Good evening, everyone. My name is Jeff Ohlweiler. I'm Head of Research at Macquarie. Very happy to be hosting Phison's second quarter conference call. I'm just an amateur NAND enthusiast, so I'll turn it over to professional, K.S. Pua, CEO. KS, over to you. Yes. Yeah. Jeff, thanks to you, and thanks to everyone to participate our Q2 2024 earnings call. Okay, this is a breakdown of our Q2 revenue. From this chart, you can see consumer-wise. Actually, in the May when Q2 earnings call, I already emphasized. The retail is very weak. We have no any interest to follow the price to take loss in the retail, so the portion of retail will decline a lot because I have no intention to go there. Controller-wise, the reason is that last year, Q4 and Q1, our NAND company as a customers, they're pulling a lot of controller to get the major share in the PC OEM and the smartphone. So Q2, they did a bit slow down, so that's why ratio although also going down, but from Q3, the demand is bouncing back. A gaming one also reflect the consumer market is weak. The key word today is enterprise. From Q1, 5%, we increased to 14%. This is what I'm keep saying, that enterprise is a trend of the storage. Without enterprise, I think the business gone, so this is good to us. Okay? So this to share with you. And these 17 others, this is a geopolitical impact. China and India, they keep asking to produce the storage by themselves, so this we ship as a CKD. Okay? We ship the flash, plus controller, plus PCB, and then plus manufacturing software to them. They produce in the local. This is only way to gain share in China and India. Okay, so overall, retail is very weak. Without the new business such as Enterprise SSD and our Phison AI On-Prem and embedded ODM, OEM to their PC and the mobile, I don't see the hope in future. The reason is, in retail SSD, the users has no any incentive to buy, because if today you go to buy either a PC or notebook, you already have a high density of SSD, so you no need to upgrade. The upgrade market already passed, okay? So who rely on the retail, who will be troubled. But Phison's good is since four years ago, we keep investing to enterprise, now we can see our full return to the company. So revenue-wise is TWD 15 billion. Gross margin is TWD 5.5 billion, YOY, we have a 75.5% improvement. So this is our revenue. I think we'll announce to the market. Okay? Gross margin rate 34.86%. Actually, we grow than in CQ1. The reason is, we still got many design in business, carry from CQ4 and CQ1 to CQ2. And we also have a inventory write down by 0.5%. If this reflect to the gross margin, gross margin was 35.3%, which is in the high ranking. Earning-wise, earning per share is TWD 11.97 EPS, but the amount of a profit increase. The reason EPS slightly down because, we have a treasury share issue in the CQ1, so the total share number increased in the CQ2. Okay? So overall, the first half, we have a TWD 23.99 earning per share, which is, I think is all-time high in our history. Even though the market is still noisy, but we still hit a really good result to our shareholders. And this is our income statement, okay? The OpEx, we are start to control. Later, I will explain to you. And the total, the financial ratio, which is gross margin, OP margin, and net profit margin, we all improve QOQ, okay? So I'm happy to see this result from our hard-working staff. In balance sheet, you can see inventory. Later, I will inventory breakdown to show you what is our inventory ratio. But overall, we are still doing okay. And I need to emphasize that by flash petabyte, actually, we are declining. We are declining. But why the amount increased? Because the flash itself, the net value increased 3x in a year. Since the last year, August until now, the flash price bounced back three times. So petabyte, we are controlled well, but the net value increased. We have to maintain the enough petabyte for our future business. Okay. In Phison NAND inventory, this quarter, no any big different. Q1, big different because, we issued a treasury share. We need to cover the, write-off of the profit, but Q2, no any treasury share, so almost, slightly different. Just a small different. Okay. Business highlight. In this, Computex Phison, we, first attend, and we announce our aiDAPTIV+, which we already crowded. A lot of, visitors come to Phison to ask what's aiDAPTIV+. We attract a lot of, new customers to this, business. We also launched our PCIe Gen 5 solution to the market, and this product is going to market by September. Okay?... We also win the award from the media. This product is mainly for the image processing products. Last week, in San Jose, the Flash Memory Summit, we launched our 64 TB Pascari SSD, which to be the AI ecosystem. We met five of the storage box maker. They asked Phison to customize the 64 TB. Actually, they are also asking 128 TB. In October, the OCP in San Jose, Open Compute Project, Phison is going to announce our 128 TB to the market. So if you award to this industry, enterprise, Phison was behind. We're just a follower, okay? But today, we are deliver the 64 TB and 128 TB, same as the key player like Samsung, Solidigm. So we are become from follower, now we are able to achieve our positions. So this is a big breakthrough of Phison's, our technology investment and also our future business. We also launched and demo our aiDAPTIV+ Suite We also announced our Phison Pascari in the FMS, which is S-Series, up to 30 TB. This is for performance. Most important is the D-Series for the AI ecosystem, up to 128 TB. This