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Silicon Motion (SIMO) Announces Preliminary Results for Q3

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Silicon Motion Technology Corporation (SIMO - Free Report) recently reported preliminary third-quarter fiscal 2018 results. The company anticipates revenues to be near the lower end of previous guidance of $136-$142.9 million (mid-point $139.5 million) issued on Aug 1. The Zacks Consensus Estimate for revenues is pegged at $139.8 million.

The revenue guidance originally reflected growth of 7-12% on a year-over-year basis.

Moreover, non-GAAP gross margin is now projected to be near the higher end of the company's original range of 48.5-50.5%.

The company is scheduled to release full third-quarter 2018 financial results on Oct 30.

Price Performance

Silicon Motion shares went down 1.1%, yesterday, underperforming the industry. In fact, the company’s shares have lost 3.1% in the year-to-date period against the industry’s growth of 3.6%.

Q2 Earnings Highlight

Silicon Motion 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.

We are of the opinion that improving supply of 64-layer 3D NAND is bringing down high NAND prices, 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.

Bottom Line

Silicon Motion is active on the acquisitions front. 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 enabled 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 concern. Going forward, dip in smartphones sales might prove to be a drag on revenues.

Zacks Rank & Other Stocks to Consider

Silicon Motion carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Salesforce.com Inc (CRM - Free Report) , Aspen Technology, Inc. (AZPN - Free Report) and NetApp, Inc. (NTAP - 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 Salesforce, Aspen and NetApp are 25%, 16.5% and 14.1%, respectively.

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