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

[Audio Gap] first quarter earnings call. Mr. Jason Yang of [indiscernible] Taiwan. Today, is hour to have agenda to CEO at Phison here with us. He will be sharing the recent update and the outlook of both about the industry and the company itself. After that, we'll open the floor for Q&A session. So now let me turn this call over to Mr. Pua. Thank you, Mr. Pua.

Yes. Thanks, Jason. So thanks for everyone to attend Phison's, our CQ1, the earnings call. Okay so let me have a brief update about our current Q1's report. You probably know we are -- revenue is like $17 billion. We hit -- we got all-time high in every quarter. And this is our revenue breakdown. From this chart, you can see our controller, we also hit all-time high in the revenue and also in percentage share, 29%. Last year, whole year, I remember we were like 22%. The reason you can check that our controller revenue, the share actually keep increasing just because of -- we got a lot of controller projects from the semicon customers from the main customers, which last year, we are getting more supplier from UMC and TSMC; and PCIe Gen4, we got many design wins. So by 2022, we are quite optimistic. Our controller business in our portion will maintain in the high level. And embedded ODM since 2 years ago and keep emphasizing this is 1 of our major business. And in the revenue-wise, this also become much bigger. It's mainly cover the PC OEM and the smartphone OEM business. So you can see the chart is also every quarter, we keep really a consensus good growth. And overall, CQ1 is a slow season in the consumer market. So Phison, like consumer retail is up 20%. So this is a very healthy and that's why Phison keep insisting invest into the R&D. We believe in the controller, in the embedded ODM and coming future in auto and the price SSD, we are going to have a big growth. And this is to show you, I think you already know Phison history. In 22 years, we have started from the USB drive in customer market. And gradually, we are moving to industrial. Now we keep investing in R&D. After years ago engaged with AMD, we are able to get a big growth in the whole industrial. And from now on, we are starting to keep investing into the enterprise SSD and automotive SSD and the [ legal pertinent ] solutions. Okay. CQ1, the revenue is $17.1 billion, and the gross profit is $4.3 billion, $4.4 billion, which is all-time high. And we are happy that Q1 -- even though CQ1 usually is a slow season, but we're able to hit the all-time high in both revenue and the profit. And this is some highlights here. Controller is up 29%. You can see here our special controller in the PCIe. We have a very good Y-o-Y consistently. The reason is we keep having lots of design in from semicon. And in modules, we also keep growing in the gaming and also in the embedded ODM, which embedded ODM is getting much stronger. We're also putting our [ actual ] smartphone. This is helping us. We also engaged with 1 of ecosystem [ CTO ] supplier to promote the next BGA SSD for the Chromebook Light notebook. This will also become our major business in the coming future. So this is our revenue. Last year was 62.5. Now by this quarter -- last quarter, CQ1, we're doing good. And in the whole year, we still are trying to achieve our goal in the growing in revenue. Gross margin, CQ1 was 31.5%, with the reason is controllers had business growth, which are helping the average in the gross margin. And in the -- all the module application, like in the NAND, basically what's happened by last November and December. During that time, the NAND price was in the bottom. So we're also able to enjoy a little bit price up. But overall, the value of modules, we also contribute some better revenue than before. [ Intangible ] revenue, good, but margin always is a risk, but [ when go to ] the old OEM, ODM and gaming industrial, which we're able to maintain better margin. The earnings per share is $11.09. The reason is Phison, we keep investing into R&D. So the OpEx in R&D, we are keeping increasing. But overall, we still are able to maintain 2 digits in the EPS. So this is income statement here. The orange color is in the period high history. And I just want to share with you about our OpEx. You can -- by Y-o-Y you can see we are keep increasing the R&D investment. But this is what we have to do. Of course, a lot of investor analysts [indiscernible] why you keep insisting to invest only. But look to TSMC. Keep doing in CapEx only, now they become not any kind of competitors. But Phison, we have to make sure we are good in the technology -- especially, we have got so NAND makers come to Phison to ask for cooperation in the next future controllers development. So we need to prepare good enough [ of investments. ] So I don't worry about that because I believe with current our R&D investment in the future, we're able to get very big returns from our business, okay? So gross margin-wise, also we are happy about that 31.5%, is almost in the high level. And overall, we're able to make good gross margin. At the same time, we also need to take the margin, investing in the R&D. I keep emphasizing: R&D is very important. So the balance sheet. You make concern about the inventory. Remember, since last CQ4, market was slow, but we got so many focus in this first half. So look to Q1, business was good. So that's why we are preparing inventory since last CQ4 than [ generally. ] So basically today's average price -- average cost in inventory is still lower than the market price. So basically, no risk. And we understand and agree the COVID and also inflation make cost the electronics market. So by April, we are already in a lower TWD 1.5B as the inventory. So the policy in coming 2 months, we