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

Hi. Good afternoon or good morning. This is Charlie Chan, Morgan Stanley's semiconductor analyst. Today, we are very pleased to host this second quarter results meeting for Phison. And we're very happy to have company's Chairman, Mr. KS Pua, with us to share the business outlook with us. And for today's event, we will start with the company's briefing and then the Q&A session. [Operator Instructions] So I will, later on, will moderate the Q&A session for you. And so without any further ado, let's welcome Mr. Pua to share their second quarter results and third quarter outlook with us.

Thanks, Charlie. Thanks, Morgan Stanley. Good morning, good afternoon, ladies and gentlemen. This is KS. So let me start today's -- my presentation, then follow with your Q&A. Let me share my file. Okay. So yes, this is our statement. Take a few seconds to read, then we direct go to today's -- our presentation. Okay. First, I would like to, again, to share the Phison business transformation. For so many years, they have a lot of invest -- the chip in the brand, that Phison is in consumer business. The answer was yes, many years ago. But in these few years, Phison made a big transformation from the consumer market into the embedded design, in customization and storage business. So 2020, Phison have a big growth in our revenue. The reason is we increased a lot of portfolios, such as gaming, embedded system. And we also this first half 2021, we see the TWD 1 billion in the half year business. So again, a lot of our business are coming from nonconsumer business. So please have a new image about Phison. And this is Phison's -- our business portfolio. Consumer last quarter was up 20%, now it's going to 26%. And controller will keep maintained at 20%-plus. And the embedded ODM is 14%. And by revenue-wise, this business 2 years ago was nothing. Now we can see rapidly increased amount. And gaming module, we also increased this portfolio since last year. And it looks like this is a very strong demand, and we play with a unique position in this business. Industrial modules, since actually last year CQ2, when COVID spreading through the Western country, the industrial demand suddenly frozen. But starting from CQ4, the demand was good and still in the big undersupply at this moment. So around -- we have 70% our business are coming from nonconsumer business and more are dedicated to the high investment in R&D and highly customizations to the customers. So this morning, we're just approved by Board members about our CQ2's financial results. Revenue-wise, we hit close to TWD 16 billion, Q-o-Q was 23%, and we made a record high in revenue. And the gross profit, TWD 5.1 billion, which Q-o-Q growth of 36%, also we hit the record high in the gross margin. The reason of the revenue, because of a lot of controller and our modules, our products are undersupplied. And also, we have -- as I mentioned, we have a big portfolio in the high-margin business, which is all requests for design-in process. And by margin-wise, I think we are good because of, again, from a different portfolio. And we also got a lot of design-win projects with the key customers and the key players. And this is some highlights here. Overall, by CQ2, 20% revenue are coming from controllers. And the SSD controller Y-o-Y growth is 50%, but PCIe Gen4, quite simply, the growth is almost 200%. So as 2 years ago, we started to invest a lot of resource into the PCIe Gen4. Now we start to see the returns. And by -- module-wise, we have 74% of our business are coming from modules. But again, these modules is not consumer, okay? It's embedded design in industrial and also gaming and automotive, which able to help Phison to increase our influence power in this industrial. We also have a new product we so-called the BGA SSD, mainly we shipped to the automotive, gaming and some high-end Chromebook, high-end notebook and also from some Japan gaming systems, which we also can see the very strong demand and the growth is 28% Y-o-Y. By industrial, because last CQ2, the market was almost frozen, we can see a very good strong -- unfortunately, the supply is under constraint, including controller and flash are in tight supply. We keep seeing really strong demand coming from industrial application. Just one thing to share with you, we made a design win into the one of very key robot makers in Japan. They request our system, means controller with the flash modules, we have to commit to supply for 30 years, 30 years. So anyway, this is a kind of a niche in this market, buy anywhere for 30 years. Of course, we have to commit, but we try to find solution to commit, okay? But again, this is a good business. And by gaming, we've got a big growth. And you can see in these 2 years, gaming start to adopt the SSD to the flash hardware, and this will be our main business. And by the ODM, the growth is 54%. And quarter by quarter, we can see a very strong growth. So revenue hit a record high close to TWD 16 billion, and we have a good Y-o-Y. And the gross profit, gross margin is at 32.5%. And also, we are in the all-time-high. The reason is because of supply constraint demand was strong and also we have a lot of new design with a high margin. Earnings per share by CQ2 is close to TWD 11.5. The first half this year is around TWD 20 per share EPS. And again, it's also all-time high by quarter. And more -- almost all the EPS earnings are coming from our business. This is some highlights in the statement. Revenue-wise, because of U.S. tend to weak, NT dollars is getting strong. By count to the NT, the growth is not that much. But by dollars, actually, the Y-o-Y is 56%, okay? Q-o-Q is at 24%. And gross profit Y-o-Y is 93%. I think it's really -- to me, is under my expectation, but also I think we see the good result to the employee and also return to the shareholders. And the OP Y-o-Y is 134%. The net income is Y-o-Y 91%, Q-o-Q 34%. So overall, first half this year, EPS is, in TWD, we hit the other all-time high. And I'm happy and pleased, appreciate to my staff, my people, they are working so hard, especially by the -- May and June, Taiwan was hit by the COVID. We have over 7 weeks only 25% people coming to office, like 75% are working from home. A lot of scheduled communication create a lot of problem. But anyway, my people working hard, we overcome the limitation and we hit the good business. And I think this is our commitment to the shareholders. Okay. And balance sheet, I think you are more concerned about inventory. When you look to the inventory, last year it was TWD 13 billion. This year, we -- by end of June is TWD 15 billion. The reason of we increased the inventory because of a lot of material, the supply, originally, like forecast is lead times of 4 weeks, now 10 to 14 weeks. Foundry is very tight. A lot of PCB capacitor component from 4 to 8 weeks going to 30, 40 weeks. So we have to increase our inventory level. And on the other hand, we made so many design wins into the system, especially for the industrial project, which they ask we have to supply for 3 to 5 years. And if the component is going to EOL, we need to have a lot of supply to keep 5 years' consumption. So this also increased our inventory. But increased inventory, I don't feel this is a heavy pressure because those inventory most likely already have a business, but we're not able to ship by tomorrow. We have to ship this month by month, and it continues for a few years. So inventory increase is helping Phison to gain more revenue and also increase our gross profit, okay? So the next year net value per share is TWD 174 because we just have a dividend, TWD 23, will happen by next Tuesday, okay? The ROE is still able to maintain the 20-plus percent. Today, we also announced our July -- our consolidated revenue is TWD 5.4 billion, close to TWD 5.5 billion. We still under impact by the COVID in May and June. Our supply chain is still under recovery. We still have many products, ICs need for testing, still under curing. We hire employees. We hired a tester. Phison, we pay to get the people and send the people to the factory to support our supplier to test our chip. So I believe by end of August everything goes back to normal. And of course, we got a lot of complaints from our customers from June, July shipment. But anyway, after September, everything went back to normal. And revenue growth of 5.5% Y-o-Y is 42%. And we can see the NAND demand market still maintains strong. We still need to work hard, try to get more business by this year. Okay. Phison public for 16 years. This morning, board members approved, we are going to issue the first domestic unsecured convertible bond. You may surprised why we need to have a CD. This total amount is close to TWD 3.5 billion. The reason we apply -- we have to apply to the competent authority to get approval. The reason for this issue, the CD, are: you're already aware the foundry is very tight, 2022 still we're not able to get full supply, '23 no idea yet, but we need to secure more supply in coming 10 years. So we have LTA with our banking partner. We need to pay the deposit to them for many years. So we need to collect some capital to make sure we're able to ensure our long-term supply in the wafer, mainly in the 55, 40 and 28 nanometers. And Phison, we need to expand our business scale, and you're aware that the NAND market is still growing. In Phison, we cover IP design service business, asset business and also the module business, which -- module business may need more capital. But module business helping Phison to get more market share, more revenue, actually, and more income. So we need to cover the -- to get the market to help us scale the business. And this first half, Phison, we increased up to close to 350 headcount in R&D. The whole year looks like we're able to hit the 800-plus new headcount in R&D. So we need to buy more equipment, test the equipment, give equipment for new people, new engineers. So that's the reason why we need to cover the capital through the unsecured CD. And our goal is, to get the new capital, we need to build the highest awards in the technology, getting the new people, enable more projects, getting more design win, and this is to ensure Phison get more return in business in coming years. Based on our experience, if we invest in new team members, after 2 years, we can start to get the return from the business. And also, we need to get the more resources because we have the other 5 plus 5 growth strategy, which we need to cover this 5 segment business and to get more return from this industry. So this board member also approved. By end July, Phison shareholder meeting approved the dividend. In the past, the dividend only happened once per year. But after shareholder meeting approved it, the dividend will go to twice a year. So our policy will be every CQ1 we are going to pay last year first half earnings. Second, by CQ3, paying the second half earnings. So approved TWD 10 per share dividend will happen by next year February to the shareholders. So we -- policy, when we decide policy, then we execute it. So from now on, Phison is going to pay twice per year. Okay. Some business highlights to share with you. This is by CQ2. We -- our Gen4, the fastest PCIe Gen 4 modules, we start to ship to the market. But because of controller constrain, we're not able to get more shipping. But gradually, we are solving this controller problem. So I can see these products were going to the market