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Silicon Motion (SIMO) Q2 Earnings Beat, Revenues In Line

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Silicon Motion Technology Corporation (SIMO - Free Report) delivered second-quarter 2018 non-GAAP earnings of 92 cents per American Depositary Share ("ADS"), which surpassed the Zacks Consensus Estimate of 77 cents. It also came ahead of the year-ago quarter figure of 71 cents and increased 29.6% sequentially.

Net sales rose 4.1% year over year and 6% from the previous quarter to $138.1 million. The figure almost came in line with the Zacks Consensus Estimate of $138 million. However, the figure was higher than the mid-point of management’s guided range of $134.3-$140.8 million (mid-point $137.6 million).

We believe improving supply of 64-layer 3D NAND is bringing down high NAND prices, which is eventually benefiting 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 Technology Corporation Price

Revenue Details

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) increased 6% year over year and 7% sequentially to $129.4 million. Revenues from mobile storage products contributed 94% to overall product revenues.

Sales for Client SSD controllers grew 5% quarter over quarter. Additionally, the company’s pipeline of SSD controller projects with NAND flash makers grew more than 50% sequentially, primarily due to strong customer focus on SSDs.

Revenues from eMMC controllers decreased 5% sequentially.

Embedded Storage sales (approximately 85% of total revenues) increased 7% sequentially. Revenues from SSD solutions declined 35% sequentially.

Mobile communications product (which include mobile TV SoCs) sales were $7.5 million, representing 5% of total revenues. However, the figure declined 6% sequentially and 4% year over year.

Other products formed 1% of revenues and generated $1.1 million.

Operational Details

Non-GAAP gross margin contracted 120 basis points (bps) on a year-over-year basis and 50 bps sequentially to 47.5%.

Non-GAAP operating margin increased 180 bps on year-over-year basis and 360 bps sequentially to 25.7%. Non-GAAP operating expenses as a percentage of revenues decreased 280 bps year over year and 410 bps sequentially to 21.9%.

Liquidity & Cash Flow

Exiting the quarter, Silicon Motion’s cash, cash equivalent and short-term investments were $364.2 million, up from $346.1 million in the first quarter.

On Oct 24, 2017, the company’s Board of Directors had declared an annual dividend of $1.20 per ADS. Quarterly instalments to be paid by the company were 30 cents per ADS. On May 23, 2018, the company paid $10.8 million to shareholders representing its third instalment.

Guidance

For third-quarter 2018, Silicon Motion expects non-GAAP revenues to be in the range of $136-$142.9 million, reflecting top-line growth of 7-12% on a year-over-year basis. The Zacks Consensus Estimate for the quarter is pegged at $151.9 million.

Non-GAAP gross margin is anticipated within 48.5-50.5%. Non-GAAP operating margin is expected to lie in the range of 25-27%.

The company reiterated its 2018 revenue outlook. Non-GAAP revenues are anticipated within $550-$576 million, translating to year-over-year growth of 5-10%. The Zacks Consensus Estimate of $569.9 million is toward the higher end of management’s guidance range.

Non-GAAP gross and operating margin is projected in the range of 47.5-49.5% and 24-26%, respectively.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the broader technology sector include Intel Corporation (INTC - Free Report) , Seagate Technology PLC (STX - Free Report) and Microsoft Corporation (MSFT - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel, Seagate and Microsoft have a long-term expected EPS growth rate of 8.4%. 18.9% and 12.3%, respectively.

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