Good evening, everybody. My name is Jeff Ohlweiler. I'm Head of Research at Macquarie, Taiwan. Very happy to be co-hosting Phison's first quarter 2026 earnings conference with CEO K.S. Pua. Interesting times in the memory market, so very, always very happy to hear K.S. talk about demand. With that, K.S., I'll turn it over to you. Thanks, Jeff. Good afternoon, good morning, good evening, ladies and gentlemen. Let's have Phison our 2026 CQ1 earning call. In the CQ1, anyway, we change our presents slide here. We try to make something to highlight in this chart. Now we try to different our revenue portfolio. We build the so-called AI ecosystem modules, which including the eSSD module, aiDAPTIV+ solution, AI PC, networking, which we are shipping right now, AI servers, and also the bootstrap for the server OEM, ODM, and also enterprise AI. This is 38% of our CQ1 revenue. Believe in the coming years, AI ecosystem modules will be our biggest revenue cash cow, and we believe sooner or later, this will over 50%. Embedded ODM, we have mainly is mobile ODM, PC ODM, and the gaming module. Phison will gain the share in the mobile controllers, and also we gain the share in the PC ODM controller and also in the modules. DapuStor supplies for me is industrial module. Even though the supply is tight, industrial module still very stable, growing, and this can contribute more the gross margin to our business. This also reflect with the Phison heavy R&D investment. We win a lot of trust from IPC makers, automotive maker, and also in the space solutions. Controller-wise is around 10%. Not because they're declining. Actually, year-over-year, we're still increasing by unit, QoQ, around flat, just because the revenue growth too much by our AI ecosystem modules and embedded modules. Retail is, we already highlight, just only like below 10%, and we can see in CQ2, potentially, retail modules still declining. With this kind of our portfolio, we are great to see Phison is migrate from the consumer embedded. Now we are in the AI ecosystem partners, and we name this as Phison 3.0. We are going to present you later in the more information. Financial result, you read the revenue-wise is TWD 40 billion, and the gross profit is TWD 25 billion. Okay. Is this CQ1, every index, all 100% all-time high, every index. Okay. Revenue-wise, all-time high. Gross margin, 61.3%, also all-time high. We also be more conservative. We still have some inventory write-off, around 1.5% of gross margin. We play conservative, and some material with just long, long lead time, long stay, we just write off to make sure the company has a much better visibility in the future. [Non-English content] Earning-wise, the EPS is TWD 68.8. Is again, all-time high. And in this TWD 60 point, we have around TWD 10 coming from the investment gain. Okay, we have JV in China. We have. This is coming from investment, but our main business still doing great. Okay. By inventory write-down, we still spend like TWD - 2.3 something, okay, be conservative. [Non-English content] Income statement. Okay. I think we need to highlight is, of course, gross margin already, we share to you. QoQ, we increase in revenue profit. One thing we have to highlight is our operating expense, and this is mainly R&D expense. CQ1, the number increased that much just because we have to keep investing to the new node. We migrate to the 4 nm. We have some mask costs. We are just write off the mask costs. We have a lot of AI storage system development and R&D expense, R&D talent recruitment, and to have more incentive to engineers. This is just because we like to have a heavy R&D investment to make sure we can create more value in the coming futures to improve our earning. I name this is value creators. The value creators mainly coming from heavy R&D investments. I need to emphasize again, don't put Phison compare with other module house. We are highly commitment to keep invest to the R&D. This to make sure we got a good return, not only in gross margin, in the earning, in the net amount, and also influence power in the industrial. This is Phison's DNA. Heavy investment, we get a good future. Don't keep asking Phison compare with the module house, compare with others, and also don't keep asking about the inventory issue. Inventory, good. We still can create the value because we name ourself is value creators. Non-operating gain is contribute around TWD 10 just because of the investment and then some JV returns. [Non-English content] In our balance sheet, everyone may concern about inventory. Inventory growth by QoQ is 200%. Again, I need to emphasize not because we like to buy, just because we foresee in the coming August to December, we may not able to get good enough of a wafer fresh component. We have to, since we design win into our system partner, AI partner, automotive partner, PC partner, we need to make sure we have a continued supply in the CQ4. Otherwise, we need to keep collecting component for our future use. Again, you may ask about inventory cost. I just emphasize again, we have a confidence to manage this inventory no matter the so-called low cost or the market price. We are able to use our inventory to create good enough of return for our shareholders and for employees. Okay. We have some TIF and NAND TIF comparison. Basically, it's not much different. Phison last year, August or September, we issued a stock auction to our staff, so this create some cost. You can see the difference between TIF and NTIF is small gap. We not issue that much, so the differentiation is not that much. Our April the revenue is TWD 20 billion. Again, it's all-time high. Again, we still facing the fulfillment to our customer now around 30%-35%. We're still not able to meet the 