Jason Tsai - Director of IR Wallace Kou - President and CEO Riyadh Lai - CFO

Daniel Amir - Ladenburg Jaeson Schmidt - Lake Street Capital Markets Anthony Stoss - Craig Hallum Mike Burton - Brean Capital Suji De Silva - Topeka Capital Markets Mike Crawford - B Riley Tom Sepenzis - Northland Securities

Thank you and good morning everyone. Welcome to Silicon Motion's fourth quarter 2014 financial results conference call and webcast.

My name is Jason Tsai and with me here is Wallace Kou, our President and CEO and Riyadh Lai, our Chief Financial Officer. The agenda for today is as follows.

Wallace will start with a review of some of our recent business developments. Riyadh will then discuss our fourth quarter financial results and provide our outlook.

We'll then conclude with Q&A. Before we get started, I'd like to remind you of our Safe Harbor policy, which was read at the start of this call.

For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. SEC.

For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of the market yesterday. This webcast will be available for replay on our website, www.siliconmotion.com, for a limited time.

To enhance investors understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations.

We have therefore chosen to provide this information to enable you to perform comparisons of our operating results in a manner similar to how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday.

We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace.

Thank you, Jason. Hello everyone and thank you for joining our earnings call.

I am delighted to be speaking with you today. 2014 was an outstanding year for Silicon Motion and we achieved record revenue and profitability.

Our strong performance was achieved primarily by continuing strengths of our embedded storage products with eMMC sales growing over 50% this year and SSD tracking accelerating [ph] with new OEM SSD platform wins. While our fourth quarter was seasonally soft as expected, revenue nevertheless increased 53% year-over-year and EPS increased 58% year-over-year.

Riyadh will discuss our financials in greater detail later in the call. Several years ago I had discussed with you that solid-state storage will be both creating new storage solutions for new classes of devices, as well as taking over storage currently provided by mechanical legacy solutions such as HDD.

Over the last few years we have been seeing a proliferation of NAND flash-based storage solutions both [ph] eMMC and SSD going to these devices from consumer rented smartphone, tablet, and PC to SSD and embedded memory in industrial, commercial, communication and enterprise applications. For Silicon Motion we have been building [Indiscernible] and scaling one product after another.

Our eMMC and SSD controllers are now in most of these applications. By the second half of this year we are also going to start supplying SSD controllers for enterprise applications.

Last year our overall embedded storage product already accounted for over half of our total corporate sales and the superior sales growth of this embedded product will continue to drive Silicon Motion growth for the foreseeable future. We started shipping client SSD controller about a year ago and in our first year sold about $15 million of SATA 3 client controllers, primarily to module makers for retail channel business.

Last year we also laid the groundwork for SSD growth in 2015 and 2016 by securing SSD platform wins with OEMs for SSD design, for retail channel, PC OEMs, hyperscale data centers and enterprise applications. We believe we are well positioned to scale our client SSD sales 3 to 4 times this year.

In the first quarter to date our client SSD controllers have already achieved a number of important milestones. Micron and another NAND-flash vendor announced that they will start shipping SSD with our controllers.

Our storage OEM partner has already started shipping SSD with our controllers to three global tier one PC OEMs. Our turnkey TLC SATA 3 client SSD controller is the world’s first merchant solution which began commercial sampling in August last year began initial commercial sales to module makers customers, the first of many module makers expected in the first quarter.

Additionally we secured our SSD platform win at another NAND-flash OEM, which brings the total number of NAND-flash partners that will enter production in 2015 with our client SSD controllers to 4. Our NAND-flash partners are initially using our SATA 3 client SSD controller for retail channel products such as Micron’s Crucial MX100 SSD.

Our upcoming pipeline of SSD projects with NAND-flash OEMs that were shipped this year include SSD designs specifically for PC OEMs and enterprise-grade SSD designs specifically for hyperscale data centers. Many of our upcoming data centers SSD projects relate to the use of our unique controller for managing TLC NAND-flash to deliver low latency and high endurance at effective cost.

Separately we have already started work with a several NAND-flash vendors for the SSD solution that will use TLC’s 3D NAND and will be introduced to the market early next year. We believe our TLC client SSD solution whether for primary NAND-flash, our upcoming 3D NAND targeting important trends relating to increasing SSD adoption and in creating new usage models.

[NAND manufacturers] are especially working to draw down [Indiscernible] the hard disk drive. For example by using TLC NAND-flash a vendor can develop 256-GB SSD at [Indiscernible], a lower price point.

