Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Silicon Motion Technology Corporation Earnings Conference Call. My name is Edwin and I’ll be your conference moderator for today. [Operator Instruction] Before we begin today’s conference, I have been asked to read the following forward-looking statements. This press release 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 conditions 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 press release. With that, I would now like to hand our presentation to our host, Mr. Jason Tsai, Director of IR and Strategy. Please proceed, sir. Thank you.

Thank you very much, and good morning, everyone. Welcome to the Silicon Motion fourth quarter 2011 financial results conference call and webcast. My name is Jason Tsai, I’m the Director of IR & Strategy. With me here is Wallace Kou, our President and CEO; and Riyadh Lai, our Chief Financial Officer. The agenda for today is as follows: Wallace will start with a review of some of our recent business developments; Riyadh will then discuss our fourth quarter financial results and provide our outlook. We’ll then conclude with Q&A. Before we get started, I’d 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. SEC. For more details on our financial results, please refer to our press release, which has been filed on Form 6-K after the close of market yesterday. This webcast will be available for replay on our website, www.siliconmotion.com 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 similar to how we analyze our own operating results. The reconciliation of GAAP to non-GAAP financial data can be found on our earnings release issued yesterday or on our website. We ask that you review it in conjunction with this call. With that, I’d like to turn the call over to Wallace.

Thank you, Jason, and thanks to everyone for joining us on our fourth quarter earning call. I’m excited to speaking to you once again to report another stronger than third quarter with revenue increasing by 6% sequentially to $67 million, this quarter revenue is our eighth consecutive quarter of sequential growth and the highest quarterly revenue in our company history. I’m also delighted to report that after growing our revenue by a stellar 32% in 2010, we grew at an even faster 69% in 2011 to deliver $224 million full year revenue, the highest full year revenue in our company history. 2011 was a phenomenal year for Silicon Motion. 2011 was also a transformational year as our growth drivers began transitioning from our core products, our card and USB flash drive controller, to our new growth products, our LTE transceivers and SSD flash embedded controllers, of which eMMC is a part. The success that we have made with our new growth products so far in entering the rapidly growing LTE segment of the smartphone market, as well as significantly expanding in the smartphone addressable market with our embedded memory controller, have positioned us nicely on longer term growth trajectory. First, let me share more about our fourth quarter result. In the fourth quarter, we delivered solid revenue growth while at the same time increasing gross margins back up to about 50%. Our overall growth this quarter was driven by our backdrop NAND flash controller business, which accounted for 70% of our total revenue and grew 21% sequentially. Our revenue this quarter benefits from continued strength of our mobile storage OEM business together with unexpected growth from our module maker business. These trends more than offset the expected temporary mobile communication slowdown in the quarter. As a result of solid growth…

Thank you, Wallace. First, I will outline our financial results for the fourth quarter and then I’ll provide our first quarter and full-year 2012 guidance. As Wallace had mentioned, this quarter we increased our revenue 6% sequentially and 68% compared to the same period a year ago, and delivered $67.1 million in revenue, a record high for Silicon Motion. In the fourth quarter, mobile storage mix was 70% of sales, up from 61% in the third quarter. Our mobile communications business decreased to account for 22% of our revenue mix in the fourth quarter, compared to 32% in the third quarter. Multimedia decreased to 4% this quarter compared to 6% in the third quarter. Let me recap the performance of our 3 key product lines for the benefit of our audience. First, mobile storage. Mobile storage revenue increased 21% sequentially and 61% year-over-year. Mobile storage shipments increased 14% sequentially and 42% year-over-year. ASPs increased by 6% sequentially, as we sold more higher value-added controllers. Our ASPs this quarter increased 13% year-over-year, our eighth consecutive quarter of annual ASP increase. For full year 2011 our ASPs increased 9%, after increasing 11% in full year 2010. Over 65% of our controller sales are for 2x nanometer NAND flash including the new 19 to 21 nanometer flash. As comparison in the third quarter, controllers for 2X nanometer flash was 50% to 55% of our controller sales. TLC controller revenue in the fourth quarter increased over 60% sequentially and accounted for nearly 50% of our controller sales in the quarter, significantly higher than 35% in the third quarter. OEM revenue increased by 35% sequentially and accounted for 50% of our controller sales in the fourth quarter. Bundled card controllers remained well in excess of 50%. Our card controller revenue increased by 28% sequentially and…

[Operator Instructions] Your first question comes from the line of Daniel Amir from Lazard Capital.