are going to lower our inventory and consume -- keep consuming our inventory, then waiting next good time to buy back the NAND for our future business, okay? So we're also happy our ROE still able to maintain in the 20-plus percent. We are working very hard. And I can -- I think this is how we show the good value to the investor. We also announced our April revenue $5.9 billion, close to March. Lower M-o-M, maybe like a few percent down. But overall, the reason is caused by the Shanghai lockdown, okay? But it's -- we still are manageable, okay? The Storage Newsletter in April, they announced the top ranking storage companies -- was in the #10. So we are keep doing hard to make ourselves good in this industry. And very popular discussion about the Starlink. Phison's, our controllers together with our partner, we built the storage system into the motherboard. So almost all of these are designed by Phison's storage, okay? About CQ1, some highlights. Retail was slow, but we are -- keep moving more PCIe Gen4 into the retail business. OEM in Q1 is very strong, especially our PCIe Gen4 [indiscernible] SSD and the smartphone UFS, we are doing great. We have a big growth in the total revenue and also by unit. And gaming, according to -- we talk to our ecosystem, they are still suffering some component shortage. So gaming tends to slow because they're not able to ship the console to the market. But we also keep many design wins with gaming PC makers to put our fastest PCI Gen4 controllers and modules into their second half high gaming notebook and gaming PC. In server wise, SATA SSD is a legacy key supplier is going to EOL. And Phison, we take a lot of last year, the forecast in 2022 from China and the U.S. market. Industrial, also in CQ1, basically is a slow season, but we're also designing more into the automotive business. So we -- in April, we announced our cooperation with the Seagate in the high-end PCIe Gen4 SSD project. We are going to deliver the final samples to the storage system makers by this, I think, second half of this month. So after sampling, we believe by end of CQ3, we're able to slowly wind up the production. And next year, will be a big wind up in the SSD enterprise. So we are going to show our products to prove we're capable in this industry. Also, we have got the certificate from the ISO 26262, which is for safety in automotive. This, we invest [ 2 years ]. With this certificate, Phison will able to convince more automakers come to Phison to co-work with Phison. And this Gen5 in the -- these Computex, we are going to demo with our ecosystem CPU partner. They are asking Phison to ship the products by September 1 to the market. So it looks like today Phison is according to a lot of test report, this is the best controller right now in the world. Phison by last year, we announced our PCIe Gen5 driver. [ First cut, then go direct ] to MP. We already got so many order -- PC makers and server makers. So we have a lot of activity and a lot of good news recently. Yes. So let's talk about the industrial in the semicon. I think recently, they have 2 uncertainty. One is COVID in China, but we believe COVID eventually, either 1 month, 2 months able to settle down. The second issue is inflation. Inflation is a big issue. A lots of users, they need to save their money for food, not for the products. This impact the demand -- look to the PC, look to smartphone. But we don't know inflation when able to control. But Phison, what we have to do is keep investing into our engineering team to build more products to our different customers, especially the NAND makers to make sure we're able to grow in the coming futures. From this slide, you can see Phison again keep hiring more engineers. We may slow down the hiring by second half next year, okay? So 2022, first half '23, we still have a lot of gap to get more engineers. The reason to get engineers because so many controller projects coming from the NAND makers and other customers. We have to adjust the business from them. So maybe by first half next year, I think we're able to train good enough of headcount in developing, then we are going to slow down hiring. So the OpEx is able to manage after that. So Phison's goal, we hope we're able to be the most influential NAND controllers and ecosystem players in the NAND industry. I believe we can make it. After engagement with AMD 3 years ago, now Phison revenue and profit, we have a big jump in. By next year, we are going to prove in the enterprise SSD, the cooperation with the Seagate. Then Phison able to manage every NAND applications. So we hope we can become the most influential -- the player in this ecosystem. Okay. Above is today's report, and we call on some Q&A. Let me finish please, then we go to live. Everybody keep busy to study what is going to happen, okay? To be honest, 3 months ago, I already smelled this acquisition. Okay. 2 months ago, I heard something and then I made some study. I think this is going to happen. And last night, this happened. So what is impact to Phison? Basically, before talking that, then we have to ask why they're going to sell. Many years ago, I keep saying that it's only in NAND controllers, high R&D investment with a low return. 