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Silicon Motion (SIMO) Q3 Earnings Call: Is a Beat in the Cards?

Silicon Motion Technology Corp.SIMO is set to report third-quarter 2015 results after the closing bell on Oct 28. Last quarter, the company posted a positive earnings surprise. Moreover, for the last four quarters, Silicon Motion has delivered an average positive surprise of 15.2%.

Let's see how things are shaping up for this announcement.

Factors to Consider

For the past few quarters, the company has benefited significantly from the stellar performance of its SSD controllers market, and this trend is expected to continue in the next two quarters as well. During the second quarter, Silicon motion introduced multiple offerings including turnkey SATA3 SSD controllers and turnkey DRAM-less SATA3 client SSD controllers, which are expected to act as growth catalysts for the to-be-reported quarter.

Silicon Motion, with its robust pipeline of recent "design wins," is likely to emerge as the largest merchant supplier of SSD controllers by the end of this year. This, in turn, indicates solid performance for the third quarter. Moreover, earlier this year, the company had expanded the customer base of its SSD controllers beyond Multi-Level Cell ("MLC") NAND flash clients to include Triple-Level Cell ("TLC") NAND flash clients.

Given the increasing adoption of SSD controllers by TLC NAND flash partners in the industry, we believe this move will act as a growth driver for the company's SSD market in the third quarter.

Of late, Silicon Motion has been witnessing increasing demand for SSD controllers, due to their wide adoption in PC OEMs and consumer model notebook PC. This is boosting the company's profitability. This apart, the company has won impressive product design awards for its eMMC controllers, which are expected to support its profitability in second half of the year.

Moreover, management believes that at a time when NAND flash SSD controllers are witnessing rapid growth, the acquisition of Shannon Systems, China's leading enterprise grade PCIe SSD and storage array vendor, will prove immensely beneficial to Silicon Motion. Also, rapid growth of SSD markets in China will likely supplement the company's financial performance in the to-be reported quarter.

Earlier in October, Silicon Motion came up with third-quarter preliminary results, wherein it projected revenues to increase 8-10% on a sequential basis, thereby indicating decent performance for the quarter.

However, stiff competition in the semiconductor industry, narrow customer base and macroeconomic tensions are anticipated to hurt the company's financial performance in the third quarter.

Earnings Whispers

Our proven model does not conclusively show that Silicon Motion is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Earnings ESP, that represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 40 cents.

Zacks Rank: Silicon Motion's Zacks Rank #2, when combined with 0.00% ESP, makes surprise predictions difficult. Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Stocks to Consider

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Apple Inc. AAPL has an Earnings ESP of +1.60% and a Zacks Rank #2.

CyberArk Software, Ltd. CYBR has an Earnings ESP of +10.00% and a Zacks Rank #2.

Transocean Ltd. RIG has an Earnings ESP of +3.18% and a Zacks Rank #2.

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SILICON MOTION (SIMO): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

TRANSOCEAN LTD (RIG): Free Stock Analysis Report

CYBER-ARK SFTWR (CYBR): 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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