this popular. 今年電腦展所有的這個PC公司基本上都會把這個方案拿出來，因為已經沒有選擇了，沒有DRAM就沒有AI。那有了我們方案，就可以把任何一台有小算力的CPU把它轉成是AI PC。So Phison, we are no more in consumer, we are no more in trading.

AI is happening, AI inference is coming, what trigger what kind of industry? AI inference trigger Phison, we win a lot of boot drive.

As I mentioned, we have CSP, we have OEM, we have hyperscale. We also win a lot of customized eSSD.

Revenue show you, okay, CQ1, don't feel surprised. We win the retimer, redriver because we bundle.

eMMC low capacity shortage, we keep 30 million piece on hand to supply to automotive, to supply to the OEM. Go to the edge device, as I mentioned, the AI PC with the Intel, AMD CPU with AiDAPTIV+ is happening by Computex.

This trigger unlimited demand of a storage. That's why, again, Phison now we are now fighting hard to get more cash to buy more inventory.

Today's Phison, we are in comprehensive storage solution in AI ecosystem, which we supply the controllers, we supply the storage module, we supply enterprise SSD, we supply AiDAPTIV+ solution, we supply our retimer, and also our customized AI service. We also helping some association to develop spatial data storage systems.

We help to develop the system, CQ2 earning call, we are going to report to you. We are building the storage systems for dedicated applications.

Phison is totally different. We are now in the storage era, we got everything.

群聯已經轉型，從過去的consumer到embedded，現在基本上所有的這個AI的裡面的方案我們基本上都有。現在唯一頭痛的就是錢不夠用跟貨不夠用。So the R&D expense still keep around 20%. We're not going to hire that many engineers.

We control our R&D expense. We try to use AI to improve our R&D efficiency.

This charter, I think I need to spend time here again due to analyst saying the low-cost inventory, blah blah blah. Okay.

We start from this part, okay? CQ2, we buy inventory.

At the same day, this inventory is a high cost at that day. Go to the after two quarters, this become low cost.

Analyst said, "Oh, you happy because you got low cost." We keep buying the CQ1's inventory.

Oh, this is high cost. Then the question is: after one quarter, is the price keep slight or keep flat or increase?

You have to ask yourself: every two, three months price increase 50%, I need to keep inventory for my supply chain. We believe this was still price increase, okay?

That assume this is gross margin X, this is Y, this is Z. What's the difference?

Y definitely bigger than Z because you say it's a low cost and this happening, right? Then the question: oh, Z will be lower than Y.

You may right, you may wrong, I don't know. The question is: this is 10 years old students mathematics, okay?

Analyst, don't be too shallow, okay? Read this: no matter what, the Z lower than Y, what?

We win, we gain the gross profit. At the end, the EPS coming from gross profit, not coming from percentage.

Why you worry about low-cost inventory? Inventory can consume years, but even I buy inventory today, CQ3, the price we believe still may keep sky high, but we have a value to go to enterprise, go to the AiDAPTIV+, this will help Phison gain more gross profit, gain more EPS.

The conclusions here: if nothing happened, Phison show our gross margin 27% plus-minus 3% at the past. CQ4, due to the shortage, okay, low cost, low cost, we have a 40% of gross margin.

How about next? I don't know if I can go 50% or 60%.

Let's see, let's wait, time will tell. One thing for sure is revenue increase, gross profit increase, at the end EPS increase a lot.

I have a confidence in this period, the gross margin definitely will bigger than our regular. This I have a confidence.

Don't be that shallow, use the simple mathematics, saying the low-cost inventory. We have our own value, not only low cost.

We got so many activity R&D, we win everything. 這邊我要澄清呢，因為一些分析真的膚淺，而且呢我不曉得是不是有故意的誤導，用一個簡單的數學就講一些東西。但是群聯的價值不來自於這個低價的一個庫存，當然低價庫存很好，多賺錢嘛，因為低價庫存可以得到更多的design的機會，我們得到很多的生意，那保證未來的這個客戶群跟營收，好事，可以賺到很多錢，更好。但是呢透過這種低價的庫存賺到錢，投資研發，得到機會，我們一直的努力劃大以後的這個版圖，那更重要是呢透過這個努力呢可以一直創造更好的最後的這個EPS，這才是我們要的啦。太著重在趴數呢，很多時候呢會這個把焦點給混濁掉，而且呢讓一些這個散戶不懂的，你把它騙掉，這個沒有良心啦。Okay, last, summary.

In the last 30 years, all the semiconductor lead by Intel. Intel tell you the five years roadmap, five years what they want to do.

All the ecosystem follow Intel, okay? Today, AI, Nvidia, every years they change a model.

All the ecosystem, to be honest, they don't know what to do because it change too fast. Phison's value, thanks to Nvidia, we are flexible, we have resources, we aggressive, we work hard, we can follow the momentum of the AI.

This is Phison's advantage. In coming years, due to Phison, our special culture, we invest a lot R&D, we try to collect cash, we make money, we aggressive, we made the fast decisions, Phison can grow in this AI era.

過去的三四十年，Intel帶領大家半導體的路，他告訴你今年什麼CPU、明年什麼CPU、五年什麼東西，大家跟著他的方式做，一步按部就班。在那個情況底下呢，只有大型公司有資源才能夠得到那個機會，小公司很難。AI每一年變一個世代，很多大型公司的決策比較慢，跟得比較慢，反而呢創造了機會給群聯電子。群聯電子的機會在於是什麼？我們有充足的人力資源，有很好的IP portfolio，有成熟的產品線，還有重要是人員的穩定性，公司有錢，賺錢，捨得花錢。那因為AI變化很快，我們更進變化更快，所以我們贏得了很多很多很多生意。所以看群聯電子不要再看群聯電子什麼低價庫存，低價庫存好事，那是天上掉下來的，不拿白不拿，但是因為這種情況底下，我們會有更好的投資，得到更好的將來。所以感謝Nvidia創造這個AI機會，讓我們這種彈性的公司可以得到成長。不然群聯電子憑什麼拿到剛才講enterprise這麼多的design in呢？在過去這是不可能的，人家看你都不看你啦。但是因為這個機會我們得到之後，群聯電子的記錄是只要拿下來了，這輩子就是我們的，而且會擴大。Okay, let me finish some Q&A here. Dividend, we decide second half 17 NT.

Why? The ratio is 52%, the whole year is 55%, 56%, just because we need cash.

We need to keep inventory, we need buy inventory, we need to make the service to the ecosystems. This year, we a little bit conservative in the dividend, I wish you understand.

The cash keep on Phison's hand will help Phison to grow more business. 我們決定去年配17塊，是52%，整年度是56%。主要是我們需要大量現金，因為庫存已經拉到快500億了，已經超過500億了，我們需要大量現金。500億不是我想拉，是因為客戶的需求，下半年的需求，我要先把東西買下來，然後呢得到產出給他，錢拿回來一段時間，所以我需要大量的現金。我希望呢經過這個高峰期之後呢，群聯現金水位充足呢，在未來時間裡面呢我們再加大這個配股息的這個比例。We just approved this morning, we have engaged with the bank to raise 400 million syndicated loan.

Why we need? Because we need to keep our cash flow and we need to keep our inventory.

我們今天董事會通過聯貸4億美金，主要還是因為呢這個整個資金需求很強，客戶的需求很強，我們必須要把庫存可以的話買下來，然後呢放比較久來滿足客戶每天的需求啦。所以這個還是因為為了因應的這個需求來做的。所以我們如果是貿易公司，我就不用做這個事了，左進右出很快，但是我們是做design in做長期生意的。Okay, this page I think show you big difference. This is Phison's inventory: controller 16%, industrial components 14%, enterprise 35%, embedded ODM for PC and mobile 30%, retail 3%.

Means what? Means Phison allocate all my resources, my NAND Flash go to mainly enterprise and embedded ODM.

You can see in the coming years, Phison's growth will coming from enterprise and embedded. 從這個來看呢，群聯電子未來的成長動能呢絕對是落在企業級跟這個embedded，就是手機跟PC的應用，還有工業的應用。當然控制器呢我認為今年的出貨量絕對是減少的，因為沒有Flash，誰買控制器嘛？但是呢群聯電子的模組的成長的金額會超過控制器的衰退。那控制器呢可能兩三年之後呢這個需求會回來，那我們持續的開發新的控制器。所以控制器公司今年只靠控制器一定會很麻煩。所以控制器公司已經轉型開始賣模組了，大量賣模組。現在有庫存還好，可以得到毛利，等到呢庫存變貴的時候，那個分析師寫報告應該是要看這種公司，你去買Flash做成模組之後呢，毛利率馬上變個位數了。這個不是發生在群聯電子啦。And ESG, we still have a very, very good performance here.

