Thanks, everyone, for joining today's Faizen's 1Q 2021 Earnings Conference. And today, we're happy to have KS, Chairman of the company, and he will begin with introduction. And after that, we will start the Q and A session. And to raise your question, you can use the raise hand button in the WebEx or answer your question in the chat room. So now without further ado, Kees, please begin.
Yes. Thanks, Bryan. Good afternoon. Ladies and gentlemen, this is Kees. So I have prepared here our Q1 result and some other Q and A collect from other investor.
I will go through 1 by 1. Because we just have only 1 hour, so I need to go a little bit quickly And she has more time for the Q and A. Okay. This is our statement. Anyway, please read.
So first question, we'd like again to reemphasize that Fisun, We made a lot of a big transformation from the consumer business to the technology dealing business. In our these 5 years, we have a lot Of activities, revenue probably coming from non consumer business. So this is just to I have to keep repeating About this to brainwash your image about the Phison. This chart to show you, our Q1 revenue is still 30 Around 30% in consumer. Controllers still maintain like 20%.
The something we have Some big growth is embedded. Embedded, actually, when I read my report internally, gradually by every quarter, we are increased the number And also in business here. The other one is about the gaming modules. Phison, we've been invest 3 years into the gaming business. We got some very good market share right now.
But in second half, second half of this year, we are keep working with the other 2 big guys. By Q3, we are going to launch the other gaming applications. So please keep in mind. And industrial module, we have a really strong growth in the CQ1 this year because last CQ2, a lot of Developed countries such as Western Europe, U. S, Stockton, a lot of deployment of equipment are postponing.
Since the last CQ4 and coming in the last CQ1, we got a lot of last order. And unfortunately, we are not able to fulfill 100% what they need, but we're still trying. And the demand on industrial still very strong. So revenue, I think you know about it. Our revenue is close to TWD12.9 billion.
And Our gross profit by Q o Q, we grew by 28%. So this is some business performance summarized. Controller Kim maintained 20%. SSD controller including SATA PCI YOY growth is 17%. One thing is our expectation, our PCIe controllers, Y o Y, we grew 96%.
And we have Many design wins with the semicon on the GM4 controllers, which start to have a shipment and went up by CQ3 and CQ4. Hello? Can you please mute? Yes. Margin, We have 74% are coming from modules.
And one thing I need to highlight about at this March, They have a China gaming phone makers, Black Shark. They announced their very high end Smart gaming phone, which using Phison VG SSD. And Phison, we are the sole supplier. And we are, Phison, the first one to bring in the NVMe controller and modules into the And your phone. So because of that, recently, all the Android phones except Samsung, Now all working with Phison for the embedded midyear SSD into their gaming phone.
So we can expect By 2022, they have a very big growth on this business. They already have 2 smartphone makers that to their systems. Industrial module, you can see gradually we have growing. And looks like coming years coming few quarters, The demand is still strong, but we are not able to fulfill what they need. And in gaming SSD, it's a big growth, 39 percent, and embedded ODM is 32%.
We also able to see the embedded business is going to grow in the coming quarters. And overall, the revenue, last year, CQ1, we are doing good because The demand is strong, but unfortunately, the CQ2, a lot of top down, our revenue and margin dropping, okay? And looks like this in Q1, we start to recover. Actually, since the last Q4, we start to recover our revenue. And Q1, We have a lot of backlog.
We are not able to ship on time just because of supply chain is so tight. But in Q2, I think we have some breakthrough and the revenue already reflect on April, our announcement. Gross margin, our peak was last CQ1. Then after lockdown, we suffer of market start to lower the demand and but looks like this Q1, we already recovered. Actually, the margin recover happened by March.
By January February shipment, a lot of order coming from last CQ4. So overall, the margin because of CQ3 is doing good, so we have a kind of a significant pickup in the Q1 overall results. I believe by our CQ2, the gross margin is still able to deflect in the high level. And we made also some breakdown about our profit comparison between the last CET1 and this CET1. What is the difference?
Basically, last CET1 overall EPS is 9.6%, but we have a 1.6% coming from the exercise of our investment. So basically, this year, CET1, the business in the operation is much better than the last CET1. So if we compare at the coming 5, 6 quarters, 7 quarters, our operating profit is a record high. So means we are getting the more good opportunity to make more profit to the company. This is some highlights here.