is helping Phison to achieve our position in the enterprise industry. We also bring our AI series to the market. Okay, enterprise, we are proud that from Q1 was 5%, Q2 improved to 14%. We can see the trend. Next year, when Phison, our D-Series, is going to the market, we can see the percentage of the revenue will improve a lot because this is all high density. Give you a number. USB memory card is a single-digit dollars. SSD in retail, OEM is a double-digit dollars, but go to the enterprise AI is four-digit dollars. It's a few thousand dollars per drive. So this will help Phison to gain our share, our revenue. So our goal is to achieve enterprise storage, 3%-5%. This is our goal. And in the second IC, we start to ship, start to ramp up. We gain the, the CSP business, we also gain the server company business. Okay. Again, let me brief what's a generative AI, okay? Now everyone crazy about GenAI, and we believe everyone, you need a GenAI. But how? Give example, 25 years ago, when you start to use a email in U.S., you use AOL, at the AOL, at the Yahoo. In Taiwan, you use, Hotmail, HiNet, somebody use Yahoo. But today, any single company, you have your own mail server. What's the difference? 25 years ago, server from Cisco, too expensive, and this is too new. In the market, only few people know how to install the mail system. But today, the OS is there, the package is there, the server is so cheap. So use the same theory. Now, the cloud-based GenAI service, you can... GenAI can only be cloud, because too expensive, hard to use. So future, is this going to on-prem? Based on the mail server system, we believe the GenAI will go to your server room in your company. But how? The reason the cloud-based today is, people using, because you got no choice, no other candidate, no other solution. But in cloud, still got the two issue, which is hard to solve. First, you are not going to share your sensitive data to cloud. Second, once you subscribe the cloud service, your fee will be escalating. You have to pay your whole life, okay? So go to Phison aiDAPTIV+, you build a server in your server room, your total costs are already there. So you know your payment in the future, just there, okay? And you can put your data in your server room. You can trim by yourself. And Phison already start to deploy a lot in our server room to let my people to use. So up to today, we have more than 100 aiDAPTIV+ POC case in the market. A lot of the AI one that start to ship, and also we have a lot of project ongoing to develop the software for our cu- customers. Recently, we are working with one of Taiwan local hospital to help them deploy our aiDAPTIV+ with our proprietary software, to install into their server room to service the whole hospital. If this success, we will take this as a model, start to sell the software to any other hospital to improve our gross margin. We are glad to share this news with you. NVIDIA is going to event at the Shenzhen and Chengdu to promote the adaptive. Joint promote adaptive. Why? Because adaptive finally been recognized by NVIDIA as the best and only solution to go on-prem. Okay? So with the GPU card supplier to promote this, I think my life will get much easier. I no need to, no need to keep talking to anyone because the big guy already there. So we are going to send our people to Shenzhen. This happened by August 21st and August 23rd. We are going to make live demo to the users there to help them to promote this to the market. If this going smooth, popular, and we believe the world will see this going to happen. And you also agree, gaming GPU, starting from U.S., but popular in China. Mining start from U.S., but popular in China. So we believe the Edge AI will get popular in China. Phison, we are able to have this achievement just because of heavy investment, okay? We keep investing R&D, and we continue to keep invest. Okay? So back to today's summary. We all agree, and we observe for the desktop and notebook, which ship to the market already pre-installed the high-density SSD. The users got no any incentive to buy the upgrade, so the low-end retail SSD is going to decline, retail market very fast. In retail, the market will be there, only like high density, high performance, high quality, and gaming. This is good to Phison because Phison, we have all the in-house solutions, and this will be to the module house, the pure module house. If they got no any new technology, new products, they will suffer the declining of the share and revenue. And with our AI, we are good to have a GPU company to co-promote in the market. Okay, this will helping Phison to make this popular very, very soon. At enterprise, we've been follower, but now we achieved a good position because we're going to high-density products. We launch same time with the big guy. In automotive, Phison keep investing a lot, and we gain a lot of share in the EV, mainly in China, U.S., in Germany. In Japan, we also get our share from the hybrid car business. By the way, we also get a lot of design win with the PC OEM. The client SSD without PC OEM, gone. Retail is gone. But Phison, we have a controller to the NAND company. For PC OEM, we are key player. We also have a module direct design in, into the PC OEM. Okay. Then we finish a few Q&A, then we go to the online, discussion. The dividend will be TWD 13.19, which is 55% of our financial book, EPS TWD 20.99. I need to highlight one thing. Treasury share, we write off around, I believe it's TWD 1.2 billion of the, the, the overhead. Right now, we are not considered