Silicon Motion: Fiscal 2Q20 Financial Results

(in $ million)	2Q19	2Q20	6 mo. 19	6 mo. 20
Revenue	94.3	136.8	193.5	269.6
*Growth*		45%		*38%*
Net income (loss)	26.5	28.2	34.8	54.1

Business Highlights
• SSD controller sales declined about 5% Q/Q and increase 15% Y/Y
• eMMC+UFS controller sales increased 30% Q/Q and increased 140% Y/Y
• SSD solutions sales declined about 10% Q/Q and increased 145% Y/Y
• PCIe Gen4 SSD controller design-wins at 5 NAND flash makers
• UFS 3.1 controller design-win at second NAND flash maker

Silicon Motion Technology Corporation announced its financial results for the quarter ended June 30, 2020.

For this quarter, net sales (GAAP) increased sequentially to $136.8 million from $132.8 million in first quarter 2020.

Net income (GAAP) increased to $28.2 million or $0.80 per diluted ADS (GAAP) from net income (GAAP) of $25.9 million or $0.74 per diluted ADS (GAAP) in 1FQ20.

Net income (non-GAAP) increased to $28.6 million or $0.81 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $28.4 million or $0.80 per diluted ADS (non-GAAP) in 1FQ20.

2FQ20 Review
“We are excited that this quarter five NAND flash makers awarded us PCIe Gen4 SSD controller design-wins, and additionally, we secured a second NAND flash maker as a UFS controller customer,” said Wallace Kou, president and CEO. “These design-wins are testaments of our technological leadership and important for our continued growth. Growth this quarter was driven by very strong sales of UFS controllers. Sales of our SSD controllers were affected by temporary re-allocation of NAND flash by our customers to hyperscale data centers and Shannon SSDs were softer than expected.”

During 2FQ20, the firm had $4.1 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 May 21, 2020, the firm paid $12.3 million to shareholders as the third installment of its annual dividend.

On November 21, 2018, it 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 2FQ20, it did not repurchase any of its ADSs. Since the start of this program, it has repurchased $59.8 million of our ADSs.

Business Outlook
“We expect our third quarter sales to be temporarily affected by a one-quarter mobile-related inventory adjustment before growth rebounds in the fourth quarter,” said Kou. “All 3 of our key products continue to track towards solid full-year sales growth, and our order book for SSD controllers for PC OEMs remains very strong in the second half of 2020. Also, our expanding portfolio of industry-leading PCI NVMe SSD and UFS controllers, as well as Shannon open-channel SSDs is pointing to solid growth momentum next year.”

Management expects:

For next quarter, revenue of $114 million to $120 million (-17% to -12% Q/Q)
For FY20 revenue of $508 million to $521 million (+11% to 14% Y/Y)

Comments

For the quarter, $136.8 million revenue increased 3% Q/Q and 45% Y/Y, in phase with what the company said when commenting last quarter between $133 million to $143 million.

SSD controller sales declined 5% Q/Q due to firm's NAND flash customers allocation of flash away from client SSDs towards hyperscale data center demand. They increased 15% Y/Y due to market growth and market share gains. Their sales were up 25% Y/Y in the first half of the year. This year, the manufacturer expects to grow its SSD controller sales almost twice, the best at market with much faster growth for SSD for PC OEMs. And the firm expect this positive momentum to continue next year.

eMMC and UFS controller sales increased 30% sequentially and 140% Y/Y due to growing smartphone adoption of UFS Mobile embedded storage and supply chain inventory builds.

SSD solutions declined 10% sequentially due to weaker than expected Shannon SSD sales to non-Alibaba customers. They grew yearly 145% as the company began shipping Shannon open channel SSDs in 3FQ19 and sales of legacy Shannon SSDs were very small in the first half of 2019.

CEO stated: "Recently we are seeing elevated levels of inventory as many leading smartphone OEMs, which is affecting NAND flash makers production of UFS. And this in turn is delaying our sales of controllers. As a result, we are expecting our user controller sales to temporarily decline in the third quarter before rebounding in the fourth quarter, as the inventory level in the supply chain are consumed with expected sequential quarterly smartphone shipment growth. Based on our audit books, we believe our eMMC+UFS controller sales will recover in the fourth quarter."

He also expects higher SSD controller sales, lower eMMC+UFS controller sales, and flat SSD solution sales. He expects SSD controller sales growth because its NAND flash customers are now allocating NAND flash back towards client SSDs. The company is also expecting continued strong demand from PC OEMs. This strength will likely carry through to the end of the year.

After a very large second quarter eMMC+UFS controller sales, 3FQ20 will decline meaningfully before supposed to recover rapidly 4FQ20.

The firm believes recent smartphone and component inventory buildup will require a quarter's time to clear and this is supported by OEMs planning for solid third quarter smartphone shipment growth.

It is expecting flat SSD solutions sales in both the third and fourth quarters which is weaker than originally planned as China's data center operators are now broadly reducing capacity expansion plans due to uncertain economic outlook. Firm's Ali open channel SSD sales expectations remain unchanged, but have been revised down its standard NVMe SSD sales forecast.