First quarter earnings call. This is Jason Tsang from CLSA Taiwan. Today, it's our honor to have Pua Khein-Seng, the CEO at Phison here with us. He'll be sharing the recent update and the outlook of both the flash industry and the company itself. After that, we'll open the floor for Q&A section. Now let me turn this call over to Mr. Pan. Thank you, Mr. Pan.
Yeah. Thanks, Jason. Thanks for everyone to attend Phison's our CQ1 Earnings Call. Okay, let me have a brief update about our current Q1's report. You probably already know, revenue is like TWD 17 billion. We hit the record all-time high in every quarter. This is our revenue breakdown. From this chart, you can see, our controller, we also hit the all-time high in the revenue and also in percentage share, 29%. Last year, whole year, I remember we were like 22%.
The reason you can check that our controller revenue, the share actually is keep increasing just because of we got a lot of controller project from the semicon customers, from the main customers, which last year we are getting more supply from UMC and TSMC and PCIe Gen4, we got many design win. By 2022, we are quite optimistic our controller business and our portion will maintain in a high level. Embedded ODM since two years ago and keep emphasizing this is one of our major business. In the revenue-wise, this also become much bigger. It's mainly cover the PC OEM and the smartphone OEM business. You can see the chart is also every quarter we keep very consistent good growth.
Overall, CQ1 is a slow season in the consumer market. Phison like, you know, consumer retail is at 20%. This is very healthy, and I believe by Phison keep insisting invest into the R&D, we believe in the controller, in the embedded ODM, and coming future autos, in auto, enterprise SSD, we are going to have a big growth. This is to show you, I think you already know Phison history. In 22 years, we are start from the USB drive, we in consumer market, and gradually, we are moving to industrial. Now, we keep investing in R&D. After three years ago, engage with the AMD, we are able to get a big growth in the whole industrial.
From now on, we are start to keep investing into the enterprise SSD and automotive SSD and the related NAND solutions. Okay. CQ1, the revenue is TWD 17.1 billion, and the gross profit is 4.4 billion, which is all-time high. We are happy that Q1, even though CQ1 usually is a slow season, but we're able to hit the all-time high in both revenue and the profit. This is some highlight here. Controller is at 29%. You can see here our special controller in the PCIe, we have a very good YoY consistency. The reason is we keep having lots of design in from semicon.
In modules, we also keep growing in the gaming and also in the embedded ODM, which embedded OEM is getting much stronger. We also putting our SSD into a smartphone. This is helping us. We also engage with one of ecosystem CPU supplier to promote the next BG SSD for the Chromebook Lite notebook. This will also become our major business in coming future. This is our revenue. Last year was 62.5%. Now, by this quarter, last quarter, CQ1, we're doing good. In the whole year, we still are trying to achieve our goal in the growing in revenue.
Gross margin, CQ1, was 31.5%, which, the reason is, controllers business growth, which helping the average in the gross margin. In all the module application, we are locking in the NAND. Basically, what happened in last November and December. During that time, the NAND price was at the bottom, so we're also able to enjoy a little bit price upside on the NAND. Overall, the value of modules, we also contributes some better revenue than before. In consumer revenue growth, margin always is a risk, but when go to the OEM, ODM, and gaming industrial, which we're able to maintain better margins. The earnings per share is 11.09.
The reason is Phison, we keep investing into R&D, so the OpEx in R&D, we keep increasing. Overall, we still able to maintain two digit in the EPS. This is the income statement here. The orange color is in the period high history. I just want to share with you about our OpEx. You can. By YoY, you can see we keep increasing the R&D investment, but this is what we have to do. Of course, a lot of investor analysts mention, "Oh, why you keep insisting to invest R&D?" Look to TSMC, keep doing in CapEx R&D, now they become, you know, no any kind of competitors. Phison, we have to make sure we are good in the technology space.