I'd like to share with you we keep doing our best to make Phison not only profitable, but manageable, and I wish every shareholder comfortable. This is my report here.

Thank you. Thank you, K.S., for the promising update.

We are now opening the floor for the Q&A session. As a reminder, if you have questions, please use the raise hand function and you can also type your questions in the chat box, and we will raise questions for you.

When we are waiting for questions, I will start with some questions from me. My first question is about the LTA.

As the NAND supply is getting tighter, have we started to negotiate with our client for LTA or discuss the LTA with NAND makers for better supply? If yes, could you share maybe more details?

If no, if there's any LTA possible or how do we secure our wafer supply going forward?

Phison keep very close relationship with the six NAND suppliers and the two DRAM suppliers. Phison, we need DRAM because enterprise SSD.

Phison, we have a LTA with the six NAND suppliers, we have a LTA. Some NAND supplier asking for prepayment, this is ongoing, is not fixed yet, but we believe sooner or later this will be fixed.

My customers, Tier 1 customers from just I mentioned boot drive, hyperscale, CSP, OEM, they also ask LTA from Phison. Phison, we do our best to commit the back-to-back.

We got the LTA from supplier, then we commit to our client. For small, medium-sized customers, we are not able to commit LTA, but we do our best to accumulate more enough of inventory to support to them.

LTA is tough to negotiate right now, and when talking about LTA, forget about price, okay? You just win LTA, then you survive.

Thank you, very clear. Maybe a follow-up questions about the supply part.

I just wondering, as we know, you have a very good relationship with our NAND makers. What is our strategy on securing maybe more NAND in the future?

I remember previously you said your allocation or procurement is better, and compared to maybe a few months ago, maybe could you give us more details about the maybe improvement on the procurement?

In the many years in the memory market, everybody saying relationship. I don't think today relationship is workable.

Today is a value creation. How can you create a value to tell the supplier that ship to you is much better than the other one?

This is a page Phison keep showing to the NAND suppliers: DRAM is shortage, no DRAM, no AI. Phison use DRAM with a Flash, we enable AI ecosystem.

They happy to see this happen. Because of this, we are able to gain more supplies.

We need to show them our

value. Thank you, very helpful.

Next questions were from Donnie, Nomura. Donnie, please unmute yourself.

Hello. Hi, K.S., can you hear me?

Yes.

Thank you, K.S., for the comprehensive presentation. My first question is regarding to your enterprise SSD sales contribution, and you just mentioned that in the first quarter it will be increasing to 30% of the total sales potentially.

Just curious, wondering if you have the full-year target in terms of your enterprise SSD revenue contribution. Along with the rising enterprise SSD sales contribution, and you just mentioned about that you are no longer the NAND trading company, but more like a design-in, design-win company.

How would that affect your gross margin structurally into the coming quarters? This is my first question.

ESSD selling CQ1 is really promising. I think CQ2 definitely is going to increase because we secure good enough of NAND supplies.

Second half, of course the inquiry you can't believe the amount, but we still talking to suppliers. No matter what, enterprise SSD will be Phison this year major revenue and profit contributors.

Okay. Then talking about the Phison never trade component, okay?

We just was in consumer. I just want to explain what I'm talking about.

I can easily to create my gross margin from trading. I buy $10, I trade $30, no need any cost, right?

When the cost going to $30, the market go to $20, you trade, you minus $10. Phison is different: we are design in.

We take component, we build the products. When market price going up significantly, my products cannot go that fast because it's a design in.

When market price drop, I still can keep profit. Trading module house, they will suffer soon when the price stable.

Phison still can gain because we create a value on top of the component as a products.

May I ask a follow-up on the LTAs? I think it's important to secure the supply throughout this year.

Wondering if you can give us some more idea about what kind of LTAs we are discussing with the NAND makers. Can we say that we are comfortable to secure much more NAND supply for this cycle versus previous cycles?

Also, wondering if you can comment on your view on the NAND price trend in the coming quarters. Are you still seeing, for example, strong double-digit QoQ growth for the next couple of quarters?

