Hi. Good day, everyone. Thank you for joining us today for Phison's Fourth Quarter Result Conference Call. My name is Astoria Chen. I am CMIA from SinoPac Securities. Today we are very honored to have K.S., the CEO of Phison, with us today. In this call, K.S. will first provide some updates on Phison's fourth quarter results, business highlight and some net market outlook. After that, we will open the floor for the questions. As a reminder, if you have any questions during the call, you can write down your questions in the chat box and we will raise the questions for you. Now I would like to turn over K.S. for comment. Thank you, K.S.
Yeah, thank you. Good afternoon, good morning, ladies, gentlemen. Let's we start today's 2025 CQ4 and 2025 earning call. This is our 4 cube breakdown of our revenue. I'd like to share a few minutes here. Controller itself, actually, the amount of revenue increasing, but the ratio declining just because the revenue base increased too much. Consumer-wise, you may little bit surprised why the CQ4, the ratio increased. Just because at CQ3 we have many retail customers, they worry the CQ4 market may turn down. They place order. They no want to push in, they push out. Eventually they pull in by CQ4 with a price raising. That's why this increased quite a big, significant number.
From CQ1, this number will slightly going to a single digit, because we are now mainly focused to the non-consumer business. Enterprise CQ4 was at 10%. This is actually Phison, we did a lot of design win that I will share with you. A lot of design wins starting from last year, CQ3, CQ4. In this CQ1, the ratio of Enterprise SSD will be over 30% of Phison revenue. In 2026, I believe the biggest portion of revenue coming from Enterprise. We made so many design wins. We also accumulate a lot of a component for Enterprise business. Go to the Embedded ODM, which mainly is Mobile and the PC. You know, the supply is so tight, we gain almost every brand design win and design in and China mobiles.
This also played a very big portion of our revenue. Industrial-wise, it's very stable, around 13%-17%. The gross profit in the 4Q is TWD 9.5 billion, is all-time high. The revenue-wise, TWD 22 billion, also all-time high. Gross margin 41.6% is good. Some investor may question, "Hey, why Phison gross margin only 41%? Why not, you know, like other module house, 50 something?" I want to share with you, Phison business is not trading. We are design in and design win and long-term supply. A lot of order we ship in the CQ4, mainly we get the order CQ2 and CQ3, which is a design in, design win business. If my business is trading, I'm easier.
I can buy last month TWD 10, I can ship today TWD 30. But we wouldn't do trading business. The CQ4 with a 41% of the gross margin, we believe CQ1, we are going to improve because the orders ship in the CQ1 mainly collect the order from CQ4. The earning EPS is at 21.7, because later we'll share with you, we also have increased our CapEx, our R&D expense in the R&D activity and also the new master tape-out. And this earning per share, we, I think to Phison is very, we are proud and comfortable.
Again, in CQ1 this year, we can see the slightly improve on this because the shipment in CQ1, the order coming from CQ4.在 这 个 所 谓 的 ， EPS 部 分 呢 ， 我 们 在 第 四 季 其 实 也 大 量 的 这 个 在 奖 金 啊 ， 在 我 们 的 这 个 新 的 tap out， 我 们 认 列 了 这 个 光 罩 ， 所 以 在 费 用 上 面 增 加 了 不 少 。 但 是 对 于 这 部 分 呢 ， 我 不 担 心 ， 因 为 后 面 呢 ， 我 们 的 这 个 负 担 会 越 来 越 轻 ， 因 为 很 多 光 罩 ， 要 tap out 的 都 认 列 掉 了 ， 所 以 后 面 的 负 担 变 轻 之 后 呢 ， 获 利 相 对 地 变 得 比 较 好 。Income statement, I think I like to share with you is mainly our R&D expense and the CQ4 is a TWD 5.2 billion, I think it's close to a 40% growth, QoQ.
Just we have a better profit, we need to have a more compensation to our staff and also increase a few mass step up and also increase some test equipment. This is the reason the all the expense increase. Phison is a different with other company. When we make good money, we make investment. This to create our better future.
OK。 在这个研发费用部分呢确实增加，主要是因为公司好了，获利奖金自然地要提列，然后新的光罩，我们明年有大量光，就从去年看今年，今年有大量光罩，我们开始部分的人呢，就来认列，把费用呢先认列掉，那让后面的这经营呢，变得比较的这个轻盈。This is 2025 our income statement. Revenue is all-time high. R&D expense is go to the TWD 13 billion, still increase, I need to give a highlight.
2026 R&D expense definitely increase because we have more new design in the advanced design, the 4nm and some other new technology development. Overall, we believe this investment will bring us, Phison, the better return in the future. This is what's the difference between Phison and other company. In the balance sheet, cash flow, we're still doing good. Inventory-wise, we have around TWD 35 billion inventory by end CQ4. This inventory, to be honest, is a not low cost inventory, is a very low cost inventory because we accumulated this for many, many months. I don't want to keep highlighting low cost, but since analysts question about low cost, right?
I want to highlight we have a good enough low cost, but Phison's value is not only coming from low cost, we're coming from our design, our products, and our innovations. Okay. We also share the non-TIFRS. What's the different? I think the gap is a slightly small just because of the, we issue the stock option to our staff, and this we need to depreciate by monthly. This increase some overhead. We just highlight to everyone here. No other different, only mainly is the stock option expense.
TIF 跟 non-TIF 的 差 别 呢 ， 主 要 是 Phison Electronics 在 去 年 下 半 年 有 执 行 了 一 个 库 存 股 给 所 有 的 干 部 ， 那 希 望 呢 ， 可 以 让 干 部 呢 ， 有 更 好 的 动 力 来 发 展 这 公 司 的 这 个 前 进 ， 那 这 部 分 的 费 用 的 这 个 比 例 呢 ， 没 有 太 大 ， 相 对 的 还 是 比 较 小 ， 这 个 可 以 刺 激 给 同 事 更 多 的 诱 因 ， 创 造 呢 更 多 的 动 力 来 达 到 我 们 的 成 长 。 February working days is small, smallest in the year, we hit the top TWD 1 billion revenue. Definitely March, we can see the other big growth because we can't stop it. 整 个 的 人 力 ， 我 们 现 在 停 不 下 来 ， 整 个 市 场 需 求 真 的 是 现 在 不 需 要 再 花 时 间 讲 缺 货 了 ， 讲 缺 货 浪 费 时 间 。 我 们 的 这 个 努 力 呢 ， 希 望 呢 能 够 不 要 出 货 出 得 太 积 极 ， 挡 不 下 来 。 Okay. Some business highlight.