We have got so many NAND makers come to Phison to ask for cooperation in the near future, controller development. We need to prepare enough good engineers. I don't worry about that, because I believe with our current R&D investment, in the future, we're able to get to get very big returns from our business. Okay. Gross margin-wise, also we are happy about that. 31.5% is almost at the high level. Overall, we're able to make a good gross margin. At the same time, we also need to take the margin for investing in the R&D. I keep emphasizing R&D is very important. The balance sheet. You may be concerned about the inventory. Remember since last CQ4, market was low and slow, but we got so many forecasts in this first half.
Look to Q1, business was good. That's why we are preparing inventory since last CQ4, then January. Basically, today's average cost in inventory is still lower than the market price, so basically no risk. We understand and agree the COVID and also inflation may cause the electronics market. By April, we already lower TWD 1.5 billion inventory. The policy in coming two months, we are going to lower our inventory and keep consuming our inventory, then waiting next good time to perfect the land for our future business. Okay. We're also happy our ROE is still able to maintain in the 20%+. We are working very hard, and I think this is, we show the good value to the investor.
We also announced our April revenue for TWD 5.9 billion, close to much lower MOM, maybe like few% down. Overall, the reason is caused by the Shanghai lockdown. It's still manageable. The storage newsletter in April, they announced the top-ranking storage company. Phison was in the number ten. We keep doing hard to make ourselves good in this industry. Very popular discussion about Starlink. Phison's our controllers, together with our partner, we built the storage system into the motherboard. Almost all of these are designed by Phison's storage. About CQ1's some highlight. Retail was slow, but we keep moving more PCIe Gen4 into the retail business.
OEM in Q1 is very strong, especially our PCIe Gen4, Gen3 SSD and the smartphone UFS, we are doing great. We have a big growth in the total revenue and also by unit. Gaming. Gaming, according to we talked to our ecosystem, they are still suffering some component shortage. Gaming turned to slow because they are not able to ship the console to the market. We also keep many design win with the gaming PC makers to put our fastest PCIe Gen4 controllers and modules into their second half high-end gaming notebook and gaming PC. In server-wise, SATA SSD is a legacy. Key supplier is going to EOL. Phison, we take a lot of the share, the forecast in 2020, 2022 from China and the U.S. market.
Industrial, also in CQ1, basically it's a slow season, but we keep also designing more into the automotive business. In April, we announced our cooperation with Seagate in the high-end PCIe Gen4 SSD project. We are going to deliver the final samples to the storage system makers by this, I think, second half of this month. After sampling, we believe by half end of CQ3, we're able to slowly ramp up the production. Next year will be a big ramp-up in the SSD enterprise. We are going to show our products to prove we're capable in this industry. Also, we have got the certificate from the ISO 26262, which is for safety in automotive. This we invest two years.
With this certificate, Phison, we're able to convince more automakers come to Phison to co-work with Phison. This Gen5 India, this COMPUTEX, we are going to demo with our ecosystem CPU partner. They are asking Phison to ship the products by September first to the market. Looks like today Phison is according to a lot of test report, this is the best controller right now in the world. Phison, by last year, we also announced our PCIe Gen5 redriver, first cut, then direct go to MP. We already got so many order from the PC makers and server makers. We have a lot of activity and a lot of good news recently. Yeah. Let's talk about the industry in the semiconductor. I think recently, they have two uncertainty.
One is the COVID in China, but we believe, COVID eventually, either one month, two months, able to settle down. The second issue is inflation. Inflation is a big issue. A lot of users, they need to save their money for food, not for the electronics products. This impact the demand. Look to the PC, look to smartphone. We do know, inflation when able to control. Phison, what we have to do is keep investing into our engineering team to build more products to our different customers, especially the NAND makers, to make sure we're able to grow in the coming futures. From this chart, you can see Phison again keep hiring more engineers. We may slow down the hiring by second half next year.
Okay, 2022, first half 2023, we still have a lot of gap to get more engineers. The reason to get engineer because so many controller projects coming from the NAND makers and other customers. We have to adjust the business from them. Maybe by first half next year, we, I think we're able to train good enough of headcount in developing, then we are going to slow down hiring. The OpEx able to manage after that. Phison's goal, we hope we're able to be the most influential the NAND controllers and ecosystem players in the NAND industry. I believe we can make it. After engagement with AMD three years ago, now Phison look to revenue and profit. We are have a big jumping.
