Gross margin excluding stock-based compensation was flat at 50.3% compared with third quarter of 2008.

Operating expenses excluding stock-based compensation, acquisition-related charges, and one-time items decreased from $14.1 million in third quarter of 2008 to $12.2 million.

Net income excluding stock-based compensation, acquisition-related charges, foreign exchange gain, and one-time items decreased 63% quarter-over-quarter to $3.2 million. GAAP net income decreased from $8.1 million in third quarter of 2008 to a loss of $0.9 million.

Net income excluding stock-based compensation, acquisition-related charges, foreign exchange gain, and one-time items decreased 63% quarter-over-quarter to $3.2 million. GAAP net income decreased from $8.1 million in third quarter of 2008 to a loss of $0.9 million.

Business Highlights

Reduced total unit shipments 5% year-over-year and 14% sequentially to around 92 million units. Full year total unit shipments increased 30%.

Reduced storage controller unit shipments 1% year-over-year and 11% sequentially. Full year storage controller unit shipments increased 32%.

Received SSD controller design-win at Samsung for its flagship HMX series camcorders. HMX-106 is the world’s first 64GB SSD camcorder.

Launched world’s first Single Level Cell (SLC)/Multi Level Cell (MLC) hybrid SSD controller to provide OEMs with a cost effective SSD solution.

Launched world’s first Turbo MLC controller solution for SSDs. Turbo MLC offers significantly higher durability than traditional MLC flash, with performance similar to SLC flash, and is more cost effective than SLC.

Developed one of the world’s fastest 2 and 4 channel SATA and PATA SSD controllers with excellent random read/write performance and among the best sequential read/write in class.

Received a series of design-wins for T-DMB mobile TV tuner plus demodulator SoC at Samsung, LG, Pantech & Curitel, and other OEMs.

Non-GAAP net income, which excludes stock-based compensation, acquisition-related charges, foreign exchange gain, and one-time items, decreased 63% quarter-over-quarter to $3.2 million, or $0.11 per diluted ADS, compared to $0.27 per diluted ADS in the third quarter of 2008.

Commenting on the results, Silicon Motion’s President and CEO, Wallace Kou, said:

Although our fourth quarter sales performance was affected by the global economic slowdown, we believe we continue to execute well under this current environment. Consumer demand for memory cards and USB flash drives was weak in most markets around the world. Because of weak end demand, there were higher levels of finished card and UFD inventory in the food chain. Additionally, our bundled card controller business was affected by weak sales of handsets. Furthermore, output of NAND flash components from the major flash vendors, while still growing rapidly, began to decelerate as less productive fabs were retired. These factors contributed to weaker demand for our controllers. However, in spite of weak end-market conditions, for full year 2008, our total flash storage controller unit shipment increased a solid 32%. This growth rate is towards the higher end of the 18% to 39% originally range forecasted by Gartner and IDC. We continue leveraging our strong R&D and sales capabilities, as well as unparalleled relations with card makers and NAND flash business partners to aggressively support the current ramp of next generation NAND flash components with a portfolio of best-in-class controllers.

During the quarter our SSD business achieved key product, technology, and design-win goals — although it is important to note that the timing of any material increase in our SSD revenue remains uncertain. Goals achieved include releasing the world’s first SLC/MLC hybrid controller for SSDs, which provides OEMs with an effective solution to utilize lower cost MLC flash. We have also developed the world’s first Turbo MLC controller technology for SSDs that offers OEMs the advantage of significantly increasing the durability of MLC NAND flash with performance similar to SLC flash and at lower cost than using SLC flash. We have also secured an important SSD design-win for an important consumer electronics application, which is a demonstration that SSDs are being designed into many applications other than notebook PCs. We received an SSD controller design-win at Samsung for its flagship HMX series of camcorders, of which the HMX-106 is the world’s first 64GB SSD camcorder.

Our mobile communications business, which remains focused on the Korean market, was affected by domestic macroeconomic issues. Our mobile communications sales volume as a result fell sharply from the previous quarter as domestic handset sales contracted about 30%. However, we have rolled-out our T-DMB mobile TV tuner plus demodulator SoC solution according to schedule, have secured a series of design-wins at Samsung, LG, Pantech & Curitel, and other OEMs, and have already started shipping our SoC.

Fourth Quarter 2008 Financial Review

Sales

Net sales in the fourth quarter totaled $32.3 million, a decrease of 28% compared with the previous quarter. This quarter, mobile storage products accounted for 76% of net sales, mobile communications 14% of net sales, and multimedia SoCs 8% of net sales.

Net sales of mobile storage products, which include flash memory card controllers, USB flash drive controllers, card reader controllers, SSD controllers, and embedded flash controllers, decreased 23% from the third quarter of 2008 to $24.6 million this quarter.

Net sales of mobile communication products, which include mobile TV IC solutions, CDMA RF ICs, and electronic toll collection (ETC) RF ICs, decreased 46% from the third quarter of 2008 to $4.6 million in the fourth quarter.

Net sales of multimedia SoC products, which include embedded graphics processors, MP3 SoCs, and PC camera SoCs, decreased 35% from the third quarter of 2008 to $2.7 million this quarter.

Gross and Operating Margins

Gross margin excluding stock-based compensation remained unchanged at 50.3% compared to our previous quarter. GAAP gross margin increased slightly to 50.2% from 50.0% in the previous quarter.

Operating expenses excluding stock-based compensation, acquisition-related charges, and one-time items was $12.2 million, which was lower than $14.1 million in the previous quarter largely due to reversal of accrued compensation expenses. Research and development expenditures, excluding stock-based compensation, were $7.2 million, which was lower than $7.7 million in the previous quarter. Selling and marketing expenses excluding stock-based compensation were $2.5 million, which was lower than $2.9 million in the previous quarter. General and administrative expenses excluding stock-based compensation and litigation expenses were $2.6 million, which was lower than $3.4 million in the previous quarter. Stock-based compensation was $2.1 million, which was less than $2.3 million in the previous quarter. Acquisition-related charges were $1.5 million, which was slightly lower compared to the $1.6 million in the previous quarter. Litigation expenses remained unchanged at $0.5 million compared to the previous quarter.

Operating margin excluding stock-based compensation, acquisition-related charges, and one-time items was 12.4%, which was lower than 19% in the previous quarter. GAAP operating margin was negative 0.1%, which was lower than 9.1% in the previous quarter.

Other Income and Expenses

Net total other income excluding impairment on long-term investment and net foreign exchange gain was $0.3 million, which was slightly less than $0.4 million in the previous quarter. GAAP net total other income was $0.2 million, which was significantly lower than $4.2 million in the previous quarter due primarily to an impairment loss on investment and less foreign exchange gains.