Silicon Motion: Fiscal 3Q19 Financial Results

(in $ million)	3Q18	3Q19	9 mo. 18	9 mo. 19
Revenue	138.6	110.5	407.0	304.1
*Growth*		-11%		*-25%*
Net income (loss)	29.2	4.2	83.0	39.0

Silicon Motion Technology Corporation announced its financial results for the quarter ending September 30, 2019.

For 3FQ19, net sales (GAAP) increased to $110.5 million from $98.8 million in 2FQ19.

Net income (GAAP) decreased to $4.2 million or $0.12 per diluted ADS (GAAP) from $26.5 million or $0.75 per diluted ADS (GAAP) in 2FQ19.

For 3FQ19, net sales (non-GAAP) increased to $113.2 million from $94.3 million in 2FQ19. Net income (non-GAAP) increased to $24.4 million or $0.69 per diluted ADS (non-GAAP) from $18.6 million or $0.52 per diluted ADS (non-GAAP) in 2FQ19.

“Third quarter sales were stronger than expected, with total revenue growing 20%,” said Wallace Kou, president and CEO. “We achieved corporate record high SSD controller sales as SSD adoption in client devices grew further, especially at PC OEMs. Our eMMC+UFS controller sales rebounded further as smartphone adoption of UFS mobile embedded memory accelerated and our module makers’ eMMC projects continued to grow. Sales of our SSD solutions, specifically our Ferri and Shannon products, started to recover this quarter.“

On October 29, 2018, the board of directors declared a $1.20 per ADS annual dividend to be paid in quarterly installments of $0.30 per ADS. On August 22, 2019, it paid $10.0 million to shareholders as the fourth installment of annual dividend. On October 25, 2019, it declared a $1.40 per ADS annual dividend to be paid in quarterly installments of $0.35 per ADS. The first installment of the new annual dividend will be paid on November 21, 2019.

On November 21, 2018, the company announced that its board had authorized a new program for the company to repurchase up to $200 million of our ADS over a 24 month period. In 3FQ19, it repurchased $25.0 million of its ADS at an average price of $32.82 per ADS. Since the start of this program, it repurchases $59.8 million of its ADS.

“We are expecting a strong finish to this year, with revenue growing further in 4FQ19,” said Kou. “In 4FQ19, we expect sales of both our SSD controllers and eMMC+UFS controllers to strengthen, and our SSD solutions sales to continue recovering. Sales visibility has improved considerably since earlier this year, and based on what we are seeing from our customers’ procurement plans, our SSD controllers, eMMC+UFS controllers and SSD solutions are all expected to deliver solid growth next year.“

For 4FQ19, management expects revenue of $133 million to $139 million or 17.5% to 22.5% Q/Q.

Comments

The company supplies almost all its SSD controller used for managing QLC NAND shipping today including popular notebook PCs.

Sales of eMMC controller to SK Hynix remain stable. eMMC+UFS controller sales will decline Y/Y by approximately one fourth as this Korean customer diversify away from the mobile markets as long as volumes the low end eMMC market and focus on UFS using its own controllers.

Over the last 4 quarters growth in business has been solely depend on the strength of SSD controllers.

Last quarter the manufacturer disclosed that sales outlook for Shannon had been deteriorating which led to a $5 million write-down of NAND flash components and SSDs in inventory and the risk that a significant portion of Shannon's $34 million of acquired goodwill in intangible assets may be impaired.

This quarter after completing impairment evaluation, the firm wrote down Shannon goodwill by $16 million because the present value of its expected Shannon cash flow was determined to be less than the sum of its purchase price plus subsequent investments.

Silicon Motion has $333 million of cash equivalents restricted cash and short-term investments at the end of 3FQ19 down from $368 million at the end of 2FQ19.

Revenue growth will be more limited in the future as the company starts transitioning its business arrangements with Alibaba to a consignment model in 1H20.

By next quarter over 80% of SSD controller shipping to NAND flash customers will be for PCIe NVMe SSD.