2021 is exception because of shortage, a price increase -- volume not increased mainly but price increase 40%, 50%. Of course, revenue grew; profit grew. But if everything go back to normal, then you have to consider the R&D investment and how much can we have a good return. So Phison, we believe, in the history, the M&A in the design house after 99%, after 2 years, the company being acquired. The looks like [ 99% ] going to be people move this -- that their decision changing. So Phison wouldn't do anything. We will keep consistency here, keep investing, doing our business, make Phison more solid, reliable. This morning, we started to -- I personally got several calls from several NAND makers. They show the -- and also they ask Phison, "Hey, are you have a good enough engineers or not?" The reason is they may have to come to us to ask from other projects. Reason is Phison is not to sell, it's not for sale, and we are reliable. Yes. And we've also been keep asking many times, why Phison work with Seagate? This made to 3 years ago, when we decided to work with AMD. The reason is we don't have any appearance in the PC industrial. All the [ PC P ] guys, they don't know us. Through the AMD project, Phison is able to bring our product to the platform, then suddenly, they realize Phison. They trust Phison can make it. So we are busy in these 3 years. We have a good business, good return. Enterprise SSD, basically current users do know Phison. Even though they know Phison, they don't trust Phison capabilities. Seagate is the biggest enterprise hardware suppliers. So the users, they trust Seagate. Seagate, they trust Phison. We've been working for many years. So Phison is doing every design, logistics, products for Seagate. Seagate give [ Phison respect ] talking to the customers. So this is a co-development and co-marketing. So we are happy to have Seagate as partner, helping us to this industry. Once we prove capable, there Phison able to go through many cloud social media company to look for controllers and modules design service business. So this is the best strategy we have. And the cooperation with AMD 3 years ago, we have -- we can see today Phison performance. This is a super good return after 3 years. I believe cooperation with Seagate in 2 years -- after 2 years, we can [ back to check ] what kind of a return. I believe the return will be good and will be surprised. So this is our strategy to go to the enterprise SSD business. We have a 3 step in the enterprise, our strategy. In legacy, we are building the modules in the startup to take those business which the NAND makers going to EOL, okay? To us, this is a good revenue and good margin. With the Seagate now we are co-development and co-marketing, mainly aiming to storage system suppliers. Next step, once we are qualified, we are going to [ meta design ] service and customer service business to hyperscale and cloud applications. So what's the difference -- also keep asking what's the difference? Enterprise SSD [ like super costs. ] They are fast, reliable, safe and design demanding in R&D is much, much heavier than the PC client SSD. So this need to keep at least 5 years R&D investment. So this year is our heaviest time -- it's the time to deliver the high-end products sample to the customers. Also, will be our next growth. We also have a different strategy. For legacy market, we are providing controllers and modules. And for mainstream, we are go with the NAND makers. Now we have a few NAND makers cooperation in these NAND controllers for auto. And also, we are doing customization, okay, for the EMS, ODM partners and also we direct talk to the automakers, okay? We believe with Phison's -- our overall portfolio in [ IPs ] in the SoC development, in the firmware and the product modules, we're able to meet to satisfy the demand inquiry from automakers. Driver. First, design we took a month -- after months start sampling go to MP. Now we got the total 5 million piece of order, and we need to get more wafers from our foundry. So this is a really surprising business from nothing to MP to shipment -- total 30 months, okay? So now we are not only in the motherboard also putting our design into notebook. By this CQ3, we are going to put our driver into the service, Gen5 servers, okay? So this is very good success, new business in Phison. And by next year, we are going to sampling our Gen5 [ retirement. ] So we have confidence to make this business good and profitable. ESG. By OTC, you can see we're actually improving. By DJSI, we're also improving. And MSCI, we also got from CCC to the BB. So we are investing also into the ESG to make sure we are in the top ranking. Okay. Many investors are asking, "Hey, what's going to happen in the future because of a drop down and because of the inflation?" I define 2 chains. One is the so-called supply chain, one is the called sales chain. Supply chain means in the production with so-called supply chain. Now suffered by [ lockdown, ] okay? Shanghai, Kunshan, Chongqing, we have to ship our modules to the for notebook assembly, but [ lockdown ] -- but I mean not [ lockdown ], not talking about transportation and the cost increase too much. This is delaying a lot of a shipment, okay? But supply chain issue will be solved within a few weeks or months. The next is about inflation. Due to inflation, the sales channel, they are not willing to pull in the products. It means the sales channel, now they are lowering their inventory. So look to the 2020. The first Q after COVID getting popular Western [indiscernible]. I remember at that time, 5 months, all the logistics is mainly supply food, drug, whatever the essential demand. EE products, in a second priority. But suddenly, when [ lockdown ] looks like clear, then the products, EE products shortage in the whole supply chain. We believe -- if a supply chain start to release, inflation is able to manage. The next will be a big jump up in our industry. So Phison, we have to keep preparing our [ no metho ] technology, our people, our products to make sure we're able to enjoy in the next jump up with a much better benefit like 2020, you look to 2021, Phison, we are actually enjoying this kind of jump up. And the reason is we keep early prepared for that, okay? Above is still some collecting questions, so we can go to live now.