as soon as we can. And we have 2 NAND makers announced the PCIe Gen4 SSD with our Phison new controller solution and now start to make the design-in testing qualification by the top 5 of PC makers. Also, we have extended drive up to 4 terabytes to our semicon partners now in the market and also our finished products ODM to our storage customers. OEM-wise, our Gen3 controllers regard design win and shipping to the Chromebook, high-end Chromebook, Tier 1 customers. And again, the Gen4 start to get all Tier 1 OEM design-in qualifications. By gaming, we already also got the design win into the cloud gaming platform. This is a so-called data center. We start to ship the products and ramp up by next year CQ1. And we also enable the new highly customization gaming notebook with our high-end controllers is the highest performance. So this product will go to the market by end of this year. And also, we're putting our solution, the SSD solution, into the portable gaming phone, okay? And by data center solutions, we keep investing a lot of resources gradually. We can see some -- getting some design-win projects. But if talking to the revenue-wise, I think this will happen only after 2023 because this is a long way to go and a long investment. But we never give up, and we keep investing. Industrial, as I mentioned, it's too strong demand, and we are not able to fulfill the demand. And specialized, I want to talk about the security products. A lot of countries, governments start to realize that storage security is important. We have a partner with our U.S. customer, Cigent, to make really unique SSD for cybersecurity, which start to sampling and qualification and start to ramp up by CQ4 this year. And also, we have got the design win into the robot company in Japan, the major robot company, which they're asking for 20-, 30-year supply, okay? CQ3 business outlook. Retail was slow because of several countries still under trouble by COVID. And the Western country, different country now, people are enjoying the vacation, summer vacation. So we believe the retail business will be back by September, October. This now we are preparing to get those business. And for OEM, we keep our design in our Gen4 controllers with our semicon partners, with our module partners and also with our modules to the all tier of PC makers. And gaming, recently, the new -- I mean the -- some -- like PS5 is announced they are going to let the user to extend their SSD solution. And Phison, we are on the list, we are supported. And server-wise, again, chip, a long way to go, chip investment. Our silicon, high-end silicon Gen 4x4 controllers is silicon-ready. We need to submit the samples to our customers by CQ4. And my partner will deliver this to the Tier 1 data center company by next CQ1. So I believe revenue-wise will start to happen on the business by 2023. They would take that 1 year's qualification. So Phison is ready. After '23, data center server business will become our main business. And again, industrial, a lot of design-in, design win, customers keep asking. And this will need a lot of R&D headcount. CQ3, they may have some special under spotlight. I think, recently, the news kept talking about the Sony PS5, and they have a slot. They are going to upgrade their software to enable this slot. And Phison, we have a few partners already made announcements. The products are qualified and confirmed going to apply into this business. So we can see some new business coming by very soon. I mean when Sony start to release the upgrade, then we're able to get the business. And this CQ2, we put our SSD into gaming phone and the gaming phone become the fastest performance in the world. And we also get some design win business into the handheld gaming equipment. So sooner or later, you can see the products in the market. And again, by the security now is very, very strong requesting and every country keep asking the different design. So Phison, we accumulate over 10 years' experience on the securities. So we believe this is highly become in developing and also high mix, small volume, but definitely it's a super high ASP margin, and this will become our test comp by 2022. Overall, we still -- well, I can define it as a stopper of our foundry supply. We're still far enough. We wish our partner able to gradually increase the wafer supply to us that we spend those huge amount of money, people in the new business. We need to have more supply to fulfill our customers. And with the LTA with the foundry, I think this is to secure coming years of supply. But again, still not enough. And the NAND controller is in the constraint present, we need to pick up. First of all, we need to fulfill our customers' demand. We need to make sure our customer owns the design win, they're able to get controllers. Also, Phison, we try to get our own controller to build the modules to increase our ASP and also our gross profit. So we need to be very, very way smart on this business and management. And anyway, Phison chip working hard, increase our R&D people, increase the equipment, keep hiring more people. The goal is that we need to prepare for coming TWD 100 billion revenue. This is our goal. And I wish this happens soon. On the headcount, first half, we got the -- it's fab 300, but whole year looks like we're able to get over 100 headcount. So space is not enough. We need to pull in our facility and also to keep buying more of the equipment for our new headcount. The goal is to hire 2,500 by 2025, but I believe, by '22 second half, we already see the 2,500 headcount of R&D. The reason we keep asking to get more people because semicons, our partners keep asking Phison to develop more solution for them, which including the client data