Phison Electronics Corp. (8299.TWO) Earnings Call Transcript & Summary

Good afternoon, everyone. I am Jeff Ohlweiler, Head of Research for Macquarie Taiwan. Very happy to be co-hosting Phison's Third quarter '25 earnings call. With a lot of [indiscernible] memory, especially these days, always very happy to hear from Phison's CEO and Founder, KS Pua. I think we'll start off with that KS will do a presentation and answer some previous asked questions, then we'll go into Q&A for the audience. So with that, KS, I'll turn it over to you. Thank you.

Thank you, Jeff. Thank you, everyone. Good afternoon, good morning, ladies and gentlemen. So thank you for joining Phison '25 third quarter's earnings call, okay? With this we will start. The breakdown of revenue been of Q3, control-wise, we improved from the ratio of 25% up to 30% just cost, we have made a lot of design wins in the SSD main company and also the mobile companies control the business. So we see we have very strong gain. We're going to share in both client SSD and also mobile. And industrial [indiscernible] start to defense and Phison for many years made many design wins, and we are now enjoying the return from the last few years' investment. And in the embedded ODM, mainly for the mobile, IoT and also PC application, this also we have a strong improvement in this business. Enterprise-wise, [indiscernible] freight just because of this year for some inventory in the market. But recently, all the main companies start to increase the selling price almost up to 50%, 75%. So the demand has turned to very strong in the CQ4. So revenue-wise, CQ3 all-time high. Gross margin is [indiscernible] it's all time high. This is our revenue. So accumulates close to TWD 50 million in the first 3 quarters. Gross margin was 32.4%, which is little bit better than the CQ1 or CQ2 just because the market turned to stable and also we have some inventory accumulated from the last year's CQ4 and CQ1. And the demand has turned to very strong after mid-August, when the clouds start to pull in the demand and also rush orders. So right now, we're also facing a lot of strong demand, but also we need to settle down the supply. The earning per share is TWD 10.75, which we have some inventory reversal and also the foreign exchange. I think you all know that CQ2 this year, we suffered actually quite a lot on the [indiscernible] slightly, this is coming back. I'm not 100% back yet, but slightly it's coming back. So this will help to our earnings. So income statement, gross margin is all-time-high, and the R&D expense, actually, we also increased just because of CQ3, we have taped out our new 6-nanometer controllers, okay, which is for the PCI Gen6 6 and also PCI Gen5, the controller. So this R&D spend increase. And also due to the profit increase, we also write off some certain amount of bonus for its compensation from the -- for the staff. But overall, the earning TWD 10.75 per share is the best in this quarter. Of course, I think the best is coming. CQ4 definitely is better than CQ3. So this is our performance in our Q3. In the balance sheet, everyone curious about inventory. We still keep a high inventory, TWD 31.5 billion in the end of CQ3. We are starting to manage and control the shipment and also to control not to take the many new orders. The market actually is turned to crazy in the supply side. So we have to manage very carefully and also make sure all the design customers, they are happy to get their -- what they need. And the supply side is really cutting the supply to not only to [indiscernible] to everyone, even to the cloud company. Okay, [indiscernible] Phison issued the stock option [indiscernible] August. So it's slightly different. So [indiscernible] around is a little bit higher than the [indiscernible] but from CQ4, every month, we need to write off the options conversation. So this is why we need to give a good incentive to our employees. October revenue is TWD 7 billion. Again, it's an all-time high by monthly, and the accumulate is TWD 57 billion. October, we start -- since actually -- since August, we start to manage not to take them many orders. And customers are no matter from retail, from enterprise from PC OEM, from design in mobile, everyone start to ask for big shipment that we have to manage our inventory and also manage our supply side. So we are very optimistic in the coming months, the demand is still strong, and these were deferred to our revenue numbers and also the profit. Okay. Just as some highlights here. Client SSD, you can see prices, our controller shipment actually grow 72% Q-o-Q and [ 380% ] Y-o-Y, means in the last few years, all the Phison, our airport, R&D investment, design start to get a return. And revenue-wise, also has a big growth 66% Q-o-Q and 350% Y-o-Y. And we gained almost every major NAND makers. And shipment, actually by October, we're also facing some control tight supply. And next year, TSMC 6-, 7-meter supply cell type, we have to secure what we need for next year shipments. Our OE modules, we also grew by Y-o-Y is 2.5x, and the [indiscernible] because of strong design win and a strong demand, and we gain the trust for mainly the PC OEM, no matter Tier 1, Tier 2, Tier 3, and we start to ship our Gen5 modules to the Tier 1, Tier 2 and 3. But unfortunately, recently, Phison is [indiscernible] have to manage the shipment. In mobile-wise, controllers Y-o-Y growth 65%, Q-o-Q 9%. Revenue also is 120%. Just because we gained a more UFS project, okay, from the main company, and also our NAND partners. So this is helping us to