Silicon Motion (SIMO) Q3 Earnings Top, Revenues Down Y/Y

Silicon Motion Technology Corporation (NASDAQ:SIMO) reported third-quarter 2019 non-GAAP earnings of 69 cents per American Depositary Share (ADS), which surpassed the Zacks Consensus Estimate by 25.5% and improved 32.7% sequentially. However, the figure declined 28.1% from the year-ago quarter.

Net sales (non-GAAP) declined 14% from the year-ago quarter but improved 20% sequentially to reach $113.2 million.

On a GAAP basis, net sales declined 20% from the year-ago figure but improved 12% sequentially to $110.5 million.

The Zacks Consensus Estimate for revenues was pegged at $110 million.

Notably, non-GAAP revenues include SSD solutions restructuring charges of approximately $2.7 million.

Shares Up on Promising Q4 Revenue View

Silicon Motion expects non-GAAP revenues to be in the range of $133 million to $139 million (indicating sequential growth of 17.5-22.5%). The Zacks Consensus Estimate is currently pegged at $125.65 million.

Following the promising guidance, shares of Silicon Motion were up 11.2%, eventually closing at $43.38 on Oct 30. Notably, the company’s stock has returned 28.7% year to date, compared with the industry’s rally of 29%.

Quarter in Detail

Sales of SSD controllers to flash partners surged 15% sequentially, on improving adoption of SSD in client devices from PC OEMs.

Moreover, revenues from eMMC and UFS controllers increased 40% sequentially, on account of demand for UFS mobile embedded memory products in smartphones and improving adoption of eMMC by module makers.

Notably, revenues from SSD solutions improved 45% sequentially on improving demand for Shannon and Ferri products.

Moreover, the company’s Open-Channel Shannon SSDs are into commercial deployment in data center of Alibaba (NYSE:BABA) and another “B-A-T customer,” which is a significant milestone.

Margins

Non-GAAP gross margin of 49.8% contracted 120 bps on a year-over-year basis and 170 bps sequentially, primarily on higher sales of lower margined SSD solutions.

Non-GAAP operating expenses as a percentage of revenues came in at 27.7%, expanding 560 bps year over year. The figure contracted 530 bps sequentially.

Consequently, non-GAAP operating margin contracted 680 bps on year-over-year basis to 22.1%. Nonetheless, the figure expanded 370 bps sequentially.

Balance Sheet & Cash Flow

Silicon Motion ended the third quarter with cash, cash equivalents, restricted cash and short-term investments of $333.3 million, compared with $368.1 million reported in the previous quarter.

The company generated $29.5 million cash from operations during the reported quarter compared with $40.1 million in the previous quarter.

On Oct 29, 2018, the company’s board declared a new annual dividend of $1.20 per ADS. Quarterly installments to be paid by the company were 30 cents per ADS. On Aug 22, 2019, the company paid out $10 million as annual dividend to shareholders, which marked its fourth installment.

On Oct 25, 2019, the company’s board declared a new annual dividend of $1.40 per ADS, up from $1.20 in the past year. Quarterly installments to be paid by the company are 35 cents per ADS. Notably, the first installment, per the revised dividend, is payable on Nov 21, 2019.

Further, on Nov 21, 2018, Silicon Motion announced a new buyback program spread over a two-year period. According to terms of the program, the company will repurchase approximately $200 million per ADS. In the reported quarter, the company repurchased shares worth $25 million. Under the buyback program, the company has repurchased shares worth $59.8 million.

On May 15, 2019, Silicon Motion had revealed in annual filing that it is trimming Shannon sales forecast for 2019 “meaningfully.” The declining operating performance of Shannon led to approximately $5.0 million in inventory write-down in the second quarter. The company completed further write-down of goodwill and intangible assets in the reported quarter by $16 million.

Guidance

For fourth-quarter 2019, non-GAAP gross margin is anticipated within 48.5-50.5%. Non-GAAP operating margin is anticipated to lie in the range of 21.6% to 24.6%.

Zacks Rank & Stocks to Consider

Currently, Silicon Motion has a Zacks Rank #4 (Sell).

Benefitfocus (NASDAQ:BNFT) and Five9 (NASDAQ:FIVN) are some better-ranked stocks in the broader computer and technology sector, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Benefitfocus and Five9 is pegged at 20% and 10%, respectively.

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