The revenue is almost flat, QoQ and Y01. And inventory, you can see the inventory here. Not yet. We have a good inventory management. So the gross margin overall, CQ1, we have a big pickup compared to the last quarter, CQ4.
And Again, in the our OpEx, we still have a high percentage into the R and D activity. So we keep our commitment that keep investing more into the R and D, okay? So the gross margin, 29.5 percent is high ranking in the Not top ranking, but I believe potentially in CQ2, we may hit the top ranking in the autumn high in the gross margin. So this is the asset ending. You are more concerned about inventory.
Since last CET1 market was good, Inventory is in the high level. It's 12B. But after top down, we start to manage the inventory. We lower to the 10B at the end of last But now we're back to the 13B. And by end of April, is go to the 14B.
The reason is We are not intentionally to increase our inventory, but we got so many orders. So we need to keep by whatever the material, the Power IC, the controllers, the wafer. So by the way, the supply chain is very tight. Phryson, we are not able to ship Everything on time. Means by April, revenue is lower than expectation just because we are not able to ship because of logistics is supply chain is so tight.
But in coming few months, demand is still strong. I think we're able to So about CQ1's business highlight, we award by the PC gamer about the best SSD for gaming in 2021. In March, we also award by the storage newsletter the best SSC controller 2021. Now we got the other award. This is just to prove Phison will invest huge R and D activities.
Now we got a very good response. This also surprised Bison actually. Last Sunday, Intel announced about the Platform now is working on the mass. And on the picture, you can see Phison SSD is there. This is just to prove it's a big evidence, Phison, we are doing good in engineering and doing good in the quality.
And this also helping Phison to make our good image to the worldwide Tier 1 player. Since that, we got so many good response, And we also got some other new project approach from the key industrial supplier. So This is a surprise, but this is also is an honor to our R and D engineers. They did a good job. About Q1, our business highlight.
Retail, actually, we have our first worldwide 1st, USB SSD controller single chip solution, and we help our semiconductor customers to build 4 terabyte as an SSD Now already in the market is the highest density in the world. And we also announced our SD7.0 SD Express card now start To doing design in with the notebook makers. PC OEM, because of supply shortage pricing, we got good enough of controllers. We got many design win project with the noble makers. And also, we are working for 3 semicon with our PCI Gen4 controllers start to went up.
So we can see more revenue coming from Gen4 controllers in the second half. And also because of controller in EMC shortage, we also got a few big Android phone makers and to semicom start to use Phison UFS controllers into the smartphone to replace the eMMC. We have no intention to design the high end UFS controller because high end UFS is only in the UMCT phone. And this dominated by 3 semicon who able to produce the DRAM and 2 Korean All 100% in house. American DRAM makers, they use external controller house, but internal, they already have a 2 controllers is ready, start to deliver service.
So means for high end model eventually, these 3 DDA makers, they are Only using their in house controllers. But Phison, what we did is we direct go to the smartphone makers. We proposed the total solutions to them with the middle low end UFS discrete solution, and we got a very good response. And right now, we have to ramp up our UFS controllers mainly for middle low end discrete UFS demand. So we have 2 semicon working on this, and we have our China investor partner.
And also we start to work with Every smartphone makers. Also, we engage with the smartphone AP supplier. We build the Ecosystem together with them. So for sure in coming years, in UFS middle low end, Phison will play the position that today the eMMC and Tizen able to provide the controllers and also the modules. And our Tier 4 new controllers 12 nanometer start to have a sampling to the customers, and this will be our next growth in the Gen 4 business.
In gaming, we are launched the 1st BG SSD into the gaming phone. And second half, we believe we got the other 2 big Approach, design win is going to announce. So let's wait. And we also got just announced that we have a PC gamer that award the best So Phison by the way, in the coming summer season, we believe is traditional big demand in the Gaming business. So we are preparing a material for that.
And for server application, we also got a field design in, in the China and U. S. Market. And our new controller 12 nanometer is coming back by March. Then we're able to deliver the high end data center SSD by end of this to the Tier 1 for testing.
