Silicon Motion at KeyBanc Forum: Strategic Expansion in SSDs

On Monday, 11 August 2025, Silicon Motion Technology (NASDAQ:SIMO) presented at the KeyBanc Capital Markets Technology Leadership Forum, outlining its strategic vision amidst evolving market dynamics. The company highlighted its growth from flash drives to advanced SSD controllers, with a focus on expanding into automotive and enterprise markets. While optimistic about its competitive edge in PC SSD controllers, Silicon Motion is also navigating challenges in the broader memory sector.

Key Takeaways

• Silicon Motion aims to increase its market share in client SSD controllers to over 40% with PCIe Gen 5 technology.
• The company targets 5% to 10% revenue contribution from enterprise SSDs by 2026-2027.
• Automotive segment revenue is projected to grow from 5% to over 10% in the next few years.
• Silicon Motion plans to maintain gross margins of 48% to 50% and operating margins of 20% to 25%.
• Capital allocation strategy includes dividends, share buybacks, and potential acquisitions.

Financial Results

• Gross Margins: Targeting 48% to 49% for Q3, aiming for the upper end of 48% to 50% by year-end.
• Operating Margins: Aiming to return to historical levels of 20% to 25%.
• Revenue Contribution: Enterprise segment expected to contribute 5% to 10% by 2026-2027.
• ASP Growth: PCIe 5 controllers to have 40% to 50% higher ASPs, with high-end controllers nearly doubling compared to PCIe 4.
• Automotive Growth: Currently at 5%, projected to reach 10% of revenue in the coming years.

Operational Updates

• PC SSD Controllers: Market share in client SSD controllers expected to rise from 30% to 40%.
• Mobile Controllers: Targeting over 30% market share in eMMC and UFS solutions for mobile devices.
• Enterprise SSDs: Secured two Tier 1 customers and four additional clients, focusing on AI and data-intensive sectors.
• Investments: Committed to three six-nanometer products, each costing $15 million to $20 million, and the Montitan enterprise platform.
• Automotive Segment: Supporting nearly all major automakers, with significant revenue growth anticipated.

Future Outlook

• Enterprise Expansion: Enterprise SSD business to contribute 5% to 10% of revenue by 2026-2027, with further growth potential.
• Technology Investments: Plans to develop a four-nanometer PCI 6 controller next year.
• Market Growth: Low single-digit growth projected for PC and mobile markets, with opportunities to gain market share.
• Capital Allocation: Ongoing dividends, share buybacks, and potential acquisitions as part of growth strategy.
• Market Share Gains: Confident in increasing market share in client SSDs, smartphones, and automotive markets.

Q&A Highlights

• NAND Technology: Positioned to benefit from advancements requiring advanced controllers.
• Competition: Gaining market share from NAND makers with superior technology.
• Power Efficiency: PCIe 5 controllers offer lower power consumption, reducing costs for customers.
• Enterprise Revenue: Secured Tier 1 wins provide confidence in meeting revenue targets.
• Market Dynamics: Adapting to shifts in the mobile market towards discrete mobile DRAM and eMMC/UFS solutions.

Readers are encouraged to refer to the full transcript for a detailed account of Silicon Motion’s strategic plans and insights shared at the forum.

Full transcript - KeyBanc Capital Markets Technology Leadership Forum:

John Vinn, Analyst, KeyBanc Capital Markets: Great. Good afternoon, everybody. My name is John Vinn. I cover SMEs here at KeyBanc Capital Markets. We’re pleased to have Silicon Motion here, Jason Tsai, CFO.

Welcome, Jason.

Jason Tsai, CFO, Silicon Motion: Thanks, Sean. Appreciate the opportunity. Just kick things off, I mean, just we’ll be making forward looking statements. So please refer to our filings with the SEC on risks and uncertainties involved in investing in our securities.

John Vinn, Analyst, KeyBanc Capital Markets: Great. Maybe just to set the stage, Jason, maybe just give us a brief overview on and your major products and markets. What are you most excited about?

Jason Tsai, CFO, Silicon Motion: As some of you may know, I first started at SIMO seventeen years ago, and I’ve left and come back since. But over the last seventeen years, we’ve grown incredibly well from cards and flash drives initially to eMMC and UFS for smartphones, SSDs for PCs and then now going into enterprise SSDs with our new Montitan platform. Along the way, we’ve expanded in to automotive. We’ve expanded into IoT and connected devices. So we’ve got a very broad range of portfolio solutions across really any device out there that requires embedded memory, solid state memory, and that’s pretty much everything in our pockets, everything we carry around and everything that drives our everyday lives.