this as a dividend for two reasons. We have a CB. One is going to be, expire by end of this December. The current conversion rate is still low, so potentially we may need to buy back the CB we issued. I believe this may not going to happen, but we request by our governor, to keep some financial backup in case we need to buy back, but I don't think this is going to happen. Second, we get a lot of design in into the enterprise with high-density drive. We need start to prepare our inventory for our coming CQ1, CQ2 business. So board members decide to keep the high level of cash flow instead of pay dividend of that. But the treasury share happened by 2024. We are going to pay back the dividend to the shareholders by second half next year. Okay, we keep the commitment, but we just need to keep our high level of cash flow for our coming enterprise business. And a lot of market analysts, they worry about the so-called inventory risk, so I break down here. Controller is very, very safe, 70%. Industrial, mainly is a legacy and EOL flash, special for automotive. And the cost, we accumulate this happen by 2022 and 2023, so the cost is very, very low. Enterprise. We need to increase our enterprise ratio because the business next year mainly coming from here. Embedded ODM is a design win to the PC and the smartphone and some systems, which is follow the customer forecast. Of course, Q2 smartphone is very, very slow, but now we got a lot of inquiry for smartphone. Bounce back for the Q4 Christmas season. PC OEM was very good in CQ1... CQ2 very slow. CQ3, we need to watch the CQ4 demand. Retail is around 20% of revenue. So Phison, next, the buying policy, buying more in enterprise, buying less in the retail or almost not going to buy in retail, okay? So the risk exposure in their inventory, I think, is quite low. A lot of shareholders also complain, when Phison business going, doing good, earning good, overhead increase because headcount increase, okay? But look to the 2023, 2024. Even though our project from the name company, from enterprise, from AI increased a lot, but headcount increase is limited, less than 5%. Why? First, I care about the OpEx, because I already saying that we are not going to increase the OpEx anymore, okay? Second, we start to deploy our AI adaptive in our internal use from April. This improves our second time and improves our efficiency, okay? So give you example here. We develop a lot of controller for automotive customers and the same company. When engineer finishes a C code design, they need to typing, writing to article for certifications. So they finish the code for one day, they need to write article for three days. But now we use our adaptive, automatically convert the C code to the Word, to the document. Then you can see for the one function in the past, we need 20 engineers working for 17 weeks. But now with the GenAI support, four engineers with two weeks. This increase a lot of efficiency and also reduce a lot of headcount. So we are going to deploy more GenAI into engineering. Not engineering, in the whole Phison activities, we are not going to increase headcount, okay? But we are going to improve our cycle time with our aiDAPTIV+ to prove this is really helping us. At the end, the earnings definitely will improve. So ESG, I think, our score, from 2022, you can see from, ranking 3, now go to 4.1. The full point is 5. So we can improve our, ESG, okay? So I finish my, presentation. You can go to the online Q&A. Great, K.S. Thank you very much for that presentation. I guess the first question, that's great to break down on the inventory. That's very helpful. If you look at the cost of inventory versus current NAND prices, is there a pretty big gap between your inventory costs and NAND prices now, or is it pretty similar? Industrial-wise, it's much lower than current price, okay? Enterprise, actually, we also accumulated some inventory since last year's 2023 CQ1, CQ2, which still there, because we think at that time, we prepared this inventory for the design-in business. But from now on, from now on, going to buy the new flash for future use will be market current price. But with the enterprise today, our cost still very competitive. For retail-wise, not because of my cost high, just the end market price is low. China module house are dumping, everyone dumping, so that's why, in this part, I'm become more slow selling. So I'm also trying to convert some flash here, go to embedded and go to enterprise. Overall, our inventory still very healthy by average cost, still very healthy than current market. With today's NAND market price, we are much far lower than market price. Okay, great, understood. And just a reminder of people calling in, I'll ask a few questions first here, but feel free to raise your hand. We can, you know, you can ask questions next, and also, if you have a question, you can put it in the chat box as well. So also, K.S., I guess, just in terms of overall demand going into the second half, you know, how are you seeing demand half on half? Obviously, a very strong year in your growth. What does second half look like? Okay. Second half, I talked about CQ3. You can get from the market, right? Consumer is very, very slow, okay? This is, I think, not my issue, but we also can see by CQ4, the Christmas season coming, smartphone demand start to ask for a new order. PC OEM, not yet, not yet. Gaming already start to prepare some asking for CQ4 shipment, gaming. This is all about the season, okay? But enterprise, very strong. Very strong, okay? We don't