And industrial, because industrial now is so strong and we are on the mass, recently, we got Again, so many inquiries. So automotive also is our Phison next, our approach. So industrial will maintain This Q2, our outlook, we start to ship Our Gen 4 value line SSD in the retail, not only Phison, but also with our partners, brand partner and the Semicon partners. So this will help Phison to get more market share and revenue. And PC OEM, Phison Gen 4 working with 3 semicon already in All the Tier 1 PC OEM under design in.
So we also start to shift the controllers to them and the ramp up will happen by Q3 and Q4. And gaming, we are working for the other 2 system makers. So hopefully, by CQ3, we are going to launch the first, The other one, Systemmakers Ecosystems. And server is ongoing. Industrial, we are mainly focused to some of the security.
We are shipping some very high end security SSD to the U. S. Dedicated agency. So this is helping to get the more market share and also making the much better profit margin. So the outlook of Semicon.
Phison is our controller mainly in the 28, 40, and 55 node. And also Phison, we are different with other semi Other controller house, we also design our own SSD PMIC. We have Phison selling a controllers or module all with the Phison in house PMIC. The 8 inches is super tight. So we don't see any release in coming 2 years.
So So Phison, we need to keep really strong relationship with our funds with TSMC and UMC. We're also working really close with Packaging house to make sure when we our controller, Flash is ready, we're able to directly go to the packaging and testing. And talking about the name flash, basically, since February, I believe The component shortage may cause the system makers start to release to downsize the forecast. And looks like this happens. Smartphones start to downsize, and notebook start to downsize, their forecast, right?
But by February, personally, I think The flash may go into soft by CQ3. But just months ago, the Chia coin, the cryptocurrency User storage start to getting crazy. Now I believe CQ3, the flash will get tight again. And From the ANTH former motivation from the semicon, they are going to raise their NAND flash Price around 10% by CQ3. This is unofficially, so we are waiting and monitoring.
So Phison, we keep investing very strong activity in the R and D, so enterprise and security and recently, Chia. We are not like to focus to Chia, but Phison, at least we need to figure out what kind of SSE algorithm is best for Chia. Last Friday, we found some good algorithm. So we are going to have some white paper to our customers. And With this kind of algorithm, we're able to create a much better profit on the SSD to Phison.
So Phison in the our Q1, we still maintain very strong investment with R and D. This is our commitment to make sure every quarter, Phyton able to deliver the new products to the market and to its customers. So our headcount, you can see by end 2020, we have a 1500. Now we are already going to 16. So by end of this quarter, we are going to 17 or 18.
We still need a lot of engineers because so many projects are queuing there. Okay. Phyton's strategy, we have defined the so called 5 The left side is a Python business model. We have IP, controllers, modules, design service and full turnkey. This is our business model, which able to create much better gross profit and net profit to the Phison.
And The business section, we have these 5, gaming, enterprise, automotive, industrial, embedded. Every one of this business can be C. Wei:] It means this is big enough in the revenue. But Pfizer, we won't speak of anything. We just used our business model to create more revenue and profit to the company.
So this is our goal and our strategy. So we call it some Q and A, which I'd like to make a brief report here. The Chia cryptocurrency actually making a lot of Maybe you can say the noise or demand in the market. And we get a strong demand, but we are not going to fulfill what they need. We need to Use our resources to fulfill 1st to the our designing projects such as smartphone, TV, notebook, auto.
On the other hand, Pfizer needs to study What kind of algorithm is good to the Chia several currency? So now we found something good, And we are going to announce to work with somebody, at least this is helping Phison to sell more SSD and create much better gross margin. Looks like controller supply is there, but our demand is getting too strong. So yes, if you ask me, our Supply demand is getting worse because getting so many projects. But I visited UMC and TSMC recently, we Trying to ask some more upside support by CQ3 and CQ4.
So if there were some downsides In the forecast, in the phone or notebook or other application, this definitely will help Phison to get more Resources in the foundry. By the way, if Phison, we are only in the control business. If you can know how many wafer are able to get, then you can know my revenue is there. But Phison, we get a certain of controller wafer. We're able to allocate the wafer go to controller business or go to the modules.