Okay. Thank you, Mr. Pua. And now we can start the Q&A section. [Operator Instructions].

Actually, I have a question in terms of the acquisition between MaxLinear and Silicon Motion's. Do you see any potential impact to Phison or maybe market share or supply chain relationship?

I believe, yes. I believe to Phison will be the positive impact season. After acquirer, this equal to some uncertainty, okay? So a lot of NAND makers feel the NAND to keep better relationship with Phison, try to occupy Phison's R&D resources. Because Phison is not going to change. We are always here, we are solid. And talking about the China, and U.S. and China's travel. Many years ago, SIMO saying they're U.S. company because at the time U.S. is proud and they are good. But a few years ago in China, they said, "Oh, no, no, they are Taiwan company, okay, because of sensitivity. Now I think they bet to as a U.S. company. So in China, we believe China's customers may also have raised some concern. So we are trying to get the most there in Taiwan. And the third part is, according to history, after acquired 99% within 2 years [indiscernible] we are also trying to get some good talent for our future development. So I believe overall Phison is a positive, good impact. And I believe also the time is to stay in the Phison side. So it means the time keep moving, Phison able to enjoy more benefit from that.

Got it. Got it. So you just expect the Phison market share can further increase because of the maybe political issues from these acquisitions, right? So do we expect that we can further gain shares from the server or data center market or only for the consumer market?

I think basically, we're able to get more opportunity from the NAND makers. And overall, for enterprise SSD, I think next year, we have our road map here. After Seagate start to be less imposed to MP, we can get the more present success in the data center, nothing to do with the SIMO acquisition. They don't have -- I believe they don't have a strategy right now. So I think in the mobile, in the PC, in the consumer, we believe we are taking the advantage to increase our shares in the whole market.

Yes. Got it. Got it. So can you give us some colors on net of flash supply and demand forecast in the second half this year because it seems like the end demand is slowing down. And currently, NAND suppliers is limited by the KIOXIA and WD's supply issues. So what's your view in the second half this year?

