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Silicon Motion (SIMO) Reports Upbeat Preliminary Q4 Results

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Silicon Motion Technology Corporation (SIMO - Free Report) recently reported preliminary fourth-quarter 2020 results. The company now expects revenues to be nearly 3% above the high-end of the previous guidance of $130-$139 million (mid-point of $134.5 million) issued on Nov 3, 2020. Following the news, Silicon Motion’s shares moved up 1.8% to $48.72 on Jan 7.

Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $135.31 million, which suggests year-over-year decline of 11.7%. Silicon Motion is scheduled to report fourth-quarter 2020 results on Feb 3, 2021.

Silicon Motion is one of the prominent providers of NAND flash-based controllers for solid-state storage devices or SSDs. Fourth-quarter revenues are likely to reflect continued momentum in SSD controller sales and gains from recovery in sales of eMMC and UFS controllers.

Higher PC sales triggered by online learning and remote work trends, owing to the pandemic, are a positive.

 

Further, Silicon Motion now projects non-GAAP gross margin near the mid-point of the previously mentioned guidance of 48-50%. However, the company did not provide any update on its non-GAAP operating margin metrics. It formerly guided non-GAAP operating margin of 19.5-20.5%.

A Look at Q3 Numbers

In the third quarter of 2020, Silicon Motion reported net sales (non-GAAP) of $126 million that beat the Zacks Consensus Estimate by 0.03% and surged 11% year over year.

The company reported non-GAAP gross margin of 49.1%, which contracted 70 basis points (bps) on a year-over-year basis. Non-GAAP operating margin expanded 90 bps on a year-over-year basis to 23%.

Factors Driving Growth

Silicon Motion is well-poised to gain from the robust demand for its eMMC and UFS controllers as well as SSD controllers. The rapid adoption of embedded memory controllers in smartphones is driving growth. Further, the increasing clout of the latest PCIe NVMe SSDs is a tailwind.

In November 2020, Silicon Motion unveiled an enterprise-grade PCIe 4.0 NVMe hardware and firmware turnkey SSD controller solution –– SM8266. The offering will enable manufacturers to expedite time taken to introduce new enterprise SSD products (especially for data centers) in the market.

Also, encouraging trends in smartphone embedded storage transitioning from eMMC to UFS controller devices as well as shift from HDDs to SSDs across PCs and other client devices augur well.

The company’s efforts to reward shareholders through dividend payouts despite the coronavirus crisis are noteworthy.

However, coronavirus crisis-led production delays and supply chain constraints are likely to impede prospects, at least in the near term. Intensifying competition in the USB flash drive controller market is also expected to hinder growth. Underperforming Shannon SSD and Bigtera product lines are added concerns.

Zacks Rank and Key Picks

Currently, Silicon Motion carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector are Teradata Corporation (TDC - Free Report) , Shopify (SHOP - Free Report) and Micron Technology (MU - Free Report) . All the stocks flaunt a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Teradata, Shopify and Micron is currently pegged at 16.1%, 32.5% and 12.3%, respectively.

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