Silicon Motion's Q3 2025: Contradictions Emerge on White Box AI Server Revenue, NAND Flash Pricing, MonTitan Projections, Gross Margins, and Enterprise SSD Expansion

Date of Call: October 31, 2025

Financials Results

• Revenue: $242.0M, up 22% (quarter-over-quarter)
• EPS: $1.00 per ADS (non-GAAP)
• Gross Margin: 48.7%, increased sequentially and at the higher end of guidance
• Operating Margin: 15.8%, increased sequentially and well above guided range

Guidance:

• Q4 revenue expected to increase 5%–10% to $254M–$266M (above prior $250M target)
• Q4 gross margin expected 48.5%–49.5%
• Q4 operating margin expected 19%–20%
• Effective tax rate ~18%
• Stock-based compensation & dispute-related expenses ~$18.1M–$19.1M
• Company expects to exceed >$1B annual revenue run rate this quarter

Business Commentary:

* Revenue and Gross Margin Growth: - Silicon Motion Technology Corporation reported revenue of $242 million for Q3 2025, up 22% sequentially and well above their guided ranges. - Gross margins increased to 48.7%, with the company benefiting from new product introductions and improved product mix. - Growth was driven by a strong rebound in mobile demand, strong growth in PCIe 5 SSD controllers, and improved operational efficiency.

• Automotive Business Expansion:
• The automotive segment experienced significant design win activity, with notable wins including a Tier 1 Japanese auto manufacturer and a large South Korean customer.
• The automotive business is expected to contribute to top-line growth, aiming to represent at least 10% of revenue by 2026 and 2027.

• The expansion is driven by increased vehicle complexity, demanding higher-speed storage solutions, and partnerships with leading automotive manufacturers.

• AI Demand and Market Impact:

• AI demand is driving strong increases in prices for HDD, NAND, and DRAM, with the trend expected to continue at least until 2026.
• The growing demand for AI, especially in inference, is causing supply shortages and price increases across all memory technologies.

• This is leading to a shift in resource allocation decisions by NAND flash makers, who are increasingly relying on Silicon Motion for product portfolios.

• Enterprise and Infrastructure Solutions:

• The introduction of the MonTitan family of enterprise-grade controllers is positioned to address increased demand for high-performance storage in data centers.
• Interest in MonTitan is growing, focusing on both compute and high-capacity storage, with expected revenue contribution of 5% to 10% by late 2026 or early 2027.
• The expansion into enterprise solutions is driven by the increasing demand for storage solutions that can address the challenges posed by AI compute and high-capacity storage.

Sentiment Analysis:

Overall Tone: Positive

• Management: "delivered another strong performance... exceeding our revenue and operational margin guidance"; CFO: "September quarter sales increased 22% to $242 million"; gross margin recovered to 48.7% and operating margin to 15.8%; CEO: "very confident in our ability to exceed our target annual revenue run rate of more than $1 billion this quarter."

Q&A:

• Question from Neil Young (Needham & Company): Could you dive deeper into white-box AI server demand — how much of this quarter's SSD controller revenue came from white-box AI server makers and how do you expect that to trend?
  Response: Management declined to quantify volumes but said momentum is growing for AI all‑in‑one/white‑box servers in China/Taiwan and their 8‑channel PCIe5 controller is well positioned for that market.

• Question from Neil Young (Needham & Company): Can you walk through the moving pieces of the gross margin guide for 4Q and where gross margin might trend in 2026?
  Response: CFO said newer higher‑margin products (PCIe5) and incremental MonTitan scale will lift margins back to the historical ~48%–50% range; no 2026 guidance given now.

• Question from Craig Ellis (B. Riley): As you scale MonTitan, boot drives and potentially high‑bandwidth flash, how should we think about the enterprise opportunity from 2025 to 2027 and longer term?
  Response: CEO said MonTitan and boot‑drive businesses create multiple long‑term opportunities, expects MonTitan to scale (5%–10% revenue by late '26/'27) with added R&D resources, and will monitor high‑bandwidth flash until the market and resources align.

