Thank you for the summary!
Just another note on the Shannon SSD growth in China: It was Chinese New Year this last weekend, and the traditional giving out "red envolope" online. One of the largest online payment company broke its record on # of transactions - it had a total of 325 billion transactions! This represents the activity level of the Chinese e-commerce, and underlines the type of infrastructures it needs to accomodate. Shannon may have lumpy sales (so bad quarters), but the scale of the Chinese commerce will deliver the kind of growh Wallace has projected.
◾2/4/2016 – Silicon Motion Technology Corp. had its “buy” rating reaffirmed by analysts at Needham & Company LLC. They now have a $37.00 price target on the stock. They wrote, “SIMO printed a clean qtr. / guide as it continues to benefit from its leadership position in the merchant client SSD controller market. In addition to targeting marketshare growth from 20-25% to 35-40% LT , we see significant secular NT tailwinds as SSD attach rates accelerate to ~50% exiting 2016. As SSD prices decline and demand for TLC-based SSD increases, growth will come from PC OEMs, in addition to module makers driving the majority of volume currently. Furthermore, we believe SIMO could outgrow the handset market’s 5-10% projection in ’16 due to its relationship with SK Hynix and emerging market growth.””
◾2/2/2016 – Silicon Motion Technology Corp. had its “buy” rating reaffirmed by analysts at Brean Capital. They now have a $38.00 price target on the stock.
◾2/1/2016 – Silicon Motion Technology Corp. had its “buy” rating reaffirmed by analysts at B. Riley. They now have a $41.00 price target on the stock.
◾2/1/2016 – Silicon Motion Technology Corp. had its price target raised by analysts at Pacific Crest from $36.00 to $38.00. They now have an “overweight” rating on the stock.
◾1/29/2016 – Silicon Motion Technology Corp. had its price target raised by analysts at Topeka Capital Markets from $34.00 to $37.00. They now have a “buy” rating on the stock.
◾1/29/2016 – Silicon Motion Technology Corp. had its price target raised by analysts at Craig Hallum from $36.00 to $38.00. They now have a “buy” rating on the stock.
◾1/27/2016 – Silicon Motion Technology Corp. had its “buy” rating reaffirmed by analysts at B. Riley. They now have a $41.00 price target on the stock.
Shannon is more unpredictable, and I think SIMO management thinks that way too, reason for them to be conservative on guidance. Shannon sales will be slumpy - for example, they could have much less sales revenue in Q1 as at least 1-month will be wasted by the Chinese New Year holidays and employee turnovers for most the Chinese businesses. But the enterprise SSD market growth is solid - you will be shocked to see how much upgrades are needed for the "better user experience", and the cut-throat competition even between the heavy-weights such as Baidu, Alibaba, Tucent, YY, JD and on.
Examples: the Chinese New Year puts more than 500 million people on the road, mostly by train. That is the biggest people movement on earth! The only way to get that train ticket is to buy it online. Websites of railroad and 3rd party ticket agencies crash every year because of that. To fix it? You got to have better infrastructure. Do you remember how much Alibaba sold in the 24 hours of the 11/11 Chinese blackfriday? It takes huge infrastructure to do that. Another one, the Tucent, Weibo, etc., now process "web" red envolope, a tradition to give away small amount of money to kids and others during holidays. The transactions are numbers in the billions in hours and mobile carriers have to process them.
I agree on your share price prediction, and I think we can have sudden moves if there is a memory M&A.
But there was no webcast as far as I can tell. Sort of a bummer.
I would say for SIMO's IR, it's worth it to record these presentations and Q&A themselves, and put it on the SIMO website. We regular investors want to know what is being said by management, and what questions are coming from the institutional investor community.
Setting up that capability can't cost more than a few thousand bucks, but it gives access to ALL SIMO investors regardless of their location.
I agree Shannon sounds good so far, but we still have to wait to see if the amazing growth materializes. It makes sense. Lots of memory makers have been talking about how NAND flash is getting cheap enough that all NAND flash arrays are going to grow explosively going forward. There's no reason that shouldn't happen in China. But as with all "new" products the talk is strong but the numbers are way more important than the talk. The tech sector is chock full of companies telling us that it owns and sells the next big big thing, but then two years later nothing much happened. So Shannon seems to be off to a good start, but they had better do a good bit more than $20m in 2016 for this product to be considered a smashing success. It's a shame they didn't say exactly how much Shannon sold in all of 2015 (they only said almost $10m in H2 2015), so it's going to be sort of hard to measure it's actual growth rate. If 2015 was $18m, then $20m in awful for 2016. If 2015 was $14m, then $25m in great for 2016. But without the actual number for 2015 it's hard to tell.
