On Dec 14, we issued an updated research report on Silicon Motion Technology Corp. SIMO, a leading developer of microcontroller ICs for NAND flash storage devices and specialty RF ICs for mobile devices.
Notably, shares of SIMO have returned 32.8%, outperforming the industry’s 23.5% rally.
NAND supply constraint has negatively impacted Silicon Motion’s results in the last year except third-quarter 2017. The constraints affected module maker customers, hyperscale customers, and NAND flash partners last quarter.
However, since the last quarter, NAND supply is improving, which has cooled off the price rise, thereby driving demand for SSD controller. The effect of this was well reflected in SIMO’s last quarterly results. The company witnessed a 50% sequential increase in its SSD solutions revenues, mainly driven by strong growth in sales of Shannon hyper-scale SSDs and Ferri industrial SSDs.
Shawn Kim of Morgan Stanley in his latest report noted that NAND flash memory chips are at their peak and may start falling early next year. This further boosted the demand for SSD controller and we believe that SIMO is well positioned to grab this opportunity.
SIMO is active on the acquisitions front too. The company’s buyouts include FCI, Centronix mobile tv and Shannon systems. These acquisitions have helped the company to increase its foothold in the mobile communications market.
Moreover, the company outshines its peers in providing resources for research and development. It develops affordable versions of TLC NAND flash as well as high-density 3D NAND. Moreover, SIMO’s robust liquidity position has allowed the company to undertake diligent capital deployment initiatives that supplement long-term growth.
Nonetheless, intensifying competition in the USB flash drive controller market remains a major headwind.
Zacks Rank & Stocks to Consider
SIMO carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the broader technology sector include Broadcom AVGO, NVIDIA NVDA and Intel INTC, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Broadcom, NVIDIA and Intel is projected to be 13.8%, 10.3% and 8.4%, respectively.
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