In this period, when I talk to all my NAND suppliers, I always say appreciate, thank you, but I need more. I need more.

No matter how many they can give me, I still need more, but I just appreciate what they support to us. How to ask for more supply?

I need to show my value. This page, we are in this portfolio.

If these customers need more, I cannot fulfill, they have to help me to go to the supplier to ask the supplier to ship to me. This is called leverage, okay?

We also try to take AiDAPTIV+ to attract or exchange to our NAND suppliers to ask for more the allocations. Overall, everyone go to suppliers, they always say insufficient, they need more, but unfortunately they also not able to fulfill what you want.

Gradually, gradually, by monthly, by quarterly, Phison keep increasing our supply on top of the LTA.

How about the NAND price trend you are estimating now for the coming quarters?

Before Chinese New Year, I'm saying, "Oh, China, the system, they are slow down the production, then the demand may slightly soft." The component price raise 50% yesterday.

50, 5-0% yesterday, with surprise. Now I don't know how to tell you next month, month after, I no idea.

One thing for sure I'm telling you: supply is very, very, very tight.

Understood. So 50% yesterday, which means the baseline of second quarter is the price will be 50% higher in first quarter roughly.

Is that the base case? Great.

Yes.

K.S., second question, because GTC is at the corner, you just mentioned actually just in this page, right? You have mentioned about the record-breaking new design wins.

We have seen that your products been used in the boot drive in the GR system. Can you give us some more color on what kind of new product we may be able to penetrate into the platform for GPU company

in this Donnie, under NDA, we can't say anything. You just wait until GTC happen,

okay? It will be a different product, right?

It's just no longer just boot drive, maybe, for example, as you just mentioned, maybe main drive or other things potentially.

Phison's strength is we are good in customized.

No problem. Thank you, K.S.

I'll go back to the queue. Thank you so much.

Thank you. Next questions were from Simon Woo, Bank of America.

Thank you. Hi, K.S.

Congratulations, great results.

Thank you.

Maybe for the long term, any thoughts on the HBF, High Bandwidth Flash? Thank you.

HBF, you better go to consult to the Korean and the US NAND makers. From my point of view, I think I explain this few times.

Flash memory has a life cycle. You pack the Flash together with GPU, when end of life of Flash, then mean GPU gone.

Second, they have a so-called temperature difference. CMOS is 125°, Flash is operating 80°, the temperature how to manage is a problem, or you have to lower your performance.

HBF definitely will happen in some applications, but I doubt HBF will go to the general-purpose GPU. I doubt.

Very clear. You are not working on the controller for HBF for now?

Phison, let me give you Phison's statement: Phison definitely can develop HBF controllers, I don't see any difficulty. If we don't have a real customers, I better not to invest right now, because my engineers are busy for this project on hand.

We are waiting when the real customers come to us, then we can take it 12 to 16 months to make the design done.

Very clear, sir. Oh, by the way, you mentioned that 50% price hike for your product, what do you mean 50%?

Suppliers raise the price overnight.

Suppliers means what, NAND chip maker, you mean?

Yes.

Suddenly 50%? Then that means you have to pay higher price for your NAND chip sourcing.

It's no good.

Or either just pay, just not buy.

Sorry?

You have a choice: you take it or just don't buy.

Let's say if you take such high price level, your costs inventory cost should be up and then your margin could be squeezed, unless you raise the price for your product.

I always believe I'm smart, right?

Everybody knows this.

This page, I try to explain this page, okay?

That's a good page,

yeah. Okay?

You are saying price of NAND chip price are up, your product price are up, your margin also good?

Percentage maybe not that good, but net amount is good. Yeah.

Yeah. It's very complicated, even you said it's primary school math, basically

I try my hard.

The conclusion here: once the NAND chip price rises, you can raise your product price immediately, right?

Customers, shortage.

Customer no take,

don't accept, then don't ask. Shortage, right?

For your product as well?

Yeah.

Then you can raise the price.

I have to. Why I'm taking minus?

Yeah. Then

I talk to my customers, "Don't blame to me, blame to my suppliers, not because of me."

For Q4 great results or 2020 the second half 2025 great results is broadly based on the NAND chip price hike

plus Also we win some design-in business, embedded ODM,

yeah.