Client controller you supplies. Phison's control shipment growth 490% YoY. Revenue we grow 450%. This means what? We win the share. We gain the share。 我 们 得 到 的 市 场 里 。You may agree the NAND flash is getting tight supply, means the shipment of SSD is going to decline, but our controller still growing, means we win the market share. One thing I want to highlight, 2026 coming quarters, the controller shipment definitely, obviously is going to declining。controller 在 2026 年 一 定 会 下 降 。 没 有 flash， 谁 会 买 controller？ 如 果 有 人 说 2026 年 controller 成 长 ， 我 必 须 说 那 可 能 在 讲 梦 话 ， 因 为 没 有 flash。Phison we okay. Why?
We have a control business, we also have our module business, which can compensate our revenue. We grow from the modules, and we can grow from our gross profit. In the Client SSD, we win the share, we win the gross margin, we also win the business. We are very comfortable about this performance. Going to the Mobile. Phison is a biggest mobile controller supplier at the year 2025, and this is our shipment growth.
If you keep reading the report, 2026, the mobile phone may decline more than 200 million sets. 2026年手机可能会减少接近2亿颗，表示减少2亿颗 controller. controller成长性会有问题. Phison 2026, the mobile controllers by forecast we still increase because we win the design win, we win the share. Our module shipment, you can see is unbelievable, but of course, shipment 10 x growth YoY, revenue 12 x growth. Why? Because of price and we win the share. Analysts may ask, "Oh, you consume too many your inventory." Don't worry, don't worry. We still can use for many, many, many months. Don't worry, okay? In Mobile, we are the biggest controller supplier.
We also become the very niche, customized module supplier to the industrial, to the BNC, to a lot of Automotive. Okay? This helping Phison to gain the much better gross margin profit. Okay. We go to talk to about our enterprise. 2025 CQ4 is a small business to us, but from now on, enterprise will be Phison biggest, our biggest business. Due to the AI, due to the every CSP, near cloud, hyperscale server makers, they're looking for a lot of SSD. Phison, we win many business. Okay. This letter I would like to bring down to you. Phison now we combine boot drive, main drive, custom drive, AI drive, eMMC, retimer. We have almost every storage need in the AI ecosystems, and we are proud of that.
We also putting our Pascari into the Tier 1 NAS customers. Due to the NAND shortage, a lot of Tier 1, Tier 2, Tier 3, no matter what tier, they came to Phison to ask for cooperation. Because of this, we win so many design wins. My people, they are really working hard. That's why we need to pay more bonus to them. This slide is very important for today's meeting. I'd like to share to you one by one. This is mainly we call the boot drive. NAND makers, now they focus mainly to the main drive. They walk away from boot drive. Phison now become the important supplier in the boot drive. Here I want to break down. We win the 2 Tier 1 CSP, big CSP, the big name. The shipment starting, one already start to ship.
The other one start from coming May. Means after two months. Is a big CSP. The Tier 1 OEM who are selling the servers, we win their boot drive. Okay? The shipment starting from second half. Today, they are auditing Phison in my Phison headquarters. Hyperscale, we got a two new design win. U.S., mainly, U.S. customers. AI platform. You know who is AI platform. We got a one design win. We are there, and we try to gain the more design wins. A lot of project customize is ongoing. Talking about the main storage, we also got a Tier 1 OEM who are making the server. We got two design wins. One, the other one is coming. Okay? Due to the SSD shortage, we are getting more Tier 1.
Today, the Tier 1, their executive here, in the meeting, they are very open-minded. They say, hey, they never look to Tier 2. They don't know who is Phison, but few months ago, due to shortage, they have to, but they doubt Phison can make it or not. They visit here, stay a few days. We open the lab. We work with them. They are surprised. We win not only one project, we win all the potential supply chain projects. Not only one model, we almost win every models because we have a good enough engineers, the supply chain, the product mix, and also we have a very good inventories to supply. We also win the hyperscale, two. By the way, this two is big. Okay? By the way, it's very famous by now.
The AI storage, 7. Every storage supplied to the AMD, NVIDIA ecosystems, we almost win everyone. Okay? We ship the main drive to them. The infrastructure software is mainly Progress Software. We got two new design win. Hopefully, shipment happen by Q4. Enterprise AI customers, two design wins. Okay, this also is a big guy. Okay? Mainly supply the brand AI server to the worldwide market. We also win the big QLC qualify, and we shipping one SI of a QLC Enterprise SSD from February, from last month, and 1 SI have to ship until May. This is our record. One SI Enterprise SSD, one 22 TB, we ship to the Tier 1 CSP. If you don't believe Phison can gain the revenue, the top line, the bottom line of enterprise, now we show you here.
This is all our design wins, and more are coming because the solution is ready. We have so many product mix, and we have enough R&D resources. By the way, we have the good supply from our NAND suppliers.
这 边 中 文 总 结 一 下. 有 曾 经 还 是 怀 疑 全 联 电 子 在 enterprise 里 面 的 布 局, 都 说, 哎 呀, 这 个 不 可 能, 那 个 不 可 能. 今 天 呢, 我 们 打 出 来, 因 为 遇 到 市 场 的 缺 货, 他 们 不 得 不 来 试 看 看, 试 过 之 后 呢, 才 发 现 这 个 地 方 真 的 好 用. 我 们 不 是 做 一 个 产 品 线, 我 们 他 要 的, 我 们 几 乎 都...
一 个 server 里 面 需 要 eMMC， 需 要 SATA boot drive， NVMe boot drive， 需 要 retimer， 需 要 main drive， 需 要 客 制 化 ， 我 们 通 通 一 次 性 一 站 ， 一 站 式 的 来 攻 击 他 们 。 经 过 这 个 事 件 之 后 呢 ， 我 们 会 得 到 更 多 ， 更 多 未 来 的 生 意 机 会 。 我 们 现 在 只 是 烦 恼 ， 钱 不 够 用 ， 库 存 不 够 用 。 现 在 我 们 在 解 决 钱 和 库 存 的 问 题 。 This is something we like to share with you. If you go to the retail PChome or Amazon or to the retailer, the buying of SSD declining because price is going too high.