Over the past year or two years, what we’ve seen is a really a major shift from the flash makers really to outsource more. What we’re seeing is certainly, especially with AI coming or here, the focus from memory providers are to balance their investments across a wide range of technologies, including NAND, DRAM, HBM, etcetera. And it becomes increasingly difficult for folks to be able to manage those investments across the board. So they’re relying more on merchant suppliers. And one of the things that we’ve done a good job building over the last many years is developing really arguably the broadest and the deepest relationships with every single flash maker there is.

And I don’t think any other module maker can say that. And so while historically, we have had projects with various with all flash makers, I think what we’re seeing now is more of a categorical change in their strategy to incorporate merchant suppliers as part of their long term strategy, And that’s where we’re starting to benefit tremendously, and we expect that cycle to be driving significant growth for our business longer term and then as we cycle in new products. So I guess a long winded answer to your question, John, is we’re excited by the core business through share gains and increasing opportunities. We’re also excited by new markets like enterprise that we’re starting to see tremendous amount of traction with, especially with our QLC capabilities to manage QLC demand.

John Vinn, Analyst, KeyBanc Capital Markets: Great. Memory market is pretty dynamic. You saw Micron positively pronounced this morning. How does this benefit SIMO?

Jason Tsai, CFO, Silicon Motion: Yes. I mean, look, I mean, at the end of the day, we’re all looking for more density, better performance at a lower cost, right? And so whether you’re looking at DRAM or you’re looking at NAND, with NAND, what we’re seeing is certainly got continuing progress forward towards more layer count, lower dollar cost per bit. But the trade with the devil here is that as you add more layers, as you go from three bit per cell to four bit per cell, etcetera, the endurance, the reliability performance of NAND becomes weaker and weaker. And you need a new generation of controllers to support that new generation of NAND.

And that’s where the opportunity for us really opens up. And as the end markets for NAND use becomes broader and broader, flash makers, everybody needs a new portfolio of controllers to manage that new generation of NAND. And as as I said earlier, you know, the incumbents, the internal solutions, the internal development platforms become a lot more taxed. And so they look towards additional opportunities, additional capabilities to help supplement and augment what they do internally, and that’s where the opportunity for us is.

John Vinn, Analyst, KeyBanc Capital Markets: Great. You talked about gaining share in each of your end markets, but much of your end markets are being supplied by the NAND makers themselves. How are you able to gain share from them?

Jason Tsai, CFO, Silicon Motion: Yes. It’s a good question. And yes, I think historically, that’s always been, I think, a challenge that investors have had with us is how do we sustainably gain share. I think what we’re what we’ve been able to demonstrate here, and I think especially with the latest generation PC SSD controllers, PCIe Gen five eight channel controller, our solution is hands down the best one in the market. Whether it’s an internally developed solution or externally developed merchant supplier, there’s nobody else out there has developed a more powerful, more power efficient controller than we have.

You go to any of the third party review sites, all the best controllers, all the best SSDs are using our controller. Some of our customers have built their own custom firmware that allows them to differentiate a little bit more. Some of our customers are using turnkey solutions that we provide, and that enables them to bring to market very quickly and very cost effectively, very high performance, one of the highest performing SSDs in the market. So now we’re able to demonstrate, I think, I mean, we’re confident about this in the past, categorically demonstrate that outsourcing is not an inferior solution. If you compare what we’ve been able to deliver versus the two flash makers have developed their own internal solutions, our solution SSDs based on our solution perform better at a much, much lower power consumption level.

So you’re looking at sub seven watts of power consumption versus nine, ten, 11 watts of power consumption with some of these other solutions. And so lower power consumption isn’t just a PowerPoint slide, it’s actual savings for bill of materials. You have fewer passive components in a PC to dissipate heat. You have better battery life. You can potentially have a smaller battery.

All of these things are real tangible cost improvements because of that power savings. And so being able to deliver these types of solutions that are not just enables them to get into market but also enables our customers to lead the market with a third party solution has really changed the narrative with the flash makers. And given my long history here, I would say our pipeline of design wins and opportunities that we have today have far exceeded anything we’ve seen in the past. So we’re really confident and excited about where we are today and continuing to drive share. And I think that you’ll see whether it’s in client SSDs, whether it’s in smartphones across the board, the opportunities for us are growing pretty meaningfully.