Using SSD is especially compelling and attractive economic support, the other benefit of SSD such as faster speed, lower power consumption, smaller form factor and higher reliability. This year PC OEMs are expected to increase the adoption of SSD for Intel notebook PC from current low sub-20 rates to higher rate.

For enterprise applications, recent third-party industry survey suggests that about 40% of small to large corporate in U.S. and Europe are already using SSD in their storage and server infrastructure and usage will increase.

The use of [Indiscernible] and TLC 3D NAND-flash components by SSD OEMS while being important for broader and deeper market adoption because of TLC’s significant cost advantage. The use of TLC however come with trade-offs, including reliability, retention, endurance and speed.

Well-designed certificate hardware plus software controller solution tuned for OEM SSD applications like the ones developed by Silicon Motion are critical for market success. Our innovative TLC client SSD controllers are the only merchant solution available in the market.

Our solution combined with hardware and software, which in our opinion is significantly in order of magnitude more complicated and harder to develop and implement well than hardware alone. While our proprietary hardware in Silicon is unique, our firmware is specifically for NAND-flash management algorithm is a critical differentiator of our controller solution.

Our firmware also enable OEMs to rapidly bring effective SSD solutions to market and provide the basis for OEMs customization and market differentiation. By owning our firmware and qualifying at our OEM customers we also know in advance this end customer requirement and by designing towards this requirement we are the de facto pre-qualify for upcoming product cycles.

We believe these are important for Silicon Motion’s competitive advantage over current SSD controller merchant leaders. Our strategy to win long-term with NAND OEM is to provide an SSD controller roadmap that matches with their own SSD and NAND roadmaps.

Our cost-effective high-performance low-power turnkey SSD controller offer a flexible platform to supplement their own capability for filling the gap that allows them to offer a broader portfolio of solution ranging from value to mainstream to high-end. Our controllers support multiple generations of NAND and offer multiple configuration that allow our OEM partner to work with the same platform across a broader range of products for multiple generation of NAND.

We are able to secure multiple project wins with one controller, address multiple SSD end markets with our family of controllers and win multi-year engagements that maximize the NAND OEM’s R&D and qualification [investment]. With our client SSD controller grows it is important for our company’s future growth we expect our eMMC controller, our largest product, to continue growing solidly and with increasing market share.

Our eMMC controllers’ sales grew well over 50% in 2014 to account for about 40% of the total corporate sales. We believe we are the only meaningful merchant supplier of eMMC controllers and our market share is at least 25%.

We remain very well positioned and continue to believe that we should be able to grow our eMMC sales in 2015 at least in line with the market growth. Most industry analysts are forecasting [Indiscernible] smartphone and tablet to grow 15% to 20% this year.

SK Hynix was the vast majority of our eMMC sales. Our high-performance, very reliable, cost-effective eMMC controller have helped Hynix [Indiscernible] eMMC memory business over the last three years.

In 2012, our eMMC market share was only 5% to 10%. In 2013, it grew to 15% to 20%, last year to over 25% and we believe that over time we should be able to grow our market share to 40%.

We have successfully transitioning our eMMC controller solution from one generation after another from eMMC 4.1 to 4.5 to 5.0 and have just begun sampling our eMMC 5.1. We expect to begin sampling our UFS 2 in the second half of this year [Indiscernible] with broader smartphone OEM product launch in 2015 using UFS 2.

We have also been introducing unique technology such as our industry-leading 4K firmware algorithm, which overcome in value memory performance degradation to enable sustained high performance throughout the device’s life cycle, a critical requirement for handset OEMs and allow our flash maker customer to offer a differentiated, high-performance eMMC solutions. Separately, we believe we will see greater use of TLC NAND-flash eMMC this year given TLC cost advantage and the [Indiscernible] risk following endorsement from Apple with TLC using certain higher capacity iPhone models.

TLC eMMC were less than 5% of our eMMC sales last year and we expect TLC to increase to 5% to 10% of our eMMC sales in 2015. Overall we are very pleased with the progress we have made with our eMMC business.

Our partnership with SK Hynix has never been stronger and our pipeline of new eMMC products continues to move smoothly. To deepen and broaden our SK Hynix partnership we recently brought over to Silicon Motion Mr.

Gihyun Bae, who was previously SK Hynix Senior VP in charge of their eMMC and SSD solution development and who was part of the team that had established SK Hynix’s NAND-flash business 15 years ago. Let me now turn to our LTE transceivers.

