Thank you. Yeah, my apologies, my video isn't working, but this is Randy Abrams from Credit Suisse. I wanna thank everyone who's joined the line today. We're pleased to host the English session for Phison's Third Quarter 2021 Financial Result and outlook call. Format for the call today, we'll do a presentation. K.S. Pua, Chairman and CEO of Phison, will go through a presentation on the business, and then he'll start with some common questions that have come in in the meantime, and then we'll open up the floor to Q&A. With that, I'll turn it over to K.S., and then we'll come back to the line for Q&A later. Thanks. K.S., you can go ahead. Thanks, Randy. Thanks to ladies and gentlemen to attend Phison's 2021 CQ3's result announcement. In order to keep the good quality in voice, I'm going to shut down my camera to make sure voice quality is good. Okay. Phison, basically right now we are in silence period because we issued a CB by August 6. Even though we are not ready to raise a CB, but anyway, this is a silence period, so I'm not able to give any guidance in number. Okay, let's start CQ3's result. I think we all believe 5G is first starting year in 2021, and we already can see the 5G trigger, the demand for storage is unlimited. We believe in the coming few years, their demand in their storage, basically it's a NAND storage, is not any ceiling. Every systems from the edge, such as a smartphone, the IoT device, and the data center for every kind of apps, social media, keep looking for more storage to make sure the quality and also the speed, everything can be good. Phison, we believe because of 5G is going to trigger a lot of application in the NAND flash. Phison, we cover looks at almost every segment, which including the auto, gaming, embedded ODM, industrial, and also the enterprise data centers. In the first nine months of 2021, Phison's revenue almost is similar as last whole years. We are going to have a very good achievement by 2021. I would like to take this as 20 years history to explain why Phison's revenue first 10 years growing, why we flat for the other five years. Now we are trying to picking up. We start the company in year 2000. We developed the first SoC for the USB drive. This is a totally new application for external storage. Then nothing happened in the market, so Phison enjoying from nothing to mature. We hit TWD 1 billion in 10 years. Okay? Phison is like that time we are local king in the external storage. Going to 2011, the external storage, even though the volume increased, but price dropping 50%. We are keeping flat. NAND flash started to go to the embedded system from iPhone by late 2000, then started to penetrate to a lot of applications, but unfortunately, Phison was not able to get any business for embedded NAND. What we tried to do is, from 2012, Phison started to make the investment, heavy investment in the R&D, started to develop the eMMC, the SSD industrial. Finally, from 2016, we're able to get some embedded business. We have a slight growth in the coming years, in the coming five years. After 2020, Phison already covers most gaming platform applications. We are now going to touch the enterprise data center application SSD. We already in the automotive, but because of the ASP in controller is low and the gigabyte used in automotive is still low. In coming years, we believe the autonomous drive will be the mainstream, and they are looking for terabyte SSD. We are now already developing for our semicon partners. We also are going to build the SSD for our auto partners. Industrial is keeping slightly improving, but the most big growth is embedded ODM, mainly for the smartphone and the PC. We believe, after 2020, Phison able to have the other pickup in the revenue and profit. This chart is a CQ2 breakdown. In the past, consumer was like 70%. Last year like 30%+, 30%-40%. Now, we lowered to 21% from 26% last quarter. Consumer, even though consumer is not welcome by a lot of investors, we still need to keep the consumer business, try to move our more. When the NAND is getting more, we need to use a consumer market to digest. When market is tight, we can move the consumer component, go to the industrial, gaming, and the embedded ODM. On the other hand, controller business, we are growing 2% from the second quarter. You can see the big improvement is embedded ODM. In early this year, I already announced embedded ODM in coming two years will be the big growth, because we are getting more design win in the PC and the smartphone business. Gaming is the other one. We are getting more investment into that. Phison, we cover most of the gaming console, and also we are implement different kind of a gaming SSD modules for different applications. This kind of combination to Phison, I believe is really healthy. Okay, our third quarter revenue you knew already is close to TWD 17 billion. The gross profit is TWD 5.35 billion, which we hit the all-time high in gross profit and also in the revenue. The reason we are able to keep the all-time high in CQ3, again, just because of our different kind of products, business model, and the supply still tight, we're able to get the full support from our supplier in both NAND and the foundry. Okay, this is some breakdown. ASC is 22%. We increased 2% versus QoQ. The controllers growth YoY in the SSD 34%. We need to highlight the PCIe Gen 3 and Gen 4. We keep almost 100% growth YoY. Next year we already got the customers design win forecast. We