Silicon Motion: Fiscal 4Q12 Financial Results

(in US$ million)	4Q11	4Q12	FY11	FY12
Revenues	67.1	70.6	224.3	281.4
*Growth*		5%		*25%*
Net income (loss)	12.2	7.9	41.5	47.2

Silicon Motion Technology Corporation announced its financial results for the quarter ended December 31, 2012.

For the fourth quarter of 2012, net sales decreased 8% quarter-over-quarter to $70.6 million from $77.1 million in the third quarter of 2012. Net income (non-GAAP) decreased in the fourth quarter to $12.4 million or $0.36 per diluted ADS from a net income of $18.7 million or $0.54 per diluted ADS in the third quarter of 2012.

Net income (GAAP) for the fourth quarter of 2012 decreased quarter-over-quarter to $7.9 million or $0.23 per diluted ADS from a net income of $15.6 million or $0.46 per diluted ADS in the third quarter of 2012.

Fourth Quarter 2012 Financial Review
Commenting on the results of the fourth quarter, Silicon Motion’s president and CEO, Wallace Kou, said: "2012 was a record year for us. We delivered our highest annual revenue and EPS in our company’s history. We had a solid finish to the year and executed well in transitioning our growth to our new growth products, primarily our eMMC controllers and LTE transceivers. In 2012, our new growth product sales grew almost 140% from the prior year and accounted for 31% of our total revenue.

"Our fourth quarter results were largely as expected and as communicated. Our overall quarterly revenue fell slightly, primarily due to third quarter’s accelerated sales of LTE transceivers to Samsung for its Galaxy S3 LTE smartphone sales that we had originally planned for the fourth quarter. Our eMMC controller sales were flat sequentially due to strong pre-holiday sales build in the third quarter. Controllers for our bundled card sales increased sequentially while our retail card controller sales declined. USB flash drive controller sales were up modestly.

"We believe that our business remains very well positioned for further growth led by our new growth products. We anticipate that sales of our eMMC 4.41 controllers, with which we have had tremendous success and are shipping to both Samsung and SK Hynix, will continue to grow strongly this year. Additionally, I am pleased to announce that our new eMMC 4.5 controller, an even higher performance and more cost competitive 55nm solution, has successfully taped out and is currently being sampled by our flash partners; we expect this product to enter mass production in the first quarter of 2013. Also, our new fifth generation LTE transceiver, a single die 55nm GSM/EDGE/HSPA/LTE solution that is higher performance and lower cost, is in final qualification with Samsung. We are honored to be Samsung’s LTE transceiver partner and are pleased with Samsung’s phenomenal success in bringing successive generations of world-class LTE smartphones and tablets to market."

Net sales in the fourth quarter of 2012 were $70.6 million, a decrease of 8% compared with the previous quarter. For the quarter, mobile storage products accounted for 75% of net sales and mobile communications 21% of net sales.

Net sales of our mobile storage products, which primarily include flash memory cards, USB flash drives, SSD and embedded flash controllers, increased slightly sequentially in the fourth quarter to $52.9 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, decreased 32% from the third quarter to $14.9 million in the fourth quarter of 2012.

Gross and Operating Margins Gross margin (non-GAAP) decreased to 44.6% in the fourth quarter from 46.4% in the third quarter of 2012. GAAP gross margin decreased to 43.0% in the fourth quarter from 46.3% in the third quarter of 2012.

Operating expenses (non-GAAP) were $17.8 million, which was higher than the $15.8 million expended in the third quarter. Research and development expenditures (non-GAAP) were $12.3 million, which was higher than the $10.0 million in the previous quarter. Selling and marketing expenses (non-GAAP) were $3.1 million, which was lower compared to the $3.6 million in the previous quarter. General and administrative expenses (non-GAAP) were $2.4 million, which was higher compared to the $2.2 million in the previous quarter. Stock-based compensation was $3.4 million in the fourth quarter, unchanged compared to the third quarter. There were no acquisition-related charges in the fourth quarter of 2012.

Operating margin (non-GAAP) was 19.5%, a decrease from 25.9% in the previous quarter. GAAP operating margin was 13.2% for the fourth quarter, a decrease from 21.5% in the third quarter.

Net total other income (non-GAAP) was $0.3 million, a slight decrease from $0.4 million in the third quarter. GAAP net total other income was $0.2 million, a decrease from a net total other income of $0.8 million in the third quarter. The increase in GAAP net total other income was primarily due to a foreign exchange gain in the third quarter of $0.4 million compared to a foreign exchange loss in the fourth quarter of less than $0.1 million.

Earnings Net income (non-GAAP) was $12.4 million for the fourth quarter of 2012, a decrease from $18.7 million in the third quarter. Diluted earnings per ADS (non-GAAP) were $0.36 in the fourth quarter, a decrease from $0.54 in the third quarter.

GAAP net income was $7.9 million for the fourth quarter, a decrease from the net income of $15.6 million in the third quarter. Diluted GAAP earnings per ADS in the fourth quarter were $0.23, a decrease from $0.46 in the previous quarter.

Cash and cash equivalents, and short-term investments increased to $169.6 million at the end of the fourth quarter of 2012 from $146.6 million at the end of the third quarter.

Business Outlook
Kou added: "For full year 2013, we believe we are well positioned to grow our revenue 10% to 20% led by our new growth products. In the first quarter, we expect our eMMC controller sales to grow sequentially and LTE sales to decrease as Samsung’s flagship smartphone and tablet models are in transition. Additionally, while our sales of card and USB flash drive controllers to module maker customers will be seasonally down as expected, our large OEM customer is rebalancing its card and wafer sales, and this will negatively affect our sales temporarily in the first quarter of 2013. In the second quarter, we expect our eMMC controller sales to continue growing, our LTE sales to pick-up, and our card and USB flash drive sales to rebound."

For the first quarter of 2013, management expects: