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Silicon Motion (SIMO) Q4 Earnings & Revenues Beat Estimates

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Silicon Motion Technology Corporation (SIMO - Free Report) reported fourth-quarter non-GAAP earnings of 79 cents per American Depositary Share (ADS), which declined 16.8% from the year-ago quarter. However, earnings increased 39% sequentially and beat the Zacks Consensus Estimate of 63 cents.

Net sales decreased 6% year over year but increased 7% from the previous quarter to $136.2 million. Sales to module makers remained flat sequentially, probably in anticipation of falling prices. The figure surpassed the Zacks Consensus Estimate of $134 million and was marginally higher than the guided range.

Management noted that improved NAND supply in the second half of the year proved to be beneficial. Moreover, demand for client SSDs rebounded after three consecutive quarters of decline. Revenues were driven significantly by demand for Ferri and Shannon SSD.

Shares of Silicon Motion have gained 14% in the past year, outperforming the industry’s 9.9% rally.

 

Revenue Details

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) decreased 4% year over year but increased 7% sequentially to $125.3 million. Revenues from mobile storage products contributed 92% to overall product revenues.

Management noted that during the fourth quarter, NAND supply increased driven by improvement in flash manufacturing. The company’s SSD solutions revenues were positively impacted by this increase in supply. Driven by strong growth in sales of Shannon hyper-scale SSDs and Ferri industrial SSDs, this segment accounted for almost one third of total revenues.

Rebounding orders from the company’s NAND flash partners and increase in NAND supply led to a reduction in SSD prices, eventually leading to higher revenues. Sales for SSD controllers grew 15% quarter over quarter due to introduction of several new programs with the company’s flash partners.

Revenues from eMMC controllers were flat sequentially due to SK Hynix rebuilding its depleted eMMC inventory earlier than expected.

During the quarter, the company won major design contracts from its NAND flash partners for second generation PCIe NVMe controllers.

Mobile communications product (which include mobile TV SoCs and handset transceivers) sales were $9.4 million, up sequentially, and represented 7% of total revenues.

Operational Details

Non-GAAP gross margin declined 360 basis points (bps) on a year-over-year basis. However, non-GAAP gross margin increased 60 bps sequentially to 46.6%. The sequential increase was primarily due to growth in gross margin from the company’s controllers and SSD solutions.

Non-GAAP operating margin decreased 630 bps on year-over-year basis but increased 410 bps sequentially to 24.1%. Operating expenses were lower due to decrease in research and development expenditure.

Liquidity & Cash Flow

Exiting the quarter, Silicon Motion’s cash, cash equivalent and short-term investments were $366.4 million, up from $332.8 million in third-quarter 2017.

Guidance

For first-quarter 2018, Silicon Motion expects non-GAAP sales to be in the range of $127-132 million, reflecting 3%-7%decline on a sequential basis, driven by falling NAND prices and seasonal decline in SSD solutions.

Non-GAAP gross margin is anticipated within 46.5%-48.5%, owing to anticipated growth in high margin Client SSD Controller sales.

Operating margin is expected to decline due to higher spending on research and development.

Management expects the increase in the availability of 64 layer 3D NAND to bring down high NAND prices, which will eventually improve results. Improved supply of NAND flash is expected to drive growth of Ferri and Shannon SSD solutions. Additionally, as the company’s pipeline product, second generation PCIe NVMe client SSD controllers, enter into production, Client SSD Controller sales are anticipated to increase.

Zacks Rank and Stocks to Consider

Silicon Motion carries a Zacks Rank #3 (Hold)

Some better-ranked stocks in the industry are Broadcom Limited (AVGO - Free Report) , SMART Global Holdings (SGH - Free Report) and Advanced Semiconductor Engineering (ASX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rankstocks here.

Broadcom, SMART Global and Advanced Semiconductor have a long-term expected earnings growth rate of13.75%, 15% and 7.88%, respectively.

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