But one takeaway I have from the recent call is that it seems reasonably likely SIMO beat and raise guidance in each quarter of 2016. So I doubt we'll see any more big share price dips as the results roll out, and more likely than not we're going to see strange share price run ups at random months, in anticipation of strong results coming out. I don't see SIMO exploding to the upside like it has in the past, but slow steady gains throuhgout the year seem like the most likely share price trend, in my guesstimate.
The earnings transcript did record SIMO stating the Chinese enterprise SSD growth projected at 50%, and Shannon will grow at least that. My 2 cents:
1. China only produces bad news these days, but people should not be confused of what is going bad and good there. The infrastructure investment growth is gone, so impact on commodities, steel, heavy equipment etc. is davastating. But consumption/service is where the countyy wants to grow, and the growth is decent, and that is where Shannon sells. Most analysts do not understand the scale of the Chinese e-commerce or how much they are investing to compete. I said in 2Q/15 conference call Shannon was a good buy when most of these analysts were "cautious". It more look like a steal than a good buy now.
2. SIMO surprised these analysts when they said eMMC (actually eMCP) will grow comparably in emerging market (SE Asia, Latin America, etc.) compared to China 1-2 years ago. 100-200MM units looks a doable total market size for 2015-16 which would be $50-$100MM for controllers. SIMO's market share is over 25% in eMMC, so that would be at least $10-$20MM growth there, likely more than "single digit" growth for eMMC.
3. After shopping around the world but could not buy anyone, Unigroup now wants to build its own memory fab and wants MU to be its partner (technology in exchange for equity). Memory makers did not want China in the club because feas of ASP erosion, so the deal is good but not great for MU. But if this story is true, it really increases SIMO's chance to be acquired. Phison has less chance since it is tied with Toshiba (and Chinese will not buy a Japanese memory maker and Japanese will not sell for sure).
So I disagree that the China story in SIMO reduces its investability. It increases its investability, just not to the casual observers.
I listened to the clip several times and I can not argue that it sounds like 50% - nor could I argue that it didn't sound like 15%. The optimist in me wants it to be 50%......the skeptic in me, especially since it concerns China, is comfortable with 15% and Silicon Motion outpacing that rate.
So I guess the guidance for Shannon seems to dovetail more with the 15%. Guess an analyst should have followed up on this. Do you mean 15 or 50 % then it would be clear.
I didn't write that, was the author Rochelle Jenks on SA. Following up with her. You should check out that forum. Like you and Jiangli, she has some insightful commentary on SIMO. See if I can get her to give a better response to your questions.
From the earnings call, Silicon Motion stated:
Geezer...passed your question on in a SA thread. This was the response...
"We benefited from six months of enterprise SSD consolation with sales under $10 million."
"We expect a market of high end enterprise being China to grow annually by at least 15% for next few years and we’re confident that we can match or exceed the market growth. Based on rapid market growth and our current business development activity, our enterprise SSD should be able to deliver $20 million to $30 million of sales in 2016."
They also stated:they thought sales would scale to $75 million in 2018.
So, yes, my thoughts are similar to yours. Based on the information, it seems a maximum of $3.3 million in the third quarter and a maximum of $6.6 million in the fourth. The run rate based on the second half of 2015 puts the company at $20 million without growth but based on the fourth quarter may put the company closer to $26 million.. Fifteen percent growth on the $20 million bumps the range to $23 million while adding it to the $26 million puts the growth closer to the $30 million. I'm guessing that is where the range of $20 million to $30 million actually originated.
However, the most telling, to me, is the 2018 estimate. Fifteen percent growth annually doesn't take the company from $30 million in 2016 to $75 million in 2018. Going from $30 million to $75 million requires a 58% CAGR. Starting closer to $20 million only increases that CAGR.
As to why the estimates look ridiculously low, I can only surmise the company has not forgotten what it went through in 2013 and 2014 when it had to plot a new course. Further, basing any estimate on China's growth is no longer a popular tactic and may raise concern about credibility. .