In the second half of last year, our LTE transceiver entered production in number of Samsung flagship including Galaxy Note 4, Note 4 Edge and Galaxy Alpha. Some of our LTE programs were continuing to 2015 and we’re working to secure additional wing for 2015.

As many of you know, we’ve very limited LTE design wing and sales visibilities. And so until we’ve confirmation that suggest otherwise we continue to believe our 2015 LTE sales should be similar to last year’s [indiscernible].

Overall, 2014 was an outstanding year for Silicon Motion and set the stage of our continued growth in 2015 driven by our ramping client SSD and eMCC sales. I’ll now turn the call over to Riya to discuss our financial performance and outlook.

Thank you, Wallace. First, I’ll outline our financial results for the fourth quarter and then I’ll provide our first quarter and full year 2015 guidance.

In the fourth quarter revenue decreased 7% sequentially as expected to $80.5 million. Our controller sales decreased 9% sequentially and accounted for 81% of our total revenue.

Within our controller sales, our embedded storage products or eMMC and SSD controllers declined by 15% sequentially due to the expected seasonal decline in our eMMC business. Sales of our renewable storage products, our card and USB flash drive controllers were flat sequentially as strong high end UHS card controller sales were offset by Chinese low cost card weakness.

Our specialty RF IC sales increased 5% sequentially and accounted for 16% of our fourth quarter revenue. Our corporate gross margin decreased slightly to 52.5% in the fourth quarter from 52.9% in the prior quarter due to lower revenue contribution from our higher gross margin eMMC controllers.

In the fourth quarter our operating expenses decreased to $21.4 million as compared to $22.1 million in the third quarter. We ended the fourth quarter with 824 employees, 41 more than at the end of the previous quarter.

Due to lower revenue and gross margins, our operating margin decreased to 25.9% in the fourth quarter from 27.3% in the third quarter. We achieved quarterly net income of $16.6 million and earnings per ADS of $0.48.

Stock based compensation in the fourth quarter was $4.2 million similar to the $4.3 million in the third quarter. I’ll now move to our balance sheet and cash flow.

Inventory days increased to 118 days in the fourth quarter from 112 days in the third quarter. DSO decreased to 37 days in the fourth quarter as compared to the 42 days in the third quarter.

Payable days decreased to 44 days in the fourth quarter from 57 days in the third quarter. Our cash, cash equivalents and short-term investments increased to $194.9 million in the fourth quarter as compared to $165.2 million in the third quarter.

Primary sources of cash in the fourth quarter came from $16.6 million in net earnings, $18.1 million release from working capital. Primary uses of cash in the fourth quarter were routine purchases of software design tools consumed $1.9 million, dividend payments consumed $5.1 million.

I’ll now turn to our guidance. For the first quarter, we’re expecting our revenue to decrease 5% to 0% sequentially.

We expect our first quarter eMMC sales to be relatively flat sequentially, our SSD controller sales are expected to grow sequentially. Removable of storage controllers are expected to decline sequentially.

Gross margin in the first quarter is expected to be 50% to 52%. Operating expenses in the first quarter is expected to be $22 million to $23 million.

Stock based compensation in the first quarter is expected to be $1 million to $2 million. For the full year 2015 we’re expecting revenue to increase 15% to 25% as compared to 2014.

We expect our eMMC controller sales to grow 15% to 20% in-line with market growth. Our SSD controller sales are expected to grow 3x to 4x to $45 million to $60 million.

Removable controllers are expected to be flat to down 10%. LTE transceiver sales are expected to be $12 million similar to 2014.

Full year 2015 gross margin is expected to be 49.5% to 51.5%. Full year operating expenses are expected to be $91 million to $97 million.

Stock based compensation for 2015 is expected to be $11 million to $13 million. Our model tax rate remains at 18%.

We will now open the call for your questions.

Thanks a lot, thank you for taking my call. So couple of questions here.

First of all on the guidance, can you give a bit or better information here on the margin outlook for 2015 given that the range that you provided is a bit lower than what you posted in the past couple of quarters and kind of what goes into that? And second is related to the operating expenses that as well as looks like there is a bump up here in ’15 compared to your recent run rate of low 20s as you guided 91 to 97 and what factors go into that?

And then I’ve another follow up, thanks.

Daniel for our 2015 full year gross margin, we’re expecting 49.5% to 51.5%. As more often our revenue come from embedded storage products we’re seeing an uplift to our gross margins.