grow our revenue instead of unit growth, 65%, but revenue 120%. And we believe Phison now is major the biggest share in the interphones controller in storage. And module wise also is a big growth 290% Y-o-Y. And the achievement 290% and revenue also 85%. And you can read here almost all the key players in mobile and IoT in industrial, we got all design wins. But now our challenge is how to make sure to fulfill their demand. Enterprise wise, we work way hard. We gained a lot of design win area. We're also in the 3 of the top 5 AI optimized solid software company and start to ship from August. And we also secured a good amount of NAND supply in the 2026 to fulfill this design win. So we believe next year, Phison Enterprise's SSD revenue would be very significantly is a good number in the presence of our total combinations. So we keep working very hard not only in the SSD, but also work closely with the AI-related company. Most of our eSSD go to the AI optimized storage. And we just taped out a new controller, PCIe Gen 6, which we believe we are able to have a second by January next year. And we are going to have a CS sample by CQ3 next year for the key customers who are asking for PCI Gen 6 interface. And we also believe in enterprise SSD, Phison started invest from 2018 over 7 years, we are from behind 2.5 years now, we are going to be ahead in the market. So this also to show with the heavy R&D investment, Phison can be the key players in the coming futures. And by the way, Gen 6 controller, we already have 1 project ongoing with the GPU makers to customize these Gen 6 interface for the power systems. Many investors are asking in enterprise, what kind of customization Phison able to deliver? We give example. This is n project we work with a server company, [ solid ] server company. They are asking for [indiscernible] of the storage applications, which we engage this project from August. We are going to deliver the samples by end of December. So this will show you how Phison is doing customization. We are not only provide controller because, let's say, if a customer asking for 70 KPs a year, 70 KPs a year controller, $50 is nothing, but Phison is providing the modules. If 73 K of 32 terabyte modules, then this is a good amount of revenue and also the profit. So this is the n we showed to everyone. We are almost ready to go to do customization for the enterprise SSD, no matter for the server suppliers, CSP and also the AI system suppliers. In this 2Q, we also have some very good significant design. Phison is the first [indiscernible] Gen 5, given the solution, we built design win into the world-leading robotic company, okay? This already in the system, and we get very good response from our design win customers. And in our Gen 4, for [indiscernible] systems. And also for the -- our very strong [indiscernible]. In automotive. Again, we [indiscernible] invest for a month. Automotive, we invest there, and the market is there. Phison [indiscernible] Phison also gained a lot of design in the EV system. So we just have a picture here to show. This is the automotive application, and this is the Phison's produce. You can see we almost in every kind of applications. So Phison is -- we think Phison is a company we have a comprehensive storage system for any kind of automotive systems. And we are not only product controllers. We provide controllers to the NAND company. We also provide design service, the modules and also the [indiscernible] to every single automotive and also Tier 1, Tier 2, Tier 3 manufactures. So this is our strength in the automotive industry. And portable SSD, we won several NAND companies and also start to ship. In the memory card, we also have good in the surveyance and also have lots of in the gaming. And [indiscernible] right now is a shortage, but we also have a new controller for high bandwidth, high capacity. This is mainly for the YouTube and also for video recording. Go to the Retimer driver. Retimer, we believe Phison is a bigger supply in the world. Of course, the 10 is a small, but now we have a really big share over 60%. [indiscernible] the same fact we time recently, we made our design into the B-300 platform. We also got a good amount of order. Unfortunately, recently, the supply is tight. So we are working very hard with TSMC to pull in the wafer to fulfill that demand. We can see the AI influence is coming. Then every cloud start to build a data center for AI influence application. And Phison Retimer, we get the several design wins into these systems. In aiDAPTIV+, again, we work for many years. We finally design win we got order from banking systems, medical systems. We have more than 200-plus POC ongoing, and we got around 100-plus POC orders. This is the first order, and we believe repeating orders are coming. And we also strong promote the AI PC to the education systems. In Taiwan, they have over 20 universities start to deploy our ITPC in a class, try to let the student able to purchase their AI skill. And we made the AI TPC come to TWD 4,000, that every student, they are afford to buy its interest, they can buy a set in their -- in the home to practice their skill. This can train a lot of new talent to service in the market every ways. We also work close with the entire AMD with the [indiscernible]. We are going to convert every PC, which they have ITP or APU go to the AITC without any higher change. So by coming years, we have many PC Tier 1 OEM and ODM is going to show Phison solutions into the Intel and AMD platform. So this will help the AI PC goes to popular with the