I have to admit I almost added the discussion about the 2018 estimate to the article and chickened out myself simply because I questioned whether the comments about China's growth would be viewed as an investable thesi
Looks at Yahoo Finance Analyst Opinion - there is a $78 price target. Does anybody have Bloomberg where they can tell who gave this? Most likely an error but nice to dream -
Their answer to the question doesn't say anything. Do they expect Shannon sales to decline in any quarter in 2016 after Q1? If not, the low end of guidance should definitely be more than $20m. If they do expect Shannon sales to decline in Q2, Q3 or Q4, why?
They made at least 6.6m from Shannon in Q4 (10m for the half year and double from Q3 to Q4).
An analyst brought your question up in the conference call. Basically, I think they are being conservative but the sales may be lumpy.
From the transcript:
Mike Crawford, B. Riley - Analyst 
Thank you. Riyadh, you talked about Shannon sales trending stably in Q1 which by that I think you mean flat, near $6 million for Q1. But then if you just kept that rate flat through the year that's already the midpoint of the $20 million to $30 million guidance you gave for the year which doesn't -- is that you being conservative or is there something else potentially going on there?
Riyadh Lai, Silicon Motion Technology Corporation - CFO 
The revenue for Shannon in Q1 should be fairly stable compared to Q4. Shannon's revenue because of its more concentrated customer mix of large customers can be quite lumpy quarter after quarter. For the full year we're expecting revenue in the $20 million to $30 million range.
On Client SSD sales, they said....
- Client SSD was almost 25% of Q4 2015 revenues. So....$23m or so, that's 23.5% of $98m.
- Client sales in Q1 2016 will increase from Q4 2015. So....Q1 2016 will be MORE than $23m
- Client SSD sales for all of 2016 will be at least $90m
Hello? No kidding. If Q1 2016 is $24m in sales, well 4 quarters of flat client SSD sales at $24m per quarter equals $96m for the full year. Why are they guiding to ONLY more than $90m for the full year??
Q1 2016 will be up sequentially, and with a category this hot and new, one would expect client SSD sales to be up sequentially in EACH quarter of 2016.
- The fourth client SSD NAND OEM will begin buying in Q2 2016.
- The new PCIe SSD controllers will begin shipping in H2 2016.
- The new 3D NAND SSD controllers are expected to start shipping in H2 2016.
- The PC build quarter is Q3. That ALONE should push Q3 above Q1 and Q2 levels.
So if we're starting 2016 client SSD revenues at $24m in Q1 2015, how in the world can the end up less than $105 million?
1. Shannon first, more later
Shannon in 2015, they've said
- was $14m to $18m in 2015 sales
- almost doubled from Q3 2015 to Q4 2015
- given those two facts, the LOWEST Shannon could be in Q4 2015 is $5m in sales. It was probably more, but if they did $6m in H1 2015, and then $3m in Q3 and "almost double" to $5m in Q4, you get to $14m. That's the LOWEST sales number you can derive for Shannon in Q4 2015. It's probably higher.
Shannon guidance for 2016....
- in Q1 2016, Shannon should be flat with Q4 2015 (so $5m at a minimum)
- for full year 2016, Shannon will be $20m to $30m.
How in the world could Shannon do $5m in Q4 2015, $5m in Q1 2016 and ONLY be $20m for the 2016 year? That would mean Shannon, the big growth story of the future, only flatlined at $5m per Q for all of 2016. Products which are expected to grow in excess of 50% per year for many years don't flatline revenues for 5 quarters! They go up each quarter, sometimes they go up by a lot (like 75%) and then dip in the following quarter to smooth out the annual trend. But there is NO WAY Shannon can do $5m in Q4 2015, $5m in Q1 2016 and then end up with only $20m for the 2016 year.
This is just simple math. Why is SIMO providing such ridiculously low and/or illogical guidance?
I guess I am sour but I just do not get this stock's relative price movement...they provide great Q4 and Full year results, extremely solid and very conservative guidance, always deliver, zero debt, $180M+ in the bank, no competition in much of what they do, totally paid off the Shannon acquisition and only move 4%....the SOXX moved 4.5%, MU produces terrible number and moved up 11%, MRVL even moved nearly 6% and they are sucking it up, totally crooked and screwed up as a company can be...SMH