Silicon Motion: Fiscal 1Q20 Financial Results

(in $ million)	1Q19	1Q20	Growth
Revenue	94.7	132.8	*40%*
Net income (loss)	8.3	25.9	x3

Silicon Motion Technology Corporation announced its financial results for the quarter ended March 31, 2020.

For 1FQ20, net sales (GAAP) declined sequentially to $132.8 million from $153.2 million in 4FQ19. Net income (GAAP) increased to $25.9 million or $0.74 per diluted ADS (GAAP) from net income (GAAP) of $25.4 million or $0.73 per diluted ADS (GAAP) in 4FQ19.

For 1FQ20, net income (non-GAAP) declined to $28.4 million or $0.80 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $33.8 million or $0.96 per diluted ADS (non-GAAP) in 4FQ19.

1FQ20 Review
“Our first quarter sales were affected by the coronavirus outbreak in China,” said Wallace Kou, president and CEO. “The lockdown in China impacted industry supply chains and consumer demand, and China’s GDP declined sharply. Sales to OEM markets during the quarter were largely uninterrupted while sales to our channel markets were more fluid and dynamic. Although sales of both our SSD controllers and eMMC plus UFS controllers declined during the quarter, all 3 of our key products grew strongly compared to last year.”

During 1FQ20, the company had $6.4 million of capital expenditures for the routine purchase of software, design tools and other items.

Returning Value to Shareholders
On October 25, 2019, the board of directors declared a $1.40 per ADS annual dividend to be paid in quarterly installments of $0.35 per ADS. On February 27, 2020, $12.3 million was paid to shareholders as the second installment of annual dividend.

On November 21, 2018, the company announced that the board had authorized a new program for the company to repurchase up to $200 million of our ADS over a 24-month period. In 1FQ20, it did not repurchase any of its ADSs. Since the start of this program, it has repurchased $59.8 million of its ADSs.

Business Outlook
“We continue to expect sequential sales growth in the second quarter and remain optimistic about the rest of the year,” said Kou. “While we believe we will continue to benefit from PC sales driven by work-from-home and online learning, China’s gradual post-lockdown economic recovery and the multi-year trends relating to both smartphone embedded storage transitioning from eMMC to UFS and PCs and other client devices transitioning from HDDs to SSDs, we are not providing full-year guidance at this time due to limited visibility in the second half of this year.”

For 2FQ20, revenue is expected between $133 million to $143 million, or +0% to 8% Q/Q.

Comments

The company records net sales $132.8 million, -13% Q/Q, 40% Y/Y, on par with $130-$138 million expected at the end of former 3-month period.

It has $372 million of cash.

Because of corinavirus, sale to the channel market, which is more fully and dynamic have benefited from restocking. But sales to the OEM market have largely been uninterrupted. The company saw a gradual recovery in Chinese retail consumer demand post a lockdown.

Controller sales were seasonally soft and affected by China's Covid-19 lockdown.

SSD controllers
The company is a leader in this field with others like JMicron, Marvell and Phison, Sales here were down 15% sequentially in 1FQ20, and up 40% Y/Y. Towards the end of this quarter, the company started seeing stronger surge in demand for Noble PC with SSD, driven by work from home and online learning at the rest of the world starting shuttering in place.

It is expecting client SSD sales to continue growing through this year, even if PC sales were to decline meaningfully due to increasing adoption of SSD vs. HDD. TAM prices fell sharply last year, which incentifies PC OEM to design more PC with SSD.

Towards the end of the year, the firm will bring to market 4 different PCIe Gen 4 controller to address 4 different market segments, from enterprise to client, from high-performance to mainstream and value line. Its engineering work is underway in architecting controller for next-gen PCIe Gen 5.

eMMC+UFS controller
Revenue declined 20% sequentially, but grew 100% Y/Y. 2/3 of vendor's mobile embedded storage controller cells are UFS controllers.

For the full year, Silicon Motion is expecting strong UFS controller sales to its UFS customer and solid EMC and UFS controller cell to Chinese module maker customers, and anticipate further contraction of its legacy EMC controller sale to its Korean customer.

SSD solutions
Sales grew 15% sequentially in 1FQ20 and 70% Y/Y.

Alibaba project is progressing in the delivery of SSD and as engineering work for next year new projects.

Guidance
The company expects sales growth of all 3 of its key products to be flat to up in next quarter. Then it will difficult to be in phase with prediction of an increase of 20% to 30% in FY20 as announced at the end of 4FQ19.