In the industry they have to because every equipment they have to buy, no matter if the price go up 10 x, 20 x, 30 x, they still to buy. Phison now we put more our supply chain go to the embedded design business. This is mainly in Automotive. I think we discuss so many names here. I don't want to spend time here. I just show you almost every platform, every China OEM facing the shortage of storage. We have a good enough. Again, I want to repeat Andy saying Phison low cost inventory. Let me remind you, we have one component, we keep over 30 million piece. The cost from TWD 2 now go to the TWD 25. Okay? This, we keep this only supply to Automotive.
30 million piece can ship for years, not month. Okay? A lot of Automotive, they came visit to Phison to ask Phison to supply to them. Not only the low density, we also got the UFS, we got the BGA, we got a lot of design win with the U.S., Europe, Japan, and China Automotive makers. Consumer products, portable SSD, we got 1 project with a South Korean OEM partner, and they win the award, okay? It's a Phison product. It's the 1st U.S.B Gen4 native controllers. In the micro SD card, SD card was a legacy, we know anymore in the retail. We are mainly in the gaming, in the Automotive. We win the project in the 1 EV card. We also is going to get a more project for robot. Okay? This is all about design-in activities.
The customer, they trust us. Okay? We also have again win the Tier 1 Japanese customers. Okay. This we're back to the retimer Re-driver. Few key highlights here. Phison is the biggest 5.0 Re-driver supply in the world. Okay? Phison 6.0 Re-driver we start to ship to Automotive, to server. Okay. Mainly to Automotive. We got so many inquiry of this PCIe Re-driver 6. Okay. The go to the retimer. Due to the inference getting popular, recently, we got a big project for based on the B300 platform. It's a few 100,000 piece of retimer. Unfortunately, we don't have inventory, we pay TSMC to supply us. Now we start to shipping the retimer to 100,000 piece per order. This, we win the business.
By the way, due to a lot of CSP, the server OEM, they are facing the shortage of the storage. They come to call help to Phison. Phison supply them the boot drive, supply them the main main drive. We also bundle retimer. We wish they take our retimer. Due to that, we gain a share. Server SSD. Go to Adaptive. We keep talking about Adaptive. You know DRAM shortage, DRAM price, last week saying the CQ2 price go up the other 50%. AI need DRAM. No DRAM, no AI. Phison, we use our aiDAPTIV+ e so-solution to enable the AI, and this is proven. I don't want to spend time to explain here anymore. This is happening.
A lot of PC end device, server, they want to compute to run the AI big model. They need a lot of DRAM, and DRAM is expensive, okay? With Phison solution, lower the DRAM. Lower DRAM with our solution, lower the price. The whole system can run the AI. Okay. AI CPU PC. Okay. Phison Adaptive, we already engage with the every CPU companies, every GPU companies. We also start to work with the mobile company. We are engaged with the name makers. We also engage with the many PC OEMs. This is to show you, CES, we have some joint demo. We have some products on the show, and this is a model is going to the market. Okay. COMPUTEX this June, you can see Phison AI solution everywhere.
Every PC, every AI device, definitely they will bundle with the AI Phison Adaptive solution because we can make this cost down and make this popular. 那 有 了 我 们 方 案 ， 就 可 以 把 任 何 一 台 有 小 算 力 的 CPU 把 它 转 成 是 AI PC。Phison, we are no more in consumer, we are no more in trading. AI is happening, AI inference is coming. What trigger what kind of industry? AI inference trigger Phison, we win a lot of a boot drive. As I mentioned, we have a CSP, we have a OEM, we have hyperscale. We also win a lot of customized eSSD.
OK, revenue show you, OK, CQ1 don't feel surprised. We win the retimer driver, because we bundle. eMMC low capacity shortage, we keep 30 million pieces on hand to supply to Automotive, to supply to the OEM. Go to the edge device, as I mentioned, the AI PC for under the with the Intel AMD CPU with Adaptive is happening by COMPUTEX. This trigger unlimited demand of a storage. That's why again, Phison now we are now fighting hard to get more cash to buy more inventory. To this Phison, we are in comprehensive storage solution in AI ecosystem, which we supply the controllers, we supply the storage module, we supply Enterprise SSD, we supply Adaptive solution, we supply our retimer and also our customized AI service. We also helping some association to develop spatial data storage systems. We help to develop the system. CQ2 earning call, we are going to report to you. We are building the storage systems for dedicated applications. Phison is totally different.
We are now in the storage era, we got everything. 去 年 已 经 转 型 从 过 去 的 consumer 到 embedded， 现 在 基 本 上 所 有 的 这 个 AI 的 里 面 的 方 案 我 们 基 本 上 都 有 ， 现 在 唯 一 的 头 痛 的 就 是 钱 不 够 用 跟 货 不 够 用 。The R&D expense still keep around 20%. We're not going to hire that many engineers. We control our R&D expense. We try to use AI to improve our R&D efficiency. OK, this charter I need to spend time here again due to analysts saying the low cost inventory bla bla bla. OK, we start from this part, OK. CQ2, we buy inventory. At the same day, this inventory is a high cost in the day. Go to the after two quarters, this become low cost. Analysts say, "Oh, you happy because you got low cost." We keep buying the CQ1's inventory. "Oh, this is high cost." The question is, after one quarter, is that price keep slight or keep flat or increase?
You got to ask yourself. Every two, three months price increase 50%, I need to keep inventory for my supply chain. We believe this will still price increase. OK. This assume this is gross margin X, this is Y, this is Z. What's the different? Y definitely bigger than Z because you say it's a low cost and this happening, right? Z will be lower than Y. You may right, you may wrong, I don't know. The question is, this is a 10 years old student's mathematics, OK? Analysts can easily don't be too shallow, OK? Read this. No matter what, the Z lower than Y, so what? We win, we gain the gross profit. At the end, the EPS coming up from gross profit, not coming from percentage. Why you worry about low cost inventory?