100% fulfillment. We still go to ask our suppliers to give us more upside in component. We also do all our best to get the more design win in the AI systems in a lot of new applications. We still need to get more supply for our, this, second half, business. This chapter we'd like to share with you, how Phison we name ourself from the Phison 2.0 transfer to the Phison 3.0. We try to name ourself become the name flash value creators. Again, we no need to spend time to explain why shortage, how shortage, how long the shortage. I think this already, we agree this is a fact. Since it's a fact, from Phison's, our revenue, portfolio you already know, we aim more to the AI ecosystems. What is our product line in this AI ecosystem? We have a retimer, the driver. We have a eMMC for server boot drive. We have a lot of AI software applications. We have aiDAPTIV solution. We have enterprise SSD. Later, we also like to disclose with you, we are now start to build AI data platform, Phison's proprietary AI data platform for the on-premise solutions. This is all about the AI ecosystem, mainly for cloud, for server, for hyperscale, for near cloud. Let's go one by one. This category is boot drive, okay? We already got two design win and one new happen in the CQ1. For OEM, we have three design wins already shipping, start shipping. Unfortunately, the fulfillment still below 35%. In hyperscale, we have three design in, and according to the forecast, the MP was starting from this CQ3 and CQ4. We again, we need to ask for more NAND flash supply to us to make sure we are able to ship. For the AI platform, this is mainly for networking. We are already shipping, and we keep collecting more material for our second half upside demand. This category is mainly main drive. Main drive means high capacity drive, up to the 122 TB enterprise SSD. We got the two OEM shipment, and in the Phison's, our top 10 customers today, we have six are named as AI ecosystem customers. Hyperscale, the infra operators, we have two design win, and we're shipping SR5 already from February. In the AI SoCs systems, we name this a near cloud. Seven total players, we are there. 100% we cover. Three are new. We ship every month. Some of them are already inside the Phison top 10 customer list. The infra software platform, we also start to engage with the software platform to make sure aiDAPTIV able to go smooth to the market. AI enterprise customers, we got two new, two design win and one new. The last density, we ship SR5 in CQ 1, not only in the Western country, but also in the Asian country. Gen 6 controller, we have a silicon ready first card. We are going to move to MP, and the first Gen 6 enterprise SSD sample will release by this August. We are going to show this in the FMS. Computex, we are going to make some demos. We are the earlier player in the Gen 6 enterprise SSD suppliers. In the industrial IoT, we already ship our eMMC into the very startup big guy in the robo systems. We also put our UFS industrial part into the a [Club] Systems. This is going to MP very soon. This is just to name that Phison, we are very focused to keep develop the new products to get the new high tech customers to bring the value to the company, shareholders, and employees. The one thing is about space SSD. Phison invest this since seven years ago. Again, we got so many design wins, shipment. We have a regular shipment monthly. Of course, revenue is not that big enough. Space is very niche, but this is to show Phison we are capable, and we have a good supply chain. Not only technology, but also supply chain and service. The most important thing is we win the trust of the space ecosystems. One more thing is about during the Chinese New Year, they have OpenClaw in China getting popular, but at the end, the user realized they're facing privacy issue and also the expense issue. Phison, we work with our CPU partners. We bring in the on-premise desktop, laptop, which able to compute OpenClaw on-premise without using the cloud. This is proven. In Computex, we have a lot of our partners is going to show this product, and we believe this will be the trend. We have a confidence Phison aiDAPTIV solution will be the standard products in the coming futures in the every on-premise PC solutions. What the user suffer is about the cost, the expense. With Phison solution, we provide the on-premise and with the hybrid cloud, we can reduce 70+% of the total cost. The total cost can help users more willing to use AI with the hybrid solutions. Okay. Phison solution is all the new platform with the CPU, which they have a IGP or an NPU. They no need to use a high capacity of a DRAM. With Phison aiDAPTIV SSD, the hardware itself no change. Hardware and everything is a similar hardware. Just put Phison aiDAPTIV cache with our software, this convert to the AI PC. Actually, overall cost down. Why? Because you reduce a lot of DRAM is so expensive, okay. By Computex, we can see this is going to the market. One thing is we agree a lot of our shareholders, the fund managers, the sovereignty fund, you care about ESG. We made a study about aiDAPTIV. How can aiDAPTIV matching the United Nations Sustainable Development Goals? We go to study. We found aiDAPTIV matching three of the SDG. SDG 4. Oh, five. We have a five. SDG 4 is the quality of education. You know, the AI is so GPU so expensive. A lot of third world country, the student, they may not able to touch AI just because their country may not able to make the fulfillment to deliver the GPU. With Phison aiDAPTIV solution, we are able to make education popular in the third world country. Today, the student, they are still able to access to these AI systems. The clean energy, SDG 7, SDG 13, which is a good healthy to the climate