have enough power to ship to get the project for CQ1. That's why we need start to keep cash to buy the new flash for CQ1 demand. So overall, CQ3, weak in everything other than AI and enterprise. We can foresee CQ4 retail will bounce back, but how strong? I don't know. Depends on interest rate, okay? But Q4 AI will be getting much stronger, enterprise getting much stronger. Okay, great. Since you have this chart up, can you talk a little bit about the difference in the margins if you go, you know, if you go from enterprise, industrial, embedded and retail? Can you talk about major kind of gross margin differences there? Of course, the highest is the controllers, the highest, okay? The lowest is retail. Retail now is already bloody. Yeah. Industrial is really stable, really healthy, because the price, cost is there, price is there, so really healthy. Embedded OEM, recently, really challenging because the demand is low in the PC OEM, but in the smartphone, start to bounce back. Enterprise depends if we go to the mainstream-... cut mainstream, which is name guy, name company there. The price is very, very challenging, okay? So that's why we go to most likely a lot of customized. Customer asking for special function, customization, this one we can keep some better margin. Does this chart give a good sense of, you know, maybe revenue breakdown in a few quarters from now? I think for sure, by Q1 next year, you can see enterprise portion will be much bigger because this reflect our future trend of enterprise. Retail was shrinking a lot, shrinking a lot because I don't see retail can be healthy after Q4. Industrial, I think, will be stable. Okay? Embedded OEM, the reason good because we get several new design in. This will be okay. So in the coming few quarters, for sure, controller we're there because we got name company, industrial flat, enterprise increased a lot, embedded most likely flat. Okay, great. Three months ago, when you reported first quarter, you talked about your NAND suppliers were kind of almost telling you they're not gonna be able to give you as much as you want this year. Has that changed at all the last few months? I mean, do you feel comfortable with what the NAND makers are, you know, offering you now, or is that pretty much what it was three months ago? Okay. The NAND supplier, they also supply the flash for industry, supply flash for enterprise, and supply the flash to the retail. Overall, for retail wafer, they keep asking Phison to buy, but I have no any intention to buy because retail is bloody. Okay? But for enterprise, we talk to our supplier, they are shortage. They are shortage. So this is, the other challenge to me. I need to negotiate and to ask the LTA for next year. So I guess before I thought this, you know, NAND used to be, you know, more of a commodity where you could use the NAND for, you know, any kind of end market. So now you're saying the NAND you buy is really specified for each end market? No, no, no. Any NAND can go anywhere, but you need controller, right? Yes. Enterprise control development, the cycle time is 14 months -18 months. months. So when I decide to pick up any flash to go enterprise, I need to lock this supply. Okay? I can't use a retail. Okay, today, if I have a company, retail flash, which available, I cannot go to enterprise tomorrow because I need 18 months from design to go to market. Mm-hmm. Okay? This is all about the design activity. So when we decide to go enterprise with our NAND supplier, we need to have a contract with them for price and long-term supply. Mm-hmm. Yeah. Okay. And maybe for the enterprise end market, can you talk a little more about the customer base and, you know, how that's evolving as you get, you know, more and more sales there? Yes. Okay. Basically, the NAND supplier, they prefer to go to the big CSP, one order, $few hundred million, okay? With the one category. But Phison, we are not going to that business. We go to a lot of system maker. They try to differentiate their systems, and mainly for AI. So we customize this design to them. Okay? So Phison business enterprise is mainly in customization, not standard part. Okay. Yeah. In terms of pricing outlook in the second half, do you see any major moves? Obviously, we had very good movement in NAND price over the last few quarters, you know, outside, you mentioned retail, maybe a little low, but any kind of ASP changes you expect in the second half? NAND company, regular business, they still have no intention to lower the price. By quarter end, quarter end, especially in the retail part, they got a lot of second-binning retail wafer. They may offer some more aggressive price, but for enterprise, they have no any room to negotiate the price. So it means the price in enterprise still strong. Okay. Yeah. And any comment on your market share in the PC client SSD market? Because obviously, it's been an area that, you know, you just entered recently, and, you know, how is your market share progressing? Okay, this is hard to say because China, a lot of downgrade retail, we got no number, right? Mm-hmm. But for PC OEM, we are increasing because we get the tier one direct design in business. Okay? Okay. In retail, because it's a lot of China is under cost dumping. I have no intention to follow, so we give up the market. Okay. Yeah. I think we have a hand raised from Jason. Can we unmute Jason and... Thank you. Thanks for taking my questions. Me again. I just wondered, how do we look at your gross margin, probably in second half or in coming quarters? Because