costs very competitive because not any how change. I also been invited to [indiscernible] biggest of AI in the world to give a talk about how to deploy the AI on premise. So we got very good response from the Middle East, potential partner. And also we have been asked to have a joint development and joint venture to develop special [indiscernible] system and AI system for Middle East market. So this is ongoing. R&D expense, first half, the profit is not that exciting. So we manage our R&D expense, but from CQ3, the profit turn to good and then we start to improve the R&D expense to make Phison are able to leading more. I mentioned 3, 4 years ago, I'm fixing Phison has a heavy investment. Of course, some shareholder complaining, spend too much money on R&D. But now you see we gained a major share in the PC OEM, a major share in the mobile, and [indiscernible] Enterprise in AI, Phison played the very, very unique role. So this is all coming from the R&D investment. So market turned to good, Phison turned profitable, very good profit, we are going to again highlight, we have to invest more in R&D to make sure Phison will be the winner in the AI ecosystem and the enterprise business and also in every customized service in the storage. So summary here. I think, no need to mention that NAND is turned to very, very tight. I believe CQ2 earning call, I did highlight that, but of course, some of investors don't believe, but it is right. It's now from a media [indiscernible], I don't need to mention that much. So in the early expense, we believe the NAND company, this year, they may not announce the expansion, but I believe after the CQ1 earning call, they have a very profitable business. They have to start to expand and build a new [indiscernible] to improve the supply. And n more thing is, no matter what DRAM now is a big shortage, next year also shortage. We worry the shipment of a smartphone, PC or the NAND device may not able to maintain the cost given shortage. So we believe PC company, they have to reduce every PC DRAM capacity. They have no choice because [indiscernible]. But when you decrease the DRAM capacity, you definitely get a complaint from the end users. But Phison provides a [indiscernible] solution with a limited DRAM, with Phison [indiscernible] AI influence, performance can improve and we proved that. So next 3 years, another class with the Intel AMD will be there. Then control shortage, we get a very strong support from the TSMC, from ASE scale and also KYC. Since they treat Phison now is a very strategic customers and partner storage. So thanks to them, helping us to make everything shipping smooth. Even though we got the NAND company upside in 2, 3 months, we're still able to fulfill. So again, thanks to TSMC, KYC, ASE. In the enterprise SSD, we are gaining more design wins. And by the way, since the market turned to [indiscernible] a lot of server makers, the system integrators come to Phison to ask for supply and to go to the ABL. So we are going to gain more ABL by CQ4 and CQ1 next year. And mobile-wise, now we are the biggest consumer supply to the mobiles, and we believe we can maintain this position for many years. In automotive, we win a big business, and we are going to gain the most share. aiDAPTIV+, education wise, I think we are starting to have a good training to student. And also in the PC base aiDAPTIV class with [indiscernible] is going to be popular after NAND SSD. In the server application, we have a more POC ongoing. So this is today's brief and few questions, let me finish, then we go to live. This flash was sustainable, how long? I was -- I have an interview from [indiscernible], I don't expect the go-to [indiscernible]. So making a lot of question from the market from supply why I'm saying 10 years. 10 years is just a discussion, okay. This time, the NAND just caused by the AI inference. AI inference, the CSP getting the return go through the AI inference. Inference output is a data, data need to store. So I make it simple to summarize. CSD AI business, their revenue income linear to the capacity of a storage. So they want to have more revenue, more income, they need to have more storage and harder replacement is happening, okay? And we believe NAND company, they're not willing to expand the [indiscernible] until now because in the last 5 years from [indiscernible], the total profit in the NAND still even. They're not making any good profits. But from now on, they start to get profit. Next year, they start to announce a new fab, but the output can happen only by end 2027. But we believe the cloud AI -- AI going to need a more storage and hardware replacement is happening. So NAND will be supply tight for many, many years. Inventory-wise, consumer business to Phison is reducing a lot. We -- I give an example today, we have a wide industrial customer to me to ask for 75 pieces, okay -- storage for the system. They can't ship anything without the 75 piece of storage. So market is going to be very challenging. So Phison has to cut the supply to retail, get those component NAND, go to the industrial design in PC, mobile and also enterprise. So we are focusing more in the enterprise, industrial embedded ODM. And of course, controller wise, we are going to gain share. ESG-wise, I got a new report because we keep -- been asked what is the Phison's performance in ESG? So this is a report from some analysts. Phison versus the key [indiscernible]. So it looks like Phison is still doing good, better than our industrial in ESG. Okay. So for today's report, then we can go to live.