center, automotive, industrial, security, imaging. I can't mention because all the system in the NAND flash and those NAND flash solutions most likely went to the semicon, but also come to Phison. So that's why we need more people. Okay. We collect some Q&A. And we finish this Q&A, then we'll go to online. Investors keep asking what's the impact of a weaker USD to Phison. Anyway, we have a finance -- prepared our explanation here. Overall, Phison's -- our material money in U.S. dollars and our business also happened by U.S. dollars. So we are naturally hedged. And by CQ2, the foreign exchange loss on the book is around $57 million, which is 0.36% of revenue. I think we are making the good management on this, and the damage is well under control. So we wish this we're able to balance by coming few quarters. So anyway, weak dollar's impact to our revenue, yes, profit, yes, but not that big damage compared to some other business. Again, keep asking about how can we get more R&D. I think, again, we adjust our -- all the package, our salary, our benefit, our care about our employees, okay? And headquarter in Zhunan, we keep -- have expansion, new building ready by end of this year, able to increase 1,500 space for R&D. In Taipei office, we also keep extension from 300 to 500 headcount. We are going to also establish our Tainan office, already start, going to operation, already got 30 headcount there. By 5 years, the goal is to get 500 engineers in Tainan and also the Zhubei because a lot of Science Park people prefer to go in Zhubei. So we also established our Zhubei office, R&D office, by this month. And we try also to recruit more R&D from several countries, okay? And keep working with the university. We sponsored the professor and the lab to have a co-development project. And also, we are increasing our R&D in the U.S., Japan and also China for local design in operations. Investors also asking Phison has a very good success and also storing at Gen4. So how about Gen5? We repeat, we reuse our model, our strength on the Gen5. So we already work with the 2 semicon and also with the CPU partners to enable our Gen5 SSD platform, not controller, but also with the modules. So by next year, 2022, when the CPU platform ready, Phison also ready with the Gen5 client SSD. On the other hand, we're also going to have our Gen5 data center controllers covered with our -- with the closest partner, try to get the business in the data center by Gen5. Gen4 semicon is ready, system ready by end of this year. Gen5 controller will be ready by next year. So hopefully, 2023, Phison will be the key player in the data center storage. One thing, half years ago, we announced Phison is going to participate into the Gen5, the driver and the primer. We start to have R&D development on the driver by 8 months ago. After 8 months, we got the sample 2 weeks ago. We test everything. Looks like performance is over my expectations. First cut, battery, well, the best performance right now according to my motherboard customers. And we are going to direct go to the MP immediately. And after these weeks, we share our report to the key player in the Taiwan. We already got the design-in projects, 2 projects ongoing and start to talk about shipment next year. So I feel happy, proud of my people, first cut, first design 5 months, battery directly to go to MP. So now we have a confidence in the driver business. And next year, second half, we'll have a retimer ready to the market. So this will become our new business. But again, revenue-wise, this is not able to contribute high revenue, but this will help Phison to have a more influence power into these computing systems. Imagine Phison will have Gen4 SSD, Gen5 SSD, data center SSD. If we're able to make more service, Gen5 big driver with timer means, Phison, we are able to play with the good position in this ecosystem. And also CPU makers start to recognize Phison not only in the storage, but also in the high-speed interface solutions. So this will help Phison to get more business in coming years. So I believe, by next year, the driver Phison will be the key player. 2023, retimer Gen5, Phison will become a key player. Again, a lot of investors concerned about the inventory. If we need to increase our revenue, our top line, we need to have manage on inventories. And when you look to the inventory level, right, revenue keep growing, inventory definitely will need to follow. But because of the whole supply chain out of control today, components in the past 3 times, 4 weeks, 8 weeks now go to the 14 weeks, 15 weeks, in order to make sure customer is able to get the products, we need to increase our inventory to make sure we are not facing a shortage. So we need to build up the inventory. And I still believe my inventory today is still healthy. The reason is I wish I able to grow our revenue through our well-controlled, well-managed inventory. The last about the ESG. For many years, Phison, we didn't recognize we need to pay attention on the ESG. So we did a good job, and especially in the MSCI, the rating. We've been CCC for many, many years, but since 2 years ago, recognized this is important. We started to invest, started to focus, build a committee. According to the OTC's ranking, Phison is top 6 of 20 by 2020, and we are upgrade. And by the market value, over TWD 10 billion in Taiwan, we are also ranking from 60% to 20%. By MSCI, now we're ranking to BB. I believe by end of this year we're able to get the upgrade. And we focus to make more R&D investment to get more business, increase our influence power in the market to get the more profit return to shareholders and employees. Also, we try to invest and focus more into the ESG management. So this is all my presentation today. We can go to the online.