issue. Phison, this solution actually is a distribution compute. It's not asking one country provide the heavy power supply to supply the data center. This is good to match the SDG 7 and SDG 13. The one is SDG 9 is the innovation to reduce the inequalities of the third world countries. We believe AI has to be equal to every human. Everyone, they have a right to use AI, again, expense too expensive. We wish to work with our ecosystem partners, the CPU partners, the GPU partners, the PC partners, software partner, ISV, to deliver the affordable AI platform to worldwide to help everyone they are able to access to the AI systems. In this Phison 3.0, what is a Phison's product portfolio? We have a different definition here. Our main business starting from controller. Again, Phison is a company. We are not just a single module house. All the Phison products from Phison are 100% designed in-house. Controllers, every controller's IP except the CPU we license, the most of the IP's circuit are in-house. Phison also doing ASIC. We also provide a design service to some hyperscale customers and also to the gaming console and also to the PC OEM and also to the end industrial customers. We have our in-house ASIC design service capability. We also provide a full turnkey with our firmware, of course, with the full system PCB layout simulations. Other than the controllers in the system level, we have a innovation aiDAPTIV+ solution. We provide enterprise SSD, the boot drive, the software, application program, retimer, eMMC to fulfill the whole AI ecosystems. On top of this, we provide the service. It's a full customization, high resilience, fast, flexible response, we are able to make the supply chain, and we have a much healthy financial status can able to support to the industry from design, from concept to design to products to shipping as a system. This is Phison 3.0. We have a confidence. With this kind of a heavy R&D investment, we are capable to fulfill this industry who need the storage, who need the AI ecosystems, and we can play the role. At the end, the return is we are able to get the good revenue, the better profit, and at the end, the beauty EPS. Okay, this is a new platform. It's the first time we disclose to the public, first we do our shareholders, the fund managers. Okay. This we name is a infrastructure platform. It's adaptive concept. With a GPU partner, Phison provide the adaptive cache to enable using the limited of a GPU card, we are able to exercise fine-tuning and also the good performance in the inference with our KV cache solutions. We're also working with the CPU server company as a hyper-connection with our Pascari. By the way, Pascari SSD is a Phison enterprise brand. Recently, we get a lot of award. We also win a lot of recognition in the worldwide market. This Pascari SSD is a component, we work with the CPU partners, with the server partners. We build our Pascari into a storage server. This storage server is a customized provide to the proprietary applications, mainly for the aiDAPTIV, AI ecosystem, and also for healthcare industry. On top of a infrastructure platform, Phison, we also provide the hyper-converged infrastructure. It's a software level. This 100% in-house software development. This is the AI and the software interface which to handle the hardware itself. On top of this HCI, Phison will provide the API, AI gateway. We have a different components to enable the AI application. We have a different module to help improve the application and performance. Okay. This is 100% all from Phison in-house. We are providing the full system product and service. We start to build also the ecosystem ISP partners to bring in application. This already they're porting their application on our infrastructure. Phison's, our future business, we will have the infra- as- a- service. We have the platform- as- a- service. We partner with the software- as- a- service to provide the full solution to the industrial. Hopefully, sooner or later, with Phison heavy commitment investment, we can deliver our new AI storage, aiDAPTIV, and also the storage system to the market. Let me use Mandarin to explain more. [Non-English Content] So this is to show you, even though our revenue increased that much, we still insist to put around 20% of the expense into R&D. Again, this is commitment. I keep repeating, don't compare Phison with other controller house and don't compare Phison with module house. They not able to invest that much into this heavy R&D investment. This is chart to show you what is Phison's our value creators. Today, Phison in Taiwan, we have R&D around 3,500 engineers. Last year, R&D expense is TWD 13 billion+. I can tell you this year, definitely R&D expense may go to the TWD 20 billion+, maybe go to TWD 23 billion+. Why? You can see we are going to invest a lot new applications. Don't worry, Phison made the investment. This investment will become the return in the futures, and we prove this year. Few years ago's investment, now we get the returns. Okay. Phison also built a big portfolio of a product manager. Okay. This product manager mainly is to talk to the customer requirement, the product requirement, technical support. This is a good skill engineers. We convert them to the project product managers. We also build a team called business development. It's mainly to engage with the CSP, hyperscale, AI ecosystem partner, ODM partners, OEM partners. This organization helping Phison to gain, to approach, to engage more new business, more new applications. Global office headquarter in Taiwan. We have a big team in the U.S.A. Lots of hyperscale cloud, new cloud AI systems is coming from U.S.A. We have a good engagement. We just start our Europe office. Why? Because Europe, a