However our long-term target remains at 50% and we expect to manage our gross margins by adding in additional lower gross margin businesses to mix our overall corporate gross margins closer to our longer term 50% target. Our fourth quarter gross margin was slightly higher than expected due to product mix even though more of our revenue did come from renewable storage products but within this product loop we also have higher versus lower gross margin products and in the fourth quarter we saw the mix skew towards higher-end higher margin retail card controllers which provided the overall uplift.

Longer term, we look at our business from a portfolio approach and from time to time we’ve the opportunity to mix down our gross margin slightly by being more aggressive in pursuing additional sales in the removable storage market, our card and USB flash drive products which we’ve very strong market positions in which we can more aggressively defend. To your other question about operating expense Daniel, we’re expecting $91 million to $97 million for the full year.

We’re going to be continuing to increase our operating expense by a certain amount. We continue to manage our operating expense carefully and scale our resources in markets where we see significant growth, for example, our SSDs and these are investments that will generate good ROI for our R&D.

Our goal is to continue to grow revenue at above market rates but to increase our operating expense at a more modest pace. So we’re, while we’re targeting 20% operating margin, we’re not putting a 30% operating margin - I’m sorry, we’re not putting a timeframe on reaching this target.

Okay, great. Just follow up question on the SSD business, so you now have a fourth partner here in NAND, partner here to use the SSD, I mean, can you - what type of visibility do you have in the client SSD business and also you mentioned that the enterprise SSD you’re going to start shipping in Q4, I mean, how big of an opportunity is that for SIMO in the enterprise given that historically the company is more focused on the consumer client side?

Thanks.

Hi, Daniel. I think we have now secured a full flash OEM sort of three kinds of decontrol there as well as storage OEM.

I think, we’ve mentioned two of these flash OEM has already entered production in the beginning of the first quarter. We are very happy with the program we’re making and look forward with the multiple project, multiple design wing and pipeline and our expectation to grow this business 3x to 4x is based upon the forecast we have received from our customers and how quickly we can grow our SSD revenue will be larger depending on how aggressively OEM and pushing their product and how quickly PC OEM push IZ and KU with SSD.

Regarding the enterprise application, we mentioned all kinds of solutions of controller with [indiscernible] with enhancements, with latency will be perfectly positioned for hyperscale application in data center. The hyperscale solution is a very low latency [ph], high endurance and very low cost.

So TLC based SSD will be ideal solution to service market and is a very high growth market. And we believe with our technology working with the NAND maker together we can provide very different solution to catch other upcoming markets.

And as of today, we do not plan to enter [indiscernible] their market we need to provide the solution. Currently we don’t have that infrastructure ready but when the market grows we will make proper decision to sustain our growth for the future growth.

Daniel, let me also add the enterprise SSD market, while this is very significant move for us into this space in partnership with our NAND size partners, in the near term you should not expect this to be a significant revenue contributor to our business especially for this year, 2015.

Okay, thank you.

Hi guys. Thanks for taking my question.

Just wondering if you could talk about your outlook on the supply and demand environment within the NAND flash market and how you view your visibility into that market?

We have same flash availability improve in the second half 2014 and our module maker customer are taking advantage of those lower costs and flash to be of the more cards and flash drives. For 2015, we believe there could be some oversupply in balance this year, we are seeing a bit of oversupply now with the seasonal weakness in smartphones and tablets.

We could see this continue throughout the year depending on the availability and adaption of 3D NAND later this year.

Okay. And then, do you still expect your PCIe SSD controller to launch in the second half of this year and wondering if you could talk about your expectations for revenue contribution this year?

I think we believe PCIe will enter the market by second half of 2015. However, its percentage would be very small.

We believe PCIe will come to -- with the biggest scale in 2016 but even that we believe the market percentage would be around 15% to 20%. But moving forward, I think PCIe will become the bigger business for a company semiconductor industry.

We are working with three of the NAND makers together we believe will deliver TLC based 3D NAND solution in the beginning of 2016 to the market.

Let me also add, our PCIe SSD controllers while it's going to start going into market for 2015, you should not expect it to be a significant revenue contributor. It will be a more important source of revenue contributor for next year.

Okay. Thanks guys.

Hi guys. I have a couple of questions.

First of all congrats on adding the fourth NAND flash maker to the rosters. Given your guide for the full year does that contemplate existing design wings that you have in hand right now.

I guess moreover would additional wings be accreted to that revenue guide for the full year? Secondly, Riyadh if you wouldn't mind you are talking about your position or exposure on the China smartphone market, how do you think you guys are exposed and how you think you can benefit?