By next year, we are going to prove in the enterprise SSD, the cooperation with the Seagate. Phison able to manage every NAND application. We hope we can become the most influential the players in this ecosystem. Okay, above is today's report, and we collect some Q&A. Let me finish this, then we go to live. Last night, everybody keep busy to study what is going to happen. To be honest, three months ago, I already smell this acquisition. Three months ago, I heard something, and then I made some study. I think this is going to happen, and last night this happened. What is impact to Phison? Basically, before talking that, then we have to ask why they going to sell.
Many years ago, I keep saying that, if only in NAND controllers, high R&D investment with a low return, 2021 is the exception because shortage, price increase. Volume not increase that many, but price increase 40%-50%. Of course, revenue good, profit good. If everything back to normal, then you have to consider R&D investment and how much can we have a good return. To Phison, we believe, in the history, the M&A in the design house, after 99%, after two years, their company been acquired. They looks like 99% going to the restructure, people move, this or that, decision changing. Phison won't do anything. We will keep consistent here, keep investing, doing our business. Make Phison more solid, reliable. I personally got several calls from several NAND makers.
They show the concern, and also they ask Phison, "Hey, are you have a good enough of engineers or not?" The reason is they may have to come to us to ask for other projects. The reason is Phison is not to sell, is not for sale, and we are reliable. They have also been asking many times why Phison work with the Seagate. This goes back to three years ago, when we decided to work with the AMD. The reason is we don't have any appearance in the PC industry. All the PC guy, they do know us. Through the AMD project, Phison able to bring our product to the platform. Suddenly they realize Phison. They trust Phison can make it. We are busy in these three years. We have a good business, good return. Enterprise SSD, basically, current user, they don't know Phison.
Even though they know Phison, they don't trust Phison can make it. Seagate is the biggest enterprise hard drive suppliers. The users, they trust Seagate. Seagate, they trust Phison. We've been work for many years. Phison doing every design, logistics, products for Seagate. Seagate define the spec, talking to the customers. This is a co-development and co-marketing. We are happy to have Seagate as partner, helping us to this industry. Once we prove capable, then Phison able to go to many cloud social media company to look for, controllers and modules design survey business. This is the best strategy we have. The cooperation with AMD three years ago, we can see today's Phison performance, this is a super good return after three years.
I believe cooperation with Seagate. In two years, after two years, we can wait to check what kind of a return. I believe the return will be good and will be a surprise. This is our strategy to go to the enterprise SSD business. We have a three-step in the enterprise, our strategy. In legacy, we are building the modules in the SATA to take those business which the mainstream makers going to EOL. Okay. To us, this is a good revenue and good margin. With Seagate now we are co-development and co-marketing, mainly aiming to storage system suppliers. Next step, once we are qualified, we are going to make the design service and customer service business to the hyperscale and cloud applications. What's the difference? Also keep asking what's the difference.
Enterprise SSD, like supercars, they are fast, reliable, safe. The design demanding in the R&D is much heavier than the PC client SSD. This need to keep at least five years R&D investment. This year is our five years done. It's a time to deliver the high-end product sample to the customers. Also will be our next growth. We also have a different strategy. For legacy market, we are providing controllers and the modules. For mainstream, we are co with the NAND makers. Now we have a few NAND makers cooperation in this NAND controllers for auto. We are doing customizations, okay? For the EMS, ODM partners, and also we direct talk to the automakers. Okay?
We believe with Phison's overall portfolio in IPs, in the SoC development, in the firmware, in the products modules, we're able to meet to satisfy the demand inquiry from the automakers. The driver. First design, we took eight months. After eight months, start sampling, go to MP. Now we got the total 5 million piece of order. We are need to get a more wafer from our foundry. This is a very surprising business from nothing to MP to shipment, total, 13 months. Okay. Now we are not only in the motherboard, also putting our design into notebook. By this Q3, we are going to put our design went into the servers, Gen5 servers. Okay. This is very good success, new business in Phison.