John Vinn, Analyst, KeyBanc Capital Markets: Okay. You mentioned client SSD controllers. You are the market leader. How do you grow this business when the PC market really isn’t growing anymore?

Jason Tsai, CFO, Silicon Motion: Yes. These PCIe five SSDs, I think if you take a look at our SSD market share, historically, last year, we were about 30%. We believe we can get to 40% over the next few years. And the reason for the confidence around that is this latest generation of PCIe five. We run with the eight channel high end controller.

We’ve won four flash makers and virtually every module maker. On the four channel mainstream one that will come to market late this year, we’ve also won four flash makers and virtually every module maker. So we’re confident that with PCIe five platform, we’re going to be able to win more than 50% share of the overall market. So you balance that, you average that out with the 30% that we’ve had in existing markets, and you can get to that 40% share over the next few years pretty easily. I think the challenge is also that as you get to higher performance with PCIe five with tighter power envelope, You have no choice but to go to the smaller power process geometries.

So now these controllers that we’re building are built on six nano. Six nano is expensive. I mean, historically, most of our products were at twelve, twenty, 28 or higher nano. And so at six nano, it’s 15,000,000 to $20,000,000 per controller to develop. There aren’t a whole lot of merchant suppliers out there that have the balance sheet and P and L that we have to support development at six nano, not just for one product, but for portfolio of products that we’re bringing to market.

And so that’s been one of the things that I think has also set us apart and has also increased the need for outsourcing because whether we’ve spent that 15,000,000 to $20,000,000 or somebody else spends it, somebody’s got to have to build out that controller. So might as well leverage the economies of scale that we’ve already developed. And so going forward, gaining more share, we generate alpha in our business, alpha growth. We’re also seeing higher ASPs for PCIe five. On average, on mainstream, they’re looking at 40% to 50% higher ASPs.

On the high end, almost double of the ASPs compared to a high end four channel actually, PCIe four controller. So there’s opportunities to gain additional growth factors through market share gains and higher ASPs. And that’s what we believe will continue to drive our business over the next few years as we continue to drive stronger

John Vinn, Analyst, KeyBanc Capital Markets: business here. Maybe similar question on mobile controllers. What’s going on with eMMC and UFS? And then this market is also ex growth, so how do you grow there?

Jason Tsai, CFO, Silicon Motion: Yes, it’s a good question. I mean, look, I mean, like PCs, right? I think best case scenario, we’re looking at an industry that grows low single digits for the next many, many years. EMMC historically served the low end segments of the smartphone market, down desk getting displaced by UFS, but you’re seeing other applications in eMMC becoming more relevant, smart glasses, AI goggles, all these things, IoT connected devices, even automotive. We’re taping out a new eMMC controller for a large South Korean flashmaker for eMMC for the automotive market.

So even though eMMC even though smartphone market transitioned to UFS seven years ago, eMMC is still an incredibly important part of the market and will continue to be for a very long time to support all these additional opportunities. So we’re gaining share with these customers as they continue to scale. On the smartphone side, historically, what you’ve seen is the memory makers that have both DRAM and NAND typically own a large chunk of this market because they can combine the two into a multi chip package, so EMCP or UMCP. Now that you’re starting to see readily available cheap mobile DRAM coming to market, the value proposition of having a combined solution is no longer there. It’s more cost effective to have a discrete mobile DRAM and discrete eMMC or UFS.

And that opens up a significant opportunity with a lot of the module makers that we’ve historically had great relationships with to be part of that supply chain, to be buying raw NAND from the flash makers, pairing it with our controller and selling it to a handset OEM. And so we’re seeing that becoming a big driver to share gains for us. Oftentimes in mainstream and even low end handsets, flash makers don’t necessarily make a whole lot of business when they sell eMMC and UFS into those markets. They would oftentimes prefer to sell just raw NAND, and they can probably make a little bit more money just on the raw NAND itself than trying to develop a package solution for those markets. And so that works, again, aligns well with the ability to gain share as they outsource as they look turn towards module makers more, and we gain share there.

And so historically, we’ve been about 25% share here. We believe we can scale that to 30% plus over the next few years. So there’s still an opportunity for us here to gain share longer term.

John Vinn, Analyst, KeyBanc Capital Markets: Okay. You mentioned automotive. What’s happening in this segment? And how big could this be for you?