So if you have any questions you want to raise your hand, we'll call on you. I guess many [indiscernible] a few questions. On inventory, can you talk more -- a little bit more about the cost basis for the inventory? I know you had some write-downs in some reversals. Where is the current rough cost of inventory versus like where market prices are right now?

Well this is difficult to answer, but briefly simply okay. One of a NAND supplier, the 1 terabyte TLC price in July was around $4.80. Yesterday, they asked $10.70 and mostly [indiscernible] replace order. So just only 3 months. Talking about low density of the MLC, which is [indiscernible] going to EOL. We still have a few [indiscernible] on hand. The cost is around $150, but the market price go to $380. So I'm hard to answer what is inventory cost versus market request. But we need to take this to make a good service to our customers.

Okay. Great. And I guess, in the past calls, when you talked about NAND prices going up and supply demand being tight, your biggest concern was your ability to supply enough NAND for your customers. But you also commented early on in your talk today that you actually are pretty comfortable about next year. So can you talk about how much NAND secured for next year?

Okay. Actually, we -- by slow season, made to July, we have some discussion with our NAND supplier, we already secured NAND supply in the next year, of course, no matter how many petabytes [indiscernible]. But we secured some good number of the NAND for next year. But at this moment, we still go to talk to our NAND supplier, we need more. How we convince a NAND supplier to automotive Phison, I just show them what is the value of Phison. Phison helping them to design wind, design in every application in the market and to make sure the demand will be there, we can help them to gain market share. So this is enterprise, we gained a good supply from the 3 NAND suppliers. They believe Phison Enterprise, [ Pascale ] will become one of the -- we're looking one of the key player, after party can be a minor player, but in the third party, we can be really key players. So this affords good enough of a NAND players, because we prove we can bring a component go to every AI system, go to the server system, go to some customer systems. So summarize is we have secured names of plan next year, but not enough. We still need to fight for next year.

Great. And I think Donnie from Nomura has a question.

And my first question is regarding to probably a very stupid question, but I'm just curious whether, I mean, the NAND makers, they can convert, for example, the TOC production to QOC production in case that the enterprise demand is very strong. And whether they can quickly react to this kind of the southern surgeon demand from the server and also potentially the PCs or smartphones demand next year could be weakening if the memory price continuously trading up. I'm just curious about whether they can change this demand supply dynamic in a very short time. And the second question is regarding to your CB. So previously, you have announced the plan to issue the new CB. I wonder if you can give us some detailed updates and also what's the potential pricing. Any idea would be appreciated.

Yes. Thanks, Don. I think right now, every generation -- every generation, the [ tray ] is taking right. When they move to the next generation, they need to buy the new equipment because of a structure, okay? So when they move to new equipment, they need to have a CapEx. But come from TLC to QLC may not be the record because every NAND name manufacturers, they have their own unique technology. But again, from TLC to QLC, they need equipment first. Second, if they can convert no matter what, every NAND manufacturer told us 2026 sellout, all the capacity sold out. So no matter they can convert or not is nothing happen because capacity is sold out. And they try to improve -- what they can do right now is improve [indiscernible], improve the year rate to gain a few percent of output. But what we need is a 2x, 3x of output. This is not going to happen in '26 because they need a new fab, okay? And talking about CB3. We got the CB3 approval from authority. The time market price was around TWD 400, TWD 500 something. And recently, the stock price differed with the market tied and 1 thing Phison, invest a lot in adaptive. I believe Phison's value will not be recognized by aiDAPTIV+, because it's not going to revenue yet. So the challenge of our management team is we do know how to issue the CB3 with a price. If we issue a price today after a few more months, if a market give us a good valuation, I believe the current shareholders were met very negative coming. So we decided to extend CB3 to December, February and we have to monitor what happened in the market. When markets go to stable, then we -- no matter what CB3, we still have to issue. Phison need to get more cash flow to prepare for our net growth. So hopefully, CB3 we can decide by mid-December to February.