By next year, first half, we are going to sampling our Gen5 retimer. We have a confidence to make this business good and profitable. ESG by OTC, you can see we are keep improving. By DJSI, we're also improving. MSCI, we also got the from CCC to the BB. We are keep investing also into the ESG to make sure we are in the top ranking. Okay. Many investors were asking, "Hey, what is going to happen in the futures because of Dock-Dang and because of the inflation?" I define two chain. One is the so-called Supply Chain , one is the called sales chain. Supply Chain means in the production with so-called Supply Chain , now suffer by dock dang. Okay. Shanghai, Kunshan, Chongqing, we have to ship our modules to the Chongqing for notebook assembly.
I mean, not lockdown, but transportation and the cost increased too much. This is delaying a lot of shipment. Okay? We believe Supply Chain issue will be solved within few weeks or months. The next is about inflation. Due to inflation, the sales channel, they are not willing to pull in the products. Means the sales channel now they are lowering their inventory. Look to 2020. The 1st Q after COVID, getting popular, Western start to lockdown. I remember at that time, five months, all the logistic is mainly supply food, drug, whatever, you know, the essential demand. E/E products in the second priority. Suddenly when lockdown looks like clear, then the products, E/E products shortage in the whole Supply Chain .
We believe if a Supply Chain start to release, inflation is able to manage, the next will be a big jump up in our industry. Phison, we have to keep preparing our no matter technology, our people, our products, to make sure we're able to enjoy. In the next jump up, we can get a much better benefit. Like 2020, you look to 2021, Phison, we are actually enjoying this kind of jump up, and the reason is, we keep early prepared for that. Okay. Above are the collected questions, we can go to the left now.
Thank you, Mr. Pan. Now we can start Q&A section. The online participants, if you want to ask questions, please use the raise hand function, and I will unmute you to start your questions. Thank you. Actually, I have a question in terms of the acquisition between MaxLinear and Silicon Motion. Do you see any potential impact to Phison or maybe market share or Supply Chain relationship? Thank you.
I believe yes. I believe to Phison will be the positive impact. A few reasons. After acquisition, right, this equals some uncertainty. Okay? So a lot of many name makers start to feel, oh, they may need to keep better relationship with Phison. Try to occupy Phison's R&D resource because Phison is not going to change. We are always here, we are solid. Talking about the China-US trade war, many years ago, SIMO saying they are US company because that time US is a power and they are good. But few years ago in China, they say, "Oh, no, we are Taiwan company," okay, because of sensitivity. Now, I think they're back to as a US company.
In China, we believe China's customers may also have raised some concern, so we are trying to get them more share in China also. The 3rd part is, according to history, after acquisition, 99% within two years, people may move, may quit, may this, may that. We are also trying to get some good talent for our future development. I believe overall to Phison is a positive, good impact, and I believe also the time is a stay in the Phison side. Means the time keep moving, Phison able to enjoy more benefit from that.
Got it. You just expect the Phison market share can further increase because of the maybe political issues from these acquisitions, right? Do we expect that we can further gain shares from the server or data center market or only for the consumer market? Thank you.
I think basically we're able to get more opportunity from the OEMs. Overall for enterprise SSD, I think next year we have our roadmap here. After CQ3 start to deliver samples, going to MP, we can get a more Phison success in the data center nothing to do with the SIMO acquisition. I believe they don't have such a business right now. I think in the mobile, in the PC, in the consumer, we believe we are taking the advantage to increase our shares in the whole market. Yeah.
Got it. Thank you. Can you give us some colors on NAND flash supply and demand forecast in the second half this year? Because it seems like the end demand is slowing down and currently NAND supply is limited by the KIOXIA and WD's supply issues. What's your view on in the second half this year? Thank you.
CQ2, because of your KIOXIA contamination, I think supply gap. By CQ3, now we have to back to again to the COVID and the inflation. According to many reports, smartphone sales are slow, PC sales are slow. Actually, this equal to the so-called Supply Chain in the supply sales channel, they also lower the inventory. They are not willing to pull in the products, okay? Because they also afraid about, you know, uncertainty. We believe by CQ3, if this COVID and the war inflation not able to manage CQ3, definitely will turn to weak, okay, in NAND. But to Phison, now we are consuming our inventory. Inventory cost is still lower than market price, so we're good. We also lower to buy the NAND at CQ2.
