Silicon Motion: Fiscal 3Q22 Financial Results

• Sales declined 1% Q/Q and Y/Y
• SSD controller sales declined 15% to 20% both Q/Q and Y/Y
• eMMC+UFS controller sales increased 5% to 10% both Q/Q and Y/Y
• SSD solutions sales declined 5% to 10% Q/Q and increased 15% to 20% Y/Y
• Demo’d MonTitan enterprise PCIe Gen5 SM8366 SSD controller at OCP Global Summit
• On August 31, security holders at the company’s EGM approved acquisition by MaxLinear; closing of the transaction is subject to certain customary closing conditions, including regulatory approval from SAMR.

Silicon Motion Technology Corporation announced its financial results for the quarter ended September 30, 2022.

For 3FQ22, net sales declined 1% sequentially to $250.8 million from $254.2 million in 2FQ22. Net income (GAAP) declined to $42.9 million or $1.29 per diluted American Depositary Share (ADS) (GAAP) from net income (GAAP) of $51.6 million or $1.55 per diluted ADS (GAAP) in 2FQ22. For 3FQ22, net income (non-GAAP) declined to $51.2 million or $1.53 per diluted ADS (non-GAAP) from net income (non-GAAP) of $62.8 million or $1.88 per diluted ADS (non-GAAP) in 2FQ22.

Wallace Kou, president and CEO, commented: “Our customers continue to emphasize that end markets for PC and smartphone remain challenging, especially sales of SSDs in the channel market and this has been affecting our controller sales. Year-to-date, SSD controller sales have been flat Y/Y. Sales into the OEM market are holding up much better. Year-to-date, sales of SSD controllers into the OEM market have grown about 50% Y/Y, while sales to the channel market have declined about 40%. As we had previously communicated, we have extensive design wins of PCIe Gen 4 SSD controllers for PC OEMs and the ramp of these projects is driving the strength of this part of our business. In the previous quarter, sales of Gen 4 controllers were already over half of all SSD controller sales and this significance increased further in 3FQ22. While end-markets for channel market SSDs, including retailers, e-tailers and systems integrators, remain soft, especially in China, we are beginning to see some improvement in activity by module makers. NAND flash markers are beginning to off-load excess NAND inventory to module makers and we believe this trend could improve further in upcoming quarters.  

“We are making excellent progress with our MonTitan enterprise PCIe Gen5 SSD controller. At the recent OCP Global Summit, we demonstrated our SSD reference designs with our layered firmware stack, which has been validated with our NAND partners’ flash.  We have good early engagements with potential customers, expect to begin sampling early next year and aim to be production ready towards the end of 2023.

“For our eMMC+UFS controllers, year-to-date sales have grown by about a third Y/Y, with both eMMC and UFS controllers growing and eMMC growing about twice as fast. Growth has been driven by trends we had previously discussed, including favorable controller outsourcing and working with NAND flash makers with competitive market positions.

“Gross margin in 3FQ22 decreased due to shifting product mix and pricing concessions. We expect overall sales to remain flat as we approach the end of the year.”

During the 3FQ2222, the firm had $8.6 million of capital expenditures, including $7.4 million for the routine purchase of testing equipment, software, design tools and other items, and $1.2 million for building construction in Hsinchu, Taiwan.

Returning Value to Shareholders
On October 25, 2021, the board of directors declared a $2.00 per ADS annual dividend to be paid in quarterly installments of $0.50 per ADS. On August 25, 2022, the company paid $16.5 million to shareholders as the fourth and final installment of the annual dividend.

Acquisition Update
On May 5, 2022, Silicon Motion agreed to be acquired by MaxLinear, Inc. with Silicon Motion ADS holders to receive $93.54 in cash and 0.388 shares of common stock, par value $0.0001, of MaxLinear for each ADS that they hold. On June 27, 2022, the transaction’s waiting period under Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired and, unless the transaction closes after June 27, 2023, no further approval is required under the HSR Act. On August 31, 2022, security holders at Silicon Motion’s Extraordinary General Meeting approved the transaction. In September, 2022, MaxLinear and Silicon Motion, which had previously filed with China’s State Administration for Market Regulation (SAMR) under the simplified procedures, refiled under the normal procedures as advised by SAMR. The 2 companies cannot predict with certainty the length of review under the normal procedure, but both parties continue to expect a final determination by SAMR in the second or third quarter of 2023. Closing of the transaction is subject to certain customary closing conditions, including regulatory approval from SAMR and, if closing occurs after June 27, 2023, an additional filing under the HSR Act.