Good day, ladies and gentlemen and welcome to the First Quarter Silicon Motion Technology Corp. Q1 2014 Earnings Conference Call. My name is Han, and I will be your conference moderator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) 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 condition and business prospects. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to continued competitive pressure in the semiconductor industry and the effect of such pressure on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of, and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time-to-time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release. I would now like to hand our presentation over to our host, Mr. Jason Tsai, Director of IR and Strategy. Please proceed.

Thank you and good morning, everyone. Welcome to Silicon Motion’s first quarter 2014 financial results conference call and webcast. My name is Jason Tsai. 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 first 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 is 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 was 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 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 turn the call over to Wallace.

Thank you, Jason. Hello, everyone and thank you for joining our earning call. We are off to an excellent start for 2014. I am pleased to report solid first quarter results that reflects trends from across most of our products. I am also delighted to report on our program in delivering the three new products and new customary milestones, which we had previously outlined that are important for growth this year and beyond. These important milestones relate to our new growth products, specifically eMMC, SSD and LTE. So, as a summary, in the first quarter, revenue from SSD+embedded products, our largest product line increased sequentially and grew by over 60% year-over-year. Our card controller business was relatively stable, sales were mainly legacy products globalized and gross margin remained stable in 49%, later Riyadh will talk more about financials. This quarter our SSD+embedded sales grew to account for 50% to 55% of mobile storage revenue. This quarter, we started shipping our eMMC controller to our third NAND flash and secured design win at both a global Tier 1 PC OEM and the NAND flash maker for our SATA 3 client SSD controllers. These are important achievements of major milestones, which we have had laid out and had communicated to you early this year. These achievements are testament of major global OEM’s confidence in the strength of our technology and value of our solutions. We bring considerable value to our customers by leveraging our advanced NAND flash hardware and firmware controller technologies in depth understanding of NAND flash, closely ensure the flash makers an extensive customer support infrastructure. Our customer create value by using us to address expanded marketing opportunities and serve new business programs, assess our market proven advanced controller technologies and improve profitability by reducing their cost structure. In the…

Thank you, Wallace. First, I will outline our financial results for the first quarter and then I will provide our second quarter guidance. In the first quarter revenue increased 1% sequentially to $52.8 million. Our controller sales declined 4% sequentially. And within our controller sales, our SSD+ embedded products increased modestly, card controller sales were stable and USB controller sales declined temporarily due to a product power transition. Our specialty RF IC sales increased 47% sequentially as mobile TV SoC rebounded to more normalized levels following fourth quarter’s seasonal decline. Our corporate gross margin declined slightly to 48.6% in the first quarter from 48.8% in the prior quarter. During this quarter we wrote-off about $1 million of obsolete USB controller parts. Without this write-off gross margin would have been a little over 50%. In the first quarter our operating expenses increased to $16.9 million as compared to $13.8 million in the fourth quarter. In the fourth quarter as you may recall our operating expenses were unusually low due to lower compensation expenses, much of this bonus related. This quarter operating expenses reverted to more normalized levels. We ended the first quarter with 738 employees, seven more than at the end of the previous quarter. Due to higher operating expenses corporate operating margins decreased to 16.7% in the first quarter from 22.5% in the fourth quarter. Earnings per ADS in the first quarter were $0.16, a decrease from the $0.30 in the fourth quarter. Stock based compensation in the first quarter were $1.5 million significantly lower than the $4.9 million in the fourth quarter. Our fourth quarter stock based compensation was much higher as you may recall due to a catch up payment to offset unsustainably low amounts in the previous three quarters. I will now move to our balance sheet…

(Operator Instructions) Your first question comes from the line of Anthony Stoss from Craig-Hallum. Please ask your question.

Hi, guys. Could you provide a little bit more clarity, Riyadh, in terms of your full year 2014 rev guide? I guess, my question is prior to today, you SSD potential revenue was not included in the guide, did I hear you correctly given your expected shortage on NAND and weakness in the – potential weakness in the card side, you are now including that $10 million to $15 million in your full year revenue guidance?

That is correct. We are – first of all, we are maintaining our full year guidance for 2014, even though we believe we can achieve $10 million to $15 million in incremental SATA 3 SSD revenue this year. We are expecting a similar dollar downside relating to our card and USB controllers in the second half, if NAND flash supply goes into shortage. That’s why we are not taking our full year guidance.