CQ2 because of the KIOXIA contamination, I think supplies a gap. By CQ3, now we have to back again to via COVID and inflection. According to many reports, the smartphone is a slow, PCs are slow. Actually, at this record to the so-called sales chain in the supply -- sales channel, they also lowered the inventory. They are not willing to pull in the products, okay, because they're also afraid about uncertainty. But we believe by CQ3, if this COVID and the war inflection not able to mass CQ3 definitely was turn to weak, okay, in NAND. But to Phison, now we are consuming our inventory. Inventory cost is still lower than market price, so we could. And we also lower to buy the NAND at CQ2. Actually, since March, we start to lower our buying, okay? We are managing -- now we are managing inventory. We need to lower inventory. So if CQ3 tend to weak, I think also will benefit to Phison, okay? And if you ask me, yes, I wish CQ3, the NAND able -- price able to go lower, then we're able to buy more for our enterprise business.

Okay. Got it. Got it. So how is the recovery of the WD and KIOXIA's wafer supplied due to contaminations? Will the NAND supply still be limited in the first quarter? Or it just in the second quarter this year?

They're already back to full production by, I think by March timeframe, they announced I got to know when, but now they are good in the full production. So supply gap will happen by May and June because the wafer needs to go to packaging, testing, okay? CQ3, I think, supply side, not any uncertainty. I mean, the Fed is fully on. The issue is about the [indiscernible] side.

Okay. Got it. Got it. So we know Phison's target for gross margin is between around maybe 24%, 25% to 30%. And I think that many investors still have a concern that whether Phison can keep profitability growth in the future when the gross margin is being more normalized. So back to Phison's top line growth to sustain its earnings improvements when the gross margin back to the normal level?

The answer is yes. We are -- my first goal is to grow our top line, okay? And this is our business. I don't -- they're much eager to looking to increase our gross margin at this moment. Of course, we'd like to increase gross margin. But in terms of the gross margin, I am more prefer to look into the timeline to get more market share. But at the meantime, I think with the 27% plus/minus 3% gross margin is good to us. Overall, at the end, the net profit we are going to grow, okay? So look to the 2019, '20, '21, Phison's earnings per share is keep growing. And I'm also optimistic in the coming 2, 3 years, okay? Also, because of -- due to the acquisitions, I think we're able to get a more approach to the big customers such as the NAND makers -- and we also believe we're able to get more projects from those NAND makers. So the answer is yes. Gross margin, we just tried to maintain, improve our top line, at the end, try to enlarge $0.05 on net profit.

So can we have more color on the catalyst or driver of Phison's top line growth? That means maybe which market or which applications or maybe the growth will be from gross market share or shipment or even SP or staff migration, something like that?

Yes. Definitely, the big growth will come in from the controllers, okay? Controllers from a few segment. First, we are in the leading position in the Gen4, and we've got so many NAND makers, PC makers project. Next, now we are going to more in a so-called the mobile business. So controller overall, I think, is a big driver to earn in a few, okay. Again, due to the acquisition, I think we are going to benefit. And also, the big growth in the revenue-wise will be the embedded ODM, okay? We have PC, we have smartphone, we have medical device, a lot of embedded. This we are going to grow here. And the next -- of course, industrial is stable. I don't expect this to grow very much. These are stable but profitable. And our next 2 growth will be coming from enterprise and automotive, but this takes time, okay? But 2023, enterprise is going to contribute revenue, okay? Also, we believe we need to keep working autonomous going to use the high terabyte SSD. This may take years, I don't know how many years. But overall, we also keep designing a lot of controllers and modules for auto systems. So overall, we believe the group controllers is 1 portion, embedded is 1 portion. And the next will be enterprise, okay?

Got it. Got it. So our target -- so our sales target is still to reach the double-digit year-on-year growth in this year?

Yes. This is our goal.

Got it. Got it. So how about -- yes, the gross margin is still maybe 27% at or minus 2% -- 3%, right?

Yes.

So how about our OpEx ratio because it seems like we keep expanding our human resources on our R&D sections. So do we have more color on it?

I think our OpEx ratio, we are going to keep like 14%, I believe. Let me see here. I think it's around 14%, 15%, something, okay? The R&D cost, to be honest, it keep increasing, but I believe secure by next year, CQ2, CQ3. We'll have a good enough tenant then no need to keep increasing that much.

Yes. Got it. So it's -- so it means that our OpEx will be peaking in next year?

Yes.