lot of system integrator, the data center players, they keep approach us in Taiwan to ask Pascari supply. Instead of this, we decide to build office, start in the Frankfurt, Germany, and we start to go to send the people from Taiwan. Today, we have local hire. In Malaysia, we have an investment there, start to ship the SSD, eSSD, and also the AI service. Hopefully, Malaysia can help Phison to cover the ASEAN country and also the Middle East industrial and the Middle East demand. China JV doing good. We can see the good return in coming futures and also help us to gain the market share. We have a India JV, starting getting the mobile business, automotive, and enterprise SSD business in India. With this organization, we aim to AI ecosystem solutions. We try to gain more share, more return from this AI ecosystems. Phison 3.0, we don't rely on much about inventory, low cost. We rely on R&D investment. We rely on the new project. We relies on the more engagement with the big guy. Okay, this is I make it quick to show you how Phison use the, our aiDAPTIV server application, and we have a new team we name is AI Nexus to build our in-house AI solution to support in-house team to improve the performance. I just show some result. Last year, August, I start to host the team to provide the service to internal every [BU], every unit to use the AIs. In the first month, August, you see the workflow just only three, but recently, workflow go to close to 1,000 a month. Monthly users already go to the 1,300 per month. Where is the return? This chart will show you. This is Phison's our investment in the human resource equipment. This is a return from the AI. By early March, already cross over. This is to show you the use, user count. Monthly like increasing, okay? The input token is 20 times of output token. This means what? If you are the single user, you use a Gemini, ChatGPT, you input small token, output big token because you just use as a user. Phison, we use this to read document, to solve internal problem. Okay? Heavy input token, get the small result. This means we using this to improve our efficiency, to reduce the human resource to read the document. Okay? Where is our gain? After a few months investment, by April, we can reduce a man-month 49 headcount, this is mainly R&D headcount. Okay. You know R&D as the headcount fee is increasing. By the way, NVIDIA is coming to Taiwan to build their worldwide, other than U.S. headquarter, they are going to hire engineers. No matter what in coming years, R&D cost is going to have inflection. Okay. We need to start to use AI to improve our efficiency. By the way, Phison is not going to lay off engineers. We just use more our current engineers to improve efficiency, reduce our cycle time to get more products to improve our profit. This is our gain after a few months investment. This is some small highlight. What we do is mainly is engineering. Okay. Actually, I also don't know what this here. Okay. This starts to show you every item we are able to save some headcount here. Target. Target. Right now we are able to save 49 months headcount and we already can see the return. This is my hardware cost. This is my monthly investment. Now we start to see the good ROI go to the positive. The goal is in the coming 12 months, we are going to invest more GPU, more development team. We want to improve the man headcount saving monthly to improve the efficiency, to shorten the cycle time, to win the more project in the future. At the end, we provide a better EPS to shareholders. Let's make some summary here. Again, AI driven and demand, no need to argue, debate, explain, okay, it's happening. Just the question is how can we to gain? [Non-English content] Okay. So far NAND companies start to invest. Don't worry, it's not going to oversupply. Don't worry, okay. I don't want to explain the time why it's not going to oversupply. Again, Phison, we start to build our AI ecosystem as explained just now. This is the things to help Phison to gain more influence, power, more profit in the future. Okay, this is a heavy R&D investment. Since we have a good profit. Many third party controller house, module house, you can go to study their R&D investment. Even they have a good profit, they keep profit, they never invest that much. After two years, we believe we can gain more business, more influence power, more product line, more design wins. The rest, Phison is not just a single controller company, we are not a single module company, we are a ecosystem company. We are able start to build from IP, chips, board level, module, service. Now we provide a full ecosystem products. Okay, we issue a ECB going to raise TWD 800 million. Why? Just because you can see inventory already go to the TWD 70 billion, and we still need to keep collecting more supply for Q4. We believe Q4, when [B200] is going to the market, the flash memory supply will be disappear. Okay. Will be mainly shipped to the NVIDIA ecosystems. By the time when that happen, we still need to ship our product to the customer. We need cash to build inventory. [Non-English content] design in, design win [Non-English content] We have a breakdown in our inventory. You can see enterprise is a majority and the consumer now less than 3%. Means Phison start to reduce a lot of allocation to the retail, okay? We aim to enterprise AI ecosystem partner products and also embedded and industrial, which can create the value to the company. Okay. We open for the online questions. Yeah. Thank you, K.S. If you have questions, you know, please raise your hand, I'll call on you and unmute. I guess I can start with a few questions. K.S., can you talk about the ASP trend of NAND in first quarter and how you see it in second quarter