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Silicon Motion Provides Q2 Preliminary Results, Shares Down

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Silicon Motion Technology Corporation (SIMO - Free Report) recently reported preliminary second-quarter fiscal 2018 results. The company anticipates revenues to be roughly at the mid-point of previous guidance of $134.3-$140.8 million (mid-point $137.6 million) issued on Apr 27. The Zacks Consensus Estimate for revenues is pegged at $138.5 million.

The revenue guidance originally reflected growth of 1-6% on a sequential basis.

Moreover, non-GAAP gross margin is now projected to be near the mid-point of the company's original range of 46.5-48.5%.

The company is scheduled to release full second-quarter 2018 financial results on Jul 31.

Price Performance

Silicon Motion shares went down 6.5%, yesterday, underperforming the industry. The company’s shares have lost 3.6% in the year-to-date period compared with the industry’s decline of meager 0.4%.

Q1 Earnings Discussion

Silicon Motion delivered first-quarter 2018 non-GAAP earnings of 71 cents per American Depositary Share ("ADS") surpassed the Zacks Consensus Estimate of 65 cents and also came a penny ahead of the year-ago quarter figure. However, earnings declined 10.1% sequentially.

Net sales increased 2% year over year but decreased 4% from the previous quarter to $130.3 million. The figure missed the Zacks Consensus Estimate of $131 million as well.

Bottom Line

We believe improving supply of 64-layer 3D NAND is bringing down high NAND prices, which is likely to benefit Silicon Motion. Additionally, as the company’s Open-Channel NVMe SSD controller enters into production, Client SSD Controller sales are anticipated to increase.

Silicon Motion is active on the acquisitions front too. The company’s buyouts include FCI, Centronix mobile tv and Shannon systems. These buyouts have helped it to expand foothold in the mobile communications market.

Moreover, Silicon Motion’s robust liquidity position has allowed it to undertake diligent capital deployment initiatives that supplement long-term growth. We also believe that an expanding product portfolio is a key catalyst.

Nonetheless, the company faces macroeconomic risks like political, economic and social instability along with certain industry-specific regulations in geographies where the company operates. Moreover, intensifying competition in the USB flash drive controller market remains a major headwind. Going forward, dip in smartphones sales might prove to be a drag on the revenues.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader technology sector are NVIDIA Corporation (NVDA - Free Report) , Mellanox Technologies, Ltd. and Micron Technology, Inc. (MU - Free Report) , each sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected earnings growth rate (3-5 years) for NVIDIA, Mellanox and Micron are 10.25%, 15% and 8.18%, respectively.

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