Okay.

Let me also say that we have a growing pipeline of SSD+embedded design wins, which converted to a growing revenue momentum. We believe this momentum should pickup in the second half and carryover to next year, but based on our current portfolio of products and customers, we believe that we are well-placed for multiple years of solid growth.

Okay. And then your expected OpEx increased, did I hear you correctly that your turn away business that you are right now building up and restructured to take on additional customers, is that the correct way of thinking about OpEx going forward?

That’s correct. We’re getting to a more normalized level. We have increasing headcounts that we need to put in place in order to build – to take on the projects that we’re currently turning away. So we certainly need more engineering resources to take on more projects to carry out for the foreseeable future. The other element is last year we do not incur any bonus expenses in our P&L because of the weaker than expected business performance. This year where business is improving and we’re beginning to meet our performance milestones and so we’re also beginning to approve for bonus payments. And so for these two reasons our OpEx is going to be higher. And on top of that our project expenses are also going to be about 15% higher due to lot of 15 nanometer tape-outs.

Okay. And then my last more a housekeeping question, your tax rate for Q1 effectively above 40%, can you give us a little bit more clarity on non-cash but just curious what impacted it in the quarter? Thanks.

Sure. That’s a very good question. Our primary operating companies are in Taiwan and Korea. In Q1 our (employee) tax expenses were effectively our Taiwan tax expense and our Taiwan only reported effective tax rate was only 17%, Korea made a loss. Let me add a bit more color. Our Q1 effective tax rate was however much higher than our Taiwan only tax rate of 17% and our – and also higher than our mobile tax rate for very complicated reasons mainly related to higher tax expenses that arise from higher taxable income under Taiwan tax accounting versus lower income recognized under U.S. GAAP. Taiwan tax accounting income was much higher because of temporary balance sheet related foreign exchange gain. This gain and result in tax expenses are temporary and well in line when the NT to U.S. dollar exchange rate moves in a different direction. Furthermore in Q1 Korea made a loss which depressed our overall operating profit with no tax benefits.

Great. Thank you.

Thank you for your question. Your next question comes from the line of Suji De Silva from Topeka. Please ask your question.

Hi guys, couple of questions on the growth opportunities here. First of all for the TLC partner that’s ramping up. So I understand those are Tiers two to three smartphone OEMs or there are opportunities there in the Tier 1 as well for smartphones?

I think we with our NAND flash partners initially we’re going with Phase 1 with Tier 2, Tier 3 for tablets and smartphone, Phase 2 we’re moving to an NTE based smartphone, Phase 3 moving to Qualcomm based smartphone and tablets. So there are different phases but it will all happen within a quarter.

Okay, great. And then in your press release I saw you talk about the LTE transceiver working on securing additional wins. Can you clarify what that means I know that you have a significant partner there? Are there multiple SKUs at that partner that you’re trying to win and design that? Thanks.

I think we in March we normally secured per design win early this year and we’re working with still early model. We believe the sense we’re continually can see the internal solution versus third-party solution. But we believe as (indiscernible) we have high confidence to win additional model for the LTE and Samsung’s model.

Okay. I am clear now. So the additional models at Samsung versus additional transceiver ones, great. And then the third one is what is the TAM you think for the SSD that you’re targeting here and what are the ASPs for the SSD units versus the interim fees if you understand the differential in pricing? Thanks.

That TAM that we’re addressing is pretty much the PC industry as a whole based on the great – increasing affordability of SSDs efficiently with NAND flash prices now down to roughly $0.50 per gigabyte. NAND flash is increasingly cheap as that these are increasing affordable and so we’re seeing a federation of adoption by PC OEMs, SSDs. And so this will bring for us a large and growing market opportunity. Now in terms of ASPs we’re looking at roughly $5 to $10 in terms of the ASP range.

Okay, great. Thanks guys.

Thank you for your question. Your next question comes from the line of Mike Crawford from B. Riley & Co. Please ask your question. Mike Crawford - B. Riley & Co.: Thank you very much. Could you please talk directionally about ASPs across the various lines of business, how they have moved maybe sequentially and/or year-over-year?

I am sorry, could you repeat again? Mike Crawford - B. Riley & Co.: Yes, for mobile storage, mobile com SSDs if you can transceivers even, can you talk about the ASP, the unit pricing, how that’s changed sequentially and year-over-year?

