Silicon Motion's (SIMO) Q2 Earnings Miss on Lower Revenues
Silicon Motion Technology Corporation SIMO reported mixed second-quarter 2023 results, with the bottom line missing the Zacks Consensus Estimate but the top line beating the same. The leading developer of microcontroller ICs for NAND flash storage devices reported lower revenues year over year owing to declining demand trends and inventory adjustments stemming from challenging market conditions.
Net Income
On a GAAP basis, net income declined to $11 million or 33 cents per American depositary share (ADS) from $51.6 million or $1.55 per ADS in the prior-year quarter. Sharp year-over-year top line contraction affected the bottom line during the quarter.
Non-GAAP net income was $12.6 million or 38 cents per ADS compared with $62.8 million or $1.88 ADS in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by 11 cents.
Silicon Motion Technology Corporation Price, Consensus and EPS Surprise
Silicon Motion Technology Corporation price-consensus-eps-surprise-chart | Silicon Motion Technology Corporation Quote
Revenues
Total revenues were $140.4 million, down 44.4% year over year but exceeded the consensus estimate of $135 million. The company’s top line was plagued by challenging market conditions. Sluggish demand trends in the PC and smartphone market have affected net sales. Many key suppliers are bringing down the inventory levels, including client SSD and eMMC/UFS embedded storage devices, which had a detrimental effect on the revenues. However, order patterns improved sequentially, leading to better visibility of a likely market recovery in the second half of the year.
Revenues from eMMC+UFS controller sales declined by a staggering 65% to 70% year over year. SSD controller sales witnessed a sharp decline of 30% to 35%. Net sales for SSD solutions were down 25% to 30% year over year.
Other Details
In the second quarter of 2023, non-GAAP gross profit was $59.7 million compared with $133.8 million in the year-ago quarter, with respective margins of 42.5% and 53%. The decline was primarily attributable to lower revenues year over year. Total operating expenses on a non-GAAP basis declined from $56.8 million in second-quarter 2022 to $48 million. Non-GAAP operating income fell from $77 million to $11.7 million, with margins of 30.5% and 8.3%, respectively.
Cash Flow & Liquidity
For the first six months of 2023, Silicon Motion generated $43 million of cash from operating activities compared with a cash flow of $1.2 million in the year-ago period. As of Jun 30, 2023, the company had $249.8 million in cash and cash equivalents with $64.6 million of other liabilities. In the second quarter of 2023, the company’s capital expenditure totaled $10.1 million, including $2.9 million for the routine procurement of testing tools, software, design tools and other goods.
Outlook
Silicon Motion is optimistic about a more robust market recovery in the second half of 2023. It is taking several measures to enhance its gross margins, including reducing manufacturing costs, minimizing compensation-related expenses, discontinuing unprofitable product lines and streamlining research and development expenditures. Despite facing challenging market conditions, the company's management remains committed to providing cost-effective, high-quality, and unique solutions to its customers while maintaining a strong presence in the storage controller market. The company expects third-quarter revenues to be up 15-20% sequentially as end-market demand stabilizes with the reduction in customer inventory levels.
Zacks Rank & Stock to Consider
Silicon Motion currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some better-ranked stocks from the broader industry.
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