So a couple of questions here to start with, first of all on your LTE business, can you kind of reiterate what type of growth rates you expect for this year and then kind of where we stand in terms of the competitive front here as it seems like that you’ve locked in already 5 design wins here for the first half of the year, which is probably the majority of Samsung’s LTE phones now. So where do we stand there and then I have a few follow-up questions.

As we stated in last quarter earnings call, we expect to share design model with Qualcomm inside Samsung smartphone and tablet, and we believe Samsung will launch a doubled model than last year and probably more than double last year. And we believe the unit shipment will be increased compared to last year at probably more than 50%.

Daniel, let me add further to what Wallace had said, collectively when you look at our growth products, our new growth products, our LTE plus SSD+embedded. We’re expecting that collective group of products, the revenue related to this, to grow by about 100% in 2012. So it’s going to grow from roughly about 15% of our total revenue last year to roughly around 25% in 2012.

Okay. So follow-up question kind of on the SSD business, I mean, I guess you’ve focused in your prepared comments on the eMMC and LTE. Where do we stand on SSD specifically? How does the pipeline look out? What type of product design are you focused on there?

So regarding SSD controllers into the notebook design, I think start from second quarter, we’re going to see one major design ramp up and probably will be 2 to 3 will ramp up in second half of this year.

Okay. And is the focus on the SSD just on the notebook market or will you still be growing on kind of the consumer industrial side?

We have a quite a lot embedded SSD activity in design wins. As we stated last quarter, we have also launched called embedded SSD solution called Ferri and Ferri also doing well. We going to see reasonable revenue contribution in 2012. We have a very established embedded SSD controller in the past 2 [ph] years but we are starting to enter in ultrabook and notebook market this year.

Okay. And then my final question then I’ll just get back into the queue. In terms of the eMMC market, I mean last quarter you kind of gave an update on kind of design wins there or products ramps, where do we stand right now in terms of product shift with your product and what type of design win activity do you have here for this year at this point?

In last quarter we announced we have a 12 major design and out of 12 major design, we expect I think 2 already, 3 already moving to production in Q4. We expect to remain in line with all new production before end of the second quarter. And we expect we’re going to gain more design in second half of 2012. We worked both with module maker as well as flash makers.

Your next question comes from the line of Anthony Stoss from Craig-Hallum.

Can you talk about the share environment? Do you think you’re picking up share in your core business? Also, given the strength of your ASPs, I’d love to hear your views on the pricing environment. And last but not the least, Wallace, if you could chat with us on kind of your plans for USB 3.0.

And I don’t know we think we gained market share, especially in Q4. I don’t know the overall total market shipment. But I think that the both OEM business as well as the module maker business looks very strong. Even in coming to the first quarter, OEM business maintained very strong. Although this week’s NAND flash price declined sharply. We don’t know why but the demand is still there. So we have a much better visibility even with the module maker business. We believe we don’t maintain market share particularly for USB business. Regarding USB 3.0, we’re going to ramp up our product in late March and early Q2. We believe we have at least about a dozen designs right now but we’re positioned for high performance. We don’t believe USB 3.0 could replace 2.0 completely even in the next 2 years because of the price difference. However, we believe we’re going to take leading position in USB 3.0 controlling their market share.

The next question comes from the line of Rajiv Gill from Needham & Company.