Inventory can consume years. Even I buy inventory today, CQ3, the price we believe still may keep sky high, but we have a value to go to enterprise, go to the AI adaptive. This will help Phison gain more gross profit, gain more EPS. The conclusion is here. If nothing happened, Phison show our gross margin 27 ±3% at the past. CQ4 due to the shortage, low cost, we have a 40% of gross margin. How about next?
I don't know if I can go 50% or 60%. Let's see, let's wait, time will tell. One thing for sure is revenue increase, gross profit increase. At the end, EPS increase a lot. I have a confidence. In this period, the gross margin definitely will be bigger than our regular. This I have a confidence. Don't be that shallow. Use a simple mathematics and the low cost inventory. We have our own value, not only low cost. We got so many activity R&D, we win everything. 这 边 我 要 澄 清 呢 ， 因 为 一 些 分 析 真 的 肤 浅 ， 而 且 呢 ， 我 不 晓 得 是 不 是 有 故 意 的 误 导 ， 用 一 个 简 单 的 数 学 去 讲 一 些 东 西 ， 但 是 全 年 的 价 值 不 来 自 于 一 个 低 价 的 一 个 库 存 ， 但 低 价 库 存 很 好 ， 多 赚 钱 嘛 ， 因 为 低 价 库 存 可 以 得 到 更 多 的 design 的 机 会 ， 我 们 得 到 了 很 多 的 生 意 ， 那 保 证 未 来 的 这 个 客 户 群 跟 营 收 ， 好 事 。 可 以 赚 到 很 多 钱 ， 更 好 。 但 是 呢 ， 透 过 这 种 低 价 的 库 存 赚 到 钱 ， 投 资 研 发 ， 得 到 机 会 ， 我 们 一 直 地 努 力 扩 大 以 后 的 这 个 版 图 ， 那 更 重 要 的 是 呢 ， 透 过 这 个 努 力 呢 ， 可 以 一 直 创 造 更 好 的 最 后 的 这 个 EPS， 这 才 是 我 们 要 的 啦 。 太 着 重 在 趴 数 呢 ， 很 多 时 候 呢 ， 会 这 个 把 焦 点 给 混 浊 掉 ， 而 且 呢 ， 让 一 些 这 个 散 户 不 懂 的 ， 你 把 他 骗 掉 ， 这 个 没 有 良 心 啦 。
OK, last, summary. In the last 30 years, all the semiconductor lead by Intel. Intel tell you the five years roadmap, five years what they want to do. All the ecosystem follow Intel. OK, today, AI, NVIDIA, every years they change the model. All the ecosystem, to be honest, they don't know what to do, because it changes too fast. Phison's value, thanks to NVIDIA, we are flexible, we have resources, we aggressive, we work hard, we can follow the momentum of the AI. This is Phison's advantage. In coming years, due to Phison our special culture, we invest a lot R&D, we try to collect cash, we make money, we aggressive, we make the fast decisions, Phison can growth in this AI era. 过 去 的 三 四 十 年 ， Intel 带 领 大 家 半 导 体 的 路 ， 它 告 诉 你 今 年 什 么 CPU， 明 年 什 么 CPU， 五 年 什 么 东 西 ， 大 家 跟 着 它 的 方 式 做 ， 一 般 按 部 就 班 。 在 那 个 情 况 底 下 呢 ， 只 有 大 型 公 司 有 资 源 才 能 够 得 到 那 个 机 会 ， 小 公 司 很 难 。 AI 每 一 年 变 一 个 世 代 ， 很 多 大 型 公 司 的 决 策 比 较 慢 ， 跟 得 比 较 慢 ， 反 而 呢 ， 创 造 了 机 会 给 Phison Electronics。 Phison Electronics 的 机 会 在 于 是 什 么 ？ 我 们 有 充 足 人 力 资 源 ， 有 很 好 的 IP portfolio， 有 成 熟 的 产 品 线 ， 还 有 重 要 是 人 员 的 稳 定 性 。 公 司 有 钱 ， 赚 钱 ， 舍 得 花 钱 。 那 因 为 AI 变 化 很 快 ， 我 们 跟 进 变 化 更 快 ， 所 以 我 们 赢 到 了 很 多 很 多 很 多 生 意 。 所 以 看 Phison Electronics， 不 要 再 看 Phison Electronics 第 一 家 库 存 ， 第 一 家 库 存 好 是 ， 那 是 天 上 掉 下 来 的 ， 不 拿 白 不 拿 。 但 是 因 为 这 种 情 况 底 下 ， 我 们 会 有 更 好 的 投 资 ， 得 到 更 好 的 将 来 。 所 以 感 谢 NVIDIA 创 造 这 个 AI 机 会 ， 让 我 们 这 种 弹 性 的 公 司 可 以 得 到 成 长 。 不 然 Phison Electronics 凭 什 么 拿 到 刚 才 讲 enterprise 这 么 多 的 design in 呢 ？ 在 过 去 这 是 不 可 能 的 ， 人 家 看 你 都 不 看 你 啦 。 但 是 因 为 这 个 机 会 ， 我 们 得 到 之 后 ， Phison Electronics 的 记 录 是 只 要 拿 下 来 了 ， 这 辈 子 就 是 我 们 的 ， 而 且 会 扩 大 。 OK, let me finish some Q&A here. Dividend, we decide second half, TWD 17.20. Why?
OK, the ratio is 52%, the whole year is 55%, 56%, just because we need cash. We need to keep inventory, we need buy inventory, we need to make the service to the ecosystem. This year we did a bit conservative in the dividend, I wish you understand, but the cash keep on Phison's hand, will help Phison to growth more business. 我们决定下，去年呢，配 TWD 17，是 52%，整年度是 56%，主要是我们需要大量现金，因为库存已经拉到快 TWD 50 billion 了，已经超过 TWD 50 billion 了，我们需要大量现金。TWD 50 billion 不是我想拉，是因为客户的需求，下半年的需求，我要先把东西买下来，然后呢，等到产出给他，钱拿回来一段时间，所以我需要大量的现金。我希望呢，经过这个高峰期之后呢，Phison 现金水准充足呢，在未来时间里面呢，我们再加大这个配股息的这个比例。 We just approved this morning, we have engaged with the bank to raise a TWD 400 million syndicated loan. Why we need?
