Silicon Motion's (SIMO) Q3 Preliminary Results Encourage

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Shares of Silicon Motion Technology CorpSIMO climbed almost 2% to close at $52.20 on Oct 9, following the company's third-quarter 2017 preliminary results that were announced on Oct 6.

Silicon Motion anticipates revenues at the high end of the previous guidance of $122-$129 million issued on Aug 1. The revenue guidance originally reflected a 3-8% decline on a sequential basis.

Moreover, gross margin is now expected to be near the mid-point of the company's original range of 45-47%. Further, in the original guidance, operating margin was projected in the range of 19-21%.

The Zacks Consensus Estimate for third-quarter 2017 is currently pegged at 56 cents per share on revenues of $125.7 million.

We note that since the announcement of second-quarter 2017 results on Aug 1, Silicon Motion's stock has returned 17.3%, substantially outperforming the industry it belongs to.

NAND Supply Improvement to Boost Results

NAND supply constraint has negatively impacted Silicon Motion's results in the trailing four quarters. The constraints have affected module maker customers, hyperscale customers, and NAND flash partners in the last quarter. This caused an upset to the company's top-line growth as well as margins.

Silicon Motion Technology Corporation Revenue (TTM)

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

Although improving NAND supply will have no material impact on third-quarter results (ended Sep 30), this may benefit Silicon Motion's fourth-quarter results.

Moreover, Silicon Motion believes that margins will benefit from the reset of pricing arrangement with customers that will offset higher NAND component costs. Further, new product launches will boost the client SSD controller sales in the current quarter.

The rebound in client SSD controller sales will ultimately boost full-year 2017 top line. Management currently projects revenues to decrease 5-8% from 2016 to $512-$528 million.

Client SSD controller is anticipated to be flat. Moreover, eMMC and SSDs solutions are also expected to decrease.

For full-year 2017, non-GAAP gross margin is anticipated within 47-49%, while operating margin is projected in the range of 22-24%.

Zacks Rank & Key Picks

Silicon Motion carries a Zacks Rank #3 (Hold). Cirrus Logic Inc CRUS , Himax Technologies Inc HIMX and Synaptics Inc SYNA are better-ranked stocks in the sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Long-term earnings growth rate for Cirrus, Himax and Synaptics are currently pegged at 12.9%, 25% and 15%, respectively.

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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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