Our cruise was in Taiwan May 11, 12 and 13. Some of the cliff area in the national park in Chiroko Gorge were closed due to the quake. No idea about SIMO related stuff! We're in Osaka now, Guam tomorrow...
Yes, SIMO has tended to trade around 12x forward EPS, but that's when the outlook has been sort of uncertain, and revenue growth has been expected to be about 20%. Today the outlook us same good, as good as it has ever been. And it seems like the growth drivers (SSDs) are multi year events. SSD sales aren't going to peak next year and then slow down, they've got a HUGE time period of growth in front of them. And if SIMO can do as well in new SSD segments as they've done in SATA-3, you've got market share gains plus rapidly a growing market itself.
SIMO just grew revenues 40% year on year in Q1, and the growth seems like it will continue going forward. If those numbers and that market position doesnt deserve a 20x PE, what does?
I can easily see it getting to $60 by year end, they just need to get the branding as the pure play SSD semiconductor stock. There's not a lot of good ways to invest in the SSD transition, but SIMO is one of the best options.
I thought the call and guidance was great, not sure why the share price is heading in the wrong direction.
They explained that the Q2 gross markup in decline will be caused by a one time large project with low gross margins. Once the project finishes, it sounds like gross margins will get back ABOVE 50%. The forecast gross margin decline was the main problem for me with the Q1 press release, so it's good that it's due to a one time project and not a recurring price decline.
SSDs are going to double in 2016, and so are industrial SSDs. That's awesome. And eMMC should grow more than 5% to 10%. It sounds like clear skies ahead, I have no idea what is keeping the share price down here. A semiconductor stock growing sales around 30% after two years of above 20% growth, it seems like it should get a premium PE, like 20x, but it's sitting around 12x Luis cash.
Using the middle of their Q2 guidance we get.....
Revenues up 7.5% sequentially to $121m
Gross margin of 48% equals $58.2m gross margin dollars
So, they say operating margin will be 23% in the middle of guidance, that's $26m of $121m revenues = 23%
For $58.2m gross margin dollars to only produce $25.9m operating profit, they've gotta have Q2 expenses of $32.2m. $58.2m minus $32.2m = $26m.
Operating expenses in Q1 were $26.8m, how in the world are they going to ramp Q2 expenses up to $32.2m in just 3 months? That's a HUGE jump.
With revenues this erratic, they shouldn't have provided operating margin guidance. It's dopey. Operating margins depend on the exact sales number, they can't control that. They should have provided operating expense guidance, because that's a number SIMO does control. How much do they plan to spend in Q2?
I hope someone on the call asks them if they seriously plan to spend $32m in Q2. I doubt it. Sandbagging as usual.
Gross margin is dervid from product prices, not expenses. TIf they ramp up the Shannon sales force or Shannon R&D that would appear in the operating expense lines. The gross margin line is only the sales prices minus the cost of goods sold, so it probably means the sales price is coming down for some big product area, my guess, eMMC. But they are guiding back up to 50% for the full year, so I'll bet the price cuts on eMMC affect a lot in Q2, but by the second half the SSD sales will be large enough, and with high enough gross margin, to pull the total corporate gross margin back up.
Look, a 3% gross margin drop for a company growing this fast is a big deal. It's a big price cut in some large product area. It's a bummer, but I think the positive vibe from the revenue growth outweighs it.
They are guiding gross margins down 3% or so for the upcoming quarter. I'll bet they have implemented a price reduction on eMMC chips since they are probably peaking this year, and will enter decline from 2017 (my guess). The rest looks great, especially absolute revenue growth.
For NAND flash bit shipment fell by 11% quarter-on-quarter as demand for mobile embedded products slowed down. ASP fell by 12% from the previous quarter as prices declined and the sales portion of discreet products increased.
For MCP, sales portion increased from 18% in the previous quarter to 20% as demand moved to higher density eMCP in the Chinese market
In the NAND market, demand supply remained more stable than expected in the first quarter despite seasonally low demand for smartphones and inventory adjustment by major mobile customers. The growing SSD market led channel demand despite sluggish PC shipment. Suppliers remain conservative in their management of 2D NAND capacity.
The positive demand supply trend is expected to continue into the second quarter. While no new 2D NAND capacity is expected system build-up demand is expected to start from major mobile customers ahead of their new product launch. NAND content to increase as more people begin to use 4G LTE in emerging markets and demand for high density SSD is expected to increase as well as the demand from channel companies as the
SSD is more broadly used.
For NAND, bit shipment growth in the second quarter is planned at more than 30%. There will be some base effect from the first quarter and sales growth driven by demand for new mobile products. For the year, it is planned that mid to high-30% corresponding to the market level.
tis a mystery, and we gotta wait until Thursday to find out what's actually going on. As for me, I'm on a vacation from April 28 to May 20, going to Cebu, Philippines, Seoul Korea, Tokyo and Osaka Japan, then a cruise to Taiwan, then Guam and then back home the Philippines. So.......don't expect much comments from me in regard to this quarterly report, I'll be in the bar drinking a cold one or at some temple taking a picture.
Most of the "decent volume" occurred within a minute of market close. There were less than 1,000 shares traded after 4:01pm. The so called After Hours trades that occur IMMEDIATELY after hours aren't really people trying to trade just after the market has closed, they are just settlements of trades that went on in some form during market hours, but the processing appears to occur within seconds after the market being closed for whatever reason. So.....although it was nice to see SIMO up a bit in after hours, the actual after hours trading was only a few hundred shares, so I wouldn't read anything into it.
Nevertheless, SIMO in the forties! Gotta enjoy this while we look forward to guidance next week. My hunch is the stock runs up a bit into the announcement, the results for Q1 are great as expected, the guidance for Q2 is modest, but up a bit (perhaps flat to up 5%?), and the shares then sell off on the news right away, but continue with their upward direction after things settle out in a week or so. I'll be on a 3 week Asian vacation from April 28 to May 20, so too busy eating sushi and kimchi to worry about the day to day moves. The long term outlook (at least this year) seems pretty great, so happy to let the fundamentals take care of the share price.
Yes, but this is a teeny tiny issue in the scheme of things. If the fabs in Kyushu were disprupted, I'll bet they're offline for at most a week or two. They design these billion dollar fabs to resist these quakes.
The BIG issues is that PCs stink, Chinese cell phone sales stink, and SIMO is blowing out numbers. THAT Donald Trumps (he's everywhere!!) everything.
It seems like SIMO can't figure out where to go lately, with up moves and dips and up moves and dips and repeat, but I still think it's going to run before they give guidance next week. My best guess is that they say business is booming, the Q1 beat is sustainable and provides the new Q1 baseline, so Q2 and Q3 should both be up sequentially. And if the Q1 beat was mainly due to SSD controllers, then the Q2 and Q3 revenue numbers could be up very substantially. If the shift from hard drives to SSDs is really accelerating, each of those SSDs needs a controller, and SIMO has the OEM design wins, it just makes sense that SSDs have a ramp similar to the hefty ramp that occurred when smartphones took off ~5-6 years ago.
It's just a wild guess, but I'm betting SIMO will be above $40 when they actually report Q1 results and give Q2 guidance. Maybe even up around $42. If they can just guide Q2 to be up from Q1, then it should be a piece of cake for them to deliver $3.00 in EPS in 2016. With a number like that it seems SIMO should be in the forties rather than the thirties.
There's no guarantee that Q2 will be up sequentially, but it seems likely. SSDs should be up as Intel comes on board as a customer, eMMC may be up (who knows?) and removable cards usually bottoms in Q1 and then rises up with PCs until Q3. The only way I can see Q2 being down from Q1 is if there was a massive unexpected lumpy Shannon order in Q1 (which caused the outperformance) and there isn't a similar Shannon order coming in Q2. That's possible, but doesn't seem the most likely outcome.
My guess on guidance for Q2 - they guide to flat (or up or down 2%, same as Q1 guidance), and then we wait and hope they blow it out again when they report Q2.
It's going to be a fun year for SIMO fans.......if the Q1 beat is mainly due to SSDs, that should be sustainable and could mean REALLY REALLY good things down the road, SSDs are only going up from here, and by this time next year SIMO will have a PCIe enterprise SSD controller, that could double the market opportunity.
Brean has them now at Q1 revenues of $112m and 72 cents EPS, They must think they same way I do. Yup, they've got non-GAAP expenses at $26m, so the rest of the numbers just fall in line to spit out EPS above $0.70 for the Q1.
Brean is at $2.95 for the full year 2015, and the rest of it looks like this
Q2 $115m, 72 cents
Q3 $122m, 79 cents
Q4 $114m, 71 cents
I think these forecasts are extremely reasonable, if SIMO can just guide to modest growth coming out of Q1. Seasonality favors growth from here (Q3 is the big Q!), and the newness of SSDs and Shannon could easily result in way above average growth.
The Q1 call will be huge. If SIMO just indicates that things are continuing normally but from the higher Q1 base level, then we're looking at easy 30% revenue growth for 2016, EPS growth above that, and then the question just becomes what PE multiple do you want to pay for hyper growth like that? If they also announce Intel as an SSD customer, then I would expect multiple expansion as SIMO is one of the best pure plays stocks for investing in the SSD revolution.
Lotsa upside here, lets just hope no unexpected warts appear on this lovely stock as the news flows out.
SIMO's Q1 2016 revenues will be up 40% from 2015 Q1 levels.
And they've guided 2016 total revenues to be up 12% to 20% from 2015 annual levels. So...more math, 2015 was $361.3m. If that amount goes up 16% in 2016 we get to $420m for 2016 revenues.
SIMO just did $112m in Q1 2016 revenues. That means they only need to do $103m per Q in Q2, Q3 and Q4 in order to deliver $421m for 2016 revenues. So....they've GOT TO raise the 2016 revenue guidance, probably by a LOT.
I think it's not too hard to see them delivering $475m in 2016 revenues and about $3.00 in EPS. That would be revenue growth of 30% and EPS growth higher. Give them a 20x PE and why not $60?
Possible, but I don't think it happens too quickly, but why not? How many semis are growing 30% per year in their third year of growth? Answer = NONE.
They guided Q1 to flat revenues, 50% gross margins and 23.5% operating margin.
The implication in those numbers is that expenses in Q1 were expected to be $26m
Flat revenues = $98m
50% gross margin = $49m
$26m operating expense
operating profit = $49m - $26m = $23m
$23m/$98m = 23.5% operating margin.
Ok, if expenses are $26m as planned, then Q1 with these revenue numbers looks like
Revenues = up 14.5% from $98m = $112m
50.5% gross margin = $56.7m
Operating expenses = $26m
Operating profit = $30.7m
18% tax rate = net profit $25.1m
35m shares out?
25.1net icome/35m shares = $72 cents per share.
So.....it means with just flattish revenues for the full year from current levels SIMO should be able to do about $3.00 per in EPS.
Something tells me SIMO stock is going up!
SIMO usually pre-announces before market open, so if you think that's the evening you must be in Asia, as I am. I'm in the Philippines. I think they'll pre-announce Thursday morning, but it could be Wednesday or Friday at the latest. As for what to expect, who knows? I wouldn't be surprised to see it be a bit above their guidance of up or down 2%, but it's a total wild guess. Part of the fun!