it's like your product mix, it keeps improving. So, but you just mentioned that probably pricing for retail is not so good. So how do we look at this kind of improving product mix to sustain the gross margin in coming quarters? Thank you. Okay. Retail-wise, okay, we believe, supplier may come to us to offer much average price by quarter end, we believe, okay? It's not done yet. So in this case, may helping our gross margin, but it's hard to say, depends on their policy. Okay? For enterprise-wise, I think, for design in customize is a better margin, okay? But we also suffer the NAND price increase from the suppliers. Okay? So the goal is to keep the gross margin flat. Our goal. But the goal is margin flat, but revenue improve next year. Then we are going to gain our net profit improve. Okay? Got it. Got it. Got it. Yeah. I have no more questions. Back to you, thank you. Yeah, and KS, I guess, you know, your growth this year, year-to-date, you know, is very high. I think it's like 60%+ year-to-date for your sales growth. Can you provide a little bit of breakdown between that big growth and, and ASP hike? I think we get to this, breakdown. Let me see. I guess the follow-up question, that would be, you know, how does next year. We talked about revenue growth next year. Is that coming from ASP or is that coming from bit shipments? No, next year, growth, definitely enterprise. Enterprise and embedded ODM and controllers. Consumer, again, like USB market, right? USB was helping us go to the $1 billion, but recently USB only like single digit, low single digit of our revenue. Why? Because legacy. The SSD to retail, definitely next year will be legacy, okay? So in order to grow Phison, enterprise is our first choice. Embedded ODM is, one, is, important. Then to improve our gross margin will be AI adaptive. This is a high gross margin products. Okay. Yeah. Can you maybe talk a little about the aiDAPTIV+, gross margin and why that can be so high? Because this is a niche, Phison, we invent, we got patent, we have no competitors. And with our adaptive, the system can improve their value in the systems, okay? And Phison will not only provide the just a single hard drive, but single SSD, but we also deliver our software with license. And with software, gross margin is 100%. So make it simple. Next year, the revenue growth will be for enterprise and PC OEM. Of course, controller, we gain many project from the Nanya, but growth margin can only come from adaptive, because this is a really high growth margin rate. Okay? Okay, great. On the controllers, can you talk a little bit about the foundry pricing and just general controller ASP momentum? ASP since 2022, 2023, Nanya losing big money, we also wanted to support them, lower our ASP, but recently they also support us to give better gross margin rate, okay? So in gross margin rate, we are going to improve. In the wafer foundry, basically, since Phison, we show we have much better synergy. We got some rebate system. Means that we buying wafer, the rebate will come back to us after quarters. So overall, the cost may decrease, but the gross margin will slightly increase. Okay. And I've got a question on the chat line here. So just talking about first half and second half, so in second half, I guess it's gonna be, you know, pretty much in line with first half revenues. But is that for retail or for all businesses? I think retail will have some big business deployment to the market in CQ4. Adaptive, it happen in CQ4, will be very helpful to Phison. Okay. You've also already had, you know, already very strong first half, especially on, you know, the margin front, and obviously the OPM in the second quarter was very strong as well. For the next, say, maybe six months to a year, what, what's your biggest concern? My biggest concern is the NAND price of my enterprise business. If NAND still keep increasing that much, then I'm in trouble. Okay? Yeah. Okay, but we gain a lot of business there, so I think I have bargain power to talk to my NAND suppliers. Second, retail, again, I keep mentioning retail, retail don't expect that much. Only season business, okay? Third, PC OEM, we keep working very hard. Next year, we are going to gain the Gen5 design win business. This helping our margin. Last, next year, if talking about growth margin, adaptive will help us. So we need to push adaptive, go to popular as soon as we can. But again, with the GPU company adaptations, this will help us a lot. Okay. All right, so we got a question here, hand raised from Donald Jung. Do you wanna unmute Donald? And Donald, you wanna ask question? Yeah, sure. Thank you for taking my questions. So I have two questions on your retimer business. So you mentioned you have, like, two CSP customers. So I just want to clarify, these, are these like general servers or like NVIDIA H100 AI servers? Not yet AI server, not yet. It's a CSP general-purpose servers. Got it, got it. And, like, what is your strength in this market? And do you have, like, a target market share? Because we know there are some other competitors in this market as well. Okay, Phison, we are latecomer, okay? We are latecomer, but our first—we would go to MP, and we got many designs in. Of course, now we are convincing the CSP and GPU makers that we are pin-to-pin, bump-to-bump, nothing change, and we can give much better cost structure, okay? So a lot of activity ongoing, but anyway, we are latecomer. Latecomer, of course, I hope our first version can get a share. Yeah, we are getting a share, but with a high, high