If you go to the module, for example, 2 terabyte SSD was like $200 FOB from our company. Because of Chia, we're making some new algorithm. We're able to sell the drive up to $300 with the same materials, different technology, different applications. But if I'm only selling controller, I can raise controller from $5 to $10 but just only 5 dollars extra income. We're building the modules.
We get extra $100 revenue with $100 gross So again, this is our business model, and we're able to create the net profit to the company. So controller shortage actually is good to our module business. So this is asking the revenue is the same, Y EPS is same as last year. But I need to highlight, look to the last CQ1 versus CQ1, the revenue is almost flat. Actually, the last CQ1, the flash was in shortage.
But unfortunately, because of CQ2 top down by COVID-nineteen, So there were no dropping gradually back. But when you look to the margin, last CET1 was 30, and this CET1 almost Close to the 30 means a threat. The difference is CQ2 versus last CQ2, personally, I believe there will be growth in the And big growth in the gross margin and also in the gross profit, okay? So I believe by CQ2 and CQ3, we still stand in a very C. Wei:] And with our business model, we're able to adjust our portfolio to make a more profit to the company, Then invest to the R and D and also share to the return to the shareholders.
Wafer is tight. We keep very good relationship. We create a value to both TSMC and UMC. They recognize Phison will have a very unique position in the market, then they are more willing to support Wfison. About testing packaging, we already react since the Last November, we asked the packaging house to increase the price.
We talked to the substrate. We're able to make the prepayment. We able to give them some price increase. So in packaging and testing, I think now we are doing good. Only problem is wafer still not enough.
Even though we got Upside, we are still not enough. Phison, our business, We already diversified a lot of business to the different portfolio such as auto, gaming, embedded, Industrial. So basically, I don't worry. If the cycle go into the down trend, I believe If IT market go to time frame, everybody suffer. Of course, license suffer, but I think we just only minor suffer because of different portfolio and we're able to manage.
So I don't much worry and I wish the downtrend come as soon It's possible because during the downtrend, Phison with our business model, with our strong finance, we are able to react to the market. For example, last year, even down trend happened by Q2, Q3, we are still able to grow The revenue and making much better profit. So I don't mind the time frame coming because we're able to manage with our business model, Okay. So how will we I think this is our portfolio. We have so many different portfolios, so many business model.
So I don't mind, and I don't worry about it. Supply demand, basically, Flash Q3, originally, I thought will be go soft, but because of cryptocurrency here, I believe Q3, the NAND were back to strong. And already 3 semicons announced they are going to raise a price on the NAND. So we that's we wait. Phison have our strategy in China.
Last year, we put our subsidiary merge with our JV company. The reason is we need to use China activity to get the China business. And this is doing good. And I can see they are expanding and getting more market share in China. And Phison is one of our major shareholders.
We're able Again, not just only from business but also from capital gain in the future. Corollado is mainly for the enterprise SSD So we keep investing and return will happen only after 2 years because this is a long term investment. So what is the Vycen vision? Again, this is our 5 plus 5. Left is a business model, right is the Target market.
Each market actually can be independent company and can be big growth. Phison will cover Everything inside the Phison, and we are not going to make a spin off. But within 5 years, I believe every segment, we're able to grow to help Phyton get more revenue, market share and also profit. So This is about the ESG ranking. To be honest, in the past, Pison, we are not focused on the ESG.
We don't have a dedicated department. But since last year, we start to invest, organize a good team. Now in Taiwan, OTC ranking, Pfison now Already in the top 6% to 20%. Also highlighted by OTC, we have a big improvement. MSCI ranking was CCC because we did nothing.
But just last year, we start to getting aggressive, prepare the document. Now we're already in the BB. I can see very soon We will be upgrade again. Okay. So this is others all the accumulated questions.
Any, we
If not, maybe I will start a few. First of all, thanks, K. S. Maybe could you provide some updates on After the strong margin performance in Q1, what do you expect for the coming quarters?
Actually, Phison shipment January, February, which we shipped the order from last Q4 with the relative low Profit margin. The flat on the margin was start from March. So we also have a lot of backlog. We are not able to ship on time By March April, I can see in CQ2, we are going to be strong in the revenue and also the gross profit. Talking about CQ3.
