Silicon Motion: Guidance Reaffirmed, Analysts Raise Guidance

Jun.17.08 | About: Silicon Motion (SIMO)

Silicon Motion saw sales increase 35% year-over-year to a new a record for the first quarter. The company remains bullish about the remainder of 2008 as sales of portable consumer devices remain hot worldwide. Silicon Motion has surprised on estimates two out of the last four quarters by 6.28%. The company's forward P/E is only 8.76.

Full Analysis

Silicon Motion Technology Corporation (NASDAQ:SIMO) manufactures semiconductors for use in portable consumer electronics such as MP3 players, portable media players, DSCs, mobile phones, PDAs, and wireless home media center. The company's emphasis is on ICs for flash memory cards, USB flash drives and multimedia solutions.

Silicon Motion has three segments: mobile storage, mobile communications and multimedia SoC. The mobile storage segment is composed of microcontrollers used in NAND flash memory storage products such as flash memory cards, USB flash drives, SSDs, embedded flash applications, and card readers.

The mobile communications segment consists of mobile TV tuners, CDMA RF ICs, and electronic toll collection RF ICs. The multimedia SoC segment supports MP3 players, PC cameras, and embedded graphics applications.

Silicon Motion Technology Posts First Quarter Sales Record

On Apr 29, Silicon Motion announced first quarter earnings and beat Wall Street estimates by 21.87%, or seven cents a share. Net income rose 19% to $15.4 million, or 44 cents per share, compared to 37 cents per share in the first-quarter 2007.

Net sales increased 35% to a new first quarter record of $52.2 million. The company saw a 73% increase in total unit shipments year-over-year. Unit shipments rose 17% quarter-over-quarter to a new record of 113 million units.

Storage controller unit shipments increased 68% year-over-year because of strong sales of controllers for cards, USBs, and SSDs.

SSD controller sales increased due to a focus on low-cost and ultra mobile notebook PCs made by several of SIMO's new customers such as Inventec (original design manufacturer, or "ODM", for HP's 2133 Mini-Note PC) and Compal (ODM for Dell's soon-to-be launched ultra mobile PC.)

"Our sales this quarter of $52 million were strong due to an increase in mobile storage sales, which topped $41 million. We believe the unseasonably strong results were driven by customers who took advantage of rapidly falling NAND flash prices to manufacture cards," said Wallace Kou, President and CEO.

"Our sales of controllers for cards bundled with the handsets of global OEMs and Chinese handset makers were also particularly strong," he said.

The company also enacted a $40 million share repurchase program in March 2008. In the first quarter, SIMO did not repurchase any shares under the program. The company intends to complete the repurchase by Mar 11, 2009.

Silicon Motion Re-Affirms Full Year Guidance

SIMO continues to believe that the mobile storage products will perform well in the second quarter. Additionally, the company sees the mobile communications business picking up in the second quarter coming out of the seasonally slow first quarter.

The company forecasts revenues for the second quarter in the range of $52 to $54 million, a 9-13% increase from the year-ago period.

For the full year, SIMO guided in the range of $1.95 to $2.05 per share on revenue of $225 to $235 million.

Analysts Raise Estimates for the Second Quarter and the Full Year

In response to the first quarter results and SIMO's guidance, consensus estimates rose for the second quarter in the last month by three cents a share to 44 cents from 41 cents per share.

For the year, consensus estimates increased 15% to $1.99 from $1.73 per share, in-line with the company's guidance of $1.95 to $2.05 per share.

Silicon Motion's forward P/E is 8.76, under the industry average of 16.75. Its price-to-book is 2.44. The company's one-year trailing return on equity [ROE] was 20.89%. SIMO is a rare value stock that is also aggressively growing. Analysts expect year-over-year earnings growth in 2008 of 48.51%.