risk major share, we need to work very, very hard, but we got the open window in Gen 5. Next will be Gen 6, okay? And in Taiwan, a lot of server makers, right? Of course, not the mainstream, but the one cost down, we already got many projects from them and start to ship for cost down purpose. Okay? Yeah, got it. Thank you. Are you going to, like, enter into the AI server market? Of course, we try very, very hard. We try very hard, but you know, this is not easy, right? Yes. Got it. Yeah. Thank you very much. I'll get back to the queue. Yeah, can I ask maybe a follow-up question on the Retimer? So why do you have a better cost basis than some of the players who have been in this market for a while? No better cost. I think the cost are more similar, just overhead. Okay. The leader, you see that last year, they are only supplier, they're still minus in the net profit, right? Mm-hmm. Even the interest 70% means overhead. Phison, we are good in overhead. Okay. On OpEx, you know, I think if you look at first quarter, second quarter, you had about a TWD 700 million drop. You talked about the treasury shares and also, you know, employee bonus. Is that gonna... Is the second quarter level, you know, is that gonna be pretty flattish for the next several quarters in a row? Yep. Or is there any other kind of, you know, one-off on an annual basis that should come up in, like, next year and the year after? Okay, Q, Q2, Q has treasury share, yes. Then Q2, we made a good profit, so we also tried to write off more bonus as a reserve for our future use. Q3, Q4, I think their OpEx was slightly lower than in Q2. Okay. Yeah. You know, looking at, you know, short-term monthly sales, you had a bit of a drop July, month-on-month. You know, when do you think you're gonna start to see that month-on-month momentum start to go back up again? Okay, this just because of retail business. Mm-hmm. Okay? And the PC OEM slow down. We hope by September, October, when the market for, for, for four season, the retail is coming back, PC OEM slightly back, and the price, of course, we gain a lot of opportunity. And of course, when we improve that business, right, gross margin will be a challenge. You know, we're buying high, high price in NAND, okay? And need to go to the market with the market price. Okay. The margin is slightly low. So we expect adaptive. We need to start... Actually, we start to ship, but not that many. With the GPU company adaptations, to help promote to the market, we need to ship more adaptive to the market to improve our gross margin rate. Okay. And we have a hand raised here. Simon, do you wanna unmute Simon? And Simon, please go ahead. Simon, you want to go ahead with your question? I think, again, technical issue. Okay. Well, maybe I continue, and Simon, feel free to jump in when you're ready. So I guess for your China subsidiaries, you know, I guess you had some, you know, positive, negative quarters, especially last year. Any kind of, you know, major gains or any kind of potential losses from those subsidiaries this year, or, you know, what do you think next year? So, sorry, I didn't catch the point. Sorry. Like, for instance, Hosin Global Hosin, oh. Had a big impact on a couple quarters last year, you know, both negative and positive. So any major kind of, you know, subsidiary gains or losses that you expect? I think coming few quarters, okay, we suffer a big loss, 2022 and 2023 first half. Then they return to very profitable, 2023 and 2024 first half. I think it's all about inventory, okay, and the China market. I think in the coming few quarters, we are able still to get the, profit distribution from them, but the number will be quite constrained because the China market is there, right? You already can see China market. Okay. Yeah. I know, you know, in the past, you talked about a lot of your enterprise team was in Colorado, U.S. Can you give a little bit of, kind of overview of your R&D team globally and how you know, one, it breaks down geographically, and two, how everyone works together? Okay, the whole R&D headquarters still in Taiwan. Colorado, actually, they did a good job. When we gain the, around 5, storage box maker in U.S., the reason they come to us, not because of Phison design, we have a support in U.S., okay? And those companies, they also have a R&D team in the Colorado, which is our neighbor. So the Colorado team helping us to get a lot of opportunity. Other than U.S., right? We also just established a team in Malaysia. The reason is, pushed by U.S. customer about Taiwan Plus One. Okay? Malaysia team, mainly is going to enterprise, automotive, and AI adaptive. At the same time, China and India are also asking for, local design, local build, national products. We got no choice. So we already have a China Xiamen branch, mainly focused to the enterprise development for China market. India, we also start to find out any partner to make the joint venture India to support India market. So this is our overall, our maps in the world. ... Okay, great. I see we have a question, coming in from Terrence. We gonna mute Terrence, and Terrence, wanna go ahead with the question? Yeah. Hi, just a quick one. For aiDAPTIV+, right, are you also constrained by enterprise NAND? Or you can use any NAND and just use your own controllers. Okay. Basically, when NAND company, they produce the wafer, the NAND wafer, there are only one wafer, nothing to do, nothing to define as a customer-client or enterprise. Only one wafer. Just after package, go through the different, testing, different trim, then