• Question from Craig Ellis (B. Riley): What messaging are NAND suppliers giving about capacity allocation across enterprise vs PC vs smartphone and implications for 2026 growth drivers?
  Response: CEO said capacity is largely sold out; leading NAND makers will balance allocations across AI/server, smartphone, PC and automotive but will not disclose specific allocation policies; industry discipline expected.

• Question from Sujeeva De Silva (ROTH Capital): Has your lead MonTitan customer secured hyperscaler customers and what is the expected ramp timing?
  Response: CEO would not disclose partner customer details; said customers are close, a small ramp could start in Q4 and more meaningful commercial ramps are expected in 2026.

• Question from Sujeeva De Silva (ROTH Capital): Any update on the arbitration?
  Response: CFO: The arbitration hearing occurred; oral closing arguments are scheduled for March 2026 and a tribunal decision is expected sometime after that.

• Question from Hsin Yeh (Morgan Stanley): Inventory rose ~62% in Q3 — is this to prepare for substrate shortages or other reasons?
  Response: CFO: Inventory increased broadly to support the growing backlog and expected shipments; CEO added they prepared for substrate/PCB lead times as part of ramp preparation.

• Question from Hsin Yeh (Morgan Stanley): With foundry and OSAT price hikes, how should we think about profitability impact and pass‑through to customers?
  Response: CEO/CFO: Near‑term foundry impact is limited as advanced node wafer cost increases affect nodes used later (their 4nm production is years away); most products use trailing‑edge nodes and preliminary OSAT agreements make OSAT cost impact minimal.

• Question from Gokul Hariharan (JPMorgan): Given rapid NAND price increases and tight supply through 2026, why remain conservative on enterprise SSD exposure (5%–10%)?
  Response: Management: >50% of revenue is with NAND makers and module customers hold 8–12 months of inventory, so the company is protected and sees strong demand but is resource constrained; they maintain a 5%–10% revenue target for enterprise in '26–'27.

• Question from Gokul Hariharan (JPMorgan): Any updates on the QLC NAND design and revenue pipeline?
  Response: CEO: Very strong interest and demand for high‑capacity QLC SSD driven by HDD shortages and AI inference; company is busy qualifying customers and must deliver results but declined to provide specific timelines or revenue figures.

• Question from Gokul Hariharan (JPMorgan): How do you see client SSD demand over the next few quarters given Windows 10 sunsetting and PCIe5 migration — will PCIe5 offset any moderation?
  Response: Management: PCIe5 8‑channel adoption and the upcoming 4‑channel mass‑market controller plus Windows refresh are driving demand and share gains; they expect SSD controller revenue to grow sequentially in Q4.

Contradiction Point 1

White Box AI Server Market and Revenue Impact

It involves the company's positioning and potential revenue contribution from the white box AI server market, which highlights strategic shifts and market engagement.

Could you clarify how much of your SSD controller revenue this quarter came from white box AI server makers, given your typical focus on PC/consumer applications, and where you expect this trend to go? - Neil Young(Needham & Company)

2025Q3: The mention with the white box is an AI all-in-one server and primarily that come from China and Taiwan from the DeepSeek Volume-1 surveyor [ flybox ] and some in others, bundled with other training model. I think there are 2508 8-channel PCIe 5 controller is well positioned in the market. We cannot comment. We don't know exactly the volume, but there is a growing momentum for all the AI all-in-one server. it is similar like NVIDIA announced MGX, DGX GPU for this kind of a market. - Chia-Chang Kou(CEO)

Can you discuss this year's exit momentum across three parameters for Enterprise One, MonTitan 2, and the NVIDIA BlueField DPU program? - Craig Ellis(B. Riley Securities)

2025Q2: MonTitan's design momentum is strong, with initial ramps expected in the fourth quarter. NVIDIA qualification is in the final stage, with production expected in Q4. The partnership with NVIDIA opens doors to expand business opportunities. - Chia-Chang Kou(CEO)

Contradiction Point 2

Impact of NAND Flash Pricing on Customer Business Dynamics

It highlights the company's response to the rapid increase in NAND flash pricing and potential supply constraints, which can impact business strategies and customer engagement.

