Silicon Motion Technology Corp. SIMO reported third-quarter 2016 adjusted earnings (including stock-based compensation adjustments) of 94 cents per ADS, which beat the Zacks Consensus Estimate by 12 cents.
Non-GAAP earnings of $1.07 soared 88.5% from the year-ago quarter and 24% sequentially, driven by strong top-line growth.
Net sales surged 66.2% year over year and 12.7% from the previous quarter to $158.6 million. The sequential improvement was much better than the management’s guidance.
Segment Sales
Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) continued to impress, increasing 82% year over year and 13% quarter over quarter to almost $147 million.
Stellar client SSD sales of three NAND flash partners of the company drove the sales performance of this segment. On a sequential basis, sales of these three customers increased about 50%, reflecting solid prospects.
Moreover, improved traction of eMMC, Shannon and Ferri SSD solutions proved conducive to the revenue performance at this segment. The mobile storage products accounted for 93% of the revenue mix.
SILICON MOTION Price, Consensus and EPS Surprise
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Client SSD and eMMC controllers grew 25% and 15% sequentially. However, SSD solutions grew less than 10% sequentially. Expandable storage products (hard and USB flash drive controllers) declined about 10% sequentially due to tightness of Flash availability.
The company had three 10% plus customers – Hynix, another NAND Flash partner, and a China BAT Internet company.
Silicon Motion noted that Intel INTC and Western Digital WDC recently launched new client SSD using the company’s controllers. Intel’s 600P SSD is the industry’s first PCIe/NVMe SSD that is affordable as compared with SATA SSD.
Silicon Motion stated that its backlog of client SSD controller is much better than the year-ago quarter. Already, the company’s SSD controllers support all of the 32, 36 and the 48-layer 3D NAND that are being produced by the company’s flash partners.
By middle of 2017, Silicon Motion believes that its SSD controllers will be well in production for managing Hynix, Intel, Micron MU, SanDisk, Toshiba and even Samsung 3D NAND.
Mobile communications product (which include mobile TV SoCs and handset transceivers) sales were $10.1 million as compared with $9.7 million in the year-ago quarter and $12.5 million in the previous quarter.
Operating Details
Non GAAP gross margin contracted 270 basis points (bps) on a year-over-year basis, but increased 40 bps sequentially to 48.8%. This was better than the management’s guided range of 46-48%. The sequential improvement was primarily due to favorable product mix.
Operating expenses as percentage of revenues plummeted 640 bps on a year over year basis but increased 190 bps sequentially. The year-over-year decline was driven by lower research and development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses. However, on a sequential basis all the three expense line items increased significantly.
As a result, operating margin expanded 370 bps from the year-ago quarter but contracted 150 bps sequentially to 24.6% in the reported quarter.
Liquidity & Cash Flow
Exiting the quarter on Sep 30, Silicon Motion’s cash and cash equivalents increased to $269.2 million from $219.1 million at the end of Jun 30.
The company’s total cash from operating activities for the three-month period ended Sep 30, was $54.9 million, as compared with $27.2 million reported at the end of Jun 30.
On Oct 24, the Board of Directors of Silicon Motion declared 80 cents per ADS annual dividend (up from 60 cents per ADS) to be paid in quarterly instalments of 20 cents per ADS.
Guidance
Silicon Motion expects non-GAAP sales to be in the range of $136.4–$144.3 million, reflecting 14–9% decline on a sequential basis. The decline will result from falling sales of card and USB flash drive controllers due to tightness in flash availability and SSD solutions due to project timing. Growth in client SSD controller sales is anticipated to partially offset this lower trend.
Management expects eMMC controllers’ sales to be stable in the fourth quarter, better than past seasonality patterns due to continued market share gains.
On a year-over-year basis, sales are expected to grow in the range of 39–47% driven by robust performance from client SSD controllers, eMMC and UFS controllers along with SSD solutions.
Non-GAAP gross margin is anticipated within 48.5–50.5%. Moreover, operating margin is projected in the range of 25–27% for fourth-quarter 2016.
For full-year 2016, Silicon Motion now anticipates revenues to increase 52–54% (previous range was 44%–46%) from full-year 2015 to $548–$556 million range. Client SSD controller sales will now grow approximately 175% from more than $60 million reported last year. For 2017, management expects client SSD controllers to grow at least 20–25%.
For full year 2016, eMMC controllers sales will grow approximately 50%. For 2017, eMMC and UFS controllers sales are anticipated to grow at least in-line with overall smartphone growth of 5%, a more sustainable long-term growth rate. eMMC and UFS will remain a high priority project of for the company’s flash partners.
For full-year 2016, SSD solution sales should be more than triple. For 2017, management expects SSD solutions to grow more moderately in the 15–20% range.
Sales of card and USB flash drives are likely to decline in full-year 2016 and 2017 as these products had been in secular decline for a number of years and are not a high priority market for the NAND Flash makers.
For full-year 2016, operating margin is expected to be almost 27% as compared with 24% reported in the 2015.
Zacks Rank
Silicon Motion sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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