On the LTE business having it being up sequentially in Q1, can you maybe provide some color? Do you think it will be at the same run rate that you’re doing in Q3? And if you could maybe comment in Q3 2010, Q3 2011 and can you comment also kind of on the pricing of those LTE transceivers? Would you see some degradation in pricing in 2012? Any comment there would be helpful.

Sorry, we cannot give you specific number in regarding model shipment. It’s very confidential and really we don’t know the detail because the model is domestic in certain regions, if some model international worldwide and number will be large. But we cannot give you detailed information regarding the number shipment.

Right, but will it be at some sort of run rate that you did in Q3 or you can’t provide details on that?

We are expecting the LTE business to continue ramp pretty much sequentially over the 4 quarters of this year. But of course, last quarter, the percentage growth rate was very sharp because we came from next to nothing to a business that was beginning to contribute nicely to our revenue and now we are building upon that basis. So the percentage is going to come down somewhat. But overall, when you look at our revenue expectations for our LTE+ or SSD+embedded, I mean we are expecting this to grow strongly annual on a 100% growth rate. So these products are going to be very important growth drivers for us.

Yes, definitely. And if you could remind me again the visibility you get from Samsung, is it a 3- to 6-month rolling forecast from Samsung’s LTE program?

Yes, for our OEMs, we typically have 3 months rolling forecast. We also see where the various designs that are going to be coming to market. But that’s different from the rolling forecast, obviously.

Okay. And if you could maybe characterize the NAND supply environment in the first half, kind of given Samsung’s commentary and SanDisk’s commentary? You are guiding down on a sequential basis. You’re seeing kind of a drop-off in module maker business albeit at a higher rate in Q4, I understand that. But maybe if you could describe a little bit about what you’re seeing in the supply and demand environment in the NAND market, first half?

I think the first half NAND supply is sufficient. I don’t believe we are going to see shortage in first half; but second half, it is possible. In the first half, we see probably Toshiba and SanDisk were supplying more NAND wafer in component to the market and Samsung was selling more product to the market in sales of wafers, it’s -- and different flash makers have a different strategy based on the investment and the market share, but we definitely see the supply will be sufficient in the first half of 2012.

Let me add further to what Wallace said, for the full year we are expecting bids from all the NAND flash suppliers to grow probably around 75% bit growth this year, so that compares very similarly to what we saw last year, bit growth about 80%, I mean it’s a little bit less, but only marginally so, even with the push outs of next phase fab start-ups in Japan. You’ve got Hynix planning to accelerate based on what they recently reported. So the environment still looks very healthy.

And just last question from me on eMMC, there is a good ramp that’s happening, maybe you could describe again the rationale for the flash maker Samsung to outsource the eMMC controller to you guys as well as maybe Phizun and others, basically why are they shifting from internal to external?

So eMMC have many different type and category. They’ve got high-performing, high-density eMMC, they’ve got low-density, high-performing eMMC. There is MLC and SLC and you are going to see TLC eMMC. You already see from SanDisk, eMMC from Samsung maybe second half of this year, so there is so many different type and requirement, you need the different technology, different [indiscernible] to support the requirement, that’s why sometimes Samsung, if they don’t have enough internal resource, they outsource and to some third party. But different companies have different strategy to do to their plan. We all need to be selective major partners to supply the eMMC controller for some flash maker.

Your next question comes from the line of Mike Crawford from B Riley & Company.

So you touched a little bit on SanDisk slowing or halting expansion at Yokkaichi. But you’re seeing Hynix at least plan to accelerate. At what level would you start to worry about bit shipments growing that would be slow enough that would allow some of your competitors to catch up to your technology?

Overall, Mike, we are expecting fairly robust growth of bits, despite plans to decelerate further move-ins of equipment into existing fabs. I mean, you have fabs that continue to be -- equipment that were placed previously continue to come on stream, yields improving and so forth. And you have Hynix, based on what they recently talked about in their call with investors, they talked about pulling in, accelerating the installation equipment into their existing fabs. So overall we are expecting fairly reasonable and strong bit growth this year despite all the chatter.