I believe even though there have some adjustment in the system house Because of material short term spend, Fizen, again, we have so many portfolio in the business. And also the crypto Here is helping us to gather some other new business. So I believe CQ2 will be strong. And no doubt, In revenue, we are able to hit the record high, the all time high in C2. And profit gross profit potentially Also, may able to hit the all time high.
CQ3, I still believe the demand is still strong. So coming few months, I think we need to work very hard to get more supply from TSMC and UMC.
Yes. Thank you. And we have a few questions from Chen Ren. First thing is, instance, stake is no longer shows in 2020 annual report. And Simon is asking why is that?
And the second question is the impact of Intel's new 10 nanometer CPU to support the PCIe Gen 4? And also what's the implication from Silicon Motion's bullish guidance? And Singapore launch as
promised
Simon, you may have to you have a echo again. Okay. Let me answer 1 by 1, okay? Last CQ3, Q1 already sold back the Yes. I share back to the Kinsen.
So I think you got this kind of data, right? So why then by law, we are not able to show any report. So Pison has nothing to do with the Kingston. They are just our customers' partnership. We work very close together, core development, but we are not in JV anymore.
2nd question about the Intel CPU. Basically, I don't much worry because Phison, our allocation in the wafer for Tianfu swap this year swap. So We are trying to ask more supply from TSMC. If I able to gather more supply, then I may have a concern on Intel. But at this moment, swaps.
So I think I have no any concern on that. And about the SIMO's BUDI's guidance, actually, You may need to ask their customers the share of their customers. If there were customers from, let's say, from 10% up to 50%, then you have to ask why and what is going to happen. Simon, please. Simon, please.
Okay. You may need to ask. My understanding there is a UFS controller ramping up because of the ecosystem, but Micron also has internal 2 controller ready. So if a customer occupied like 40%, 30%, 50% of the revenue share Recently, then you'd ask how about next year, okay? So this is my comment, and I have no any interesting to answer why is the Buddhist.
But I only looking to 5¢ our business, how we're able to make more money. Okay?
Thanks, guys. Simon, do you have follow-up?
Yes. Can you hear me? Yes.
So, you know what, all the background of the shipments is Chinese language, so Not easy to find how to raise the hands or raise the questions or if maybe next time you guys can convert Chinese background of the The industry consensus indicates about 35% big growth and then there will maybe try some color it. So how do you clearly in a land industry cycle and then the implication for Bison? I mean the simple question is how do you assess over Bison's timeline growth for Q2 of 20 'twenty one. And then the yes, you said gross margin not really improving year on year, but Any color for the gross margin for second quarter and 2021? Thank you, sir.
Okay. Let's go this way. Phison, we are not a NAND manufacturer. We're just a NAND users. So we don't mind the NAND manufacturer to keep investing more, making more NAND, making NAND more cheapest.
So again, go to the Phisense, our business segment. We are going to use more name flash in the coming future. So we wish the supply getting more, the price getting better. Hello, Simon, you have to mute. Okay.
So I have no any comment on how the supplier to increase their output, but we are happy to see they have more output because good to hear. Phison, we have over 74% business are coming from module. So if the nameplate supply is more than enough price is much Better or lower, we are more than happy. There, we're able to create more systems in storage to support to our customers. Phison, we have 2 main business, controllers and modules, right?
Controller is good. It's important, but I'm still always a question how controller company Able to make a more profit from controllers since you have a big investment there. And for the mainstream controllers, semicon, most likely, they want to use that. For example, the UMCP are dominated by 3 DRAM makers: 2 Korean, 1 American. And TrueKorean is 100 percent in house controllers UFS.
And American, they also have 2 controllers UFS ready. So if we rely on debt, I think I'll be queued in the next few years. But good thing is, PhiSEN, we have so many self control. I define so called self control module business. We made the customization.
We made a lot of new different applications, Create the value that able to help Faison gain them more profit. And I want to share with you, recently, we just in the last year, we We start to co develop with the U. S. Agency. We create a cybersecurity SSD, same material, 2 terabyte in market $200 but with support to the cybersecurity, that can be $3.50 Same material but different price model.
So anyway, this is the things, Qison, we are going to build our own ecosystem, our self control business that We're happy to see the NAND supply bit increase every year, okay?
Thanks, Kees. And also another question from the Chairman from Jeff. How much and how many times was your controller price raised this year?
