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Phison CEO KS Pua Sees Positive LT Memory Module Industry Fundamentals, Despite COVID-19’s Impact
In a chat with QIC, KS Pua, Chairman, CEO and founder of Phison Electronics (8299 TT) said business is good, despite the toll that the COVID-19 virus is taking on the global economy. In the long-term, he sees Phison growing its market share in the NAND flash memory device industry due to its Tier 1 module and IC Controller design capability, as well as its strategic partnerships with upstream and downstream supply chain partners. Here is the text of the interview:
"How have you been safeguarding your workers from contracting the COVID-19 virus, while at the same time maintaining normal operations?"
I think the government in Taiwan has been on top of this from Day 1, providing useful guidelines and suggestions to prevent spread of the virus. We regard our employees as family and have done our best to keep the R&D center and office environment safe. Our measures include shift plan preparation, cleaning and disinfection SOP and enhanced employee health monitoring. This is an issue that is larger than Phison, and our concern is for every member of society who has been impacted by the virus. Recently, Phison has collaborated with supply chain partners to manufacture NAND flash products to fulfill rush orders from medical device clients. We will keep monitoring the situation and provide necessary resources if any organizations or communities seek our help.
"What has been the effect of the pandemic on NAND flash supply availability from your supply-chain partners? "
Our NAND flash partners’ production lines are operating normally. They have implemented COVID-19 crisis management and business continuity plans.
Additionally, concerns that Phison is more likely to face a supply squeeze due to our position as an independent NAND controller designer and NAND storage solutions integrator are ill-founded, as we have forged long-term partnerships with our suppliers and key downstream customers. We source globally, with suppliers in Japan, the US, Korea and China. We expect these partnerships to remain strong and believe we can grow our business scale together with our supply chain partners this year and for many more to come.
"Do you see any risk of losing market share amid the market volatility? If not, what is Phison’s game plan for gaining market share?"
There is a reason why our ROE has averaged over 20% the past four years. In 2008, we were able to act as a buffer for supply chain imbalances for our suppliers and customers; and we ended up gaining market share. In the event that the current crisis causes similar issues, I think we are well-positioned to play that role again.
Phison is the only global IC design company that can provide customized, integrated NAND flash controller IC and storage module solutions for enterprise, industrial, and consumer products across a wide range of applications. This helps us deliver greater design flexibility and greater overall added value to our partners. During NAND upcycles, we bias our product mix towards modules, which is favorable for revenue growth and margin expansion. In downcycles, we raise our IC Controller shipments, and seek to increase market share in that segment.
January-to-March cumulative sales grew 38% YoY, providing one more example of our ability to navigate challenging market conditions. In this case, we were fortunate that our R&D and manufacturing facilities are in Taiwan. In addition, the fact that we had sufficient NAND Flash inventory on hand ensured that we were ready for any supply chain disruption. With more than US$450mn net-cash on hand at the beginning of this year, we have the ability to increase/decrease our NAND flash inventory levels, pending COVID-19 pandemic-based impacts on NAND flash demand and price in the coming quarters – with a view to market share gains and margin expansion.
"Can you be more specific about the example of how synergies between Phison and its supply chain partners have contributed to Phison’s growth? "
Many of our clients rely on us for our Tier 1 NAND storage module design capability, and this helps lock in sales of our controller ICs. Meanwhile, we’ve often taken on NAND flash chip inventories from our suppliers in times of weak industry demand. This cements the relationship with our suppliers, but also means that we typically have inventories with a reasonable cost basis to sell when the industry inevitably rebounds. Having a strong balance sheet facilitates this capability.
Phison’s controller-IC design capabilities are the foundation of our sustainable top and bottom line growth. Our design-in partnerships allow us to see the trends in market demand, and to react to them. Fortunately, we’ve become adept at using that market intelligence to systematically set and execute our product application strategy.
"What do you see as the key growth drivers in years to come? How will Phison position itself to benefit?"
During the next several years, we expect 5G technology to enable demand growth for a wide variety of NAND-storage applications such as networking infrastructure, AIoT, cloud services and electric/autonomous vehicles. To benefit from these trends, we plan to i) continuously invest in R&D for advanced NAND controller ICs – for example, we are now developing 7nm controller ICs; ii) develop customized NAND storage devices for key market niches, such as server, industrial, embedded and automotive; and iii) recruit more experienced engineers – we are hiring more than 400 engineers this year.
As a NAND flash storage solution provider, Phison has diversified its product applications into many niche markets, including: i) Automotive: we provide ODM storage solutions and automotive-grade controllers such as eMMC for in-vehicle systems integrators; ii) Embedded: we supply a wide variety of customized storage solutions for more than one thousand clients in the military, medical and industrial segments. In this space, we keep buffer NAND flash inventories on hand for a select few clients who provide long order visibility; iii) Enterprise: we mostly focus on legacy NAND flash applications with robust order volumes, including data center and cloud server. For high-end enterprise clients, Phison provides ASIC services and licenses IP to international systems integrators. We believe we stand alone in this industry in being able to combine a high degree of product diversification and solution customization, while at the same time competing in high volume cost-competitive segments of the market. In the long run, it is this unique model which will help us continue to grow faster than the overall industry, thereby increasing our market share.
If you would like to arrange a meeting with KS Pua, please contact yvonnehuang@qtumic.com.