So let me add to the comment, our controller revenue [ph] support all from 19 to 21 nanometer MLC and TLC NAND. We are working for all flash maker and since even 6 months ago for 15, 16 nanometer NAND flash technology. So we believe we are ahead of many player in the market and we have a very, very unique technology in -- and then you see especially for LDPC and that’s why we believe we will be ready even ahead of NAND moving to mass production.

Okay. Also I want to touch on the SSD strategy. So you’re starting to enter the notebook and ultrabook market but is that going to be with a Ferri branded product or is this going to be something that’s branded at all?

We, I think in the past we didn’t really focus on PC or ultrabook SSD and we’re going to try to put a more focus because the market is growing. We see the opportunity for us, especially for the cache-based SSD for like mSATA and we try to work with the flash partner and to be through their platform and moving to major OEM and PC maker. So far I think we have one program we’ll be ready to run in second quarter and hopefully we can gain more design in the second half this year.

Okay. And then last question relates to the LTE design wins you have. So I guess Samsung has pushed out launch of some of these phones to Q2 but that’s fine. Are these phones -- so far your strength has been in the North American market, how many markets, where do you expect, where are these other 5 design wins targeted?

Mike, let me first correct what you just said. I mean there are no delays. These are design wins that we’re expecting to rollout. These are not programs that had experienced delays. I mean, we’ve rolled out very nicely with a large number of programs at several carriers. And we’ve recently received 5 new projects that are also going to go into mass production over the next 2 quarters. So there are no delays whatsoever.

Okay. But what markets are those carriers in or...

Primarily in North America, some will be other country.

[Operator Instructions] Your next question comes from the line of Tom Sepenzis from Northland Securities.

I just wanted to touch on the TV IC business since no one’s really talked about that at all and what you are seeing there. I know that a small carrier in the U.S. is aiming to try and get that going in the North American market this year, and I’m wondering if you’ve seen -- how you would characterize that business and if you have any expectation that we could see growth there again?

I’m sorry, could you repeat your question again? There is some disturbance on our end.

Oh, I’m sorry. I just wanted to see if you could give us some kind of guidance on the TV IC business, I know that, that’s largely ignored and I know there is a small carrier in the U.S. that’s trying to introduce a television on the cellphone business this year. And I’m wondering if you are seeing any kind of movement from anyone else and if we could expect growth from that business again?

The mobile TV business is experiencing sort of growth in pockets. It has not rolled out as expected, but it is still growing very nicely in Korea, it’s growing nicely in China, and in Japan, it’s already scaled out and, of course, Brazil and Latin America. The significance of this business to us, while it’s still growing, has lessened as our LTE business has scaled, put it that way.

Next, we have a follow-up question from the line of Daniel Amir from Lazard Capital.

Just one follow-up, can you highlight again the ASP change in the mobile storage business in 2011 and what you kind of think it could be in 2012?

ASPs for our mobile storage controllers were up 13% year-over-year. So we’ve grown very nicely for 2 years, 8 consecutive quarters of the ASP increases. So, it’s quite exciting, but there is also a combination of products that -- our product mix, that’s blending it up, but we are planning conservatively sort of flat ASPs while we’d obviously like to see continued ASP increases.

Okay, I might have missed something, what was the comment around 9% then?

I am sorry. 9% was last year and 11% was 2010.

Okay, so your ASP has increase 9% in 2011 then?

Yes, correct.

[Operator Instructions] There are no other questions at this time. I would now like to hand the conference back to today’s presenters, please continue, sir.

I would like to thank all of you for joining us today and your continuing interest in Silicon Motion. In February, we will be presenting in the Deutsche Bank Small and Midcap Conference in Florida and in March the Bank of America Merrill Lynch Conference in Taipei. Thank you and goodbye for now.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.