Okay. Phi Sense, we designed every controllers. And you may not know, Phi Sense Also develop the Power IC PMIC for our controllers. So let's talk about PMIC 8 inches We've been raised 3 times from the supplier in the wafer, 8 inches wafer, 3x. So we also deflate our PMIC price 3 times to the customers.
And the price already over 100% because of PMIC is so tight, okay? And talking about the controllers like USB memory card in the past, the corporate price is to low. Those price also already defret 60% to 80% in the market, and we raised 2, 3 times. And the most type in controller is the eMMC. We're not able to raise so many times, but we also increased the Price around 40% to 60% to deflect the type in supply.
SSD, we also raised 2x Because again, demand is too strong, we're not able to get good enough supply. So overall, we don't like to raise the Pricing, but we have to because the wafer price, packaging price, testing price was increased from our suppliers.
Okay. Thanks, guys.
Maybe one question for me. So for The coming quarters, as you mentioned, 2nd quarter is likely to be a record quarter. So probably by end applications, What do you expect to deliver much stronger growth in coming quarters? And which segments could be below your average?
Actually, this and next quarter, industrial was strong and that is super strong. Gaming, not yet. Gaming is still flat, but I believe next quarter, CQ3 gaming will back away strong. And controllers is always strong, but we are not able to fulfill the demand because of tight. We still need to keep some controller inventory for our in house Applications.
So and the next is about crypto, Crypto Chia. This is strong, But we still need to think how to react on this extra demand. Yes. I saw Simon has a question, but I'm not able to read here.
Okay. He has a follow-up on the previous question on ASP. He's confused with the 1Q ASPR for controller and the non controller products. So could you probably recap the 1Q price trend in terms of Q o Q?
And will 1Q ASP be high for control Okay. Q1 controller price in the USB memory card, almost 80%. PMIC, almost rest 100%. SAC controller, SATA, 10, 20, 30, Yes, they also happened. But the problem is a controller, there's a controller, a SATA controller was $2 We raised to the 2.50 means the rest 25%.
It's good. We got extra 50% margin. But on the other hand, packaging cost is increasing. But we use the controllers to build the module. For example, 2 40 gigabyte SSD was $22, 23 Because controller shortage, we're able to put the drag to the $28 So Phison, I can either sell a controller, get extra 50 Sense of margin or I decide to go to the modules to get extra $6 of margin.
So I'm smart, right? So at that Q1, we are trying to take the more controllers to the into the module business to help customer to get the more modules. But on the other hand, for design in controllers such as our partner, Kioxia, Kingston, Micron, WD, YMTC, We keep supply and control to them. Even though the price increased just little, we have to loyal to our commitment. So Phison able to make the more margin from the module Okay.
The margin improved so little, To be honest, Faison January shipment, which follows CQ4 price. February shipment follow the December price. March shipment follow the Q January price. Actually, from order to shipment, We need to have a 30 to 60 days. So March, we have a much better margin.
So on the same time by April, May, June, I think we are in the high level gross margin. PCIe is we have 1228, mainly in the TSMC.
Okay. Maybe one follow-up from me as well. So as you improve your gross margin this much, you also have full aggressive R and D investment plan in coming quarters. In your slide, we saw that your R and D headcount surged quite a bit in Q1. So maybe you could just share your target for the year?
And also if there's any change to your R and D headcount target by 2025 as you I mentioned in prior quarters.
Basically, R and D headcount, to me, no ceiling until 2023, no ceiling because We still have so many projects shooting. We've just been bequest by the one of the Korean semicon to ask develop a controller. We also asked by the U. S. Company to do the other controllers.
Japanese also asked. But unfortunately, we don't have a resource. So, so many projects we have to keep on hand and trying to find a resource. So my goal is, I hope if I'm able to get enough engineers by end of this year, we need to hit 2,100 in engineers. By 2023, we wish to have 25,000,000 to 3,000,000 of engineers.
[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So this is a heavy expense, but Phison business model, we're able to create more than enough profit to subsidize this R and D activity.
Okay. Then one follow-up. Given that R and D had come plan, how does that imply to your R and D budget in terms of either absolute terms or as a percentage of revenue.