We need to keep our cash flow and we need to keep our inventory. 我 们 今 天 ， 董 事 会 通 过 连 贷 TWD 400 million 美 金 ， 主 要 还 是 因 为 呢 ， 这 个 整 个 资 金 需 求 很 强 ， 客 户 的 需 求 很 强 ， 我 们 必 须 要 把 库 存 可 以 的 话 买 下 来 ， 然 后 呢 放 比 较 久 来 满 足 客 户 每 天 的 需 求 啦 。 这 个 还 是 因 为 为 了 因 应 的 这 个 需 求 来 做 的 。 我 们 如 果 是 贸 易 公 司 ， 我 就 不 需 要 做 这 个 事 的 ， 左 进 右 出 很 快 ， 但 是 我 们 是 做 design in， 做 长 期 生 意 的 。 OK, this page I think show you a big, different. This is Phison's inventory. Controller 60%, Industrial components 14%, enterprise 35%. Embedded ODM for PC and mobile 30%. Retail, 3%. Means what?
Means Phison allocate all my resources, my manforce go to many enterprise and embedded ODM. You can see in the coming years, Phison's growth will coming from enterprise and embedded. 从 这 个 来 看 呢 ， 群 联 电 子 未 来 的 成 长 动 能 呢 ， 绝 对 是 落 在 企 业 级 跟 这 个 embedded， 就 是 手 机 跟 PC 的 应 用 ， 还 有 工 业 的 应 用 。 当 然 控 制 器 呢 ， 我 认 为 今 年 的 出 货 量 绝 对 是 减 少 的 ， 因 为 没 有 flash 谁 买 控 制 器 嘛 。 但 是 呢 ， 群 联 电 子 的 模 组 的 成 长 的 金 额 会 超 过 控 制 器 的 衰 退 。 那 控 制 器 呢 ， 可 能 两 三 年 之 后 呢 ， 这 个 需 求 会 回 来 ， 那 我 们 持 续 地 开 发 新 的 控 制 器 。 所 以 控 制 器 公 司 今 天 只 靠 控 制 器 一 定 会 很 麻 烦 。 所 以 控 制 器 公 司 已 经 转 型 开 始 卖 模 组 了 ， 大 量 卖 模 组 ， 现 在 有 库 存 还 好 哦 ， 可 以 得 到 毛 利 率 。 等 到 呢 ， 库 存 变 贵 的 时 候 ， 那 个 分 析 师 写 报 告 应 该 是 要 看 这 种 公 司 ， 你 去 买 flash 做 成 模 组 之 后 呢 ， 毛 利 率 马 上 变 个 位 数 了 。 这 个 不 是 发 生 在 群 联 电 子 啦 。 ESG, we still have very, very good performance here. I'd like to share with you, we keep doing our best to make Phison not only profitable, but manageable, and I wish every shareholder comfortable. This is my report here. Okay.
Thank you. Thank you, K.S., for the promising update. We are now opening the floor for the QA session. As a reminder, if you have questions, please use the Raise Hand function, and you can also type your questions in the chat box, and we will raise questions for you. While we are waiting for questions, I will start with some questions from me. My first question is about the LTA. As our NAND supply is getting tighter, have we started to negotiate with our client for LTA or discuss the LTA with NAND maker for better supply? If yes, could you share maybe more details? If no, if there's any LTA possible, or how do we secure our wafer supply going forward?
Phison keep very close relationship with the six NAND suppliers and the two DRAM suppliers. Phison, we need DRAM because Enterprise SSD. Phison, we have a LTA with the six NAND suppliers. We have a LTA. Some NAND supplier asking for prepayment. This is ongoing. It's not fixed yet, but we believe sooner or later this will be fixed. My customers, tier one customers from just I mentioned, boot drive, hyperscale, CSP, OEM, they also ask LTA from Phison. Phison, we do our best to commit the back to back. We got the LTA from supplier, then we commit to our client. Okay? For small, medium-sized customers, we are not able to commit LTA, but we do our best to accumulate more enough of inventory to support to them.
LTA is tough to negotiate right now. When talking about LTA, forget about price. Forget about price, okay? You just win LTA. You survive.
Thank you. Very clear. Maybe a follow-up questions about the supply part. I just wondering, as we know, you have a very good relationship, with our NAND supply, NAND makers. What is our strategy on securing maybe more, NAND in the future? I remember, previously you said your allocation or, securement is better. Compared to maybe a few months ago, maybe could you give us more details about the maybe improvement on the procurement?
Okay. In the many years in the memory market, everybody saying relationship. I don't think today relationship is workable. Today is a value creation. How can you create a value to tell the supplier that ship to you is much better than the other one? Okay? This is a page Phison keeps showing to the NAND suppliers. DRAM is shortage. No DRAM, no AI. Phison use DRAM with a flash, we enable AI ecosystem. They happy to see this happen. Because of this, we are able to get more supplies. We need to show them our-
Thank you. Yep. Please. Thank you. Very helpful. Next questions from Donnie, Nomura. Danny, please, unmute yourself.
Yes. Hi, K.S. Can you hear me?
Yes.
Thank you, K.S., for the comprehensive presentation. My first question is regarding to your Enterprise SSD sales contribution, and you just mentioned that in the first quarter, it will be increasing to 30% of the total sales potentially. Just curious, wondering if you have the full year target in terms of your Enterprise SSD revenue contribution. Along with the rising Enterprise SSD sales contribution, and you just mentioned about that you are no longer the trading NAND trading company, but more like a design win company. How would that affect your gross margin structurally into the coming quarters? This is my first question.
Okay. SSD selling CQ1 is very promising. I think CQ2 definitely is going to increase because we secure good enough of NAND supplies. Second half, of course, the inquiry you can't believe, you know, the amount, we still talking to suppliers. No matter what, Enterprise SSD will be Phison this year major revenue and profit contributors. Okay? Talking about the Phison never trade component. We never. We just was in consumer. I just want to explain what I'm talking about. I can easily to create my gross margin from trading. I buy it TWD 10, I trade TWD 30. No need any cost, right? When the cost going to TWD 30, the market go to TWD 20, you trade, you minus TWD 10. Phison is different. We are design.