But '26 will be two factor: one is that you can name low cost, but the one is we win many new projects.

Okay. Yeah.

Sorry for asking some competitor, but your competitor also said they are selling the boot drive for the US big customer, Do you think it's a really big market for boot drive area?

Hey, Simon, you know what? You ask me, my answer is this, that you compare peanut with potato.

Oh, really?

You ask the peanut question to me, I'm potato, I don't know how to answer you, but let time tell you, okay? Don't worry.

I don't want to overuse what we do, and we have a NDA. The answer from me is peanut compare with potato.

The size is totally different.

Yeah. How about the boot drive market size, why it can be bigger and bigger?

Any reason? Is it really

No, no, not because of bigger, just NAND company walk away from boot drive.

Oh, sorry, you are saying NAND chip makers

The NAND company, NAND chip maker, before they provide boot drive and main drive, right?

Yeah.

They made the boot drive EOL, end of life. They focus to the main drive.

Who supply the boot drive? Phison.

All my competitors, but can I ask a question: did my competitors has a good enough of a NAND Flash inventory?

No.

No. Good question.

No. Means market is a $30, they have to buy $30, right?

My cost is $5. I'm saying peanut asking to potato.

I see. What's the average of the NAND content for the one unit of boot drive?

Depends on 480 GB, 960, 1 1 1.9 TB, doesn't matter. Just do they have inventory or do they have a LTA?

They don't have. I heard the rumor, my competitors going to China, module house, buying spot market Flash to Yeah,

yeah, yeah, yeah.

How many percentage margin they can make it?

Just let's say today, very famous GPU already available in the market, next generation coming a little bit from maybe second half of this year. Would you suggest what's the implied NAND content for the boot drive for mainstream GPU for now and then the

Boot drive we follow the users asking.

Huh?

We follow the user. This is all my user.

They ask me doing this, I doing that, okay? I can't disclose.

You see, my competitors put the name here, I didn't. I respect NDA.

Yeah.

The almost lastly, sir. Today NAND chip price is very strong, product price also strong.

You don't expect a little bit softening price trend or price decline toward the end of this year?

I take really good sleep this year. I no worry, no nightmare.

This year good. Yeah.

Next year, let's worry next year. I'm this year I'm busy to take a good sleeping.

Good night. Good nightmare, right?

Yeah. Lastly, sir, payout ratio a little bit over 50%.

That's the your even for the long-term policy or you want to raise 60%, 70%?

Phison policy is 55%.

55%, Separately, the reason why you that you are borrowing the money, half a billion, $400 million

Yes.

because you spend the cash for the shareholder return, but you are borrowing the money for your working capital, for inventory increase. Borrowing cost, I don't know, maybe 3% plus-minus or

Hey, Simon, if I got a rich father, I no need to worry about this, right? Unfortunately, I'm not.

I pay 3% a year, I win back 300% a year, why not?

Okay. All clear, sir.

I think we should meet soon, sir. Thank you.

Thank you. Chat box, they got a few question in the chat box.

Should I go?

Sure, sure, please go. Please go ahead.

"How do you see the outlook for your controller business going forward?" This year, mobile will increase.

Client SSD most likely declining, but I think it's a small number declining, we good. The pure controller house will be difficult anyway.

Second, "Current inventory level and how they are trending?" By end February, I got the report, we now have over 50 B NT, 大概500多億台幣的庫存啊現在。"

What's your view on the company gross margin trend over the next two quarters?" We never gave forecast, but for sure CQ1, CQ2 strong, very strong.

CQ3, CQ4, I don't see it turn to weak, maybe lower because the price itself going that much, but go to the net dollar amount will be good. 毛利率呢，Q1、Q2應該會維持很強，Q3、Q4不見得會跌很多，但是可能不會比Q1、Q2好，除為價格再漲，但是呢下半年的淨所謂的淨amount的利潤呢一定會比上半年好啦，因為單價如果急漲上去的話。"

How you require prepayment? Why you require prepayment?"

Because I need money. I got 50+ billion inventory today, I need to keep buying more, I need to time to cycle time to process, customer pay me 60 days, how can I run the business?

所以我現在需要的就是現金補足庫存，把客戶的這個付款天數縮短來滿足我們的這個需求。Okay, next: "NAND stock management, is it increased, stable, going away faster than we can buy?" NAND stock by dollar amount increase a lot, but by exabyte, okay, I said by exabyte, we keep flat of exabyte.

