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Silicon Motion (SIMO) Beats Q4 Earnings, Sales Estimates

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Shares of Silicon Motion Technology Corp . SIMO have declined more than 5% in the last two trading sessions following the announcement of fourth-quarter 2016 results. Although the company's earnings and sales beat the Zacks Consensus Estimate, first-quarter 2017 guidance failed to impress.

Silicon Motion reported adjusted earnings of 95 cents per ADS, which soared 72.7% from the year-ago quarter but declined 11.2% sequentially. Including stock-based compensation, earnings were 75 cents per ADS, which beat the Zacks Consensus Estimate of 65 cents.

Net sales surged 47.1% year over year but declined 9.1% from the previous quarter to $144.2 million. The sequential decline was in line with management's guided range and can be attributed to seasonally weak eMMC sales and SSD solutions that fully offset client SSD sales growth.

Silicon Motion Technology Corporation Price, Consensus and EPS Surprise

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

In 2016, earnings surged 72.5% to $2.11 per ADS over 2015, on net sales growth of almost 54%, which totaled $556.1 million. Client SSD controller sales grew 135% in 2016.

Despite the massive growth, shares have underperformed the Zacks Electronics Semiconductors industry in the past one-year. While Silicon Motion gained 33.9%, the industry returned 82.3% over the same period.

Segment Sales

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) increased 49% year over year but declined 11% quarter over quarter to almost $130.3 million.

Client SSD controller sales grew over 5% sequentially with growth coming from the company's NAND flash partners. However, sales to module makers were flat sequentially. Moreover, eMMC controller sales declined over 5% sequentially in line with past seasonal patterns.

SSD solution sales declined more than 40% sequentially as the company's 2016 hyper-scale SSD project ended.

In the fourth quarter, two customers (Hynix was one) contributed more than 10% of sales. The company is an emerging leader in the SSD controller market with almost 30% share and primary customers include Intel INTC , Micron MU and SanDisk.

Mobile communications product (which include mobile TV SoCs and handset transceivers) sales were $12.5 million as compared with $8.8 million in the year-ago quarter and $10.1 million in the previous quarter.

Operational Details

Non-GAAP gross margin (including stock-based compensation) remained flat on a year-over-year basis, but increased 120 basis points (bps) sequentially to 50%. This was almost in line with the higher-end of management's guided range of 48.5-50.5%. The sequential improvement was primarily owing to favorable product mix.

Operating expenses as percentage of revenues plummeted 550 bps on year over year basis but increased 130 bps sequentially. As a result, operating margin expanded 550 bps from the year-ago quarter but contracted 10 bps sequentially to 24.5% in the reported quarter, slightly lower than management's guided range of 25-27%.

Liquidity & Cash Flow

Exiting the quarter on Dec 31, Silicon Motion's cash and cash equivalents increased to $277.8 million from $269.2 million at the end of Sep 30.

The company's total cash from operating activities for the three-month period ended Dec 31, was $34.8 million, as compared with $54.9 million reported at the end of Sep 30.

Guidance

For first-quarter 2017, Silicon Motion expects non-GAAP sales to be in the range of $121-$128 million, reflecting 11-16% decline on a sequential basis. The anticipated decline is based on seasonally soft client SSD Controller sales, flat eMMC controller sales and declining SSD solution sales. However, on a year-over-year basis, sales are expected to grow in the range of 7-14%.

For the first-quarter, management expects SSD controller sales to decline seasonally. However, sales growth is expected to resume in the second-quarter driven by strong pipeline of SSD controller projects, including new PCIe/NVMe SSD controllers. Moreover, eMMC controller sales will likely be flat, similar to past seasonal patterns.

SSD solutions sales will likely continue declining further in the first-quarter due to limited availability of high grade flash components at favorable prices. However, sales are anticipated to rebound following shipment of the new 2017 projects.

Non-GAAP gross margin is anticipated within 48-50%, reflecting less contribution from client SSD controller sales. Moreover, operating margin is projected in the range of 23-25% for first-quarter 2017, exhibiting higher research & development (R&D) expense.

For full-year 2017, Silicon Motion anticipates revenues to increase 0-10% from 2016 to $556-$612 million range. The projection is based on strong client SSD controller sales growth in addition to modest eMMC controller sales growth, offset by the short-term decline in SSD solution sales.

Silicon Motion expects significant improvements in NAND flash supply in second-half 2017.

Management expects client SSD controllers to grow 20-25% from over $170 million in 2016. Further, eMMC controller sales are expected to grow about 5% over $170 million in 2016. The growth is anticipated to be in line with smartphone growth driven by the strength in the company's partnership with Hynix.

SSD solutions sales for the full year are anticipated to decline 15% to 20% from over $80 million in 2016 due to lack of flash availability.

For full-year 2017, gross margin is anticipated within 49-51%, while operating margin is projected in the range of 27.5-29.5%. Operating expenses are expected to grow in line with sales growth. Majority of the operating expenses will be incurred in first-half of 2017.

Zacks Rank & Key Pick

Silicon Motion currently carries a Zacks Rank #4 (Sell). Applied Optoelectronics AAOI sporting a Zacks Rank #1 (Strong Buy) is a stock worth watching in the same sector. You can see the complete list of today's Zacks #1 Rank stocks here. Applied Optoelectronics is expected to report earnings results on Feb 23.

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Silicon Motion Technology Corporation (SIMO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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