Jason Tsai, CFO, Silicon Motion: Yes, I mean, look, we all know that the automotive market itself, the number of cars that are getting built each year isn’t really growing by leaps and bounds, right? It’s a difficult market. But the opportunity that we see is that the number of storage devices inside a car is growing very rapidly to support the increasing number of cameras, sensors, ADAS, emergency, you know, capabilities within a car, infotainment, battery electric vehicles, power management, all these things require storage ranging from eMMC and UFS to PCIe three, four, five. The opportunities here continue to grow. We’ve been fostering, nurturing this business for the last many years.

It’s already 5% of our business. We believe we can scale it to 10% plus over the next couple of years. And as you know, with a lot of these automotive wins, a win today doesn’t really materialize to revenue for three years or more. And so the growth our ability to grow this business over the next few years is really the confidence comes from a lot of wins that we already have that we are starting to see getting close to that point where they’re going to start scaling soon. We’re supporting virtually every large major automaker in U.

S, in Europe, in China, whether it’s internal combustion, whether it’s battery electric vehicles, whether it’s autonomous, all of them, we have relationships, direct or indirect, with them already. And so as these vehicles become as our share within these vehicles continue to grow, we believe we can scale this business pretty significantly over the next few years from, again, 5% of our revenue to more than 10% over the next couple of years.

John Vinn, Analyst, KeyBanc Capital Markets: Great. Maybe we can shift over and talk about the enterprise segment. How is this coming along and why now? What’s the differentiating factor that kind of allow you to break into this segment on the market?

Jason Tsai, CFO, Silicon Motion: Yes. Enterprise has always been kind of the Holy Grail for us, right, something that we’ve been trying for a while. I think right now is a unique point in time where we’re starting to see affordability of NAND continue to come down quickly, especially with the introduction of two terabit QLC dies being able to support enterprise SSDs upwards of 128 terabyte in density. The reason why this is important, the reason why this is really kind of crossover point for SSDs is that at 128 terabyte SSDs, you’re getting to a TCO that becomes fairly comparable to hard disk drives. So in the world of AI where, you know, these LLMs, whether it’s for training or inference, just really wants to consume more data, input more data more quickly.

And the way the enterprise storage infrastructure today is you’ve got a lot of high performance compute SSDs in there already, but those are expensive. Dollar per bit is still very expensive, and they’re used for certain applications that that higher dollar cost per bit makes sense. When you look at more density, you’re looking at hard disk drives, and they can store a lot of density cheaply, and that’s great, but it doesn’t enable the AI algorithms to be able to pull that data, process that data quickly. So either you can use very expensive compute SSDs or you can use lower performance hard disk drives. Now with QLC, now you’re able to bridge this gap with a high performance, high capacity solution where QLC NAND is almost tailor made for these type of use cases.

You’re able to store a lot of data cheaply. You’re able to pull that, read that data very quickly, and you’re able to do it in a manner, in a use case, where you don’t erode the endurance and reliability of that NAND because it’s QLC. And because you’re doing a lot more sequential rewrites versus a lot of random rewrites, you start developing solutions that are much better endurance. And so as AI infrastructures continue to get build out, as flash makers continue to move to next generation NAND, that will start driving higher more production, more availability of the two terabit dies and four terabit dies and so on and so forth longer term, you start getting to that crossover point of SSDs becoming more cost effective or as cost effective and eventually more cost effective. And then because the world is generating more data each day than it did the day before, there’s still a tremendous opportunity for hard disk drives as it moves further down into more cold storage.

So the amount of data the world is creating will continue to drive additional use cases, additional need for more storage across the board. But I think it presents a unique opportunity for us. And given our understanding and the fact that we’ve managed more QLC than anybody else out there, puts us in a really unique opportunity to deliver a really differentiated solution for our customers. And we’ve talked about winning two Tier one customers and four additional customers and seeing this beginning to scale over the next twelve, eighteen months. And as we exit ’twenty six into ’twenty seven, gains at 5% to 10% of revenue.

So this is an opportunity where we’re starting to see a lot of momentum, a lot of traction around that. And we’re really excited for it.

John Vinn, Analyst, KeyBanc Capital Markets: Just a follow-up on enterprise. What are your revenue and margin targets? And how are you guys tracking towards those targets?

Jason Tsai, CFO, Silicon Motion: Yes. So the first two Tier one wins that we’ve talked about, plus the four additional wins, gives us a lot of confidence in getting to that 5% to 10% of revenue contribution by the time we’re in kind of twenty twenty six, twenty seven time frame. We’ve said that these Tier one customers, one of them could get us to 5% to 10% pretty quickly. But certainly, having more gives us a lot more confidence around getting to that number and scaling beyond that, right? 5% to 10% is the first waypoint.