Will this delay to cause some of the -- our cash flow insufficient in case you want to accumulate more inventory?

Very good questions. Of course, after mid-October, everyone want to buy inventory, but net supplier keeping [indiscernible], okay? So we are not in a rush at this moment, but we still need to equipment the cash flow for our next growth in the business.

Okay. Because one of the questions being asked by some of my clients is like, whether Phison can procure more NAND than other competitors, because my answer is yes, for sure, Phison always have a good relationship with the NAND makers like [indiscernible], example. But just yes, just wondering how confident that you can secure the NAND supply in the coming quarters.

Okay. Talking about NAND supply, [indiscernible] name manufacturers in the NAND supply in the world. When they're facing some market difficulty, they call Phison, they ask Phison support. We have many [indiscernible]. Second, of course, right now many is a tip, but NAND supplier when they allocate the flex either to CSP, PC OEM, filmmakers, module house. If I'm supplying [indiscernible] how can I make '27, you are going to buy more is to show the value, the supply chain, the product lines to them, right? So I give example, we have a 3 NAND company, they are willing to support enterprise QRC to Phison just because they believe prove that, we made a design, win design, and we are helping to gain more sheer to them in the '26, '27, '28. So how can the supply more? First of all, we need to make them trust to Phison,, we are capable to gain more business for them and we prove.

I guess we have a online question here. What's your target sales for [indiscernible] in this year?

Definitely, we'll go to the 2 digits, 20%, 30% depends on the supply for other client business. But for sure, we gained good enough of a supply for enterprise assessing next year.

Okay. Great. And also, the company currently have plans to develop the HBF controller, what is the current progress?

This actually making of more conclusion. So why is the [indiscernible] definition. Definition of [indiscernible] putting the fresh memory solution into HBM pass. We talked to GPU makers. We talk to system makers, we also talk to the application customers, as memory has a 2 constraints. First, DRAM now have a life cycle, but first memory has a life cycle. If you put the flash memory as a cover to the GPU, when placed by other [indiscernible] the GPU bought out, and the GPU is not [indiscernible]. So this is a question. First, mainly into the system, the pathway is plug and play. You need to swap when the [indiscernible] run out the life, you can replace the new one. So go through the covers with the GPU, I don't think this is workable. And we also kind of [indiscernible] to many experts is a BPO company in the first company. So I'm really confused why [indiscernible]? Second, DRAM operating temperature is 125-degree Celsius. [indiscernible] is 80% to 85%. And if to the thermal is very high. So this is a [indiscernible]. Again, we believe all the AI systems at the past, they use a DRAM, no matter HBM, low-power or anything. But DRAM capacity more didn't supply constraint, DRAM has too expensive. So fresh memory definitely will be in the AI systems, no doubt, okay? But with what kind of interface for [indiscernible] Phison promoting another [indiscernible]. We believe with the constraint of a fresh memory, cycle them, PCIe bus is the best solution for the only solutions because [indiscernible] is mature in the hardware and also the service. So we believe [indiscernible] will be one unique accrete in the AI system. So -- but it's hard to mention there's time moving [indiscernible]. We believe that [indiscernible] system.

Do you have any [indiscernible] 2026?

This is typical, very typical. Give me a simple, if press memory price going to X, system makers such as the mobile PC makers may cut down 50% the capacity. Phison smartphone using 256 gigabytes, you buy, price go 2x, they come down to 120 [indiscernible]. Then the demands did drop, then the price going up. But I mentioned that for the AI influence systems, CSPs income linear to the store capacity, so they are not going to cut capacity. If that limit to cut capacity, they have to keep invest because AI influence only data net storage. So would be very difficult to sell what is the price level. But we hope, we wish, we ask, we request, if the NAND company enjoying the good gross margin 50% to 60% good, don't try to go to 80%. This definitely will kill a lot of our industry. This is not up to industry. Of course, we Phison always say that we need to help NAND company to have a better gross margin because they need to have a heavy R&D and a CapEx investment for the next expansion [indiscernible]. Then without net attention, we cannot get a good enough amount of supply and also the good price in the investment. So we need fresh company to make good profit, made a new investment, made more supply. But if gross margin go to the HBM level, this may cure the industry.

