Silicon Motion Technology Corp. (SIMO Quick QuoteSIMO - Free Report) reported second-quarter 2016 adjusted ADS per share (including stock-based compensation adjustments) of 85 cents, which beat the Zacks Consensus Estimate of 66 cents by 28.3%.

Following the release, shares of the company gained 1.6% in after-hours trading.

Also, non-GAAP earnings per ADS of 86 cents recorded a stellar growth of 68.6% from the year-ago figure.

Phenomenal top-line growth during the quarter proved to be a major tailwind for earnings.

Inside the Headlines

Silicon Motion’s revenues in the reported quarter increased 61.3% year over year to $140.7 million, topping the Zacks Consensus Estimate of $130 million.

On a sequential basis too, revenues were up 24.8%, within the company’s recent prediction (made during the first week of Jul) of sequential growth of 23% to 25%, higher than the earlier guidance of 5%–10%.

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) continued to impress, increasing 83% to $129.5 million from $70.8 million a year ago. Stellar client SSD sales of three NAND flash partners of the company drove the sales performance of this segment. On a sequential basis, sales of these three customers increased about 50%, reflecting solid prospects. 

Moreover, improved traction of eMMC, Shannon and Ferri SSD solutions proved conducive to the revenue performance at this segment. The mobile storage products accounted for 92% of the revenue mix, unchanged from the year-ago tally.

However, mobile communications product (which include mobile TV SoCs and handset transceivers) sales declined 32.6% year over year to $9.7 million. Sluggishness in the global economy has impacted the company’s wireless market that has been significantly hurting sales of mobile communications products over the past few quarters.

Non-GAAP gross profit in the second quarter improved 53% on a year-over-year basis to $68.1 million. Also, the company’s non-GAAP operating income in the quarter rose 72.2% year over year to $37.2 million.

Liquidity & Cash Flow

Exiting the quarter on Jun 30, 2016, Silicon Motion’s cash and cash equivalents increased to $203.4 million from $200.9 million at the end of the prior-year quarter.

The company’s total cash from operating activities for the three-month period ended Jun 30, 2016, was $27.2 million compared with $14.8 million recorded in the year-ago quarter.

Guidance

Silicon Motion offered its guidance for third-quarter 2016. Management expects revenue growth to remain flat or increase around 5% sequentially and non-GAAP gross margin within 46%–48%. Moreover, operating margin is projected in the range of 26–%28% for the third quarter.
Highly optimistic about the present market scenario, Silicon Motion raised its full-year 2016 guidance. It now expects revenues to increase 44% to 46% (previous range was 27%–32%) from full-year 2015.

Also, the company tweaked its outlook for non-GAAP gross margin to the range of 47.5% to 49.5% (compared with the prior range of 49%–51%). Also, operating margin is expected to lie within 25.5% to 27.5% against the previous band of 24%–26%.

Silicon Motion is enthusiastic about its business prospects for rest of the financial year, expecting SSD controller sales to increase to 150% and eMMC controller to experience a meaningful rebound. A one-time SSD Solutions project of Silicon motion was expanded in the second quarter, which is expected to weigh down on the gross margin in the subsequent quarter. Overall, the company expects to experience improved operating leverage and solid operating margin performance.

To Conclude

Silicon Motion delivered yet another impressive quarter of substantial top- and bottom-line growth mainly on the back of its thriving mobile storage products sales. Exponential growth of SSD controller sales has been driving growth over the past few quarters. Silicon Motion has established itself as the leading merchant supplier of client SSD controller to module makers, including most market leaders in the U.S., Taiwan and China.

Recently, Ferri SSD controllers, also part of the enterprise and industrial SSD offerings, is focusing on customized solution for industrial applications and gaining solid popularity among original equipment manufacturers. Enterprise and industrial SSD offerings are also expected to bolster sales. Going forward, we believe the company’s market-leading technology coupled with its determination to create customizable turnkey controller solutions will likely support growth.

Silicon Motion sports a Zacks Rank #1 (Strong Buy). Other favorably ranked stocks in the same space include Ambarella, Inc. (AMBA Quick QuoteAMBA - Free Report) , Amkor Technology, Inc. (AMKR Quick QuoteAMKR - Free Report) and AXT Inc. (AXTI Quick QuoteAXTI - Free Report) . All three stocks hold a Zacks Rank #2 (Buy).

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