Actually since March, we start to lower our buying, okay. We are managing inventory, we need to lower inventory. If CQ3 turn weak, I think also will benefit to Phison, okay? If ask me, yes, I wish CQ3 the NAND able, you know, price able to go lower, then we're able to buy more for our enterprise business. Okay.
Got it. How's the recovery of the WD and KIOXIA's wafer supply due to the contamination? Will the NAND supply still be limited in the first quarter or just in the second quarter this year?
They already back to full production by I think by March timeframe. They announce I don't know when, but now they are good in the full production. Supply gap will happen by May and June because the wafer need to go to packaging testing, okay? CQ3, I think supply side, no any uncertainty. I mean, the fab is fully run. The issue is about the demand side. Okay?
Got it. We know Phison's target for gross margin is between around maybe 24%, 25% to 30%. I think that many investors still have a concern that whether Phison can keep profitability growth in the future, when the gross margin is being more normalized. Can we expect Phison's top line growth to sustain its earnings improvements when the gross margin back to the normal level?
The answer, yes. My first goal is to grow our top line, okay? This is our business. I'm not that much eager to look into increasing the gross margin at this moment. Of course, we like to increase gross margin. Instead of gross margin, I more prefer to look into the top line to get more market share. In the meantime, I think with the 27 ± 3% gross margin is good for us. Overall, at the end, the net profit, we are going to grow. Okay? Look to the 2019, 2020, 2021, Phison's earnings per share keeps growing. I'm also optimistic in the coming two, three years, okay?
Also, because of the acquisitions, I think we able to get a more approach to the big customers such as the NAND makers. We also believe we're able to get the more projects from those NAND makers. The answer is yes. The gross margin, we are just try to maintain, improve our top line. At the end, try to enlarge Phison's net profit.
Okay, thank you. Can we have more colors on the catalyst or driver of Phison's top line growth? That means, maybe which market or which applications, or maybe it's the growth will be from market share or shipment or even ASP or step migration, something like that. Thank you.
Yeah. Definitely, the big growth will coming from the controllers. Okay? Controllers from few segments. First, we are in the leading position in the Gen4, and we got so many OEMs, PC makers' projects. Next, now we are going to more in the so-called mobile business. So controller overall, I think is a big driver to us in a few years, okay? Again, due to the acquisition, I think we are going to benefit. Also the big growth revenue-wise will be the embedded ODM, okay. We have PC, we have smartphone, we have medical device, lots of embedded. This, we are going to grow here. The next, of course, industrial is stable. I don't expect this to grow that much. This is stable but profitable.
Our next two growth will be coming from enterprise and automotive, but this take time, okay? 2023, enterprise is going to contribute revenue, okay? Auto, we believe, we need to keep waiting autonomous going to use the high terabyte SSD. This may take years. I don't know how many years. Overall, we also keep designing a lot of controllers and modules for auto systems. Overall, we believe the growth, controllers is one portion, embedded is one portion, and the next will be enterprise. Okay?
Got it. Thank you. Our sales target is still to reach double-digit year-on-year growth this year?
Yeah, this is our goal.
Got it. How about, yeah, the gross margin is still maybe 27% ± 2%, 3%, right?
Yes. Yes.
Got it. How about our OpEx ratio? Because it seems like we keep expand our human resources on our R&D sections. Do we have more color on it?
I think our OpEx ratio we are going to keep like 14%, I believe. Let me see here. I think it's around 14%-15% something. Okay. The R&D cost, to be honest, it's keep increasing, but I believe saturate by next year, CQ2, CQ3. We'll have a good enough talent, then no need to keep increasing that much. Yeah.
Got it. It's so it means that our OpEx will be peaking in next year?
Yes. Yes.
Oh, got it. Yeah, yeah, you talk about the PCIe Gen4 or Gen5 related products. I just want to know, do we have the PCIe Gen4 penetration rate in maybe PC, laptop or server market? I mean, the whole industry penetration rate.