We take component, we build a product. When market price going up significantly, my products cannot go that fast because it's a design. When market price drop, I still can keep profit. Trading module house, they will suffer soon when the price stable. Phison still can gain because we create the value on top of the component as a product.
Mm.
Yeah.
May I ask a follow-up on the LTAs. I think it's important to secure the supply throughout this year. Wondering if you can give us some more idea about what kind of LTAs we are discussing with the NAND makers. Can we say that we are comfortable to secure much more NAND supply for this cycle versus previous cycles? Also wondering if you can comment on your view on the NAND price trend in the coming quarters. Are you still seeing like, for example, like, strong double-digit Q-on-Q growth for the next couple of quarters?
In this period, when I talk to all my NAND suppliers, I always says, "Appreciate. Thank you." I need more. Okay, I need more. No matter how many they can give me, I still need more, but I just appreciate what they support to us. How to gain the more to us and more supply, I need to show my value. This page, we are in this portfolio. If these customers need more, I cannot fulfill, they have to help me to go to the supplier to ask the supplier to ship to me. Okay, so this is called leverage, okay. We also try to take adaptive to attract or exchange to our NAND suppliers to ask for more, you know, the allocations. Overall, everyone go to suppliers, they always say insufficient. They need more.
Unfortunately, they're also not able to fulfill what you want. Gradually, by monthly, by quarterly, Phison keep increasing our supply on top of the LTA.
How about the NAND price trend you are estimating now for the coming quarters?
Before Chinese New Year, I'm saying, China, the system, they are slow down the production, the demand may slightly soft, the component price raised 50% yesterday. 50%, 5-0%, yesterday. We surprised, okay? Now I don't know how to tell you next month after. I no idea. One thing for sure I'm telling you, supply is very, very, very tight.
Oh, understood. 50% yesterday is like, which means, the baseline of second quarter is like the price will be 50% higher in first quarter, roughly. Is that?
Yes
the base case? Okay. Great.
Yes.
KS, second question. Because GTC is at the corner, you just mentioned, actually just in this page, right, you have mentioned about the record-breaking new design wins. We have seen that your product's been used in the boot drive in the GR system. Can you give us some more color on what kind of new product we may be able to penetrate into the platform or GPU company?
Sorry, Donnie. Sorry. Under NDA, we can't say anything. You just wait until GTC happen, okay?
Okay. It will be a different product, right? It's just no longer just boot drive. Maybe, for example, as you just mentioned, maybe like main drive or other things, potentially.
Phison's strength is we are good in customize.
Hmm.
Yeah.
Okay. No problem. Thank you, K.S.
Yeah.
I'll go back to the queue. Thank you so much.
Thank you. Next question's from Simon Woo, Bank of America.
Okay. Thank you. Hi, K.S. Congratulations.
Yeah.
Great results.
Thank you.
Yeah. Maybe for the long term, any thoughts on the HBF, flash? Yeah. Thank you.
Okay. HBF, you better go to consult with the Korean and the U.S. NAND makers. From my point of view, I think I explained this a few times. First of all, flash memory has a life cycle. Okay? You pack the flash together with GPU. When end of life of flash, that means GPU gone. Second, they have a so-called temperature difference. CMOS is 125 degree. Flash is operating 80 degrees. The temperature, how to manage is a problem, or you have to lower your performance. HBF definitely will happen in some applications, but I doubt HBF will go to the general purpose of GPU. I doubt. Okay?
Okay, sir. Very clear. You are now working on the controller for HBF for now?
Okay. Phison, let me clear up, give you Phison's statement. Phison definitely can develop HBF controllers. I don't see any difficulty-
Mm
if we don't have the real customers, I better not to invest right now because my engineers are busy for this project on hand. We are waiting. When the real customers come to us, then we can take it, like, 12 - 16 months to make the design that-
Yeah. Yeah. Very clear, sir. By the way, you mentioned that 50% price hike for your product. Sorry, what do you mean 50%?
Suppliers have raised the price overnight.
Suppliers means what? NAND chip maker you mean?
Yes.
Suddenly 50%, that means you have to pay higher price for your NAND chip sourcing. It's no good.
Yeah.
It's no good.
Either not just buy, just not buy.
Sorry, sorry?
I mean, you have a choice. You take it or just don't buy.
Okay. Let's say, if you take such high price level, your costs, inventory cost should be up, and then your margin could be squeezed. Unless you raise the price for your product.
I always believe I'm smart, right?
Yeah. Everybody knows this.
Yeah. This page, I mean, I try to explain this page. Okay?
Yeah. Yeah, that's a good page. Yeah.
Yeah. Okay.
You are saying price, NAND chip price up, your product price up, your margin is good.
Percentage may be not that good. Net amount is good.
Mm-mm-mm.
Yeah.
Sorry, very complicated. Even you said it's primary school maths, basically-
It's not very hard.
The conclusion here, once the NAND chip price rises, you can raise your product price immediately, right?
Yeah, Simon, shortage.
Shortage.
Don't accept, then don't ask.
Mm.
Shortage. Right?
For your product as well?
Yeah.
Then you can raise the price.
I have to. Why I'm taking minus?
Okay.
Right.
Yeah. Yeah.
I thought my customers don't blame to me, blame to my suppliers, not because of me.
For Q4 great result or the second half of 2025 great result is broadly based on the NAND chip price hike.
With some design in business-
Yeah.
by the OEM.
Mm.
Yeah.
Mm.
2026 will be two factor. One is, You can name low cost, but the one is we win many new product.
Okay.
Valuable product.
Yeah. Sorry for asking your, some competitor, your competitor also said they are selling the boot drive for the USB customer. Would you say which one is better, how you lead the market? Do you think it's a really big market for boot drive area?
Hey, Simon, you know what? You ask me, my answer is this, that you compare peanut with potato.
Oh, really?
You know what I mean? You, you ask a peanut question to me and potato, so I don't know how to answer you. But-.
Mm.
Let me tell you, okay? Don't worry. Don't worry.
Mm.
I don't want to overuse, what we do, and we have an NDA, but the answer for me is peanut compare with potato.
Mm.
The size is totally different.
Yeah. the... How about the boot drive market size, why it can be bigger and bigger? Any reason? Is it?