Basically, now we still keep like 12% to 14% of our total earning activity. We are going to keep this rank this kind of a number. Of course, when our profit getting better, we are going to enjoy more. Okay. So I think 12 plus minus of total expense is our target.
Simon have a sign up in the writing, so let me Check. Auto NAND spec and also auto NAND controller, please. Today's auto, the NAND in the automotive is relatively small because it's only like 16, 32, 64 gigabytes. Imagine your USB drive already 128. So A car using less storage than your renewable storage.
So this business is good but too small in the ASP. Phison, we have high level enterprise level SSD controller modules for the auto, okay, for the auto drive But this only will happen in the 2022 or 2023. So we are investing, developing right now, but we are no rush. So when times happen, we only get. We will stand by.
Okay, TS. One more question from Simon, also asking YMTC China NAND flash sourcing.
YTC still is a Phison main supplier. We are working very hard for the 128 layer and start to ramping up From coming June. So they are our very important supplier. Phison control to YTC China meaningful? Yes, why not?
China keep looking for their own products, their own design. And looks like YTC Flash is proven in technology, also proven in quality. So it's meaningful. And Huyson, we have JV in China that is going to support more in the YMTC business. So by the way, I think no doubt China The biggest name consumption in the world.
So we have to do something to make sure we are getting more share in China.
Thanks, Kees.
CQ2, yes, sales definitely in the all time high. Gross margin, I believe, also in all time high. If COVID-nineteen no more impact to the market, okay. If COVID is not, we can control. But now look to the May June, Phison, we don't provide the guidance because of our history And Phison, our business model.
But I think April, we are in the 5 gs in revenue. Overall, we believe we're able to keep flat or growth little bit. But this depends on the supply chain. We still type Simon, can you hear me? You may can try to unmute to see if I still have echo.
Yes. So yes, we really appreciate your great presentation and also answers to the questions. But maybe almost the last question is your foundry sourcing, you've been saying UMC is great in the company, which will make continuously your controller. And meanwhile, your competitors will use continuously the TSMC. So the question is TSMC is a very big foundry company versus the UMC relatively much, much smaller than TSMC.
That really means Some fixed advantages for iPhone, they're acquiring some new capacity. So the question is But you recap 5 node, 14 node, 16 node, we're still okay with the 28 node and also the U. S. Capacity is
Okay. Simon, I think you didn't make a close follow-up about Fisense, our portfolio. Fisense, our 8 inches 55 nano12 inches 4012 inches are in the UMC. Our NVMe 100% in the TSMC 2812. And since last year, We already have more than 20 this year, we have more than 20,000 piece of waiver support from TSMC.
If talking about the 28, TSMC is our biggest supplier. So hopefully, by next year, 2022, we're able to growth to 40,000 to 50,000 ps per year. So we cover both UMC and TSMC.
Maybe one follow-up from me. So regarding your foundry capacity, when comparing to 2021 versus last year, How much do you increase your foundry capacity support?
Basically, we give our forecast to the foundry, Both UMC, TSMC, but unfortunately, they're still not able to fulfill what we need. But again, now it's just May in 'twenty one. Still too early to talk about 'twenty two whole year supply. I delivered really important message to both TSMC, UMC executive that Phison, we are doing a lot of activity in the design. In the design, we are able to rate all our achievement every month.
So they can make the relative adjustment anytime. So I'm still quite optimistic. We are going to double our wafer supply next year. Although we are not at this moment, we not get 100% commitment, but when time Fine. We get the more design win.
We get the more award and also from the approval from our customers Tier 1, I believe we're able to get more wafer supply. So This all depends on Fisense, our R and D activity and also our position in the market. So if they agree we have a position, I don't much worry about our supply next year.
Yes, thanks. So probably still too early to tell that are being committed already by foundry partners.
Basically, right now, the foundry, what they do is next year flat as this year. This is a principle, but depends on each different company, right? So I think we're able to get some more because of different Our position. And we also making a lot of ecosystem partners with the Tier 1 chipmakers. And that they also need Phison.
So they will talk to Fang So I don't worry too much about it.
Okay. Thanks, Kees. And also one question on the overall smartphone market from Randy. Randy is asking the Android market seems to have more some supply related but also demand seems mixed. So are you seeing any softness in this mainstream controller for that factor?
