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Silicon Motion (SIMO) Interim Results Reflect Coronavirus Woes

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Silicon Motion Technology SIMO recently reported preliminary first-quarter 2020 results. The company now anticipates non-GAAP revenues to be within the lower end of the previously-guided range of $130 million to $138 million issued on Feb 7. The revenue guidance originally reflected a decline of 10-15% on a sequential basis.

Moreover, Silicon Motion now projects non-GAAP gross margin between 47.5% and 48.5%, which lies above the higher end of the company’s prior guidance of 44-46%.

However, the company did not provided any update on its non-GAAP operating margin metrics. The company had previously guided on-GAAP operating margin to lie in the 18-20% band.

Notably, on Mar 12, Silicon Motion updated its first-quarter 2020 guidance due to the corroding impact of the coronavirus outbreak. The company had then projected non-GAAP revenues at the lower end of the initial guidance and gross margin at the higher end of the estimate issued on Feb 7.

Silicon Motion’s shares depreciated 1% to close at $42.65 on Apr 8. The company’s shares have declined 15.9% in the year-to-date period, underperforming the industry’s fall of 13.8%.

Notably, Silicon Motion is scheduled to release full first-quarter 2020 financial results on Apr 29.

Earnings Estimate Moves South

The Zacks Consensus Estimate for first-quarter 2020 earnings moved down a penny in the past 30 days to 66 cents per share. However, it suggests a 57.1% year-over-year jump.

Notably, the company beat estimates in all of the trailing four quarters, the average positive surprise being 15.9%.

Moreover, the consensus mark for revenues is currently pegged at $131.5 million, indicating growth of 38.9% from the year-ago reported figure.


Key Factors

Intensifying competition in the USB flash drive controller market and an anticipated dip in smartphone sales due to the weakness in China resulting from the coronavirus outbreak might have hurt the top line during the first quarter.

Nevertheless, Silicon Motion is expected to have benefited from the robust adoption of SSD Solutions, driven by the improving demand for Shannon and Ferri products. Also, revenues from eMMC and UFS controllers are likely to reflect improvement, owing to the growing adoption of mobile-embedded memory controllers.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader technology sector are Avid Technology AVID, OSI Systems OSIS and HP HPQ. While Avid Technology sports a Zacks Rank #1 (Strong Buy), OSI and HP carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Avid Technology, OSI Systems and HP is currently pegged at 20%, 18% and 2.2%, respectively.

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