still expect we're able to have a big YoY in next year. In module-wise, we have a 71% of the total revenue, which including not only consumer, but also automotive, industrial, gaming and embedded ODM. We believe next year, by the total content means the device capacity is keep increasing. We're able to keep driving our revenue by the module business. The BG SSD is kind of a niche product. We are already successful build this into the smartphone, gaming smartphone. Now we also got the program from the Tier-1 PC OEM to put this into their notebook. Next year they have a Chromebook opportunity. Phison is going to play a very certain role in the BG SSD development. By revenue-wise, you can see the industrial YoY is a high percentage. Even though we see the unit in industrial, by unit, the growth is a single- digit by unit, but by the number is almost, you know, double. The reason is industrial by capacity increase a lot, triggered by video and also the 5G applications. In gaming module, we keep trying to penetrate to more platform, gaming console, handheld, gaming device and also the gaming cloud. We are already get a program from a gaming cloud SSD and start to ship by this month. We announced by early this year, embedded ODM will be our main business, okay? Mainly in the computing and the mobile application. We expect this growth will keep continuous for coming two years. Revenue-wise, we are hitting record high. Gross margin rate slightly declining. The reason is by CQ3, foundry increased the wafer price. Phison, we keep long-term partnership with our semicon partners. We are not willing to 100% transfer the increased cost to them. The reason is controllers cost per module, the ratio is increased too much, which is not healthy. Phison willing to absorb little bit of a cost increase from the foundry. We are not willing to 100% transfer. This is to keep long-term partnership. I don't mind to doing this because on the other way, our main controller customers, also our NAND suppliers. This is for mutual benefit. In order to help Phison to secure more supply with a much reasonable price. We are happy with this gross margin, and we are keep two quarters above 30%. If by the earnings per share, the CQ3 2021 is second in the record high. If we take out the 4Q of 2020, we have the exercise of our China subsidiary. Basically in the business-wise, CQ3 this year, we hit the record high, all-time high in the earnings. Income statement, we have many indices hit all-time high. I think just because of we have different product portfolio, our business model, different applications, and also we secure enough of NAND flash and the foundry supply. Even though the foundry, we're still far behind, okay? The fill rate only like 60%, but this is helping Phison to hit the very good quarter. On the balance sheet, I think you are most concerned about inventory. Since early this year, we already talked to everybody, we are going to increase our inventory. The reason is, for example, the foundry is still tight. We need to keep at least three months run rate of our controllers, okay? Flash memory itself, whenever we get the wafer from supplier, we need at least 8-10 months to make these into products, then can turn to the revenue. The turnover rate is almost 10-12 months overall. Without the inventory, we are not able to generate the revenue and business. By the way, this is. We keep talking to every supplier about next year's NAND flash LTA, long-term supply. Unfortunately, we are asking more what the best commitment from them is flash. Next year, we make too many design win, we need a lot of NAND flash. At this moment, the NAND flash market looks like a little bit soft, so we try to accumulate the flash for next year use. By the way, we also already got a lot of forecasts from the smartphone, from the PC OEM, from the gaming and the industrial. We need to secure the NAND flash for next year's CQ2. Our strategy is we need to increase the inventory. I know I have to try to buy more, but I just worry I'm not able to buy as many as I wish. We are doing very hard, trying to see if we can get opportunity, okay? Overall, the ROE in the CQ2, I think we are still doing good at 24%. Our goal is to hit between 20%-25%. Overall, with our CQ3, the total financial statement, personally, I feel we did a good job, and we have a very good result to the shareholders. In October, by monthly revenue, we just announced, it's close to TWD 6 billion. It's another all-time high by monthly. The reason in October we hit the all-time high, because they have a lot of consumer products pushed to the CQ4, a lot of transportation, the shipping issue, okay? On the other hand, we still get a very strong demand in the smartphone and the PC OEM, and also controller systems. I also able to expect by November we're still doing quite good, okay? Overall, whole years till October, we are already in TWD 51 billion. This year, I think overall, we potentially able to make the $2 billion in the revenue. Okay, business highlight. In retail side, we have the semicon using Phison controllers take our Gen 4 controllers build the modules for the retail business. We also have semicon taking our external controllers to build their USB 3.2 external SSD. In the whole retail market, Gen 4, if you count by brand, they have over 75% of brand are using Phison's controllers and solutions. Phison, we also cover the high-end camera, okay? All the, most likely the