No, no, not because of bigger or bigger. Just a NAND company walk away from boot drive.
Oh, sorry. You are saying NAND chip makers-
The NAND company, NAND chip maker, before they provide boot drive and main drive, right?
Yeah.
They made the boot drive EOL, end of life. They focus to the main drive.
Yeah.
Who supply the boot drive? Phison.
I see.
All my competitors. Can I ask a question? Did my competitors has a good enough of a NAND flash inventory?
No.
No. Good question. No.
Mm.
Means market is, TWD 30, they have to buy TWD 30, right?
Mm-mm-mm.
If my cost is TWD 5.
Mm-mm.
I'm saying peanut asking to potato.
I see. What's the average of the NAND content for the one unit of boot drive?
Depends on 480 GB, next 60, 1.9 TB. Doesn't matter. Just do they have inventory or do they have an LTA yet?
Yeah.
They don't have.
Mm.
How can they make sure they can gain? I heard the rumor my competitors go into China module house buying spot market flash.
Yeah. Yeah, yeah.
How many % margin they can make it?
Yeah. Just let's say today, very famous GPU already available in the market, next generation coming little bit from maybe second half of this year. Would you suggest what's the implied NAND content for the boot drive for mainstream GPU for now and then the-
Boot drive?
Yeah, the NAND content.
Boot drive?
Yeah.
We follow the users asking.
Huh?
We follow the user. This is all my user. They ask me doing this, I doing that. Okay?
Mm. Mm.
I can't disclose. You see, my competitor put the name here. I didn't.
Okay.
I respect. Yeah.
Yeah. Yeah. Okay. The almost lastly, sir. Yeah, today NAND chip price very strong, product price also strong. You don't expect a little bit softening price trend or price decline toward the end of this year?
I take really good sleep this year. I don't worry, no nightmare. This year good.
Mm.
Yeah.
Mm-mm-mm.
Next year, let's worry next year. This year, I'm busy to take a good sleeping.
Yeah.
Good night.
Yeah.
Good nightmare, right?
Yeah. Okay. Lastly, sir, payout ratio a little bit over 50%, that's the your even for the long-term policy or you wanna raise 60%, 70%?
Phison already 55%.
55%.
Yeah.
Separately, the reason why you are issuing I mean, you are borrowing the money, TWD 0.5 billion-
Yeah.
TWD 400 million.
Yes.
You pay, you spend the cash for the shareholder return, but, you are borrowing the money for your working capital-
Yes.
for inventory increase.
Yes.
borrowing cost, I don't know, maybe 3% plus, minus or?
Hey, Simon, if I got the rich father, I no need to worry about this, right? I'm poor, I know, but I pay 3% a year, I win back 200% a year. Why not?
Okay. Okay. All clear, sir. I think-
Yep.
we should meet soon, sir. Thank you.
Chatbot. They got few question in the chatbot. Shall I go?
Sure. Sure. Please go. Please go ahead.
How did you see the outlook for your controller business going forward? This year, Mobile will increase. Client SSD most likely declining, but I think it's a small number declining, so we're good. The pure controller house will be difficult anyway. Circuit current inventory level and how they are trending. By end February, I got the report, we now have over [TWD 50B] .
What is your view on the company gross margin trend over the next two quarters?
We never give forecast, for sure CQ1, CQ2 is strong. Very strong. CQ3, CQ4, I don't see it's turn to weak, maybe lower because the price itself going that much, but go to the net dollar amount will be good. How you require prepayment? Why you require prepayment? Because I need money. I got TWD 50-plus billion inventory today. I need to keep buying more. I need to cycle time to process. Customer pay me 60 days. How can I run the business? Okay, next. NAND stock management. Is increased, stable, going away faster than we can buy? NAND stock by dollar amount increased a lot, but by [SB5], okay, I said by [SB5], we keep flat of [SB5]. Okay, I use this way. January. A reasonable expect. I think quite reasonable. Quite reasonable, maybe more than this.
I think you can wait until March. March may surprise you, may surprise you also. Will we get enough NAND to generate? Answer is yes. Q3 question is yes. Q4, some senior trader is already expecting EPS down by ask to the god. This I can't answer, but I do my best. Want to know the roadmap controller IC early where Phison check mark PCIe Gen7. Phison now is a pioneer makers. We are in advance. We have a Gen 6, or our Gen6 enterprise controller is ready. Now developing a firmware. Hopefully by August, we are deliver the Enterprise SSD market samples. Gen7 is ongoing. This mainly designed for the AI systems. As I mentioned, right, Intel lead for 30 years telling you what happen in five years, but NVIDIA didn't.
Gen6 is coming very soon. Gen7 after two more years. We have to invest.
Yeah.
ICMS, TLC provide... Okay. NVIDIA's issue, I am not going to answer.
Yes.
Under NDA, this one. Try to know how long currently takes Phison to ship newly purchased. This is very complicated. Very complicated, okay? Because there needs packaging, testing, assembly, allocation. Overall, we try to make the shipment smooth. Please mute. Please. Hello? How much price you take in client SSD model offset smartphone volume decline? This is not from me, okay? This is from analyst, famous analyst. Smartphone, most likely 200 million set. PC, 5%-10%. PC, if with aiDAPTIV+, it reduce the DRAM, I think PC declining may be slightly small. Okay. This in chatbot.
Yeah. I think we have finished the questions from chatbots. Next questions from online investors is Michael from KGI.
Yeah. Hello, Michael.
Hello, K.S. congratulations on your outstanding performance in 4Q. My first question is about our opportunity with NVIDIA's ICMS, since that to improve inference e-efficiency. NVIDIA is looking to increase NAND's input and output. We have seen some products like Kioxia's XL-FLASH or Samsung's Z-NAND is gaining attention. At the same time, controllers are becoming more important. Whether next year's controller bundle with ICMS or that bundle with XL-FLASH or Z-NANDs may use PCIe Gen6.
Yeah.
Yes.
Michael, I think you mixed all the questions together. Just highlight, okay, XL NAND, Z-NAND is not for ICMS. It's mainly for the high performance drive, low capacity. ICMS asking for high capacity inference. It's different applications.
