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Silicon Motion (SIMO) Q1 Earnings Top, Revenues Lag Estimates

Zacks Equity Research

Silicon Motion Technology Corporation SIMO delivered first-quarter 2019 non-GAAP earnings of 42 cents per American Depositary Share ("ADS"), surpassing the Zacks Consensus Estimate by 8 cents. However, the figure declined 42.5% from the year-ago figure and plummeted 48.8% sequentially.

Net sales (non-GAAP) declined 28% from the year-ago quarter and plunged 23.2% sequentially to reach $88.9 million. The figure missed the Zacks Consensus Estimate of approximately $95 million. Notably, the figure lagged management’s guided range of $97.5 million to $103.6 million.

Quarter in Detail

Total revenues (on a GAAP basis) declined 27% from the year-ago figure and plummeted 23% to $94.7 million.

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) plunged 28% from the year-ago figure and plummeted 22% to $88 million. Revenues from mobile storage products contributed 93% to total GAAP revenues.

Sales for Client SSD controllers (approximately 55% of total non-GAAP revenues) were flat on a sequential basis. The sluggishness can be attributed to vigilant procurement of NAND flash solutions from module makers.

Falling NAND prices, uncertain macroeconomic conditions, and imposition of tariff owing to trade war between the United States and China has kept the company’s OEM customers, module makers and NAND flash vendors on tenterhooks for quite some time now.

Revenues from eMMC and UFS controllers declined 45% sequentially, owing to weakness in smartphone sales primarily on account of sluggishness in China.

Silicon Motion Price, Consensus and EPS Surprise

Silicon Motion Technology Corporation Price, Consensus and EPS Surprise | Silicon Motion Technology Corporation Quote

Revenues from SSD solutions plunged 40% sequentially. Softness in Shannon SSD sales owing to sluggish demand from China-based data center customers, impacted revenue growth negatively.

During the reported quarter, the company rolled out SM2271, enterprise SATA SSD controllers, featuring accelerated performance and high capacity capabilities.

Mobile communications product (which include mobile TV SoCs) sales were $5.8 million, representing 6% of total GAAP revenues. However, the figure declined 26.6% year over year and 19.4% sequentially.

Notably, on a non-GAAP basis, the segment is reported under discontinued operations. In the reported quarter, Silicon Motion has announced that it is divesting its mobile communications business (FCI product line) to Dialog Semiconductor for $45 million. The transaction is anticipated to conclude by second quarter of 2019.

Other products formed 1% of revenues and generated $0.9 million. The figure declined from $1.1 million reported in the year-ago quarter and $2.8 million reported in the prior quarter.

Margins

Non-GAAP gross margin of 50.2% expanded 210 bps on a year-over-year basis but remained flat sequentially.

Non-GAAP operating expenses as a percentage of revenues came in at 32.2%. The figure expanded 810 bps and 850 bps on a year-over-year and sequential basis, respectively.

Consequently, non-GAAP operating margin contracted 600 bps on year-over-year basis and 850 bps sequentially to 18%.

Liquidity & Cash Flow

Silicon Motion ended the quarter with cash, cash equivalent and short-term investments were $281 million, down from $288.6 million reported in the previous quarter.

The company generated $13.3 million cash from operations during the quarter compared with $34.8 million in the previous quarter.

On Oct 29, 2018, the company’s board declared a new annual dividend of $1.20 per ADS. Quarterly installments to be paid by the company were 30 cents per ADS. On Feb 23, 2019, the company paid $10.9 million as annual dividend to shareholders representing its second installment.

Further, on Nov 21, 2018, Silicon Motion announced a new buyback program spread over two year period. According to terms of the program, the company will repurchase approximately $200 million per ADS. In the reported quarter, the company did not make any repurchases.
 

Silicon Motion Revenue (Quarterly)

Silicon Motion Technology Corporation Revenue (Quarterly) | Silicon Motion Technology Corporation Quote

Guidance

For second-quarter 2019, Silicon Motion expects non-GAAP revenues to be in the range of $98 million to $107 million (indicating sequential growth of 10-20%). The Zacks Consensus Estimate is currently pegged at $110.55 million.

Non-GAAP gross margin is anticipated within 48.5-50.5%. Non-GAAP operating margin is expected to lie in the range of 18.6% to 21.6%.

On the back of pipeline expansion, Silicon Motion expects SSD controller sales to “grow sharply in the second quarter.” However, challenging macroeconomic environment due to declining NAND flash prices remains a concern.

The company anticipates revenues and margins for full year 2019 to remain almost flat year over year.

Zacks Rank and Stocks to Consider

Silicon Motion carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc. CDNS, Avid Technology, Inc. AVID and Synopsys, Inc. SNPS, each 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 Cadence Design, Avid Technology and Synopsys is pegged at 12%, 10% and 10%, respectively.

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