storage card for high-end camera are covered by Phison, proprietary supplier. In OEM, our fastest controllers, this controller PS5018-E18, already put into many systems. We also got award from the Tier-1 PC OEM to put this controller SSD modules into their high-end gaming PC and also the workstation PC. We are successful to have a big, breakthrough to the Tier-1 PC OEM in both, notebook and the workstations. In eMMC UFS, we are also get the few design wins in the China mobile, the Android phone. Our driver, the new IC, start to get the order and start to ship by coming January. From design to shipping is, 10 months. I'm proud of my engineers. In gaming, actually, Phison will take a lot of advantage from gaming because we have an early Gen 4 development to support AMD ecosystem. We are in a few console platform. Now we also gain the award for cloud gaming cloud SSD modules. In the data center, in legacy data center, SATA drive, we get extra 2 million pieces plus demand forecast by 2022, which is a little bit of a surprise to me, okay? From this, I can see the demand in the data center looks like keep growing. The capacity itself also is a high capacity. We are happy, even though we are the small player right now, but we can see rapid growth in the data center, especially our Colorado office already have a project start to make design in the qualifications. Industrial is a slow growth, but the content of industrial we can see is almost 2x growth per year. We are happy we cover most of a different industrial applications, and we are trying to put more into the automotive applications. Okay. This 4Q, we can feel that gaming is one of the very mainstream. We got the award and start to ship the modules for the cloud SSD, which is first time from Phison. Very big breakthrough. Coming years, we are going to try to design more enterprise gaming SSD for the cloud applications. For handheld gaming platform and the console, I think we have a very good coverage. By coming CES, we are going to announce our Gen 5 SSD controllers and modules, and we are going to MP these modules by next year COMPUTEX. If you award that by 2019, Phison is the only one Gen 4 SSD supplier to support the AMD ecosystem by 2019 COMPUTEX timeframe. After three years, Phison is going to make the same story, but this time it's moving to Gen 5. We are trying to build and ship the Gen 5 to support AMD systems by coming COMPUTEX. Overall, we still suffer the foundry undersupply. We are trying to keep asking the supplier from them, but we have a very good, extra support from our partners, foundry supply. Fulfillment rate next year basically was like 60%+. Now we're able to gain to close to 70%. We're able to gain extra revenue and also the extra profit and extra market share. This is a good sign. We keep asking more support from foundry. I wish we're able to get 100% fulfillment next year. 3-4 years ago, Phison already keep emphasizing Phison is going to put more resources into R&D. We make it. Now we can see we have a very good return. We have a different kind of application, controllers, module systems, all are coming from the heavy investment in R&D. In Taiwan, basically every company in the IT, in the high tech, keeps saying not able to get extra engineers. You see Phison, in nine months, we've gained 1/3 of number. We have a very good incentive program to get a lot of engineers. I believe after the other nine months, we're able to hit 2,500, which is our goal by 2025. We pull in 2.5 years. The reason is we keep hiring engineers just because we have so many project requests from semicon we are not able to fulfill. The only way is to make the expansion. R&D expense you can see by these nine months is almost hit the last whole year. Overall, we can see in R&D expense, we also hit the all-time high. Phison strategy, you can see we are saying that the so-called 5 + 5. Left side is kind of technology from IT system, ASIC integration design services. Right side, you can see is a different application segment. Each segment need a lot of NAND flash. Phison, we are going to cover each one by ourselves. Imagine each one has a big demand growing in the storage. Phison will cover everything by ourselves. In the coming years, we have confidence we're able to enjoy the growth in this business. Above is our CQ3 summarized. Now, we collect some Q&A from investor. After answer this, we directly go to the online Q&A. Last Friday, Taiwan Hsinchu District Court render judgment for my personal. It's a case, not Phison, okay? It's a personal case. No impact to Phison. Phison has nothing to do with this. This is all my personal issue. Myself still running my role, keep running Phison's operations, strategy, everything. Phison still doing good. I'm still here, don't worry. I talk to my lawyer, we are going to appear to get a fair judgment. Basically, personally, I made some mistake. I don't know how to manage in the past, but anyway, I take this, it's my responsibility. I will 100% cover by myself. Phison will be totally free about this lawsuit. Basically, Phison is doing good. Eventually, I believe I'll be fine. Keep running Phison to hit our goal, TWD 100 billion revenue as soon as we can. Phison, we issue the CB at the August. We have an internal target price. Stock market recently, our stock market price is not doing good. We are not going to issue if the price is not going to our target. Potentially, this CB life cycle is a 6-month. We are maybe going to expire this CB if the price not able to hit our internal target. Don't worry, we are not going to issue the cheap price based on the CB. We insist to keep our internal decision to keep the price high. The fab is very tight. This year we have LTA with one of our foundry. We have a prepayment to secure our few years of supplies. On the other hand, with our customers, we just signed an LTA with one of our key customers. The value is $100 million, and it happened this week. We also have a few other customers, including semicon, asking Phison to commit in the three years of supplying controllers. We keep talking about the other LTA with our other customers. Phison not only signs LTA with suppliers, now we are going to sign LTA with our customers. The supply is really very tight and looks like in the 1-2 years, no solutions. Phison's long-term goal is to grow our business, including every segment in the auto, industrial, embedded, gaming and enterprise. Top line, we need to aggressively grow our top line. Eventually, we need to increase our bottom line. To have a better ROI for our employees and the shareholders. Our guidance actually since last quarter we increased our gross margin target from 25%-27%. I think we're able to make it. In the net consumptions, Phison like consumes between 2%-4%. We believe we're able to hit 6%-8% if we bring the data center and enterprise SSD business into our portfolio. We are aggressively to grow our timeline and eventually increase the bottom line. A few months ago analysts keep saying the memory is weak, the memory is in trouble. I like to say memory, they have two kinds of memory, DRAM and NAND. I have no study in the DRAM, no interest in the DRAM, but in NAND. Personally, if NAND price dropping after 6-9 months, system content will increase almost double. This will cause the NAND going to tight again. Personally, I don't worry when NAND price going to weak. NAND only in declining, only reason is price raised too much, okay? If price keep flat, keep slightly dropping, the NAND demand always increasing. This will be good to us in this industry. We try to consume more NAND, develop more different application with our in-house IP controllers to gain extra ASP. Phison, we are good to cover two kind of business. I mean, first one is called unit. Unit means controllers. Don't expect the notebook can be from PC from 300 go to 600 million immediately. No way. If 300 pieces of a PC equal to 300 million pieces of controllers, this is so-called unit. Controller is good in the gross margin rate, but in the ASP wise, usually, if you take out the foundry shortage, ASP is slightly declining 20% in a year. Phison, we also cover the content business. Many years ago, Phison, module is a USB module with a 16 GB, 30 GB is like dollars, few dollars in ASP. Now with the SSD modules for gaming, we aim to the $400 per piece. Data center, we're aiming to the few thousand dollars per piece. We're able to enjoy the content business with a higher ASP, which can help Phison to increase our influence power in the NAND ecosystems. We are happy with our business model, and I'm for sure only Phison business model able to grow the revenue in this NAND industry. Where's the price impact to NAND, the NAND price to the revenue and profit? If Phison still stuck in the consumer, yes, we need to worry. But now we are diversified to many different applications. The first price impact to our business is getting less. Because for example, for the gaming industry price is by kind of a quarter and half years. We're able to keep the price stable. We are not much worried about the NAND market price anymore. Recently, I think everybody keep talking of the metaverse. No matter what, I believe this is going to mature only after a few years, 3-5 years, okay? This kind of applications, they need a lot of storage, no matter in the edge or in the data center, in the server. This is good to us. When this keep developing, Phison able to get the more opportunity, develop the storage for either the edge or the data center, the cloud in the storage demand. Why Phison develop a DRAM retimer? Basically, DRAM retimer to Phison is a small revenue. Retimer is a high ASP. Now we are developing by end next year, we are able to get some business. The reason we are going to this business, our goal, Phison's goal is going to have a data center enterprise SSD business, okay? Which is a high speed and a high density. On the other way, the motherboard, they also need to have a high speed ASIC, such as the DRAM retimer. Phison, we get into this, we like to have a supply, kind of a full turnkey supply, full service supply to increase our influence power in these ecosystems. This is helping us as strategic products to bring Phison into the data center storage business. You may have heard from every design house not able to get enough engineers. Yes. The answer is yes. Phison, we are working hard. At least we get 500+ new engineers by this year, okay? Why? We keep talking to a lot of campus students. NAND is a big growth. NAND is no constraint, no ceiling. Humans keep needing a lot of storage. Phison is the only player after semicon, able to provide the full turnkey. Looks like Phison is only player. We don't see any newcomer to provide the full turnkey solutions. Phison, we look to the business, I think we are doing good. The profit, doing good. Bonus, doing good. Overall, we got more attractive to get the more students to