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Silicon Motion (SIMO) Q4 Earnings Beat, Revenues In Line

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Silicon Motion Technology Corporation (SIMO - Free Report) delivered fourth-quarter 2018 non-GAAP earnings of 83 cents per American Depositary Share ("ADS"), surpassing the Zacks Consensus Estimate by a couple of cents. The figure increased 5.1% from the year-ago figure but declined 12.6% sequentially.

Net sales declined 9% from the year-ago quarter and plummeted 11% sequentially to reach $123.4 million. The figure came almost in line with the Zacks Consensus Estimate of $123 million. Notably, the figure was within management’s guided range of $120.5-$127.5 million.



Shares of the company are down almost 2.3% in the after hours of trading, which may be attributed to a tepid guidance. Notably, Silicon Motion stock has shed 25.1% in the past year against industry’s rally of 3.5%.

2018 at a Glance

For the full year, non-GAAP earnings surged 21.4% year over year to$3.41 per share. The Zacks Consensus Estimate was pegged at $3.39.

Full-year revenues (non-GAAP) of $530.3 million inched up 1% year over year. The Zacks Consensus Estimate was pegged at $529.6 million.

Non-GAAP gross margin and operating margin came in at 49.3% and 25%, respectively. The respective figures expanded 130 basis points (bps) and 140 bps from the year-ago figures.

Quarter in Detail

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) declined 10% from the year-ago figure and plummeted 13% to $113.4 million. Revenues from mobile storage products contributed 92% to overall product revenues.

Sales for Client SSD controllers were down 20% quarter over quarter. Management attributes the sluggishness to vigilant procurement of NAND flash solutions from module makers. Notably, the module makers were impacted by drastic decline in NAND pricing (and are consequently piling on inventory).

During the reported quarter, the company shipped SSD controllers which are 96-layer TLC-based client SSDs to US NAND partner.

Revenues from eMMC and UFS controllers declined15% sequentially, owing to weakness in smartphone sales.

Embedded Storage sales (approximately 80% of total revenues) plummeted 15% on a quarter-over-quarter basis. Revenues from SSD solutions improved 5% sequentially.

Adoption of Ferri industrial SSDs favored results, while softness in Shannon data center SSDs sales impacted revenue growth negatively.

Mobile communications product (which include mobile TV SoCs) sales were $7.2 million, representing 6% of total revenues. However, the figure inched up 2.9% sequentially but declined 23.4% year over year.

Other products formed 2% of revenues and generated $2.8 million. The figure soared 86.7% from the year-ago figure and 64.7% sequentially.

Margins

Non-GAAP gross margin expanded 390 bps on a year-over-year basis but contracted 50 bps sequentially to 50.5%.

Non-GAAP operating expenses as a percentage of revenues came in at 25.4%. The figure expanded 290 bps and 150 bps on a year-over-year and sequential basis, respectively.

Consequently, non-GAAP operating margin expanded 100 bps on year-over-year basis but contracted 200 bps sequentially to 25.1%.

Liquidity & Cash Flow

Silicon Motion ended the quarter with cash, cash equivalent and short-term investments were $288.6 million, down from $308.2 million reported in the previous quarter.

The company generated $34.8 million cash from operations during the quarter compared with $29.5 million in the previous quarter

On Oct 29, 2018, the company’s board declared a new annual dividend of $1.20 per ADS. Quarterly installments to be paid by the company were 30 cents per ADS. On Nov 23, 2018, the company paid $10.8 million as annual dividend to shareholders representing its first installment.

Further, on Nov 21, 2018, Silicon Motion announced a new buyback program spread over two year period. According to terms of the program, the company will repurchase approximately $200 million per ADS. In the reported quarter, it repurchased “$34.8 million of its ADS at an average price of $34.52 per ADS”.

Guidance

For first-quarter 2019, Silicon Motion expects non-GAAP revenues to be in the range of $97.5-$103.6 million (indicating a sequential decline of 21-16%). The Zacks Consensus Estimate is currently pegged at $120.5 million.

Non-GAAP gross margin is anticipated within 47-50%. Non-GAAP operating margin is expected to lie in the range of 12% to 16%.

Falling NAND prices, uncertain macroeconomic conditions, and imposition of tariff owing to trade war between the United States and China has kept the company’s OEM customers and NAND flash vendors on tenterhooks for quite some time now.

However, the company expects falling NAND prices to lead to a “meaningful” growth in client SSD adoption across PCs from mid-2019.

The company anticipates revenues and margins for full year 2019 to remain almost flat year over year.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the broader Computer and Technology sector are Marvell Technology Group Ltd. (MRVL - Free Report) , Cloudera (CLDR - Free Report) and MeetMe (MEET - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Marvell, Cloudera and MeetMe is forecast at 9.4%, 15% and 20%, respectively.

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