PC, my understanding, all the PC brands, tier one, tier two, tier three, Phison got also the design win business. Okay? Servers, now we are designing with the Seagate, sampling by second half this month. We'll turn to revenue from end of CQ three. Okay? That portion by unit is not big. In a server, actually looking for capacity, not looking for unit. Yeah. Penetration, Phison Gen four, we believe we are doing good. Again, due to the acquisition, I believe they make us more aggressive to come to us.
Got it. Do we have the, you know, industrial number of the Gen 4's penetration rates? I mean, maybe 30 or 40%, something like that?
I don't have the exact number.
But-
Yeah.
Got it. How's our Gen5 product lines? Do we target it to be released along with Intel EcoString or something like that?
Yeah. Actually, the design is done. Demo by Computex with our ecosystem CPU partners. We've been asked to MP to ship the modules by first of September. Okay. Design is done. Now we are waiting the new generation flash going to MP to make this, the drive to higher the speed. Means it's a 14. In lab, we prove we able to make to 14+ GB. This is surprising a lot of PC makers. This will be our good business.
Got it. It will be adopted on PC applications?
Yes.
It's kind of a server, yeah?
Server, Phison now we are aiming to the PCIe Gen4, sampling by this month. Gen five, the silicon will be ready by next year CQ4. It's under design.
Got it. I just wonder how you mentioned that server or data centers spec or design is quite different from the consumer application, right? I just wonder how long it takes maybe controller for our clients to qualify our product.
Depends on how mature of our design. Looks like Gen4, I think in three months, some customers going to qualify. The reason is, Phison in-house, we built a lot of testing equipment. We have a big lab doing in-house testing. By the way, not just only Phison, we test, Seagate also helping us. We are testing together in their lab in the U.S. We believe if a product is sufficiently mature, we able to slow ramp up business after three to four months.
Got it. Can we talk about more on the mobile application? It seems like there's a standard migrations for mobile NAND manufacturers, so maybe we can take some shares from these migrations. Can we have more color on it?
In mobile, of course, mobile storage are mainly managed by the three suppliers who have the given solutions. Unfortunately, these three UFS most likely using in-house controllers. eMMC, we also, we are the supplier to one of maybe sooner or later go to two of three in eMMC controllers. UFS, now we are working with the. We directly work with the mobile makers, mobile phone makers. We provide them the modules, the UFS modules to the phone makers. We have a direct cooperation. We are also thinking about how to increase our mobile application because policy, most likely they like to use in-house. But recently, they also consider to outsource to Phison. This is our next opportunity.
Got it. Overall, it seems like we are gaining the market share across even every applications, right?
Yes.
From PC server to mobile.
Various, portable, medical, auto, any. Phison's strategy is very simple. Any solution that needs NAND, Phison will provide the solutions.
Got it.
Yeah.
I just wonder, how can we just keep, gain, increase our market share? Because is that only because of our maybe R&D solutions, or we have the better, customer service or lower pricing? I just wonder how we can, just, maintain or even improve our market share.
Okay. First of all, I think we need to have a very solid engineering team, and we need to have very good attitude to when talk to the customers, and we are willing to cooperate very closely, transparently with the customers. I believe after this, M&A, the key players, key customers, they may feel Phison is, most reliable. Means we are not going to give them surprise. In this case, right, we fully believe they are more willing to, have a deep cooperation with Phison. We be ourself, working hard, investing more R&D, keeping good relationship with the customers. If we, found anything wrong, we are transparent, everything to customers. Let them feel, good, don't worry to us, then eventually we can get all the business.
Got it. How about our partner in China? We know that our Chinese partner, they are now ramping up their capacity aggressively. But we still see current Chinese demand is weakness. Do we have more color on it?
They are, yes, increasing the supply. Again, due to the rumor saying that maybe, you know, China-U.S. trade war may have some impact. Overall, yes, China demand due to lockdown by COVID, the demand is suddenly frozen. I believe they also have some, you know, pressure how to move their products. Overall, everything doing good. Especially, again, after back to this M&A, we believe, China customers may raise their concern. Okay? We believe Phison, we need to play our role to support them. At the end, we get the business. Yeah.