join Phison. On the other hand, the costs in the R&D, in the OpEx, definitely will increase. Don't be surprised, year by year, the R&D cost is going to increase. We have nothing to do on this. The only thing we can do is keep earning more profit to support this R&D OpEx. I think Phison, we are in a very good decision-making. We get the more people, develop more products, getting more profit, then reinvest into their R&D. We make it. You can see our this year's performance just because of 2-3 years ago's R&D investment. We need to keep heavy investment now to support our coming years' revenue and profit. Talking about the renewable energy. Phison already start to adopt the renewable energy, starting with their below 10% by 2021. The goal is 2023. We will sign contract by 2030, we are going to hit 20%. By 2050, Phison is going to be 100%. But depends on if supply of a renewable energy in Taiwan is full enough, we able to pull in potentially by before 2040, will be 100% to use the renewable energy to save our earth. Last is about ESG. Phison, we keep big improvement in the ESG, even the index from OTC and index from the MSCI. We keep improving, and I believe, sooner or later, we can get the other upgrade in the ESG. Above is today's update. Now we go to online. Okay. Yeah. Thanks for the remarks and, yeah, we hope everything goes well with the case as well. So now we're in the Q&A. Just to raise your hand. If you go to your name on the right and hover over it'll bring up the Raise Hand button. So, yeah. I'll start with a couple questions, and then we can go to the line. I think just one comment you made was about NAND, and if I heard it right, I think you're having trouble getting more than flat. You're trying to build up inventory because the makers are having trouble giving you more than flat procurement for next year, if I heard that right. Is the supply that tight or are they prioritizing other applications? Because there's a market concern if the price is soft, there should be plenty of supply. Maybe what you're seeing is the inability to procure NAND flash through next year? Yeah. We keep talking to suppliers to ask for stable LTA next year, but unfortunately we are not able to get enough number coming from them. I believe they prioritize the NAND into other key customers coming from next year, mid-CQ2, okay? Usually in the past, when time go to the CQ3, we always in the last priority to get the NAND. I mean, there are lots of big guy there, right? What we can do is, the reason I have a confidence to build inventory because we've got so many design win in different kind of application, which we already can see we are going to build a lot of modules for the design win projects. Unfortunately, we talk to the supplier to make sure they're able to ship to us, to commit to ship to us at that period, but the answer is, they no commit. What can we do is, we need to take this period to make sure we're able to build out some inventory. Once we design win into a lot of systems, we need to have at least a nine-month commitment to keep continuous supply. We have no choice, but we just try to build inventory. Yeah. Okay. K.S., yes, a follow-up on that. With the design win activity, do you think the mix will shift in a big direction? Like, your target long term is away from consumer. Would next year, like design wins, is it more embedded gaming, high-ASP industrial? It'll be more of a mix shift next year? Yes. Actually, most design win is coming from the so-called embedded ODM. Mainly is mobile and computing applications. Next is gaming. Gaming is going to ask a lot of high-density drive. These two actually is our main business in next year. Industrial, the growth by unit is small, but the content itself is almost double. To me, these three segment is what we have to fulfill in next year. Okay. A follow-up on that. With the very high ASP in data center, industrial, which you talked about, does that dilute your margin where it's a very high ASP, or can you get pretty close similar margin supplying into the very high module? No, the answer is negative. Okay? Usually we talk to the high density drive for data center, right? The first cost is like 99% of total BOM. I don't expect that we're able to get the same margin as a so-called gaming or embedded ODM, but we have to make it. Okay. What we try to do is, for the data center enterprise, we need to prove, I mean, the first step, we need to prove we're able to make it. We're able to ship, we're able to get a design win. I don't care about that type of margin, but once we prove we're able to make it, then we can take a lot of our design service project and customization project from their customers, which can ensure we have a higher margin. Okay. Yeah. One last, and then I'll open to the line specific questions. That gross margin target that you took up, you've actually been delivering above the 25% the past few quarters, but for a mid- to long-term, if you could go through the factor that gave you confidence to make that change? Okay. Again, I use this chart again. Controllers actually contribute is a high gross margin rate, and our controller portion by total revenue is increasing. With thanks to our two foundry supplier, they give us a good enough support to increase the wafer supply to us. Okay? This is helping our average gross margin. Going to industrial. Even though industrial, the total growth is small, but it's stable. Embedded ODM, the margin