Silicon Motion Technologies Misses Numbers, And Stock Rises (SIMO)

I must be in the wrong business. Silicon Motion Technologies (NASD:SIMO) announced that its quarter just ended (3/31) would be weak, and the stock rose 20%. Even the Associated Press headline said "Silicon Motion Tech See Sales Shortfall".

The company had some good reasons. Silicon Motion is in the fabless semiconductor business. They specialize in low-powered, high-performance solutions for the multimedia consumer electronics business. Silicon Tech's CEO said that "NAND flash memory prices fell significantly throughout the quarter".

For those of us who are not semiconductor jockeys, Wikipedia (www.wikipedia.com) tells us that NAND Flash uses tunnel injection for writing and tunnel release for erasing. NAND flash memory forms the core of the removable USB interface storage devices. The company added that since early March conditions had improved and that Q2 should be better than Q1.

Revenue for Q4 05 at Silicon Motion was $26.1 million. Granted, the company says that its business is seasonal, but the drop to $17.5 million that the company said it would turn in for Q1 06 is still disheartening.

The company's System-On-Chip products have been doing remarkably well, at least until recently. SoC products grew 133% from Q3 05 to Q4 05 and hit 947,000 units. It remains to be seen what has happened so far this year.

Silicon Motion's financial house is in good order. The company has net income of $7.4 million in Q4 05 and had over $83 million in cash and short term securities.

The concern here should be that if Q2 is not strong as an ox, the run-up in the stock could hit a wall. It has gone from $8.75 earlier in this 52-week cycle to the present level of $14.45. The company sports a $441 million market cap which, according to Yahoo!Finance is 4.5 times sales.

The market does not like to be disappointed, and the rise in Silicon Motion on news that many would consider bad is an indication that a great deal is expected of results in the next couple of quarters.

SIMO Six Month Chart

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard.com, which at the time was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at [e-mail]