Sure, sure. Our mobile storage blended ASP should blend up over time as our revenue mix include more higher ASP products like eMMC and SSD controllers. Let me also add on a apples-to-apples basis, the ASPs of our products have been fairly stable because of increasing spend of the technological bridge that our controllers provider. Although as we talked about earlier that a big part of our job in designing our controllers are about meeting the increasing and sophisticated needs of bridging the gap between OEMs expecting better and faster device performance, but at the same time, OEM seeking cheaper next generation flash components are getting weaker and weaker. And the bridge that we are providing is the bridge, the performance versus the cost. And so as such we are seeing fairly stable ASPs for all our products on an apples-to-apples basis. Even on eMMCs, we are seeing stable ASPs for our eMMC controllers as we are now in the broader portfolio of controllers that include eMMC 4.41, 4.5 and now 5.0, but generally from a modeling perspective, we use flat ASPs as the trend as we have been able to successfully overlay new higher ASP products against decreasing ASPs of our older generation products, which results in flattish ASP trend. Mike Crawford - B. Riley & Co.: Okay, thank you, Riyadh. Accurate to state still that’s embedded ASPs are about 2x the attached storage ASPs controllers?

Roughly, roughly.

SSD is much higher, especially when we move to PCIe, I think there will be about $10 ASP, but we have delayed but it is ASP embedded controller and much more stable than removable star controller. Mike Crawford - B. Riley & Co.: And for your industrial SSDs, the fair eye branded products, are those growing at a low single-digit rate or is something else?

I think we believe fair eye SSDs will also grow I think second half we will update that capacity new to our shareholders. Mike Crawford - B. Riley & Co.: Okay, thank you.

Thank you for your question. Your next question comes from the line of Tom Sepenzis from Northland Capital Management. Please ask your question.

Good morning. And I was wondering if you could give us a little bit more clarity on the timing of the potential additional LTE platform wins, is that something that would happen this year or is that a 2015 event?

Yes. We believe Samsung this year, they really have much more models, and even, for example, Galaxy is starting to have acquired even milder more than 20 modules of selling to different regions. They have differentiality for different purpose and also have many derivatives we believe we have opportunity to win in certain region compared with the others and also Samsung bring new application processor and their baseband. We think they have high opportunity we are aiming to see a final (indiscernible) and bring the new chip to meet the Samsung mobile requirement. I cannot comment about this whole thing, but when we have secured designs, we will update the information to the audience.

Okay, thank you. And then the 47% sequential increase in the mobile communications products, is that mainly transceivers and if so is that LTE transceivers or was there a rebound in CDMA?

It’s in the last two quarters, we had – we have no LTE revenue. So it’s most of our mobile communication sales and SIMO’s recent quarters have been from mobile TV. Our mobile communication sales dipped sharply in Q4 due to sales seasonality and in Q1 sales rebounded to normalized levels led by Korea, VTMB and Japan, ISDB-T, Mobile TV SoC sales. So (indiscernible) to reiterate we had no LTE sales in Q4 and Q1 impacting our mobile communication sales.

Great, thank you very much.

Thank you for your question. (Operator Instructions) Your next question comes from the line of Rajvindra Gill from Needham & Co. Please ask your question. Rajvindra Gill - Needham & Co.: Yes, thanks for taking my questions. Question on the overall kind of NAND supply environment as we go into the second and third quarter, if you can kind of update us there in terms of what you see in terms of supply and demand?

So we are seeing availability of flash supply today in the first quarter and I think fairly the trend to continue to the second quarter as well. But beyond the first half, availability will depend on number of factors, especially demand relating to smartphones, tablets and SSD and this is our primary application used in NAND flash. And other factors relate to manning the capacity especially from 3D NAND. I think currently the sense on 3D NAND and have all the given source information and so that could be the floating factor impact the supply. Rajvindra Gill - Needham & Co.: And if you could just maybe talk about broadly, more broadly about what do you think your strategy is long-term for the LTE transceiver business? And what do you think Samsung is doing with this own development of its LTE baseband? Is this something that you see that Samsung can diversify away from QUALCOMM over time? If you could just provide any insight in terms of how you look at that business longer term?