is not as high as we expect, but we're also building some niche of modules to the mobile. For example, we build a BG SSD to the gaming phone, which helping us to gain extra better margin. We need to keep investing a lot of R&D to make differentiations. We cannot just follow the standard spec. For example, Samsung go to the PC makers, the standard spec, we take their business. It's good in revenue, but the profit don't expect. Phison have to fully use our internal strength, means R&D activity, flexibility to get the extra project with the differentiation customizations. If this is keep happening, Phison, we have confidence to keep the gross margin. Yeah. Okay. Feel free to cut in if I'm missing it. Are there any questions on the line at this stage? Okay, I have a question from chat room. What percentage of NAND controller IC goes to external customer or almost all NAND controller are used for Phison's own. Okay, of course not. We have more than 80% controllers going to semicon instead of in-house use. Actually, in-house use is a less priority, to be honest. Our controller mainly to supply to the semicon partners. Yeah. Okay? This is answer to Simon. Any other questions online? While we're waiting, I'll actually ask another one on the margin. For the founder, you talked about the price hike. You don't wanna fully pass on. You like to protect customer relationships, not fully pass on. How do you see, like, into next year? There's been the discussion there's a further raise going into early next year. I guess, are you seeing it from your side, like further price raise and how you feel about passing those on? Good question. Basically need to go to ask a foundry, not ask a customer side. To be honest, I think today, the wafer price to the foundry is healthy margin. If keep increasing, of course able to get the extra profit, but this sometimes may kill some applications, such as Phison, we get a wafer from supplier. Because my fulfillment rate today is only below 60% today. Next year, I'm hopefully can go to over 70%, but I still not enough. Not enough, of course, I can go to raise a price, but I'm not willing to do that because business, Phison prefer to run the long-term business partnership. Okay? I don't like to see controller costs ratio in their total module increase that much. This will kill business in the future. By the way, Phison, most likely our controller partners, customers, also my suppliers. Okay? Mutual benefit, mutual relationship is much important than there's a small margin to us. Yeah. Okay. No, that's great. Another question just on the outlook. Fourth quarter, we got the first preview with October. How do you see it holding up later? Like, because some of the builds have been deferred, fourth quarter, and even if you have enough visibility to even see first quarter, if it seems like a different pattern. Okay. To be honest, in July, August timeframe, personally, I'm pessimistic about CQ4 and CQ1, to be honest, okay? October give me a surprise. Actually, November, I believe, also give me a surprise. I figure out what happened, or the reason is at the last two years, we did a lot of design in program, which I don't expect is coming to real business, but it's coming. On the other hand, if talking about next CQ1, usually CQ1 in the NAND market is terrible, usually. What I can share with you, we can see the forecast is increasing with our new designing program. Next year, if I'm saying that I'm going to increase my inventory, of course, the supplier at this moment, market is soft. They wish Phison to take the flash, and I'm willing to take. By the way, I'm not only take, I ask, "Can you sell more to me?" They also little bit surprised. The reason is we can see we have a very good visibility in the CQ1. Yeah. This is what I can answer. Okay. I mean, you think your take it's a share gain, like the, it's more sort of smartphone, or just for the client? It's a period of share gain in those markets? I think eventually, yes. We did a bit slightly different with others. Phison, we don't like to go to a lot of mainstream business because mainstream, we are not able to compete with the semicon, right? The price is coming for them. Phison, we are trying to use our strength, means R&D activity, differentiation, customization, and flexibility to gain some extra project which potentially semicon may not interest. To us, it's a big business and much better gross margin rate. We are willing to take that kind of business with the heavy design R&D activity, and this is a Phison strength. Yeah. Maybe just one more on the outlook change where you originally thought NAND terrible. I mean, you've gotten more market share design. Or I should say these like custom design wins. Are you feeling different about the NAND market, like better or still feel it's a tough overall NAND market and it's just your design is helping? No, no. Okay. Phison is just a small guy, around 3% in the total NAND market, right? Yeah. CQ4, to be honest, we can feel the NAND is soft. It's getting soft for many, many reasons, okay. The component shortage, the smartphone cut down, PC looks like already no any momentum to grow. Overall, to my business, you know, again, we are just a peanut in this total market. Luckily, we made a few design win. This helping us to grow ourselves. That's why we are more willing when the supplier ask help, we try to help. This help, we have a confidence to fulfill and to use that. Yeah. Okay. I