Got it. You talked about the PCIe Gen4 or Gen5 related products. So I just want to know do we have the PCIe Gen4 penetration rate in maybe PC, laptop or server market, I mean the whole industry penetration rates?

PC, my understanding all the PC brands, Tier 1, Tier 2, Tier 3 Phison got also the design win business, okay? Now we are designed with the Seagate centering by second half this month. So we turn to revenue from end of CQ3, okay? But that portion by unit is not big, in a server, looking for -- actually looking for capacity, not looking for unit, yes. So penetration of strategy going forward, we believe we are doing good. And again, due to the acquisition, I believe that make us more aggressive to come to us.

Got it. So do we have the industrial number of the Gen4's penetration rates? I mean, maybe 30% or 40%, something like that?

I don't remember the number. Yes.

Okay. Got it. Got it. So how is our Gen5 product lines? Do we target it to be released along with Intel Ecostream or something like that?

Yes. Actually, we are going to do demo. Actually, the design is done, demo by computer tech with our ecosystem, CP partners. And we've been asked to MP to ship the modules by 1st of September. Okay. Lisa is done. Now we are awaiting the new generation fresh going to MP to make this drive to highest speed, means it's [ 14 ]. In lab we already proved we're able to met to 14-plus gigabyte. So this is surprising a lot of PC makers. This will be our look at business.

Got it. So it will be adopted on PC applications?

Yes. So server Phison now we are aiming to the PCIe Gen4 centering by this month. And Gen5, the [indiscernible] will be ready by next year CQ4. So it's under designed.

Got it. Got it. So I do wonder how -- you mentioned that served or the sense or designed quite different from the consumer application, right? So I just wonder how long that it takes maybe controller for our clients to qualified our product?

Depends on how mature of our design. Looks like Gen4, I think in 3 months, some customers could clarify. The reason is Phison in-house, we've built a lot of testing equipment. We have a big lab doing in-house testing. So we believe after -- by the way, not just only Phison, we test, Seagate also helping us. We are testing together in the lab in the U.S. So we believe if the product itself mature, we're able to slowing up business after 3 to 4 months.

Got it. Got it. Got it. So talk about more on the mobile application. It seems like there's staff migrations for mobile NAND manufacturers. So maybe we can take some shares from these migrations. So can we have more color on it?

In mobile, of course, mobile storages are mainly managed by the 3 supplier who has the DRAM solutions. So unfortunately, these 3 UFS most likely using in-house controllers. EMC, we also -- yes, we got the supply to one-off, maybe 2 or 3 in EMC controllers. And UFS, now we are working with mid-direct work with the mobile makers -- mobile phone makers. We provide them the modules -- the UFS modules to the phone makers. So we have a direct cooperation. So we are also thinking about how to increase our mobile application because policy, most likely they like to use in-house. But recently, they also consider to outsource to Phison. So it is our next opportunity.

Got it. So overall, it seems like we are gaining the market share across even every applications, right, from PC, server to mobile?

And available, portable, medical, auto, any -- so Phison's strategy is very simple. Any solution who need NAND, Phison will provide a solution.

Got it. So I just wonder how can we just keep again, increase our market share because it's not only because of our maybe R&D solutions or we have the better customer service or lower pricing. I just wonder how we can just maintain or even improve our market share?

Okay. First of all, I think we need to have a very solid engineer team, and we need to have a very good attitude to talk to the customers, and we are willing to cooperate very closely, transparently with the customers. And I believe after this M&A, the key players, key customers, they may feel Phison is most reliable, means we are not going to give them surprise. And in this case, right, we fully believe they are more willing to have a deep cooperation with Phison. So we be ourselves working hard, investing more R&D, keeping good relationship with the customers. If we found anything wrong, we are transparent everything to customers. That then feel good, no worry to us, then eventually we can get all the business.

Got it. And so how about our partner in China? We know that our Chinese partner, they're now ramping up their capacity aggressively. But we still see the current Chinese demand is weakness. So do we have more color on it?

They are, yes, increasing the supply. But again, due to the rumor saying that maybe China-U.S. trade war may have some impact. But overall, yes, China demand due to -- by COVID, the demand is suddenly frozen. I believe they also have some pressure how to move their products. But overall, everything is doing good. Everything is good. And special -- okay, after back to this M&A, we believe China customers may raise the concern, okay? So we believe Phison will need to play our role to support them. Then at the end, we get the business.

