Silicon Motion (SIMO) Q1 Earnings Top, Revenues Lag Estimates

Silicon Motion Technology Corporation (NASDAQ:SIMO) delivered first-quarter 2018 non-GAAP earnings of 71 cents per American Depositary Share ("ADS"), which surpassed the Zacks Consensus Estimate of 65 cents and came a penny ahead of the year-ago quarter figure. However, earnings declined 10.1% sequentially.

Net sales increased 2% year over year but decreased 4% from the previous quarter to $130.3 million. The figure missed the Zacks Consensus Estimate of $131 million as well. However, the figure was marginally higher than the mid-point of management’s guided range of $127-$132 million (mid-point $129.5 million).

We believe improving supply of 64-layer 3D NAND is bringing down high NAND prices, which is eventually benefiting Silicon Motion.

Additionally, as the company’s Open-Channel NVMe SSD controller enters into production, Client SSD Controller sales are anticipated to increase.

Revenue Details

Sales from mobile storage products (which include Embedded Storage as well as Expandable Storage products) increased 4% year over year but decreased 3% sequentially to $121.4 million. Revenues from mobile storage products contributed 93% to overall product revenues.

Sales of Shannon hyper-scale SSDs and Ferri industrial SSDs were down sequentially, owing to seasonality. Reduction in SSD prices due to rebounding orders from the company’s NAND flash partners and increase in NAND supply led to higher revenues.

Sales for Client SSD controllers grew 10% quarter over quarter.

Revenues from eMMC controllers increased 15% sequentially. The increase can be attributed to the rebuilt inventory from its NAND flash partners.

Embedded Storage1 sales (approximately 85% of total revenues) declined 1% sequentially. Revenues from SSD solutions declined 25% sequentially.

Mobile communications product (which include mobile TV SoCs) sales were $7.9 million, down 16% sequentially, and represented 6% of total revenues.

Other products formed 1% of the revenues and generated $1.1 million.

Operational Details

Non-GAAP gross margin declined 300 basis points (bps) on a year-over-year basis. However, non-GAAP gross margin increased 140 bps sequentially to 48.0%. The sequential increase can be attributed to growth in gross margin from the company’s controllers and SSD solutions.

Non-GAAP operating margin decreased 430 bps on year-over-year basis and 200 bps sequentially to 22.1%. Operating expenses as a percentage of revenues remained high and increased 150 bps year over year and 350 bps sequentially.

Liquidity & Cash Flow

Exiting the quarter, Silicon Motion’s cash, cash equivalent and short-term investments were $346.1 million, down from $366.4 million in fourth-quarter 2017.

Guidance

For second-quarter 2018, Silicon Motion expects non-GAAP revenues to be in the range of $134.3-$140.8 million, reflecting 1-6% top-line growth on a year-over-year basis. The Zacks Consensus Estimate for the quarter is pegged at $139 million.

Non-GAAP gross margin is anticipated within 46.5-48.5%. Non-GAAP operating margin is expected to lie in the range of 22.5-24.5%.

The company re-iterated 2018 outlook. Non-GAAP revenues are anticipated within $550-$576 million, translating to year-over-year growth of 5-10%. The Zacks Consensus Estimate of $569.3 million is toward the higher end of management’s guidance range. Further, the company anticipates SSD controller sales to surge at least 20% for fiscal 2018.

Non-GAAP gross and operating margin is projected in the range of 47-49% and 23-25%, respectively.

Zacks Rank and Other Stocks to Consider

Silicon Motion carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Seagate Technology PLC (NASDAQ:STX) , Mellanox Technologies, Ltd. (NASDAQ:MLNX) and Micron Technology, Inc. (NASDAQ:MU) , each sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected earnings growth rate (3-5 years) for Seagate, Mellanox and Micron are 15.60%, 15% and 10%, respectively.

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