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.
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.
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.
A few analysts basically commented that SIMO has done better than market and surprised that Q1 will be flat instead of a dip. They said it out loud that q1 is better than they expected. If anyone want to sell today it will certainly not me because it would be stupid to do so.
My general impression is that every segment is guided to be better than expected (but obvious sandbagging for Shannon). Wow!
1. SSD growth continue to be unstoppable. Largest merchant controller supplier now!
2. Shannon sales almost doubled Q-over-Q. Wow!
3. No mention of any eMMC sales decrease - no news is better news in that department
4. Q1 to be flat as SSD and eMMC to offset ips in card.- overall no longer have the Q1 & Q4 dips.
5. Most importantly: 12%-20% 2016 overall growth, and eMMC continues to be listed as one of the growth engines!
What no so good:
1. Lwer GM, but most likely caused by more aggressive pricing for card controllers. This is expected.
I think we are starting 2016 on a solid footing, and should get price target confirmations. This is better than I expected and gives hope that Q2 would be even more fun than I thought.
There are reasons that investors are selling QCOM, but those reasons may be irrelevant to SIMO because QCOM did forecast smartphone unit growth at 10% (midpoint) for 2016, which is the only relevant factor for SIMO's eMMC. As long as there is unit growth, SIMO's volume will be relatively safe. On top of that, lower price point smartphones have been providing support for QCOM's chip revenue. This is good for SIMO because SIMO's continued growth rely on lower price point smartphone growth. So while QCOM may miss on revenue and profit guidance, factors that negatively impact QCOM may not be relevant to SIMO.
For 4Q, DRAM bit decreased by 1% and ASP by 10%. Nand bit increased by 4% but ASP dropped by 15%. I liked both: First, DRAM volume did not go down as much as many feared. Coupled with many forecasting another declining (but much flatter) laptop sales for 2016, it looks like the PC market condition may become better than many feared, all of which will provide better macro-conditions for SIMO's SSD controllers.
It is good to see SK Hynix continues to grow nand volume, which is excisting for SIMO' s eMMC controllers. The biggest risk for SIMO 2016 is eMMC growth. If that has solid ground, SIMO will have a fantastic year.
I commented this is what Standpoint trying to do right after their downgrade, and I projected Standpoint to upgrade if share hits $28 range. We now have both! I hope those who let go shares remember what Standpoint did to them!
Thanks for the explanation. Based on the last few years, I agree that Q1 is usually slow because SIMO always want to beat instead of miss so annual guidance will not surprise but Q1 earnings will. But there is a chance for a more exciting Q1. Last year, SIMO got more orders in Q1 2 which hurt their Q2 a little, and this year Intel has just released the mainstream of the latest generation CPU so there could be more laptop model releases featuring SSDs. We will see.
Anyone has insight on that?
Thanks! If that is the case, I guess we are in for $12MM rev decline for 2016. If Samsung uses any SIMO' s LTE, it would more likely be the old 3G stuff for low price point phones but for that SIMO would not announce project wins. I am not as optimistic as others that SIMO could sell the LTE business because it is really just human capital + IP property which are more likely just design patents. The 3G IPs would not be worth much, and the all the Chinese LTE competitors probably already have 4G LTE designs so getting a SIMO design for Samsung does not make much sense.
I do not think the "LTE" segment will go to zero because it was the mobile TV that earned the most part of the revenue for that segment. Having said that, it is hard to project mobile TV wins so I would call that $5-6MM business. I think they would explore selling the unit if below that. If card goes down by 10%, I can see $10-$12MM decline there.
I do not think eMMC will decline because global smartphone unit is projected to grow. The key is that it will not grow as fast. Even in China there are still hundreds of millions feature phones, why most Chinese OEMs are focusing on low price point models. It also leads to slow adoption of UFC. We also need to be aware that there is new customer for eMMC for SIMO (probably MU). So I think the worst scenario for eMMC will be flat, but it is more likley 5-10% growth.
I agree that SSD and Shannon should add at least $40MM. They already said $30MM for SSD and I do not think they will change that story (so they can exceed it). We had 1/2 Shannon in 2015 so even if Shannon does not grow in 2016 it will add $7MM, and a little growth gets it to $10MM. If we add PCiE, we might touch $50MM in this segment.
So overall, I think they will guide 10-15% growth (more like 10%), and they will exceed and get to about 20% when we are done. So the low case is inline earnings with market consensus which would probably lead to confirmation of existing target prices by the analysts.
Large price drop but no volume - guess all the institutions are holding it and a few scared traders are running out of the door, or more likely that there are some programed selling but no buyer?
I think the weakness is more likely caused by eMMC, but I think market has over reacted and here is why: (1) iphone production may go down as reported following the normaly cyclical pattern (although a little bigger dip than past), but iphone represents only the top price segment of the market. On the other hand, the smartphone growth is in mid to low price segments for 2016. (2) Many will launch new models using QCOM 820, and the Andorid trend is that Chinese markers taking share away from Samsung (Huawei leading the group), which creates more opportunities for Hynix/SIMO. (3) Most still project growth in the smartphone market, just not 30%+ anymore, more like 15%. But that is more than good enough for SIMO.
By my account, SSD can bring at least 10% growth alone. Shannon should generate 5-10% over growth. Card and radio are becoming smaller %s so their impact will probably go below 5% overall. Put that together we need eMMC to bring less than 10% overall growth to get SIMO go over 20% for 2016.
Agree, and I think these numbers continue to confirm that (1) SIMO's growth story is not totally dependent on general market growth. It is rather taking market share away from other SSD controller makers and SSD from HDD; (2) in order for this to happen, the eMMC segment has to be at least stable, consistent with analysts comments that there is over reaction to worry on iphone volume and iphone volume does not always reflect the general smartphone market conditions; (3) their revenue from the card segment is not bad, because that is the one dragging down the gross margin.
I think they will come out with a weaker Q1 (unlike Q1/15 when all their customers over ordered) and again project 15-20% annual growth which they will more likely to break than 2015 since they have a stronger pipeline now (annoucned turnkey SATA 3D SSD controller and 3D SATA-3 and PCiE coming soon). I think we will get price target raised after Q1 conference call.