think Simon Wu has some questions. Let me turn it over, and then we have one that came in on the chat. We can start with Simon. Yeah. Thanks very much. It's better to have the live discussion rather than email chat. Mr. Pua, can you hear me well? Yes, I'm good. Yeah, yeah. Good. You know, number one, your competitor, Silicon Motion, also saying very strong growth in the NAND controller area. I think one of the key reason is the NAND chip makers, maybe from Korea or Japan, even the U.S., they cannot, you know, access well the foundry sourcing, right? Once they design the NAND controller chips, however, you know, they have a limited access to the foundry capacity. Do you agree this kind of view? I mean, the NAND chip makers cannot access well the maybe Taiwan, the foundry. Disagree. I'm disagree. Yeah. In that case, do you think it's temporary or you know, what, you know. For example, it's kind of the structural change [audio distortion]. Simon, your voice quality is terrible. I cannot catch it. The voice quality, I don't know what happened there. Hello? No. Good? Now, okay. Please try. Now, okay. Yeah, yeah. Now okay. My question is. Yes. Hello? Yes, yes. Yes. Please continue. [audio distortion]. No. Simon, sorry. Again. Simon, I can't hear you. What? Something wrong there? Hello, Simon? Yeah, I think I'm using the office phone. That should be okay. Okay. Now it's good. Please. Yeah, yeah. The question is, you know, this trend is a structural change. I mean, the, you know, NAND chip makers need to rely on the Phison, Silicon Motion, you know, the famous companies for their NAND controller sourcing then. Okay. I can really tell you what's the root cause, okay? NAND is getting weak and complicated, so need more engineers, firmware engineers to cover the weakness of NAND. Semicon itself, they may not able to get good enough R&D firmware engineers to cover every product line. They rather prefer to use their internal R&D firmware resources, go to the high-end, high ASP, so-called data center SSD. For client SSD, for they define as a lower SSD, they may prefer to outsource to third party. I think this is the only root cause. Talking about the foundry capacity constraint, again, disagree. Talking about the size, right? The revenue size, Phison, Silicon Motion just a peanut compared to semicon. Yeah. You are saying like Japan and Korean memory chip makers, they can access one of the foundry capacity in Taiwan easily going forward? No, no. Of course. Not? Oh, no. Of course. Basically, since the last CQ4, CQ1, everybody struggle. Everybody, not only semicon. I mean everybody, okay? Even though today. The supply still not enough. Everybody struggle means Phison struggles, Silicon Motion also struggles. If talking about The bargaining power, semicon NAND supplier has a much bigger muscle to talk to the foundry. Rather than Phison or Silicon Motion. I don't agree that statement. Yeah. Yeah. Lastly, I know someone already raising the question. Yeah. You are saying more than 50% of your NAND controllers is now shipping to the NAND chip makers. No, I'm talking about 80%. 80%? Yes, 80%. You are using only the 20%- Yes. Of your NAND controllers designed and fabricated for the internal use? Yes. Yes. You are right, yes. Only 20%? Yes. Okay. Yeah. Okay. Very clear, sir. Thank you. Maybe I'll let the other guys. Yeah. You know, ask the questions. Thank you very much, sir. Their question is talking about the Gen 5. Yes, Phison, we are going to announce our Gen 5 controller, the silicon by next CES January, and try to make the modules MP by next COMPUTEX. Gen 5, basically I think will be good next year in the data center enterprise, but for PC, I believe only the high-end, super high-end gaming PC going to adopt Gen 5. Laptop, until 2024, to me, I still put a question mark because the thermal itself is still trying to find the solutions. I believe, 2022, 2023, the mainstream is still a PCIe Gen 4. Okay. If we have other questions. Hey, for the Gen 4, you've been very strong on AMD platform. Is there much of an Intel player? They'll just skip it and move to Gen 5. Most of your business still off of gaming AMD for Gen 4? Yeah. We are the first PS50 Gen 4 with AMD. Of course, after Intel announced their Gen 4, Phison, we are ready. We are ready to go. Talking about the Gen 5, the question is Gen 4, Phison already made the drive itself up to 7 GB/s read and write. I asked a question to the PC makers. Actually, two days ago, we had a dinner to have a party because we made a big shipment achievement to them. They're happy, so they buy me a dinner and drink. What they're saying is, "Who is going to use a Gen 5 for 10 GB in read and write?" I asked, "Hey, can Windows 10, Windows 11 show the difference of PCIe Gen 4 and Gen 5 drive?" The answer is no. The only difference able to show is in the data center. PC, I don't see is a must to use a Gen 5, unless it's a high-end, super high-end gaming PC. Yeah. Okay. For your data, I don't see a question. I'll ask another follow-up. As for your data center SSD, I mean, you mentioned the bigger memory merchants will focus firmware and development on enterprise. I guess your market entry strategy and how far away the development for that, and it sounds like for Gen 5 that might be the biggest driver or the biggest application. Is that where you're pushing to come in? If there's kind of an updated timeline on the R&D, how that's progressing? Yes, what you're talking about is what