And then, the last question is, you are talking about taking share in quite a few or most of your businesses, do you have to use price or is that purely under performance of your products? Thanks.

To your first question about the number of design wings, platform wings that we have with Flash OEMs and other OEMs for our SSD programs, we are sticking to our 3x to 4x increase in our SSD revenue to the $45 million to $60 million for the full year. Our outlook takes into consideration a number of variables including the availability of our customers’ businesses and how quickly some of these relationships and sales to their customers will ramp.

If any of these variables, these factors vary significantly from what we have been discussing with our customers, we could see some variations to our guidance but there are puts and calls and overall on a blended basis we feel fairly comfortable that we are going to be able to get to the 3x to 4x increase for our SSD revenue this year.

And let me add, a portion of our embedded eMCC controller business is targeting at Chinese smartphone and the tablet OEM for their domestic and export market. China OEMs are the primary supported supplier of the smartphones and tablets for emerging markets such as India and Southeast Asia and Latin America.

Other China domestic sale have a decelerate but we believe the export market still remains very robust.

Again taking share collection Riyadh, price or is it performance related?

I am sorry could you repeat your question again?

You have mentioned on the call several times about taking share in your various businesses, do you have to use price and is that kind of the thought basis in your gross margin guide being done from where you are currently at or is it purely performances wire winning and taking share?

For removable storage product, I think the price is very competitive. So in order to gaining more markets, variable market share, I think maybe we will have to sacrifice some margin in order to gain more share.

For the embedded storage product, our margin looks very solid and we will grow as our OEM and NAND makers growth for the SSD product. So it’s the product mix.

So we believe when NAND is more variable, when we try to take a more share for removable storage and we may be affected a little bit by the gross margin.

Okay. Thank you, guys.

Hi guys. Thanks a lot for letting me ask the question and congrats on that fourth OEM as well.

The transceiver as we saw a nice sequential increase in mobile communication this quarter and typically weak quarter, did you feel that transceivers ended this year at approximately $12 million or is the guidance for that business to be down in 2015 and how do you expect that business to trend in Q1?

I believe, first of all our LTE guidance with a full year $12 million based on the program we already win. And we already secured the program.

We are continuing to try to win 2015 modules and before we secure the program I think we are staying with the $12 million assumption. In addition, we also whilst trying to grow NAND [indiscernible] in second half but that would be probably not significant at the moment.

Okay. And then on eMCC did you mention if you are already shipping to our second NAND flash OEM if not can you give us an update on the timing of that ramp and/or how do you expect seasonality of the eMCC overall outlook for this year?

Thanks.

I think, overall I think we are seeing more into using TLC eMCC for our NAND OEM. As we mentioned, the other NAND OEM business primarily focused on TLC based eMCC, we have seen Apple recently adopt TLC flash for their flagship devices and this has created additional interest on the smartphone makers.

But we expect to grow our TLC eMCC business this year less than 5% last year and to probably 5% to 10% more. So OEM began shipping in the first quarter of 2014.

Thanks again.

Hi guys. Nice job on the quarter, on the year and strong performance there.

In terms of SSD can you talk about whether the gross margin today is accretive to that business and whether as you scale that business if the gross margin improves there further?

Yes, our gross margin for the SSD products are above corporate average size just as our other new gross product, gross margins above but on a blended basis, we manage our business on a portfolio pros by having more higher gross margin products, it also means that we can be aggressive in defending our businesses, our older businesses, the removable storage controller businesses that have lower gross margin. We can be more aggressive in defending our market share into those products.

Okay, great. And then, for the 2015 guidance there, should we expect that- sequential growth each of the quarters or is there back half load to that guidance we had?

It should be fairly consistent growth quarter after quarter.

Great. And my last question on SSDs, you talked about the competitive landscape there in terms of what your market share is and what it might be existing 2015 and what competitors are doing versus you guys in that market?

I think we are very confident in our product and the increasing pipeline of design wing in OEM customers. I think this is very competitive of our SSD solution.

In light of acquisition of [indiscernible] we are seeing a tail wing for our business as OEM looked at alternative long-term controller supplier. Our unique combination of performance and cost has opened up many opportunities for our controllers we are actively working with number of a new customers for the current and the future generation products and we are excited about the opportunities we see in the market today.