Okay. Great. I have a question from Simon [indiscernible].

The number n question. You have a TWD billion invoice inventory. This is just a book value or you retail your inventories for Q3?

This is our book value.

So if the NAND price rises, you don't have to [indiscernible] ?

No, no, no. We do not [indiscernible] still keep as a cop.

Yes. Great. And secod, the NAND demand these days is more for enterprise solution, right, ESSD rather than INSD?

Answer, yes and no. Actually, the NAND in mobile and the PC is strong, but just suddenly, the AI system needs more store influence. So you feel all the demand coming from AI. True, but not true here because the PC also has a really good amount consumption on the NAND.

Yes, that's good. In that case, let's say the NAND makers, Japan, Korea, U.S., if they can do better with OEMs, so they try to sell more of their own NAND solutions, the client ISSD, ESSD, maybe using their own controller or otherwise controllers. So my concern is over the next few quarters, if the NAND demand is getting better, supply tight, then the not sure whether you can easily get NAND chips from the NAND makers because they want to sell their own product?

Good questions. This is a wish of every NAND company the way they can supply everything. But if run you wish to support everything, you need to hire many engineers then return to your operating expense, right? And every company, even [indiscernible], they're good profit, but they still have a resource constraint. They need to put their limited resource to have a much high valuation, but the market still need a lot of customized system than the NAND, then you need controllers, right? So just if we can survive until today. So I give you an example. Other than the 5 NAND company, China One PC start to build their own controller, but they said they are not ready yet. NAND company, they have many in-house controllers. But just to outsource controllers to the party, right? But other than the NAND company, I think, who are capable, I mean, I repeat, capable to design from concept to our products. From concept defined as [indiscernible] ASIC, PCB board, firmware software, application vegetation. The full systems in the world to the only 2 companies, they are Huawei and Phison. I repeat from nothing to a product, not saying, "I get the controller, I license synapsis, I do this, I doing that. I outsource. No, all in-house development from nothing to product [indiscernible]. So this is our value. NAND company need either Huawei or Phison to service a lot of small, medium-sized NAND application. This is Phison.

Noting standard?

No, from nothing to products, you need to have IP designer, fire designer NNO designer, [indiscernible] is buying controller assembly.

Very quickly, sir. So if the ex-China energy makers and NAND production tight, NAND price rises, how about you get the more NAND from China, China NAND makers?

Phison, we have a business the supply from the sixth NAND manufacturing, including China. Phison also played a certain role in China. We have a JV in China. This company now doing a great job in the mobile business, also in the some retail business in China. We also have enterprise solution in China, mainly service to the server and there are some CSP in China. China asking to use China. So we have our value also. So again, I keep repeating third-party are able from nothing to systems only to [indiscernible].

So you think Chinese NAND chip supply will grow further and then you can use Made in China NAND for your business that will grow further and further?

Before this tight supply, only China manufacture expanded that factory, okay? So they are getting the share, yes. China has demand, years. We've been asked to use China first, yes. So we have to.

Okay. Yes. All right. Maybe last sorry. Did you say GRAM shortage, which can continue. So what's your BI you are saying the shortage? And then the current stock market price is very, very high. You think like $20, $30 [indiscernible]

First of all, I have no position to saying DRAM shortage, I am not in the DRAM. But what -- from my perspective, my insight [indiscernible]. I don't need to mention right? But DRAM shortage, what impact to the [indiscernible]. We found a good formula, PC next year, if you want to keep send amount capacity of a DRAM, you cannot ship equivalent unit next year, no way. So you have to reduce the DRAM capacity in every single PC. But we reduced PC customers definitely [indiscernible], right? So Phison promoting our adaptive plug solution improves the AI influence in the systems with you reduce the DRAM capacity, you said at the cost to get Phison aiDAPTIV+ SSD and AI influence, you can sell better PC with performance, but the cost is less.

Even for the general PC, like $500 PC?

Yes, Phison not able to convert the PC, if they have the so-called ITP or APU, we can convert them to AIPC immediately without any how change.