It’s not a final destination. That’s not the most we believe this business can contribute. This is kind of the first waypoint for us for investors to gauge our progress. At FMS last week, Future Memory Storage Conference last week, we demoed a product enterprise solution using on the VAS network, a vast platform with a UniGen SSD using our controller to showcase the high performance capability of a high density 128 terabyte QLC SSD. And so it was very well received by certainly the press and potential customers, etcetera.

And we believe that we can continue to see increasing opportunity share. The two Tier one customers that we won, one of them is in The U. S, one of them in China. And the way we classify Tier one is either you’re either a flash maker, a storage solution provider or a Tier one enterprise or CSP. And so we’ve won one in The U.

S, one in China and along those lines. And the four additional ones will give us they have significant reach in existing business with a number of Tier one, Tier two enterprises and CSPs globally. So we’re very excited about certainly the way this scales. From a margin perspective, as you would expect, enterprise SSDs are margin accretive compared to our overall business. We haven’t provided direct guidance on kind of what that looks like, but certainly margin accretive relative to the overall gross margins of the business.

So we expect as that continues to scale, that will have a positive uplift to our overall corporate gross margins long term.

John Vinn, Analyst, KeyBanc Capital Markets: Speaking of gross margins, you talked about getting back to the historical range of 40%, 50%. It looks like you’re going to be at the lower end of that this quarter. But your long term operating margin targets are 20%, 25%. It seems like you’re a little bit further away on that. How do you get there?

Jason Tsai, CFO, Silicon Motion: Yes. So over the last year and a half, as you guys may recall, year and a half ago when the world was kind of in more difficult places, the NAND makers were negative gross margins. We dropped our pricing a lot in order to support our customers. And over the last one years, point we’ve steadily improved our gross margins to now this quarter, third quarter, we’re guiding to 48% to 49% gross margins back to that historical range. And then exiting this year, we anticipate to be in the upper end of that 48% to 50% range as we exit this year.

On an operating margin basis, one of the things that we’ve been doing over the last two years is we’ve been investing a lot, right? We’ve taped out three six nanometer products, each at, let’s call it, 15,000,000 to $20,000,000 each. We’ve been investing in Montitan, our enterprise platform. These have all been high dollar cost investments on the OpEx line that we have just really begun seeing the first early revenue contribution, first return on investments that we’ve made with especially on the first product being the eight channel PCIe five controller. And so as we start seeing the other products begin to generate ROI, as we start seeing enterprise begin to scale, we expect to see that really benefiting our operating margin line.

We will continue to invest. We will continue to build out advanced geometry products. We’ve got we’re slated to build out a tape out a four nanometer product PCI six controller next year for our enterprise customers as they transition as the industry transitions to PCI six in the 2027 timeframe. So we want to make sure that we’re there for that as well. So we will continue to invest.

But I think over the next twelve, eighteen months, we’ll start seeing a lot of that those investments we’ve made over the last two years really coming back to helping our return on investment. So over time, we do expect to be able to get back to our historical operating margin range. We’re looking at revenue to scale in order to get there, but we’re confident that we can.

John Vinn, Analyst, KeyBanc Capital Markets: Okay. You guys have a lot of cash. Maybe just talk about use of cash going forward?

Jason Tsai, CFO, Silicon Motion: Yes. So there’s the way we think about capital allocation is it’s a three pronged strategy for We’ve consistently paid a dividend for the last better part of ten years, started off at zero six zero dollars a year, now we’re up to $2 a year. The only time we didn’t pay was when we’re in the middle of the acquisition process. Second part of our capital allocation strategy is share buyback. While we don’t while we do not have a consistent share buyback strategy, we have consistently bought back shares periodically.

So if you take a look at the last three to five years, we’ve actually spent about half of our free cash flow on share buybacks. And thirdly is acquisitions. We don’t tend to do a lot of acquisitions, but we tend to always want to look and see what’s out there. So those are the way we think about capital allocation and use of cash. Certainly depending on kind of what we’re doing, there’ll be different emphasis, but the expectation is that the dividend will be something that you’ll continue to expect from us and then we’ll continue to layer on other uses of cash as appropriate.

John Vinn, Analyst, KeyBanc Capital Markets: Great. Looks like we’re out of time. Thanks, Jiris. Great.

Jason Tsai, CFO, Silicon Motion: Thank you.

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