We offer flab to market capability and one flash OEM can do internally on any of our merchant competitor with gradually evolving NAND flash market the timely implementation of the new and more cost effective flash is the competitive advantage that is critical to the long-term growth of SSD. We believe our technology is very unique and our technology especially for the TLC NAND and 3D TLC NAND is very, very unique and we believe this will make us very tangible compared with the combined landscape that’s why it makes us a very different attracted to the OEM customers.

Very well. Thank you for the color.

Hi yes. Mike Crawford from B.

Riley & Company. Within eMMC I think you are shipping mostly the eMMC 4.5 controllers today with probably 5.0 overtaking some point during the year, I mean, 5.1 ramping later in the year.

Are we at the point yet where margins are starting to have peaked on the 4.5 controllers side?

Let me just rephrase this. In last year, 70% of our shipments above 4.5 and 30%, less than 30% is for 5.0.

In this year we do see with 4 -- 5.0 will continue to grow probably to 40% or 50%, we also see 5.1 going to flagship model of OEM customers. But in addition for that the legacy controller, the gross margin is going to decline however we also developed a new [indiscernible] 5.1 controller tailored for TLC and low density eMMC product.

This is going to help us balance our eMMC controller gross margin for the long term.

Mike, for this year you should expect our eMMC gross margins to be fairly stable throughout the year. Our eMMC gross margins are above corporate average and will stay that way for this year.

Alright, thank you. And then as you come to market with a UFS part, I think with that are you going to skip UFS 1.1 and just go straight to UFS 2.0 that’s a little bit faster or what's the plan there?

We are going straight to UFS 2.1.

2.1?

Yes.

Okay, thank you and then last question. If you could comment some more on your new SVP, I believe perhaps only at the second SVP you have in your company why you chose to leave Hynix to work with you at a time when the company's relationship is now ever been stronger?

Thank you.

Yes, it seems that we are very happy to have Mr. Bay joining our company.

He has a very great experience and knowledge, very deep knowledge in the NAND industry. Well known person in the Korea.

I think with his joining, we are tightening our relationship with Hynix and also expand our business with all of the other OEM customers.

Alright. Thank you.

Yes. Good morning and congratulations on the nice results on the great year.

I am just wondering if you can talk a little bit about your USB in card outlook for the full year in ‘15, as it's bottomed out here and looking to be flat for the year, how should we be looking at that?

Our removable storage controller business should be flat to down about 10% for the full year. It looks like a stabilized but these products are fairly mature.

Great, thank you. And then, on the last call you mentioned that there were other potential customers for the LTE transceiver business.

I am just wondering if you can provide us with any color on how those negotiations are going and when we might expect some wins there or further news?

So I think our LTE market is very big. We also starting to engage NAND, Samsung and OEM customers.

But at the initial engagement this is very small. Until we have more meaningful design wings on revenue we are going to report to the investors.

Thank you very much.

You should expect it to be insignificant. We will keep you posted if there are further developments.

Thanks Riyadh.

Hi, this is Josh for RG, congrats on the good year and thanks for taking my question. Most of them have been answered.

I’m wondering if you could provide little more color on to where some of the OpEx investments are going to be taking place may be helpful? Thanks.

Our operating expenses investments were largely related to our SSD programs as you have heard from our call today, we have a lot of OEM programs, we have four NAND flash engagements, we also have a engagement with a storage OEM, a lot of these programs require lot of R&D resources. And so, our investments in our operating expenses are primarily related to headcounts in support of these OEM programs.

To be more precise, 50% of the operating expense is really because of technology non-transition from 55 nanometer to 40 millimeter and 28 nanometer. So that cost is very expensive compared with the 2014 55 nanometer.

So we have probably more than 70% where we use 40 nanometer of eMMC.

Okay. Thank you.

That's helpful. Then lastly, any time you’ve LTE traction at a bigger customer so we think that of similar to how you answered that previous question and look out for announcement when the times comes, I guess just anything on timing would be helpful?

Thank you.

The question is related to LTE, we will keep you posted we are at early stages of engagement and if there is anything material we will keep everyone posted on our development on that front.

Okay. Thank you.

I would like to thank all of you for joining us today and your continued interest in Silicon Motion. We will be at the following conference this quarter.

In February we will be presenting at Susquehanna Annual Semi, Storage and Technology Summit in New York. In March, we will be presenting at Morgan Stanley Investor Conference in Hong Kong Merrill Lynch, Conference in Taipei, Northland Capital Market Growth Conference in New York.

Details of these events are available on our website. Thank you and good bye for now.