and throughout the rest of the year? According to the NAND suppliers, in component and the modules, keep increasing. I can share with you by March, one day component they increased 50% ASP, and by April they increased 20%. Since the supply-demand is a big gap and imbalance, ASP definitely increased, but again, I wish ASP can keep flat or slightly increase because this is not healthy to the market. Okay. I know in the past when supply-demand got tight, it gets harder for you to get allocation from the NAND suppliers. Is that different this up cycle, or are you pretty confident on your supply, not only this year, but for the next several years? Yes. When I said, "How can I get supply?" Right? This is all my story. We have a question to the NAND supplier, why are they willing to ship to Phison? Why? Because Phison, we prove we are the value creators. We create this value. The most important thing is the AI going to the edge. No doubt AI is going to the edge. The PC, laptop, desktop, they need to use AI. AI inference, you need a lot of DRAM. DRAM is a constraint and high priced. Phison, we have this invention, innovation, right? We are going to license our solution to the NAND suppliers. We engage with the two of the NAND vendors already. Since we license, we work, we develop, initial this business, then Phison has a better position to ask for more supply. Okay. Okay, great. Yeah. I guess, you know, obviously you had a big increase in your AI ecosystem revenues in first quarter as you kind of talked about in fourth quarter. You know, 38%. One, how are the margins there in general versus the other products? Two, you know, where should that percent of sales go to over the next several quarters? Actually, the overall, the gross margin, the highest part is in the AI ecosystem modules. Highest. Okay? Because it's new products, the market high, and we have really good flexibility to supply. Customer, they're happy. We are enjoying the much better profit margin in this AI ecosystem modules. Okay. Maybe one more question from me before I turn it over. I think, you know, Charlie raised his hand, so I'll call on him after this last question. You had 40%+ gross margin in fourth quarter, 60%+ in the first quarter. I guess where can that go, you know? What's gonna be a normalized margin once prices kind of stabilize and, you know, what do you expect the next couple of quarters in the margin front? Phison is going to issue the ECB, okay? I already got our banker cannot have a guidance, cannot have a number. I better to follow what they ask. I have a confidence to make sure we can keep increasing our revenue. We can try to do our best to maintain the gross profit margin, or we have a confidence to increase our gross margin. When flash price going stable, then I always ask myself what is the value of Phison? If I just build a module, you can expect the margin go to single digit. Phison, we provide controllers, we provide the AI ecosystem service, and we already start to have a software application business. We have, this investment since, two years ago because we understand the day is coming, but we can have taking this as our, compensation to our gross margin rate. This, I'm keep saying that we are willing to invest to R&D just because to create something good value to us in return in coming years. Okay, great. Wanna Charlie, you wanna unmute yourself and ask a question? Sure. Thanks, Jeff, for hosting this call. Hi, K.S. Hey, Charlie. First of all, congratulations and you totally impressed us and beat my numbers a lot. Some questions were already asked by Jeff. I think, have a step back, right? You keep talking about NAND or eSSD is no longer a cyclical industry. Do you think your business model can be less cyclical in the future? I feel like second half, you just talked about, right? When the NAND or module prices start to stabilize, there could be some margin pressure. Is that a right way to think about this? Yeah. If Phison, in the last few years, we still treat ourselves as a controller house or as a module house, we enjoy the every year's profit, then we enjoy the life. The answer to you is I'm optimistic in the future for our future business, but you can see for that many years, Phison keeps heavy investing and, you know, I'm working very hard, right? We believe. Why don't we use some example in the history? TSMC, when I was student 30 years ago, how's the TSMC business margin? They keep heavy investing R&D every year, every month, every day. Now they are the king. If I'm telling you I have a confidence in future gross margin, gross margin rate, but with small R&D investment, then means I'm just blabbing, okay? This is to show you we deliver what we talk. Okay. I agree when the price going highest, when price going highest, then the gross margin rate definitely is challenge. This is a simple mathematics. We need to create the value. We working hard to build the new ecosystems. We're working hard to provide the so-called aiDAPTIV for this platform. This is the new products. Today, if you go to challenge NVIDIA, 10 years ago, they are in the mining, in the GPU for gaming, right? You ask, how about you? Jensen Huang, definitely I'm working hard, I doing. Now he prove. Okay. I use the same wording. We working hard. If you believe us, they support. If you still have a question, my advice is wait, see. I try my best to tell you I'm working hard, working very hard, and the number we are putting in today is happening, right? Just explaining, time will tell, okay? This is the answer for my, for myself, and this is commitment for myself. We are going to deliver what we talk. Great. Yeah, thanks so much. I think, yeah, that's very, very helpful. My second question is really about your progress