Thanks, KS. [Operator Instructions] So actually, I have some questions to ask KS first. I'm very interested about your -- one of your slide about the R&D intensity. So there are kind of a good way or kind of negative way to do this, right? Because your R&D intensity is like 60%. It's much higher than your industry peers. So supposedly, you should acquire a much better market share for much higher ASP, given the more investment in R&D. But it doesn't seem to be the case today. So I know company has a potential, but can you please justify the kind of very high R&D intensity in the consecutive 2 years?

Okay. If you ask me today, my R&D intensity today, I had to answer you by just trace the record. By 2016, 2017, you can see the trend, okay, R&D intensity, we are increasing. Then you look to our 2020 revenue business, the performance, looks like we outperformed. So means we have to invest more in R&D, then we're able to get return after 2 to 3 years. So I believe, with our hard working in the R&D, we get that today we prove, we make it. But with today's our R&D intensity, by 2023, personally, I believe we're able to get a more influence power, business and revenue. And again, I always say to my people, the goal is TWD 100 billion, and we need to make more money to make sure we are good in the investment, R&D investment. And why Phison keep investing that many resource? Because our semicon partners, our system partners, industrial partners, every partners keep asking Phison they need the new products, they need new products. Unfortunately, I talk to my R&D managers, they say, "Hey, not enough, overloading, or people is going crazy." So what can we do? We have to invest, we have to hire. But of course, if I do it today, the cost increase immediately. But if I'm not doing today, 2 years later, I wouldn't get the new project, new business. So -- but again, you trace the Phison -- our business model, Phison's able to make the good profit through the business model, not only controllers, but also modules and the systems. We have a good profit. Then we invest this into the R&D to make sure after 2 years Phison will be able to make more profit to this company, to the shareholders. So again, I'm hard to answer my investment here what is going to happen, but you look to today's our results, 2 years ago, what we did, then we got the return. So again, don't worry. We know how to manage.

