Silicon Motion: Fiscal 3Q17 Financial Results

(in $ million)	3Q16	3Q17	9 mo. 16	9 mo. 17
Revenues	158.6	127.2	411.9	387.2
*Growth*		-20%		*-6%*
Net income (loss)	32.7	17.6	84.8	65.1

Silicon Motion Technology Corporation announced its financial results for the quarter ended September 30, 2017.

Business Highlights

Embedded Storage sales decreased approximately 5% Q/Q and accounted for about 80% of total sales, similar to the previous quarter
Client SSD controller sales decreased approximately 10% Q/Q
eMMC controller sales decreased approximately 20% Q/Q
SSD solutions sales increased approximately 50% Q/Q
Began shipping our 6Gb SATA SSD controller to Micron for the Crucial BX300 SSD
Began commercial sales of our 2nd generation PCIe NVMe client SSD controllers

For the third quarter, net sales decreased 4% sequentially to $127.2 million from $132.7 million in the second quarter.

Net income (GAAP) decreased to $17.6 million or $0.49 per diluted ADS (GAAP) from a net income (GAAP) of $24.0 million or $0.67 per diluted ADS (GAAP) in the second quarter.

For the third quarter, net income (non-GAAP) decreased to $20.3 million or $0.57 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $25.4 million or $0.71 per diluted ADS (non-GAAP) in the second quarter.

Third Quarter 2017 Review
“This quarter, NAND flash industry supply increased materially, which enabled us to increase procurement of NAND for both our differentiated Ferri and Shannon SSD solutions,” said Wallace Kou, president and CEO. “Despite supply improvements, NAND prices remained elevated and high prices, as expected, continued to temporarily affect broader adoption of client SSDs. Our eMMC controller sales declined as previously communicated, the result of our NAND flash partner re-balancing their limited NAND supply away from mobile phones and towards other applications.”

Returning Value to Shareholders
On October 24, 2016, the board of directors of the company declared a $0.80 per ADS annual dividend to be paid in quarterly installments of $0.20 per ADS. On August 17, 2017, we paid $7.1 million to shareholders as the fourth installment of our annual dividend. On October 24, 2017, the board of directors of the company declared a $1.20 per ADS annual dividend to be paid in quarterly installments of $0.30 per ADS. The first installment of our new annual dividend will be paid on November 23, 2017.

On August 1, 2017, the company announced that its board of directors has authorized a new program for the company to repurchase up to $200 million of its ADS over a 12 month period. In the third quarter, the company did not repurchase any shares.

Business Outlook
“We expect our business to gradually rebound in the fourth quarter, and rebound further next year due to increasing availability of 64L 3D NAND and more competitive NAND pricing,” said Kou. “In the fourth quarter, we expect our Ferri and Shannon SSD solutions customers to take advantage of improving supply of NAND flash to procure more than originally forecasted. We expect our client SSD controller sales to increase strongly in the fourth quarter as our pipeline of 2nd generation PCIe NVMe client SSD controllers start entering production.”

For the fourth quarter of 2017, management expects revenue between $130 million to $136 million or 2% to 7% Q/Q.

Comments

Abstracts of the earnings call transcript:

Wallace Kou, president and CEO:
"Supply for the NAND flash however remained elevated which continue to temporarily affect adoption of client SSD and demand for our controllers.
"We believe market conditions are gradually moving toward the direction of falling NAND flash prices. NAND flash makers starting major production of 64-layer 3D NAND late last year and early this year. Production yields continue to improve rapidly and are approaching mature levels.
"We believe currently one of the more price sensitive occasion for NAND and one of the more price elastic, demand will trigger gradually when price fall. SSD superior to HDD in terms of better performance, reliability and power consumption.
"Cost will fall further when 4-bit per cell QLC components enter production in Q2 of next year. Cost will fall further with 96-layer 3D NAND enter production with commercial sampling expected to begin in the first half of next year."
"We are on track to begin sampling our open channel SSD controller with our first hyper-scale customer in the fourth quarter and our second will begin sampling in the first half of the next year.
"Our total headcount this quarter increased to 1,214, which was 61 more than in the second quarter."

Riyadh Lai, CFO:
"Our eMMC controller sales declined approximately 20% sequentially as SK Hynix rebalanced their limited supply of NAND away from smartphones towards other applications. For Q4, we expect our eMMC controller sales to decline further sequentially.
"For Q4, we expect SSD solutions sales to be flat sequentially as OEM customers take advantage of adequate flash availability to fulfill their demand. We expect our SSD solution sales in 2018 to continue growing with growth from both our Ferri industrial SSDs and Shannon hyper-scale SSDs."