Actually, since last year, when Huawei start to quit the smartphone market, those few big China phone makers already give a forecast in this year, which is 2x to 3x of Huawei's total demand. So last Q3, CQ4, we already know they are going to make adjustment. And this happened, right? So I don't much worry about that [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Because our consultants are still not able to fulfill. Even though they adjust, we still not able to fulfill what they need.
Thanks, Chris. Randy, do you have a follow-up? And maybe one from me. So still in the smartphone related market. So you already have project win and a shipment to Xiaoming on your VGA SSD.
Could you update us with some of your other projects regarding the VGA SSD in coming quarters?
All the angel phone makers except the Korean phone makers Already approached Phison. We have 2 customers now start working in Phison office to co develop the driver of the AngioPhon BGS5. We believe next year, Fizen will cover most of the high end Android phone gaming phone market, And looks like we are the key supplier there.
Okay. Then If we compare that VGA SSD solution, what's the, say, pricing or margin difference versus other product lines?
This is a proprietary customization progress where the margin is compared is better than the model business. Did it I mean, the better than any other module business Because it's a customized product.
I see. And is there any estimate your expectation on the smartphone SSD contribution revenue probably this year or next year in terms of percentage or
Okay. We got the forecast from the 5 formakers, which now doing the design in for next year. Overall, again, this is so called forecast, Okay. It's 8,000,000 to 9,000,000 piece. 8,000,000 to 9,000,000 piece in the phone is small, but 8,000,000 to 9,000,000 piece, access to us a big enough.
So I don't know if that's true or not, but at least, Fisun is a sole or major supplier, I think we're able to get the most of the market.
Okay. And we have a few questions from Chad Rui, also from Simon. First is on the dividend policy and the CapEx trend this year and next year.
Dividend policy as a part, we keep 55% of net our earning per share, 55% to 60%, okay? But again, Phison, we are going to keep hiring more engineers. We are going to build more building to their engineer working. So we are still growing. And right now, our revenue is close to the 2b.
My goal is to go to 3.5b within 2 to 3 years. So we are going to increase the inventory. We are going to increase The business, we are going to increase headcount. So company need to keep the cash. And for many years, Fisun didn't raise capital from the market.
So If need, Fisun may go to get the money for market. But if Through the earnings, we prefer to keep 40% to 50% on hand at least 40% on hand to grow our business. And effective tax rate, the CapEx, basically, if I sign, we don't have factory, so we don't define the CapEx. There's the OpEx. The only thing is a new building.
Every 2, 3 years, we are going to build a new building. It's not that much enough not that much number, still affordable. So we don't have a CapEx. So we only got OpEx. And effective tax rate, Taiwan tax, I think now is at 20%.
We still have some incentive. I think overall, we are in the 15%, 1.5%.
Okay. And also, one more question is asking, is there any negative impact from OEMs production cutback, meaning probably component shortages that leads to the catch callback by OEMs?
Again, since February, I already talked to my people. They have adjustment In the inventory from system makers. So now looks like happen, right? But we already prepared for that. So Even though they made adjustment, we're still not enough to supply.
So I'm not worried on that.
Okay. Okay. So for investors online, should you have any further questions, please enter in the chat room or just unmute. Okay. Okay.
If not, I think, yes, we can wrap up the call.
Yes. Thank you. So overall, I think the our CET1 result, to be honest, the profit is over my personal expectation Because January, February, we are shipping most goods followed by last CQ4 orders. So this is our expectation, means We got some outperformed performance outperformed the profit, so we decided to increase the R and D expense. C.
Wei:] See, Q2, I believe we are in a very good shape in the revenue and profit overall and also the some market share. So Now what we have to do is to working hard to ask both TSMC, UMC to give us more supply wafer in Q3, Q4, helping us to fulfill the made from our customers. And every quarter, Pfizer will give a new surprise to the investor that CQ1, we have BGA into the phone. Now we have on the mask. CQ3, definitely, we are going to have some good news on the gaming business.
So Please keep waiting. We have our commitment here. We are keeping investment more in technology. And as of all, the return to shareholder is a much better profit. Okay.
Thank you for your time today.
Thanks, K. S. And also thank you for your participation And today's call ends here. Have a good day.
Thank you. Thank you.