in eSSD. I think you show several design wins as a major CSP, OEM. Again, congratulations for those project win. But I'm curious about how Phison is going to work with a NAND flash supplier, because just from my kind of humble opinion, I feel like the NAND fab, they still be most important parts, right? If they can supply the NAND, you can get a business, right? I'm not sure how Phison can work with those NAND flash OEM to penetrate this eSSD market. Another way to ask this question, say, why not those kind of NAND flash fab, right, to do this business by their own? Okay. Actually, most of every eSSD, every solution to the CSP, to users are highly customized, to be honest. They don't have a standard part. Of course, they have a standard part, but every customer, they need to have a service and customize the solutions. Okay? AI is changing so fast. In the last 40 years, semiconductor led by Intel. Intel every year give you the five year roadmap. Everyone know what's going to happen in five years. You can prepare. In the AI, NVIDIA, every years, new generation, new platform. You don't know what happen next year. Phison's advantage is we are flexible, we are rapid, we are good in the engineering solid, and the things are customization. You go to the every NAND company, ask them their control team resources. Definitely they are telling you they are very tight. Demand is too strong. Too much design they cannot cover. Phison is a third party able to provide from IP, ASIC, design service, firmware, board level, system, software, fully customized. This is why the reason we are able to win that many project from the hyperscales, our capability. The NAND company, no matter they ship the drive, they ship the server, they ship the flash, eventually they are selling the flash, right? If Phison can help them to sell more flash into the system, then why not? They support us. They are more than happy. Means Phison to create our own position and values. Okay. Thanks. Just very, very last one, since Jeff and K.S. for your patience. Your 1Q inventory, kind of doubling from 4Q, right? I'm not sure how much of those is from bit shipment increase, how much of those are kind of inventory price increase and how much of those go to your 1Q gross margin, if there's any re-evaluation. By the way, K.S., thanks for being very reasonable to our research. I appreciate. Thank you. Okay. First of all, I don't think I'm going to dispute our inventory, I'm just telling you. Have a confidence this inventory will still have a good enough of a cost structure. we still get good enough of course, not good enough, is a good supply from our supplier farther enough, we can use this component to create much higher value to the product. you can see Phison, our position, right? You go to this chart. Phison is not going to sell just only SSD, okay? We are going to sell a solution. Like, NVIDIA is not selling you a GPU. Rather selling you a GPU board, he sell you the full servers with the software bundled. Okay. this is a Phison's approach. in this case, I wouldn't care much about my component cost. I care much about can I get enough component to sell the full systems. These full systems, we are able to gain more gross margin rate. Mm-hmm. Okay. If you stand in my position, I still treat myself as a controllers, as a module players, yes, you are right. We already transformed ourselves. Great. Thank you. Thanks, Jeff. Thank you. Yeah, thanks Charlie. Simon, how about you? Do you want to unmute yourself and ask your questions? Yes. Thank you very much, K.S. Congratulations. Great results. Thank you. Great. The number one, very quickly, the Q1 revenue up very strongly, but any rough idea ASP change contribution out of the 80% quarter-on-quarter revenue increase in Q1? Definitely is a ASP change. By module-wise, enterprise SSD volume increased a lot. Of course, the ASP increased them more than a lot. Okay. We also win more unit in the PC OEM shipment. We are now become the key player in the third party, or we have become the biggest third party module supplier to the PC OEM and ODMs. At this moment, we have no interest to win the unit share because it nonsense, supply is constrained. We try to use constrained limited of flash resources, create a much higher value products. The answer is yes, ASP is improving. By ASP improving, we are not improved in the retail business. These are different. You know what I mean? Many module house CQ1 good earning, but you can go to see their distribution still is a consumer module. No problem, this is from inventory, but consumer module is like 8%. Means we allocate more resources into these three category: AI ecosystem module, embedded, and the industrial- Yeah. ...future. Yeah, sure. Great. Very quick follow-up question here. Here the table showing enterprise module, which means eSSD, right? Yeah. Is it your own branded eSSD- Yes. ...just a box? Yes. Every enterprise eSSD from Phison we name as a Pascari. Okay? We ship to a CSP hyperscale, near cloud, infra, networking, and also SI and retails Pascari. Yeah. One thing I want to share with you, Pascari already recognized, 100% recognized in the industry. When they name Pascari, they think this is good in the industrial. It's a Tier One. We are going to enable the ODM business. We are going to de-brand our drive to our close partner who can help us to gain the more share in the futures. That's a great point. Pascari means eSSD that is already used by U.S. big tech companies. Yes these are reached first- Yeah. ...approved by the big guy. In that case, you have to compete with the directly major NAND makers- No. ...which also supply- No ...eSSD. No? Not ready. Not ready. First of all, NAND supply constraint means NAND supplier not able to