I just wonder, does Silicon Motion also a controller supplier to YMTC or only us?
Both. They use many sources.
Oh, got it. Potentially, we can have the opportunity to gain the market share.
I mean.
From Silicon Motion, right?
Time will tell.
Got it. Okay. Can we provide maybe guidance or outlook on second quarter, maybe sales or gross margins?
No. You know, we didn't provide guidance. If we do it, then OTC will come to us again, so. Overall, due to again, COVID inflation, we can feel the demand is slow. In this case, I believe if it's slow, the sales channel inventory also lower, very low. We are waiting when this uncertainty disappear, then we need to pick up, you know, to get the advance benefit from this business. We are make ourselves standby here and with a good preparations.
Yeah, got it. How about our controller business? Do we expect the preparation of the controller business to keep increase in the following quarters? Or it just can remain the same levels in our product mix?
Our controller still in shortage, so we still begging TSMC, UMC to give us some more supply. Yeah. The PCIe Gen4 demand is very strong. Very strong. Yeah.
Got it. Do we expect that its parameters can further improve in the following quarters?
The answer is yes, but again, supply.
Depends on supply.
Yeah.
It seems like everyone has the concern about the oversupply issues for the foundry mature nodes. Potentially, maybe we can secure more wafers if the foundry can expand their mature node capacity in the next year, or the deal is still under negotiation?
I hope I wish the foundry is going to release, then we're able to improve our share in this industry. I don't know when they're able to, you know, solve shortage. Yeah.
Understood. Got it. How about the NAND supply? You know, because of KIOXIA's contamination to limit the NAND supply in the first quarter, and now it seems like the wafer supply is back to the normalized stages. We know that KIOXIA is our major NAND source. How's our NAND supply right now?
No, overall, in legacy part, we're still asking for more shipment, but in the mainstream, I think we are mainly consume our inventory. We are still down to pulling the NAND flash in this month. First priority is lower inventory. Keep Phison
Yeah.
Good shape. If at Q3, NAND market turns soft, then we're able to get more with better price to improve our market share and our profit.
Got it. In last year, we actually outsourced some orders to other Taiwanese players, right? Because of the tight supply. Do we still outsource the orders to other players in this year? We may turn the orders back.
For some low-end modules, I don't think Phison will need to put our quality engineers into that business. I prefer to put my talents into the more advanced design. Low-end, we are still going to outsourcing. Whenever the place, the wafer supply turn to good enough, some middle-end products, Phison may turn back to our own solution.
Got it. What's difference between in-house and outsource? I mean, the gross margins. What's gross margin difference between our in-house solution and outsource?
Low-end products, of course, they have a gross margin, but not that sweet. We're just using that to move some inventory. In-house solution, of course, which is for design in, customer has a requirement to have a service, we prefer to use in-house.
Got it. I have a question in terms of our retimer and redriver business. How much does your retimer and redriver account for total revenue in next year after the product line for mass productions?
The driver, 5 million pieces with $2 is at $10 million, just $10 million. This is not big scale business, but Phison is not looking for revenue. We're just taking this as one of our portfolio to approach to PC makers and to server makers. Okay? This is our kind of weapon to talk to them and start.
Got it.
to build a relationship. Retimer is a high price product, but we are not ready yet. I will make comment when we are going to MP, then we can share with you what kind of revenue we are going to achieve.
Will we bundle the redriver with our SSD controller or module to our clients for maybe server or PC or laptop?
No, no. This is totally independent. It's not able to bundle. If we have a redriver retimer to the servers, then we know them, we easily can talk to SSD. This is my strategy.
Oh. Got it. I think I have no more questions. If any of you have any questions, please raise your hand and I will unmute you or to start your questions.
I think Jason Tsang it's okay. My phone keep ringing from Taiwan.
From Korea.
If you have no questions, we can wrap up this call.
Okay.
I have to back to doing our business.
Okay.