And we do not believe Samsung commitment to their own platform has changed. We believe that as (indiscernible) to design more internal semiconductors and content in their own solution. However, I think Samsung always try to balance their solution in all different regions and to serve the best need. So, they may not only use one third-party like from QUALCOMM, it might choose two or three to balance their positioning in negotiated pricing. But at the same time, Samsung had a strong ambition to grow their internal solution including the baseband and applications processor. And we are part of the internal solution although they also have some internal design for their transceiver, but we believe we have better position and better technology to match Samsung Mobile’s requirement perspective. So, I think we have been successfully meeting all the requirements. And so as well as we continue to meet this requirement, we do not believe we will see any season competitors entering this market whether international. Rajvindra Gill - Needham & Co.: Thank you very much.

Thank you for your question. Your next question comes from the line of Monika Garg from Pacific Crest Securities. Please ask your question.

Hi, thanks for taking my question. I have a question on the SSD, could you maybe discuss your SSD controller solution, is it mainly for pure SSD or hybrid SSD and where are you seeing the more demand?

So, let me add more color by our SSD positioning. Our SATA 3 SSD today primarily focus on client SSD, but we also use for cash SSD as well as embedding industrial SSD with industrial grade, but primarily selling volume we are pushing to support the PC OEMs as well as module maker and engage with the NAND makers. However, at the same time, with all this in the DRAM, our other (indiscernible) develop for embedded solution as well as cash SSD to meet the customer needs. So we had much more diversified approach seeing large market share expansion.

And then for the ASP your cash SSDs will be about $5 range and the fuel SSDs for bigger NAND, then it would be about $10 or is it dependent upon the industry whether it is SATA or?

Let me comment for that. Our clients at the price range about $5 to $9 to $10 range are cash SSD because the density is lower. So it depends on the customers – so we walk around $3.50 to $4.50 range. So industrial depends whether they need a security or need, the price range is a very wide range, it could be from $5 to also $8 or $9 range, depends whether they need their AES 2.6, Opel 2.0. So we added two more for security enabling.

On the same – on the SSD front, are you talking to the NAND vendors to lease up maybe to supply controllers for the enterprise line of application, which they are trying to target, I mean, on the – either the enterprise SATA SSDs much bigger density in terabyte of course, are you working with….

Enterprise segment is now our main focus moment. To enter enterprise, you need to be where total solution in order to grow your revenue and the profit to selling controller only is not as good as the model. However, to say that, we do – we will offer very compelling PCIe by end of this year solution that the PCIe Gen 2/4 and Gen 3/2 solution. And with all the security and LDPC our correction and the rate we are able to cover nine pages in the industry for multi-block. And we are working with one NAND vendor closely and we plan to bring the solution to the market before end of 2015.

And I have a question on the 3D NAND side, you discussed in the call that since on the second half NAND availability is really dependent upon what NAND vendors do with 3D NAND? Now, the question is at least this second half of this year or next year, the new NAND capacity, what the industry likely see is for 3D NAND and at least currently since like given the very high endurance of 3D NAND and high cost of production, but it is only viable for enterprise line of applications. So the question is like this year you are seeing NAND kind of – NAND tightness for your card and USB drive business is it also possible that next year you might be in the similar situation?

I cannot comment individual NAND makers regarding 3D NAND. However, I think the 3D NAND currently at this moment the yield issue is being improved, the cost of expenses because of 24 stack, but when you move to a 36 stack, it would be cost competitive. And I think every NAND maker has business strategies. Some will have the development and others are reaching with floating-gate, some go into transition to 3D NAND, but as the impact will be as 3D NAND move to high volume for their own SSD solution, our eMMC, there will be more floating-gate NAND and come to the market. So then there will be potentially have access supply to the market. So that’s just how we talk about. I think that you probably won’t see a lot of 3D NAND come to the market, but because that’s commit their internal demand, there is other fast as the output will come into the market, so that could be changing the market situation for NAND supply.

That’s all for me. Thank you.

Thank you for your question. There are no further questions at this time. I would now like to hand the conference back to Mr. Jason Tsai. Please continue.

Well, I would thank all of you for joining us today and your continued interest in Silicon Motion. We will be at the following conference this quarter. In May, we will be presenting at the Jefferies & Company 2014 TMT Conference in Miami, B. Riley Annual Investor Conference in Santa Monica, Crag-Hallum Institutional Investor Conference in Minneapolis. In June, we will be presenting at the UBS Investor Conference in Taiwan. Details of these events are available in our website. Thank you and good bye for now.

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