fulfill the customers, right? Phison mainly take their customization drive, not the standard drive. Okay? In U.S., they have a lot of AI data company. They're looking for customization. The NAND guy say, "Hey, only find the petabyte," they don't have own resource, Phison take it. Yeah. Yeah. Yeah. Okay. sorry. very quickly, the, your April revenue, TWD 20 billion, wow, already, similar to the previous year's quarterly revenue or half of the Q1 revenue. If we multiply by three second quarter revenue, TWD 60 billion. You think TWD 20 billion is kind of the inflection point to see the ongoing, like a TWD 20 billion monthly revenue at least going forward? This is a little bit complicated, okay? First of all, you know my inventory here, right? Yeah. Some part I have to carry until Q4 because I design win already, and I worry Q4 I cannot get supply. Yeah. Okay? Means I am not able to ship my inventory by CQ2, CQ3. We need to make sure we are capable to fulfill the design win business. Means I'm no hurry, I'm no rush to, you know, make the revenue run up. The answer, if asking about TWD 20 billion is can be a bottom line, most likely, yes. Higher? Definitely yes, but we have to manage the inventory carry linearly until end of the years. Yeah. Your point is, based on your great franchise with the NAND chip suppliers, meanwhile you have TWD 72 billion inventories. In overall, the TWD 20 billion monthly revenue is not one-off. It could be sort of the starting point- True. ...to see the monthly- True. ...revenue at least. True, true. Uh- You go? You're in the office? In. Sorry. It's not me. I think Wei. Yeah. The new You can call the conference room. Unmute Wei. The 2021 is fine. I- Yes. Okay, please. Yeah. Bye-bye. Yeah. Oh, sorry. The very important thing is today you mentioned the KV cache memory, that is also emphasized by U.S. big tech companies. Would you spend maybe a few minutes what Phison can do with your solution for the KV cache, key value memory area, how it works? Thank you, sir. Okay, Simon, I can't disclose because this is covered by a lot of NDA. Oh. Oh, okay. Phison, we Phison's value, if I provide a simple KV cache, 64 TB, same as a NAND company, I cannot survive because I'm not going to compete with them, right? The standard KV cache will come in from the NAND company, but Phison, using our controller firmware system, we do a lot of customization to improve something. Unfortunately, I cannot disclose that much. Oh. Yeah. Okay. Oh, one last thing. Boot drive, your competitor also really emphasized with their Q1 result. Do you think the boot drive is really necessary to turn on the AI server? Okay, Simon, I think I said that my principle. From now on, I'm not going to make comment on my competitors, but I just ask you a few question. Oh, yeah. Yeah. You can go to ask them. Second half, no matter what, controller demand is declining. Revenue, if rely on controller revenue is a big question. To keep revenue, they better to build modules. Modules, where is the most easier to entry? Boot drive. The same question just from Charlie to me. You have a CQ1 good revenue because you have a last year CQ2 inventory, right? Price go 5x. Mm-hmm. How about CQ3? You buy market price, you ship market price. You want to get your revenue, what is your gross margin rate? Simple question. Yeah. Okay. You think the boot drive demand will be continuously stronger every quarter, that part? Boot drive is a strong demand, but you have to make sure you can get the NAND supply first. Yeah. Second, you make sure the gross margin, again, what Charlie asking me, yes, we have a boot drive. When price going up, the gross margin rate definitely declining, right? Yeah. How Phison hedge? Because I will start a new business. Yeah. If my competitors, they're willing to gain revenue, they cannot get flash. Who is going to suffer? Gross margin rate. Easier, right? Yeah, yeah. Oh, one last thing. Payout ratios to 60% something, even with your record high quarterly EPS number. What's the would you recap your payout ratio? No, no. We payout policy is end by CQ2 first half, right? We not decide yet. That's decide. You see Phison now, we start to raise TWD 800 million, right? We need cash. Decision will made by end of June, depends on the market situation. Not decide yet, but we still wish we can follow the principle, 55%. We wish. We hope. How much? Sorry. 55%. Five, five. Five, five, yes. Okay, okay, okay. All good. Thank you so much, K.S., and again, congrats. Thank you. Thank you. Thank you. Okay, Sebastian, do you wanna unmute yourself and ask your question? Yeah, thanks, Jeff. I'll be quick. I know his time is up for, running out of time. Hi, K.S. Yeah. Just a few questions from me. The first is, I know your wish, your hope is that the price does not go up too much from here to stabilize. There is a contradiction. I sense a contradiction in your message because you're basically indicating that by Q4 or Q1 next year when Vera Rubin is up and running, the NAND flash industry going to experience even more severe supply-demand situation, which means the glut ratio are going to get larger. Well, economy 101 tells us that when that happens, usually the pricing is hard to stabilize from there. Just curious about, I mean, try to strike a balance between your wish versus the reality of the industry. Yeah. So- Okay. In this world, every nation, they have a government. If supply-demand is big gap and impact to the national security, impact to the GDP development, then definitely government is going to do something, right? I'm not from the government officer, so I have no comment on this, but I wish the price keep flat or slightly increase because the memory company already got 80% gross margin. We need to make sure