I'm doing today. The most important thing today is Phison, we need to show we able, capable to build the drive for data center enterprise. Like three years ago, we tried to convince PC makers, Phison we are good for client SSD, for PC OEM, but the answer from the Tier-1 is negative because we not have a track record. Thanks to AMD, bring Phison into their ecosystem. We make it. It's a miracle from nothing to MP nine months. We get the full confidence for everyone. Now you see we are good in the business. Next year, we have to prove our data center Gen 4 SSD able to ship, able to get design win. The next Gen 5, I believe we have a lot of opportunities there. Okay? This is my strategy. Okay. I think Simon has a follow-up question on the c omponent shortage impact. Okay, when you talk about the NAND market getting softer and I have one follow-up, so I'll ask both. So the softness in NAND, do you think it's mostly a supply, like a mismatch, or is there a demand issue? Then Simon's question is, Is that an impact for the module business itself- Yeah. Affecting the end customer? I mean, if you're there, you can Yeah. You can clarify. Yeah. Actually, personally, I believe the component mismatch is also causing the system shipment. Okay? This is the main reason, but second reason is look to the main population country. Main population at the last six months still suffer under COVID. Okay. So the income from those country is a question. So those are big population country not able to consume the high price products. The price itself raised already 20%-30%. So this is the two reason. But to Phison, I don't see the component shortage impact to Phison because Phison, we are not like semicon is a main supplier. We are just a niche customization differentiation products, and we have the flexibility. So look to Phison's number, I think we are good. Hey, here's a question. The soft NAND, you mentioned about it's a little bit consumption mismatch. I mean, everyone's 40% underfulfilled on logic. I mean, I guess, just looking at industry, do you think there's an element of, like, a potential for that to reverse quicker or do you see the structural driver for that sustaining? Like just that we go from everyone trying to get more to if there is softness in the market, that reversing, and then all of a sudden you don't have the supply issue anymore. Like, do you see much potential for that scenario? Okay. To be honest, if I need to make a very accurate answer, I need to go to ask a fortune telling way. Right. Yeah. Okay, I have confidence because I talked to most of the semicon suppliers except Samsung. Okay? We have no business with Samsung. The rest we talk to them, looks like CQ1, they're able to supply what I'm asking, but start from CQ2, no. The answer is no. You ask me what happened, seriously, I don't know what's really going on there. For sure, the demand in the capacity by unit, I don't believe it's growing, but by content itself, I can see strong growth because triggered by the 5G applications. That's why if I'm not able to build inventory at this period, I worry after CQ2, I have to suffer a lot of business opportunity. Yeah. Okay. We have a few in the chat room. I guess if we hit Simon's question, he had asked about the, it sounds like it's impacting your module. I just wanted to clarify if we caught that. It's impacting your module business, but also OEM customers- No. The component. The answer is no because we are not the mainstream supplier. We are not the mainstream. Simon asking about 4Q, the sales should be declined QoQ. Good question, but October I hit the all-time high, right? October. November, based on the systems, I can see we are doing good. We are doing good. Even though 4Q declining, but I believe it's potentially a single- digit. Yeah. Okay. Would the margin potentially be down a bit as well? Yeah. The answer is yes. But I believe it's not big impact. Yeah. Okay. A question, it was an idea on the second court ruling date, if it's coming, at some time, if you have kind of a timeframe, like whether it's H2 2022 or any estimate in court ruling? Potentially end- next year or early 2023. Yeah. Okay. Yeah. Okay. A question, Simon also asked if you could give an update on the controller mix between the different nodes, like 28+ versus 12/14 nanometer, 16, like how your mix is and how that's migrating? Now our main shipment is best covered by 20 and 12. All the new design today is 12. Next year it's moving to 7. Okay. I guess for your volume production- Today, 20 and 12. Okay. Yeah. Are both nodes equally tight, or do you have better supply you're seeing? 12 by demand is big, but unfortunately supply is still not enough to me. If supply enough, basically it's equal. 28 and the 12 is equal. Okay. 12, just not enough supply? Yes. Yes. Okay. See if there's any other questions. Hey, what time? We're up on 4:30 P.M. Yeah. How long do you want to extend the call? 'Cause we can- Actually, I have the other meeting appointment. Yeah. I'll just give a line last up any follow-up or final questions. Otherwise we can wrap now. Yeah. Okay. All right. No, thank you. Yeah. No, thank you. We appreciate K.S. also joining for helping on the Q&A. Feel free to reach out to Phison as well with any questions or comments, and they'll post the presentation to their website. Yeah. Thank you. Thank you, Randy, and thank you to everybody to attend our CQ3 call. Okay. Yep. Thanks, everyone. Have a good day. Thank you.