Okay. I got a few online questions here. Would BT substrate supply via production bottleneck? Are we able to pass through the substrate price hikes, if any?

Yes. Substrate now is also one of big highs other than NAND. We have some customers, the vast order, we have players were controllers, but we don't have a substrate. So since July, we work very close with our substrate supplier to secure our allocations and also some upside feasibility. So we believe with the Phison's position in the market, we are able to convince such company to give better support to Phison. So it's a challenge, but I don't think it's a big problem to Phison.

Okay. Another question here. Costs are rising and this supply chain, is TSMC raising prices and the TSMC has plenty of 2026 capacity for Phison's needs?

Again, we can talk -- mentioned [indiscernible] price, but we give a hint the -- the TSMC advance not is very tight in supply -- very tight. And if we move to the most advanced, the Northern supply is not able to fulfill and the price is going to rest every year. This is what I get from my suppliers. But we also get very clear coming from [indiscernible] Phison become very key strategic partner in the store system because we gained a share in the PC and mobile and also we created AI solutions, aiDAPTIV plus to prove this can help to ship more products in the market. So tight supply, yes, at Phison we have a commitment, we can solve this product. And one thing is, we also heard a rumor, not a rumour, I mean you can check our competitors moving their design to Samsung. So I think this also may impact the TSS supply to them. If this is the case, definitely, we can secure more supply from TSMC.

Okay. Great. Any other cost types or shortages you're concerned about that we haven't talked about?

Again, we need more NAND supply. We're working way hard. We are fighting China, Korea, U.S., Japan every week. We try to convince our supplier, we are better. And of course, they agreed we are better, but they say, sorry, as we are [indiscernible], but I say, hey, no matter what anymore. So if we ask they're still able to allocate more to us, but still despite enough. But this is why we work way hard. Second, substrate is a problem, but I think we settle down. Packaging side, I think we have a very good partner in packaging. OSE, [indiscernible] very strategic partners. So we are good. Other than this, I think we all good.

Okay. And I think we have a question from Warren online. Warren, do you unmure yourself and ask question? Okay. Maybe if not, we'll go to the next question online here. Do you have any guidance for OpEx for 2026?

Good questions. Phison, we keep -- I remember, OpEx was flat '24-'25, because market we're not able to expand R&D expense. But Phison now play very key role in the controllers PCI Gen 5 and PCI Gen 6, [indiscernible]. Most important thing is that [indiscernible]. So we are waiting CES the Tier 1, Tier 2, Tier 3 going to announce Phison's aiDAPTIV+. So we need to have more R&D in AI applications. So I already opened some head count to my team members to recruit some good talent in the AI software development. We need to make sure we have enough main resource to doing a lot of POC to prove the POC turn to revenue and the repeat order. So answer is yes, the R&D expense definitely will increase, but we also still need to follow what is our net profit is going to happen. But '26, we believe, very optimistic because the NAND is tight, and we win the good position design win, and we believe NAND company recognize our value. So I do have a number, but the R&D expense is going to increase.

Okay, another question here. What is your procured capacity in 2026 in bits?

I want to say this, we may ask to keep this confidential. We secure 6 NAND company, the play supply is the LTA commitment. But at this moment, we are hard to disclose this because everyone is asking for more.

Okay. And here's a question about [ Husum Global ]. Any updates about your China subsidiary [indiscernible], like earnings outlook or IPO plan?

Again, I can't represent [indiscernible] position to announce [indiscernible] also in the prior period. We believe they have a plan, no matter what their earning is turned to unbelievable good because of market tier inventory. So I believe they also have their own IPO plan, but we are not going to get involved into that.

Okay. Simon, do you have a follow-up question?

Yes, sir. Could you show the Q3 sales breakdown instead of here the inventory value breakdown, because I have a couple of cases. But the next time, KS, would you share your presentation material just before these earnings call start because still we cannot find your presentation here so. It will be helpful.

Yes. Okay. Let me talk to my IR. [indiscernible].

So here, the question is, for example, October revenue growth, right, 8% up. So anyway, sorry for the short-term question that the October revenue growth month-on-month, which application has led the growth?

[indiscernible] way strong. By the way, from all, I already give morning to my COO, not to take their many orders, not to take [indiscernible]. You know what, because [indiscernible] that I'm in very pinpoint. I need to secure my supply. So we need to manage our shipment.