Yes. Okay. So it seems like you achieved the headcount targets earlier, right? 2,500 engineers. So are you going to change your targets, meaning hire even -- more than 2,500 people in the coming 5 years?

Actually, from early this year, right, Taiwan are facing the type of talent -- and TSMC saying that they need to get the extra 6,000 engineers. But the population here, I mean the young students here, the number is there. So we don't believe in early this year we're able to get 400 people. We don't believe. But just half year, 7 months, we make it. I think we make it because Phison, at least, we have good reputation in Taiwan. Our result performance, I think, the public, they're able to recognize. And our strength and our future, especially in storage, a lot of young talent looks like they agree, they buy in. So we hit 400 in half year. I believe the other 400 by second half. So by 2022, mid-'22, definitely, we hit 2,500. Again, by next year, I still believe -- we made request by our partners, semicon partner, to get more design imported for them. So that's why we prepare our [ CV ]. We got the other new land. We plan the other new building in 2 years, and this is to prepare for the other growth in the headcount. So I believe the answer is yes. By 2023, we may shift to 3,000, okay? Not I'm driving the headcount. I drive by the -- our partners to push me to get more people to service them.

Yes. Okay, okay. That's great to know. So there are several questions from several analysts. So maybe we start with CLSA, Brian. He's asking, how does the PCIe redriver/retimer can be a complement to your existing solution? And can you share the TAM and also whether you are going to expand your interface business to other interface with simple USB and HDMI?

Okay. Why, Phison, we jumped into this redriver/retimer business? Actually, again, remember, we are starting with Gen5, not Gen4, not Gen3. The reason we decided to go to this business is because Phison all the IP, high-speed interface IP are doing in-house. So we just reuse our IPs and reuse our know-how. And actually, what engineers proposed to me -- engineers proposed they want to build this, right? First, I ask, what is a redriver? I don't know what this so-called redriver. They said, redriver is needed in the coming Gen5. Every motherboard, server, PC, they need redriver. I say okay. They want to invest. I say, "Okay. You do it." And they said, "Oh, this is -- they have confidence. I said, "Don't tell me confidence. Show me the products." So they showed me products -- after the product -- by mid-July, 2 weeks. It's -- I can say it's perfect. Then I lead these 2 meetings with the motherboard PC makers. They're also surprised. So now I got confidence to my people. To be honest, I don't know what is the TAM of redriver. I don't know what is a retimer, but I just know all the new Gen5 system, they need both redriver and retimer, every, every, okay? And Phison, definitely, we are going to participate. All the Gen5 storage, no matter, in server, PC, notebook, automotive, whatever. So I don't expect -- seriously, I don't expect the driver helping Phison to get the big revenue. I believe there was some certain revenue and good profit. But this is not my first goal. My first goal is we need to increase our influence power into our customers. Means they need storage, we're able provide storage. But we have extra offer, extra service, high-speed interface solutions. With this kind of ecosystem supplied to them, I believe more system partners, they need Phison. This also helping Phison in the future to get more design-win projects into the system, which is able to cover high-speed interface and also the storage. So this is what I'm doing. So again, I have totally no idea how big the market, who is competitors, but I know who is the customer. Okay. Who can -- every PC maker, so we're making them our customers. So we -- simple. We just send the message, talk to them, let's have a call. We will present to them 1 hour. They supply their -- I can beat, when they see our test report, they ask for samples. And by the way, actually, we already got 2 design wins for next year, 2 design wins. As -- first cut, I see just before 2 weeks. Now we have discussed how to ramp up the production by CQ1 next year. So anyway, go signal now. We get a good starting. So I have more confidence in the retimer. And the side story, my business development people of this project in my -- Phison, he proposed me to buy a report from some consulting company, in a few TWD 10,000. He need to study the report. I turned him down. I said, "Not necessary. Why need report? We just go to talk to the system makers, computing makers. They can tell you what they need. We just go to them." So maybe after 6 months I can tell you how big a TAM, what is the competitors, how do they -- but right now, I'm only concerned how to bring these first-cut products into the system makers. But again, already 2 customers are surprised. So I feel good, okay?

Okay. Next question comes from, I think, it should be Bank of America, Mr. Simon Woo. He's asking about whether you see foundry sourcing issue from TSMC, UMC or SMIC given the current shortage. And which foundry do you have a bigger exposure? You say that UMC or TSMC? And maybe we'll start with these 2 questions.