I use this way, 表示說我們的庫存總容量其實是雖然呢過去兩個quarter用掉很多，但是也補回很多，所以呢這個總容量其實不變啦，但是因為單價提高，所以金額跟著提高。第二題："1M26"，什麼叫1M26？Oh, January, January. Reason expect 120 billion?

I think quite reasonable. Quite reasonable, maybe more than this.

Then I think you can wait until March. March may surprise you also.

3月份會讓大家嚇一跳。" Will we get enough NAND to generate" Answer is yes.

Q3 question is yes. Q4: "Some senior traders already expecting EPS 200."

Ask to the God. This I know I can't answer, but I do my best.

"Want to know the roadmap controller IC 26, Y5 and tape-out PCIe Gen 7?" Phison now is a pioneer makers.

We are in advance, we have a Gen 6. Our Gen 6 enterprise controller is ready, now developing the firmware.

Hopefully by August we are deliver the enterprise SSD market samples. Gen 7 is ongoing.

This mainly designed for the AI systems. As I mentioned, right, Intel lead for 30 years telling you what happened in the 5 years, but Nvidia didn't.

Gen 6 is coming very soon, Gen 7 then after two more years, we have to invest. "ICMS, TLC provide" Okay, Nvidia issue, I'm not going to answer.

Under NDA, skip this one. "Like to know how long currently takes Phison to ship newly purchase" Oh, this is very complicated, very complicated, okay?

Because this packaging, testing, assembly, allocation, but overall, we try to make the shipment smooth. 群聯的毛利率會下降嗎？

Please mute, please. Hello.

Next in: "How much price you take in client SSD mobile offset smartphone volume decline?" This is not from me, okay?

This is from analyst, famous analyst. Smartphone, most likely 200 million sets, PC, 5% to 10%.

PC, if with AiDAPTIV+ reduce the DRAM, I think PC declining maybe slightly small. This in chat

box. I think we have finished the questions from chat box.

Next questions from online investors is Michael from KGI.

Hello, Michael. Hello.

Hello, K.S. Congratulations on your outstanding performance in 4Q.

My first question is about our opportunity with Nvidia's ICMS. It seems like that to improve inference efficiency, Nvidia is looking to increase NAND's input and output.

We have seen some products like Kioxia's XL-Flash or Samsung's Z-NAND gain attention. At the same time, controllers are becoming more important.

Whether next year's controller bundle with ICMS, or that bundle with XL-Flash or Z-NAND may use PCIe Gen

6?

Yes.

Michael, I think you mix all the questions together. I just highlight, okay: XL-NAND, Z-NAND is not for ICMS, it's mainly for the high-performance drive, low capacity.

ICMS asking for high-capacity inference, it's different applications.

Got it. I'm curious that since it seems like our MP schedule for Gen 6 enterprise SSD is ahead of some original vendors, I'm curious if our success with Gen 6 enterprise SSD could help us gain some market share in ICMS.

Again, under NDA, we can't talk that much, but in general answer: Phison, we have a Gen 6 enterprise controller ready, silicon back free. Samples can deliver by July, August timeframe.

This market, OEM server, they don't need Gen 6, only AI, Phison developed aim to AI, that's all.

Got it. Thank you.

I have no further question. I'll hand it back to the queue.

Thank you. Next questions from Donnie, Nomura.

Hi, Donnie. Maybe we will start from a questions from chat box.

Sorry, can you hear me?

Oh, please, please. Very clear.

Oh,

sorry, K.S., have you considered to sign a long-term contract with NAND makers in the previous cycles or this is the first cycle you are considering to do that?

No, we have a LTA for many, many years, but this time talking about prepayment.

Oh, prepayment, yes. Yes, prepayment.

Phison prepayment at 2008 to Hynix, few times to Toshiba, Kioxia. Definitely we have a experience.

Since then there was no prepayment anymore until this time?

Some under discussing, but not in rush.

Oh, okay, but it may be an option potentially.

If all the condition good, why not?

Understood. Thank you, K.S.

There are two questions in the chat box, maybe we can start from the chat box. The first question is, is there a trend of eSSD growth accelerating beyond that of QLC due to AI inference?

Yes. Answer is yes, because QLC demand so strong, that's why it's a big under supply.

Then you see TLC growth accelerating beyond QLC? Yes, ICMS is a TLC.

Both TLC and QLC tight. Next, "Following on inventory, is inventory turnover accelerating the coming" Demand is strong, we keep buying inventory.

Of course you ask to me, I want to slow down the inventory turnover because we can last for more quarters, right? Now is not able to manage by me.

Customers really need a part. Now we start to ignore to manage the inventory shipment.

Customers need, we just ship. Why?

Because we also need cash to buy new inventory. Now we are not going to control that much in the inventory.

Then the answer is inventory turnover may go faster. Okay?

Thank you.

Yeah.

Maybe we back to the online investors, Michael from KGI.

Oh, Michael, you're on mute. You have to unmute yourself.

No? No, I think I no see No.

Maybe we will turn over to Donnie.

Donnie, you have a question?

Oh, no, I don't.

Good.

Next question will Yeah.

Please.

Sorry, from Simon Woo,

yeah. Thanks again.

Quickly, the enterprise solution revenue contribution was 10%, right, in Q4? Yeah.

Any color, the ratio will be up to mid-teen, high-teen, 20%, 30% for the next few years, the trend, sir?

I mentioned CQ1 over 30%.

Oh, sorry?

This month, CQ1, this quarter is over 30%.

Oh, already three times up versus December quarter. Which part was the key contributor, AiDAPTIV+ or

Read this page.

The key contributor

It's all here, it's happening.

Design wins means kind of the initial

No, we win shipment. Design in means ongoing.

Design win means actual sales recognition immediately?

Yes.

Oh, okay. Then your inventory shows already what, 35% inventory value is enterprise solution, right?

Once you achieve such a strong growth for enterprise solution, how are you going to increase further enterprise solution portion with a limited inventory stack?

That's why I need to bring my value to the NAND suppliers. This all Tier 1 is all my customers, right?

I got design in, design win, they will help me to get the NAND.

Leverage, right?

They have a leverage, right?

To do this, you should get more QLC NAND for the enterprise solution from the NAND chip maker?

I need both. I need TLC, QLC.

QLC. As you answered, prepayment basis your NAND chip sourcing.

Prepayment is still the what, for three quarters, for the rest of this year, or what do you mean the prepayment, for how long, 1 year, 2 years?

Prepayment is not trigger yet, still under negotiating. Not yet happen.

Usually the prepayment means, okay, you pay half a billion dollar, for example, and then you get the chips until the

Hey Simon, this is all confidential, I can't disclose here, okay? We have a very strict NDA.

I see, okay. Last time you said the prepayment happened what, 2018 or

We have a prepayment with Hynix 2007, 2008, we have a prepayment Toshiba 2012, '16, '20, '23.

I see. Latest one is when the cloud was very strong, 2017, '18 then.

Yeah. Very clear.

This time prepayment trigger point obviously enterprise solution then, or AI thing.

Yep.

Very clear. Wow, good job.

Thank you so much, K.S.

Thank you, we working very hard.

Great. Thank you.

Hey, chat box, Eric asking what inventory, No, the Alex Kuang: "4Q 34 billion NT." Eric Chen: "Two months ago you mentioned you see no end of supply shortage trend from previous month."

Yes, endless. I don't know how many years.

Let's pray for that, not too long, please. Any other questions?

Astoria, if no question, we will end up this call.

We do not have any questions online. Oh, sorry, I see another questions from the chat box, maybe the last one.

The investor want to know how long it currently takes Phison to ship newly purchased inventory and what are your thoughts on the capital expenditures by NAND Flash makers?

Some new purchase inventory January start to ship in the March, why? Because shortage, okay?

Means what? Means some high-cost inventory start to ship.

We still able to make margin on that, don't worry that much, yeah. "How about 100 million LPS?"

Are you expert? I'm telling you ongoing, not easier, but we are make it on time.

Again, this is with NDA, I cannot share that much. Okay.

We have answered all the questions online and thank you, K.S., for your time and thank you everybody for joining us today. We will conclude the call.

Thank you. My last ask, I wish analyst do some better homework, don't give a very shallow analysis to the market, mislead the investor.

This is really not right, okay? Make some study.

You need call, you can call me, I can share with you. We have to be professional, okay?

Thank you.

Thank you.