Right. I'm curious that since it seems like our MP schedule for Gen6 Enterprise SSD is ahead of some original vendors. I'm curious if our success with Gen6 Enterprise SSD could help us gain some market share in ICMS.
Okay. First of all, again, under NDA, we can't talk that much. In general answer, Phison, we have a Gen6 Enterprise controller ready, silicon factory. Samples can deliver by July, August timeframe. This market, OEM server, they don't need Gen6, only AI. Phison develop M to AI. That's all.
Got it. Thank you. I have no further question. I'll hand it back to the queue.
Thank you. Next question's from Donnie, Nomura. Hi, Donnie. Maybe we will start from questions from chatbot.
Sorry, can you hear me?
Oh, please. Yeah. Very clear.
Sorry, K.S. Just one follow-up from me is like have you considered to sign a long-term contract with NAND makers in the previous cycles, or this is the first cycle you are considering to do that?
No, no, we have LTA for many, many years, but this time talking about prepayment.
Oh, prepayment. Yes, yes. Prepayment.
Phison did a prepayment at 2008 to Hynix, few time to, Toshiba, Kioxia. Definitely we have experience.
Okay. Since then, there was no prepayment anymore until this time.
Some under discussing, but not in rush.
Oh, okay. It may be an option potentially.
If all the condition good, why not?
Okay. Understood. Thank you, K.S.
There are two questions in the chat box. Maybe we can start from the chat box.
Okay.
The first question is there a trend of eSSD growth, in eSSD accelerating beyond that of QLC, due to AI inference?
Yes. Yes. Answer is yes, because the QLC demand is so strong, that's why it's a big undersupply. Yeah. You see TLC growth accelerating beyond QLC. Yes, ICMS is a TLC. Both TLC and QLC tight. Next, pulling on inventory, is inventory turnover accelerating the coming... Demand is strong. We keep buying inventory. Of course, you asking me, I want to slow down the inventory turnover because we can last for more quarters. But now it's not able to manage by me. Customers really need the part. Now we start to ignore to manage the inventory shipment. Customer need, we just ship. Why? Because we also need cash to buy new inventory. Now we are not going to control it much in the inventory. Okay. The answer is inventory turnover may go faster. Okay?
Thank you.
Yeah.
Maybe we back to the online investors, Michael, from KGI.
Oh, Michael, you unmute. You have to unmute yourself. Hmm. No. No, I think I no see you.
All right. Yeah, maybe we will turn over to Donnie.
Donnie, you have a question?
Oh, no, I don't.
Okay. Good.
Last question will from. Yeah.
Okay. Please.
Sorry. From Simon Woo. Yeah.
Yeah. Thanks again. Quickly the enterprise solution revenue contribution was 10%, right? in Q4?
Q four.
Yeah. Any color, the ratio will be up to mid to 19%, 20%, 30% for the next few years, the trend.
I mean, Q1 over 30%.
Huh? Sorry.
This month, CQ 1, this quarter, is over 30%.
Oh, so-
Yeah.
Oh, already three times up-
Yes
versus December quarter. Which part was the key contributor, adaptive or?
Read this page.
Yeah.
This-
The key contributor is.
It's all here. It's all here.
Yeah.
It's happening.
Design wins means kind of the initial.
Design win means payment. Design in means ongoing.
Design win means actual sales recognition immediately?
Yes. Yes.
Oh, okay. Then the, your inventory shows already, what, 35% inventory value is enterprise solution, right? The ones you achieve the such strong growth for enterprise solution, how are you gonna increase further, enterprise solution portion with the limited inventory then?
That's why I need to bring my value to the NAND suppliers.
Mm-hmm. Mm.
Okay? This all Tier 1 is all my customers where I got design in, design win. They will help me to get the NAND.
Yeah.
They have a , all right?
Mm-hmm. To do this, you should get the more QLC NAND for the enterprise solution from the NAND chip maker.
I need both. I need TLC, QLC.
TLC. No, no. I say prepayment basis, your NAND chip sourcing. Prepayment is still the what, for three quarters for the rest of this year? What do you mean the prepayment? For how long? 1 year, 2 years?
Prepayment is not trigger yet, still under negotiating.
Mm-mm.
Not yet happened.
Usually the prepayment means, okay, you pay half a billion dollar, for example, and then you get the chips.
Hey, Simon, this is all confidential. I can't disclose here, okay?
Mm-mm.
We have a very strict NDA.
I see. Okay. last time you said the prepayment happened, what, 2018 or?
We have a prepayment with Hynix 2007, 2008. We have a prepayment to ship out 2012, 2016, 2020, 2023.
I see. latest one is when the cloud was very strong, 2017, 2018 then.
Yeah.
Yeah. Very clear. This time, prepayment trigger point, obviously enterprise solution then, or AI it seem.
Yep.
Yeah.
Yep.
Very clear. Wow. Good job. Thank you so much .
Thank you. We're working very hard.
Yeah. Great. Thank you.
Okay. Couple. Eric asking what? Inventory? No, the K.S. Pua. 4Q, 34 billion TWD. Eric Chen, two months ago you mentioned you see no end of supply shortage trend from previous month. Yes, endless. I don't know how many years. Let's pray for that, not too long, please. Okay, any other questions? Crystal, if-
So-
Victoria-
Yeah
If no question, we end up this call.
Yeah. We do not have any questions online. Oh, sorry, I see another questions from the chat box. Maybe the last one.
How long-
The investor want to know. Yeah. They want to know how long it currently takes Phison to ship newly purchased inventory, and what are your thoughts on the CapEx by NAND flash makers?
Some new purchase inventory, generally, we start to ship in the March. Why? Because shortage. Okay? Means what? Means some high-cost inventory start to ship. We still able to make margin on this, so don't worry that much. Yeah. How about 100 million IOPS? Yeah. You expert. I'm telling you, ongoing, not easier, but we will make it on time. This is with NDA, I cannot share that much. Okay?
We have answered all the questions online. Thank you, K.S., for your time, and thank you, everybody, for joining us today. We will conclude the call.
Okay. Thank you. Last, my last ask, I wish analysts do some better homework. Don't, you know, give a very shallow analysis to the market, mislead the investor. This is really not right, okay? Make some study. You need call, you can call me. I can share with you. We have to be professional, okay? Thank you.
Thank you.