So I just wonder, the Silicon Motion also is the controller supplier to YMTC or only us?

Both, they use many sources.

Got it. Got it. So potentially, we can have the opportunity to gain the market share from Silicon Motion, right?

Time will tell.

Got it. Got it. Got it. Okay. So can we provide maybe guidance or outlook on the second quarter, maybe sales or gross margins?

We didn't provide guidance. If we do it, the OTC will come to us. But overall, due to again credit inflation, we can feel the demand is slow. In this case, I believe it will slow the sales channel inventory also very low. We are waiting when this uncertainty disappear, there we need to pick up to get the best benefit from this business. So we met ourselves stand by here and with the group preparation.

Yes. Got it. Got it. So how about our controller business? Do we expect the preparation of the controller business to keep increase in the following quarters? Or it just can remain at the same levels for our -- in our product mix?

Our controller is still in shortage. So we still baking TSMC, UMC to give us more supply. Yes, the Section 4 demand is very strong, yes.

Got it. Got it. So do we expect that [indiscernible] can further improve in the following quarters?

The answer is yes. But again, supply.

It depends on supply. Okay. So it seems like everyone has considered about the oversupply issues for the foundry mature now. So potentially, maybe we can secure more wafers if the foundry can and they're maturing a capacity in the next year? Or is the deal still on negotiation?

I hope -- I wish that the foundry is going to release, then we're able to improve our share in this industry. But I don't know when they're able to soften. Yes.

Got it. Got it. So how about the NAND supply because of that KIOXIA's contaminations to limit the NAND supply in the first quarter. And now it seems like the wafer supply is back to the normalized fashions. So how is our -- yes, we know that KIOXIA is our major NAND source. So how is our net supply right now?

No. Overall, in legacy part, we're still asking for more shipments. But in the mainstream, I think we are mainly consume our inventory. We are still down to pulling the NAND flash in this month. So first priority is lower inventory. Shipment, I think good to ship if a CQ3 market NAND turn to soft, then we're able to get more with better price to improve our market share and our profit.

Got it. Got it. So in last year, we actually outsourced some orders to other Taiwanese players, right, because of the tight supply. So do we still outsource the orders to other players in this year? Or we may turn the orders back?

For some low end modules, I don't think Phison will need to put our quality engineers into that business. I prefer to put my talents into the more advanced design. So we are still go to outsourcing. But whenever the flash wafer supply turned to good enough, some middle-end products, Phison may come back to our own solutions.

Got it. So what's difference between in-house or and outsource? I mean the gross margins. What's gross margin difference between our in-house solution and outsource?

Low-end products, of course, they have a gross margin, but not at switch. We're just using them to move some inventory. Yes. So in-house solution, of course, which is for design-in customer has a requirement to have a service, we prefer to use in-house.

Got it. Got it. Got it. So I have a question in terms of our Retimer and Redriver business. How much does your Retimer and Redriver accounts for total revenue next year after the product line asset actions?

Redriver, 5 million [indiscernible] with $2 is a $10 million -- just $10 million. So this is not a big scale business, but Phison is not looking for revenue. We're just taking this is 1 of our portfolio to approach to PC makers and to server makers, okay? So this is our kind of look back to talk to them and start relationship. And Retimer is a high-priced product, but we are not ready yet. So I will make a comment when we are going to NP, then we can share with you what kind of revenue we are going to achieve.

So will we bundle Redriver with our SSD controller or module to our clients for -- maybe for server or PC or laptop?

No, no. This is totally independency, not able to bundle. But if we have a digital Retimer to the servers, then we know them, we easily can talk to SSD. This is our strategy.

Got it. Got it. Got it. I think I have no more questions. So later if you have any questions, please raise your hand, and I will unmute you to start your questions.

I think Jason is okay, my phone keep ringing. So if there are no question, we can end this call. I have to back to doing our business.

Okay. Okay. Mr. Pua. Thank you for your participation. And we'll see you next time. Thank you.

Thank you. See you. Okay.

Bye-bye.