With rising NAND flash prices and supply tightness through 2026, what customer dynamics are you observing? Silicon Motion historically faced allocation challenges during NAND shortages due to OEM prioritization. Given QLC NAND growth, why aren’t you more bullish about your 5–10% enterprise SSD exposure? - Gokul Hariharan(JPMorgan)

2025Q3: I think, first of all, more than 50% of our business we engage with the NAND OEM business. So we are really well protected in the NAND maker. Second is most of our module maker, they have prepared the potential NAND price increase and shortage in advance. So they all have at least 8 to 12 months inventory. And I think they also -- although they do have a certain contract with the NAND supplier, but definitely, there will be some impact. But I think most of our customers, when we discussed in the last couple of weeks, they all have confidence they should walk through in 2026. - Chia-Chang Kou(CEO)

Will BlueField contribute incremental revenue in Q4 of 2026? - Mehdi Hosseini(Susquehanna Financial Group, LLLP)

2025Q2: The incremental revenue from Q4 '24 to Q4 '25 is due to strengths across mobile, PCIe, and MonTitan products. We expect BlueField to drive revenue growth in 2026 and beyond. - Jason Tsai(CFO)

Contradiction Point 3

MonTitan Revenue Projections

It involves changes in financial forecasts, specifically regarding revenue expectations from the MonTitan product, which are critical for investor expectations.

How should we view the long-term enterprise storage market as boot drives ramp this year, MonTitan storage ramps over ensuing years, and high-bandwidth flash emerges as a potential AI-driven solution in a few years? What role could high-bandwidth flash play as a third growth driver? - Craig Ellis(B. Riley Securities)

2025Q3: 5% to 10% of total revenue in '26 to '27 does not include our Blue Drive for the current DPU design and also for the additional switch Blue Drive solution. - Chia-Chang Kou(CEO)

What are the long-term implications of the enterprise SSD MonTitan program, particularly regarding customer engagement and production expectations by 2026? - Craig Ellis(B. Riley Securities)

2025Q1: Our previous six major customer engagements are on track for the second half of 2025 and will see more meaningful revenue growth in 2026. - Wallace Kou(CEO)

Contradiction Point 4

Gross Margin Target and Distribution

It directly impacts financial forecasts and company performance expectations, which are crucial for investor decision-making.

Can you explain the factors affecting the gross margin in Q4, given the guidance midpoint of 49%? - Neil Young(Needham & Company)

2025Q3: Certainly, as we continue into the fourth quarter, scaling new products like PCIe 5 new generation products tend to have better gross margins that offset the declining gross margins of older products. - Jason Tsai(CFO)

How do you plan to achieve a 48%-50% gross margin this year? - Nick Doyle (Needham & Company)

2024Q4: We expect our gross margin to remain in the mid-40s in the first quarter due to product mix shifts towards lower average selling price products, NAND supply constraints and warranty costs associated with new product introductions. With the benefit of new product introductions, including 3D NAND, and improved efficiency of manufacturing processes, we expect our gross margin to improve quarter by quarter. - Wallace Kou(CEO)

Contradiction Point 5

Enterprise SSD Market Expansion and Ramp-up Timeline

It affects strategic market positioning and revenue growth expectations in the enterprise storage segment, which is a key focus area for the company.

Can you clarify how much of your SSD controller revenue in this quarter came from white box AI server makers and the expected trend going forward? - Craig Ellis(B. Riley Securities)

2025Q3: We expect initial production from Tier-1 customers by late this year, ramping to high volumes in mid-2026. High density solutions are in demand, particularly in the US. Ramping may be quicker than planned, given limited competition and the need for high-density QLC support. - Wallace Kou(CEO)

Can you elaborate on your enterprise SSD expansion, including the timeline for the six customers' ramp-up and the expected volume potential? - Craig Ellis(B. Riley Securities)

2024Q4: We expect initial production from Tier-1 customers by late this year, ramping to high volumes in mid-2026. High density solutions are in demand, particularly in the US. Ramping may be quicker than planned, given limited competition and the need for high-density QLC support. - Wallace Kou(CEO)