they define, "Oh, this is a client, this is a, enterprise," but the material is, similar. Okay? Phison, we are capable to take the wafer, to pack the wafer, to pack the wafer to the package, going to client and go to enterprise. Because we got all the NAND's know-how, we have the controller, we have algorithm, we have a packaging team, we have a production team. So this is Phison's value. So to Phison, wafer is only one wafer. Okay? Got it. So, Adaptive is not constrained by enterprise? No. Uh, yeah. The Phison can survive just because we get the one wafer. We can supply to low-end consumer and super high-end to the aerospace with the one wafer. Okay. So earlier, when you said that your enterprise NAND is, you are constrained by the suppliers, just because you don't have that- No, no, no, no, no, no. - specific controller. Clarify again, okay? Okay. Every NAND supplier has a different flash technology, but the flash, we need to use controller to build this to enterprise drive. But controller develop one single NAND will take 14 months to 18 months to mature, so this is a heavy investment. So when we decide to go one single flash to enterprise, we cannot change to other flash tomorrow. We'll need 14 months to 18 months. So the constraint is, when I pick up the flash, I need to make sure the supply and the price is consistent. Okay? Okay. Understand that. Thanks. All right. Should we try Simon again? Yes. Can you hear me well? Or... Yes. Okay, great. Yeah. Thank you very much, Mr. Pua. Number one, yes, great pie chart regarding the second quarter inventories. So number one question is, you know, over the past several quarters, your inventory is always $30 billion, according to your balances. So any reason why you maintain such a high amount of the inventory consistently? Meanwhile, your revenue has been growing. That means you've been buying the NAND chip as much as you selling your NAND product every quarter. Okay, we increased our inventory since 2022 because we see Phison made a lot of design win. Today, when you're talking about the amount is $30 billion versus the two years ago $20 billion, but the petabyte itself, now we are declining. The reason is, the dollar amount increase, just price improved 3 times within a year. So our petabyte and the component unit actually is lower than years ago. Okay? And the reason is, we keep collect the same amount of petabyte just because we got the forecast from the customers. We have a demand from customers by petabyte, but ASP increased 3 times in a year. So that's why the amount increased. Okay? So your volume down, but the price up- Yeah. That's why your inventory value is TWD 30 billion? Yes. In that case, sorry for the accounting question, you know, the, you have to recognize the inventory valuation gains a lot- Yes. in somewhere in your statement. No, no, no, no. No. no. No. In the past, right, we keep buying. Yeah. We keep buying. By quarter end, some name vendor asking to lower the price because they ask Phison to take. Mm. So by quarter end, we need to write down our inventory because we buy so cheap. Yep. Mm. Okay? Okay, very clear, sir. So going forward, you think you can get more NAND chip at lower price these days? Because, you know, NAND chip makers are increasing the utilization ratio. Answer is, yes and no. Mm. No, just because enterprise demand is very strong. I think you agree, right? Mm. Yeah, but by quarter end, consumer is so bad. Mm. They may need to dump some wafer to consumer customers. Mm. In this case, I'm able to buy cheap in quarter end. Yeah. Yeah. Yeah. And then very quickly, the July revenue declined, you said, because of the retail business, consumer demand no good. But why suddenly the July data points weakened versus Q1, Q2, broadly great? What happened to July, and why this is a one-month specific or a short-term issue? Okay. Day one, this month, if I collect the order, the revenue will deflate only after two months. You agree, right? Yeah. ... The order we get, shipment is behind 6-8 weeks. So in May, my earnings call, I already saying that retail is bloody, I have no interest. So from May, June, July, I asked myself, "Don't take any retail if minus margin." Okay? Mm. So that's why delaying the revenue from May, June, to July, August. On the other hand, enterprise still flat increasing. Mm. Okay? And the second thing is, for some reason, after June, July, the market suddenly frozen. I don't know why. I think you agree, right? Other than AI, smartphone, PC, this and this, that start to go slower. Only AI getting strong. So our enterprise still doing good, AI adaptive improving, but the PC OEM and by the OEM and the retail are very, very weak. So you think it's a matter of the overall, the macro demand issue? Because six months or so ago, memory makers have said, you know, maybe some demand can recover, better situation, et cetera. But these days, yes, many people are saying only the AI-related product strong... I mean, the AI server strong, others not good. So- No, we already, we already smell that, Q4 seasonal coming, the PC OEM, the retail, some gaming start to ask some inquiry. Mm. Okay? This is seasonal. Yes, AI is, is very strong. All the box maker, they ask about high density of storage. Okay. Okay, lastly, sir, so overall, any rough idea what percentage of your revenue, you know, for the AI adaptive solutions? Maybe 1%. Well, well, well, it's more because it's just a start. Mm. This is something like NVIDIA start to talking about AI computing with GPU, right? Yep. Nothing happened before 