the industrial can growth healthy, everything can enjoy, everybody can enjoy the AI, then government need to do something. This is my comment. I also agree supply-demand in the second half, especially end of the year, will be a big gap. It's a big gap. What to do? My answer is I don't know. It's a wish, please don't increase that much anymore. Based on the conversation you have with the six major flash suppliers right now, what's your sense on their attitude toward the Q3 pricing? No, no guidance. Okay. They decide by, they want to ship you tomorrow, they decide by today. They can, because if they decide now earlier- No. ...maybe a few weeks later they will regret. Yes. True. Very true. Okay. Yeah, my second question is on your, your JV or invest co- collaboration, investment in China. Seems like HOSIN has applied for IPO on the Hong Kong Stock Exchange, I think in the beginning of the year. Not sure about when would that happen, but it seems like there's something in the pipeline. You look at some of the other IPO like [DapuStor] or some of the NAND flash module suppliers, solution suppliers in China. Whether they're listed in H-share, they all on this lower profit or lower revenue scale, but they have a much higher market cap than Phison. What do you think about this, the subsidiary that we have going to be listed in China? If they have a higher similar valuation versus the other peers in China, how are they going to benefit us from, like, investment gains or etc? First of all, I'm not from Hongxin, right? I'm not get involved into their details about IPO, for sure they wish they want to go IPO as soon as they can, Phison do our best to help them to go IPO. Hopefully by second half, hopefully. On the book you can see Phison, we have a 22%+ share ownership. Of course, we go IPO, after a year Phison able to exercise some share to get the return. Believe this is a very good number of returns. Second, I just read DapuStor this today. Their market cap is twice, 2x of Phison. I'm asking, is this my problem or your problem? If you give me the 50x, 80x of a PE, right, we should be good. Unfortunately, we are in the different market, no comment. Phison, we are doing really every field of storage. Dapu is only in the enterprise. Dapu, in the history from the book, I didn't see them making any earning. Phison, every quarters we deliver the earnings. If you are to compare apple to apple, right, of course, it's different market, but I still believe the value of Phison is much below what the market given. That's why I keep working hard. I want to deliver the much better business model to our shareholders, our market. We are not just in the single SSD provider, we are become the full system solution suppliers. Let's see. I'm just Recently, I keep talking to all the fund manager, "Wait, wait, see." [Non-English content] Time will tell who can create the values. Right. Basically, if you do nothing, just keep your shares there, valuation, you backward calculate your holding, that make Phison yourself the valuation even more undervalue- Yes. ...if you take some profit and you can take some cash to buy more NAND- No, they cannot do that. ...to do more R&D. Yeah. Depends after they go IPO, no doubt, Phison policy, we have to exercise gradually, right? This is policy, okay? We need to get the return to invest back to Phison R&D to make sure we are leading in the industry. Right. That would probably help ease some of the cash burden or pressure that you have, be it on R&D or be on procurement. Yes, very true. Okay. Got it. Thanks. Okay, K.S., maybe there's 1 last question before we finish. I know in the chat box there's two question. I think Donnie's question on inventory and NAND supply, I think we answered that. Last question comes from Bruce. Says, "SanDisk shipped a lot of TLC to CSPs in Q1. Why is Phison still shipping mostly QLC now? I don't know why you asking me Phison ship only QLC. We ship also TLC. We also ship TLC. Okay? We ship both TLC and QLC to the CSP to hyperscales. Depends on what customers asking customizations. Okay? Okay. Yeah. Last follow-up question for Bruce. Phison's PCIe Gen 6 plan looks behind Micron's. Will this affect getting into NVIDIA's CMX Gen 3.5 supplier list? NVIDIA updated its DPU specs in March to Vera CPU to support Gen 6. Does this matter for Phison? No matter if Phison ahead, the Gen 6 ahead Micron, I am not a NAND manufacturers. How can I build the 15 TB drive to NVIDIA? This is not my business, right? We know who we are. Our controller is mainly doing customizations. Of course, we engage with the NAND company, convince them to use our controller. We just sell them the controllers. We use our silicon to build the modules, customize the products to increase the value of the full product systems, we can have a more premium. This is our value. Okay? Okay, great. I think that's all the questions we have, K.S.- One more. Definitely one more. more. Definitely one more. ...over to you. Any final comments. One question about Phison inventory strategy. Okay. Yeah. Phison inventory strategy is simple. If I get the design win in the business, I need to prepare the material. That's all. I won't buy any component which I'm not going to use. I'm not trading guy. I buy only what I need to use. I have a TWD 70+ billion revenue already. I run out my cash already. I wouldn't spend my money to buy useless products. Every strategy is I get design in, I get design win, I need to keep inventories. Okay? Okay, great. Should we pass over to you for any final comments? Okay. Thank you for your time. CQ1, I know some of you may feel surprised, but I do all my best to surprise you again CQ2. Okay. Thank you. Great. Thank you very much. Have a good day and night. Bye. You. Bye.