Okay. Phison, we are only working with the UMC and TSMC, but now we also have a partner with the GlobalFoundries, our new supplier. Overall, we keep volume crossed essentially with UMC and TSMC. But unfortunately, they give us a good support, the wafer amount gradually increasing. But unfortunately, the demand is too strong. So, so far than enough. I don't know how to convince them, but I keep telling our foundry partner Phison has a very unique position in the market, okay? Now you see we have the other new redriver/retimer to service customers, means customers in the future they need more from Phison. And Phison, we're also willing to invest the money into R&D to develop a lot of new system, new products. So based on this kind of position, I believe foundry people, they may agree to support us more because we are willing to invest, we are willing to expand the business, and we are try to build more products to the industrial. And at the end, they are going to benefit. So I believe we're able to get increased supply, but unfortunately, remains still too far than enough. We will keep doing our best at this moment.

Okay. And the follow-up question from Simon is about your PCIe chip geometry. He said 14- to 16-nanometer nodes or still at 28-nanometer, 30-nanometer range?

23-nanometer in the 20 -- Gen4, now we migrate to the 12. It looks like all the design is fighting for the top. And we also have IP design today with 7 nanometers Gen5.

Okay. Got you. So we have several new questions, so I maybe speed up a little bit. There was a question from Brian at CLSA. What do you expect the ASP profile by segment in second half 2021? I guess he means the ASP increase by segments. And do you think that the SSD controller IC shortage will continue through 2023? And if so, do you expect the ASP trend to go up in 2022? That's the question.

So Phison we have a different portfolio here, right? So you're talking about ASP. Consumer is the other story, okay? Actually, a controller embedded system, gaming module, industrial, the ASP are slightly increasing because of cost increase and material shortage, okay? Overall, Phison, our business, except the consumer, ASP increasing. And talking about controllers, ASP -- basically, prices, our controllers, we -- actually, Phison cover all kind of controller from the USB, EMC, UFS memory card and the SATA, PCI Gen3, PCI Gen4, we cover a full range. Overall, every range, we are in tight supply, we are shortage. So this cover mainly 55, 40 and 28 nanometers. And you may not know, Phison also have an in-house PMIC solution. All the SSD supply by Phison, controllers and modules are using Phison in-house PMIC. So PMIC actually also in tight supply, we're not enough. That is mainly in the 8-inch 180 nanometers. So next year, I still believe 8-inch, 55, 40 definitely tight; 28, I think, slightly tight, but Phison is more than -- far than behind because we got so many design wins. So mainly in the EMC, we are key players. So foundry, we keep talking to foundry. We try to get more capacity. And by 12 nanometer, I think, also under constraint, but Phison is mainly Gen4, is picking up so rapidly. And this, we also need our customers, our partners, helping us to talk to the foundry to get the supply. And as ASP-wise, I believe next year, because control is still tight, so ASP able to maintain, I believe. Yes.

Okay. So the next question comes from Randy Abrams from Crédit Suisse. So he is asking, how much capacity increase have you secured for next year with the LTA? And how much higher price would you commit to, I guess, to your foundry customers? And can you also secure your business with the LTAs with your customers? This is the first question from Randy.

Okay. Yes, we have 2 plus 1 foundry partners. Sorry I'm not able to share to you how many percent I'm able to increase because this is too competitive, and I don't want to bring trouble to my foundry because everyone go to talk to them to increase the capacity. But for sure, Phison, our supply next year is increasing and, I believe, still keep gradually increasing. But again, still far than behind. That's why we have to go very close with them to see, to commit them based on our position, they need to help us to get the capacity. And talking about LTA, actually, most of my key customers propose to make a prepayment to Phison. And they asked to have LTA with Phison to secure the controllers. So this is the deal side. We talk to suppliers for LTA. Our customers also talk to us about the LTA and prepayment. So we need to fully use our resource capacity to support our key partners. Also, we made the design win, we need to fulfill that inventory. But what is challenging, remains too strong, but I wish -- actually, I wish the semicon, the market has some downturn, then we are able to get some release capacity from others. I wish, yes.