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Silicon Motion (SIMO) Q2 Earnings Beat, Revenues Down Y/Y

Zacks Equity Research

Silicon Motion Technology Corporation SIMO delivered second-quarter 2019 non-GAAP earnings of 52 cents per American Depositary Share (ADS), surpassing the Zacks Consensus Estimate by a penny. The figure declined 43.5% from the year-ago figure but improved 23.8% sequentially.

Net sales (non-GAAP) declined 28% from the year-ago quarter but improved 6% sequentially to reach $94.3 million.

Total revenues (on a GAAP basis) declined 28% from the year-ago figure but improved 4% sequentially to $98.8 million.

The Zacks Consensus Estimate for revenues was pegged at $97.8 million.

In the second quarter of 2019, Silicon Motion concluded the divestiture of its mobile communications business (FCI product line) to Dialog Semiconductor Plc, in a bid to focus on SSD controllers.

FCI (which include mobile TV SoCs) sales were $4.6 million, representing 4.6% of total GAAP revenues. However, the figure plunged 39.1% year over year and 21.2% sequentially. Notably, on a non-GAAP basis, the segment is reported under discontinued operations.

Silicon Motion  Price, Consensus and EPS Surprise


Silicon Motion Technology Corporation Price, Consensus and EPS Surprise

Silicon Motion Technology Corporation price-consensus-eps-surprise-chart | Silicon Motion Technology Corporation Quote

Quarter in Detail

Sales of SSD controllers to flash partners surged 30% sequentially, while demand from module makers was sluggish. Moreover, revenues from eMMC and UFS controllers increased 20% sequentially.

During the reported quarter, the company rolled out SM3282, single chip flash controller, featuring accelerated performance and high storage capacity capabilities for cost-efficient external SSDs.

Notably, revenues from SSD solutions plunged 40% sequentially.

Uncertain macroeconomic conditions and imposition of tariff owing to trade war between the United States and China, remains a concern.

On May 15, 2019, Silicon Motion revealed in its annual filing that it is trimming Shannon sales forecast for 2019 “meaningfully.” The declining operating performance of Shannon led to approximately $5.0 million in inventory write-down in the reported quarter. The company anticipates further write-down of goodwill and intangible assets in later 2019.

Notably, the company’s Open-Channel Shannon SSDs are into commercial deployment at two of its “B-A-T customers,” which is a significant milestone.

Silicon Motion Revenue (Quarterly)


Silicon Motion Technology Corporation Revenue (Quarterly)

Silicon Motion Technology Corporation revenue-quarterly | Silicon Motion Technology Corporation Quote


Non-GAAP gross margin of 51.5% expanded 420 bps on a year-over-year basis and 130 bps sequentially, primarily on account of uptick in high-margin controller sales.

Non-GAAP operating expenses as a percentage of revenues came in at 33%, compared with year-ago figure of 20.1%. The figure expanded 80 bps sequentially.

Consequently, non-GAAP operating margin contracted 880 bps on year-over-year basis to 18.4%. Nonetheless, the figure expanded 40 bps sequentially.

Balance Sheet & Cash Flow

Silicon Motion ended the second quarter with cash, cash equivalent and short-term investments were $364.2 million, down from $281 million reported in the previous quarter.

The company generated $40.1 million cash from operations during the quarter compared with $13.3 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 May 23, 2019, the company paid out $10.9 million as annual dividend to shareholders marking its third 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.

Bleak Guidance

For third-quarter 2019, Silicon Motion expects non-GAAP revenues to be in the range of $104 million to $108 million (indicating sequential growth of 10-15%). The Zacks Consensus Estimate is currently pegged at $132.4 million.

Non-GAAP gross margin is anticipated within 48-50%. Non-GAAP operating margin is anticipated to lie in the range of 17.3% to 20.3%.

Silicon Motion expects full-year 2019 non-GAAP and GAAP revenues in the range of $410-$418 million and $420-$428 million, respectively.

Management anticipates revenues to grow sequentially through subsequent quarters in 2019. Although eMMC+UFS controller revenues are anticipated to grow sequentially through second half of 2019, full-year sales are projected to decline “meaningfully” over 2018.

The Zacks Consensus Estimate for 2019 revenues is currently pegged at $471.68 million.

Non-GAAP gross margin is anticipated within 47.9-49.9%. Non-GAAP operating margin is expected to lie in the range of 17.6% to 20.6%.

Shannon sales are anticipated to decline sharply in 2019 over 2018. Nonetheless, management projects SSD solutions sales to “rebound” in 2020. Silicon Motion is also banking on robust growth in SSD controllers for “next year.”

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector worth considering are Alteryx AYX, Rosetta Stone RST and Anixter International AXE. All the three stocks flaunt 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 Alteryx, Rosetta Stone and Anixter is currently pegged at 13.7%, 12.5% and 8%, respectively.

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