2021, after ChatGPT. Yeah. But the good thing is, at least, we already doing very hard to deploy our products to the market. And the key point is, our GPU partner, they are going to promote this to the market. We have a co-announce, co-activity, start from China, Shenzhen, and Chengdu. Mm. You mean the here, this company? Yes. Mm, mm, mm. By the way, this is not we use. They already have an invitation letter to the public. Mm, mm. Yeah. So maybe 1%-2%- Not yet. Of the total. Not yet. Mm. But next year will be significant. But, even late this year, very small. You know what? This is totally new design. New design, I see. New design, okay? Mm. I believe after this event, Q4 can significantly increase, and next year, I think I can enjoy the business. So today, your enterprise solution is mostly typical conventional server storage, maybe ten- No. Terabyte. No. Yes and no. Some legacy, yes, but we are dual core. But most our business is coming from design in and customizations. So any example how to understand your enterprise SSD product? What I know is mostly TLC based, maybe, you know, what, 10 TB, 12 TB level. Any rough idea, your enterprise solution specs? Okay. Today, today, our shipment is here. Yep. That is a TLC. Mm. Gen 4. Gen 5, coming by Q4. Mm. Okay? Mm. This small, very small, okay? Still like, 32 TB. Mm. We are going to go to 120 TB by CES, start to ship for AI system. Mm. Mm. Of course, the SATA drive legacy, right, is major is 8 TB, 16 TB. Mm. Yeah. Mm. Is it based on your controller, yes? No. PCIe. Based on what the market needs. This series is all QLC. Okay, this one is QLC? Yes. But the PCIe Gen 4 controller is yours or outsourced? Phison only use in-house controller. This is Phison policy. All the design from silicon, IP, integration, software, firmware, service, only Arm, we license from Arm. The rest is in-house. Here, the PCIe 4 TB, up to 4 TB or even up to 960 GB is your own controller? 100% in-house controller. Yeah. And then again, they're fabricated by UMC these days, or TSMC, or? All TSMC. TSMC. 12 nanometer these days, or? 12 nanometer and 7 nanometer. 12 nanometer and 7 nanometer? Yep. Okay, all clear. Thank you so much, Mr. Huang. I appreciate it. Thank you. All right, we have another question here from G.H. Is that Gordon? Can we unmute G.H.? No. No? Mr. Huang. Yep. Okay, I guess a couple more questions we can ask. Like, number one, inventory. Is there a set number of, like, inventory days or an amount where you wanna be? Or is it really a moving target, given, you know, the changing end market and products? Actually, if I'm going to control this, that, this, right? Then the person will be constraining the business. This is difficult, okay? First of all, flash is not produced by ourselves, right? Yeah. When Nanya willing to offer the low price to us when not just buy it. Mm-hmm. Right? And Phison, we can gain business just because, in the some critical time, we got inventory. So I have no any much concern about the, what the shipping day or this or that, but this is only way to fight, make Phison stronger. With good enough inventory and a lot of energy, activity in the controllers. Mm-hmm. We are able to, you know, differentiate our value, then we can grow the business. Okay. So Phison is like Walmart, you know, like Walmart, where but you have $0.99 products, and you have a few thousand products. Yeah. Okay. Yeah. And my last question, I guess we can, you know, see if anyone else has any questions that to end this off. But, you know, when you market AI Adaptive Plus, you know, obviously you're marketing together with the GPU supplier, but given, you know, the costs that you're offering versus, you know, their high-end, you know, sales for millions of US dollars, do they not like your product because it could take some market share from their higher-end stuff, or no, is it just different market? No, no, it's totally different. Totally different. high-end, high-end is a multiple $ billion, right? This is normal business. Yeah. We're just helping the Gen AI go to the on-prem, like, okay, this chart. Okay? Without adaptive, without adaptive, I don't believe Gen AI can go to on-prem. Mm. Okay. Then you're talking about the on-prem versus a cloud GPU amount. GPU on cloud, few million piece, right? On-prem can be a few hundred million set of a server. The amount of GPU is a lot, much more than the cloud, but of course, the ASP is a bit different, okay? Mm. Cloud already have a good enough GPU for high-end, but on-prem is nothing today. But we believe on-prem is a trend and definitely will happen. Like new server today. Okay. Yeah. All right, great. Yeah, I think we're almost at an hour here. I don't see any hands raised. So, K.S. Pua, thank you very much. Back over to you for any kind of final statements. Okay. Again, I think Phison just wants to show all the analysts, investors, that Phison, the value is not asking a name price. Our value is we are able to create a lot of new products, can fulfill what the customer need. In our future trend, enterprise is a big growth, no doubt. And most likely, Phison is only third party other than Huawei, okay? Huawei is a third party, can serve enterprise SSD market because this unit and engineers the technology and finance ecosystem. Other than this, Adaptive can help improve. Adaptive is a trend. All these solution go to on-prem, no doubt, no, no, no argument. This can help Phison improve our gross margin next year. Okay? Great. Yeah. Thank you, everyone. Thank you for your time today. Thank you, guys. Thank you. Bye. Bye.