Silicon Motion: Fiscal 4Q13 Financial Results

Silicon Motion Technology Corporation announced its financial results for the quarter ended December 31, 2013.

Fourth Quarter 2013 Financial Highlights

• Net sales decreased 8% quarter-over-quarter to $52.5 million from $57.1 million in 3Q13
• Gross margin (non-GAAP) was unchanged at 48.8% as compared to 3Q13
• Operating expenses (non-GAAP) decreased to $13.8 million from $14.9 million in 3Q13
• Operating margin (non-GAAP) decreased to 22.5% from 22.7% in 3Q13
• Diluted earnings per ADS (non-GAAP) decreased to $0.30 from $0.32 in 3Q13

Business Highlights

• New LTE-Advanced transceiver undergoing final stage of testing and qualification at Samsung
• Expect to begin sales of our new TLC eMMC 4.5 controller to a third NAND flash partner in the first quarter
• Added 18 additional wins for our eMMC 4.5 controller including two Windows 8 tablets and upcoming global flagship Android devices
• Commercial sampling of our eMMC 5.0 controller (2-3x better IO/s performance as compared to eMMC 4.5) and on-track to begin mass production in the first quarter
• SM2246EN won key projects at major OEM for SATA 3 client SSDs being developed for several global PC vendors’ notebook PCs

For the fourth quarter of 2013, net sales decreased 8% quarter-over-quarter to $52.5 million from $57.1 million in the third quarter of 2013. Net income (non-GAAP) of $10.2 million or $0.30 per diluted ADS in the fourth quarter of 2013 decreased slightly as compared to $10.8 million or $0.32 per diluted ADS in the third quarter of 2013.

GAAP net income for the fourth quarter of 2013 decreased quarter-over-quarter to $5.4 million or $0.16 per diluted ADS from a GAAP net income of $9.6 million or $0.29 per diluted ADS in the third quarter of 2013.

Commenting on the results of the fourth quarter, Silicon Motion’s president and CEO Wallace Kou said: “In the fourth quarter, our revenue declined 8% as expected, with our controller sales declining a milder 3% and RF IC sales declining faster due to the end-of-life of previous generation LTE transceivers and weak mobile TV SoC sales. Our SSD plus embedded sales declined due to seasonally weak eMMC controller sales. Our SSD plus embedded sales however increased about 70% year-over-year. We completed final stages of testing and qualifications at our third NAND flash partner and will begin eMMC sales to this customer in the first quarter. We have also made steady progress towards scaling our SATA 3 client SSD controller sales by securing a win at an important OEM that is developing SSDs with our controllers targeting global tier-one PC vendors. SSD plus embedded controllers became our largest product line earlier this year and accounted for roughly 50% of all our controller sales in the fourth quarter. We are excited about the progress we have been making in transitioning away from removable storage controllers for mature markets towards SSD plus embedded controllers for growth markets and look forward to updating you on our continuing progress and new design wins.

“I am pleased to announce that the testing of our new LTE-Advanced transceiver paired with Samsung’s new LTE-Advanced baseband is nearing completion for our first flagship win at Samsung’s 2014 smartphone lineup.”

Sales
Net sales in the fourth quarter were $52.5 million, a decrease of 8% compared with the third quarter. For the quarter, mobile storage products accounted for 89% of net sales and mobile communications 7% of net sales.

Net sales of mobile storage products, which primarily include flash memory card, USB flash drive, SSD and embedded flash controllers, decreased 3% sequentially in the fourth quarter to $46.9 million.

Net sales of mobile communications products, which primarily include handset transceivers and mobile TV IC solutions, decreased 41% from the third quarter to $3.8 million in the fourth quarter.

Gross and Operating Margins
Gross margin (non-GAAP) was unchanged at 48.8% in the fourth quarter as compared to the third quarter. GAAP gross margin decreased slightly to 48.5% in the fourth quarter from 48.7% in the third quarter.

Operating expenses (non-GAAP) in the fourth quarter were $13.8 million, a decrease from the $14.9 million expended in the third quarter. Operating margin (non-GAAP) was 22.5%, a decrease from 22.7% in the previous quarter. GAAP operating margin was 13.2% for the fourth quarter, a decrease from 20.0% in the third quarter.

Other Income and Expenses
Net total other income (non-GAAP) was $0.5 million, a slight increase from the $0.4 million in third quarter. GAAP net total other income was $0.6 million, a slight decrease from the $0.7 million in the third quarter.

Earnings
Net income (non-GAAP) was $10.2 million for the fourth quarter, a slight decrease from $10.8 million in the third quarter. Diluted earnings per ADS (non-GAAP) were $0.30 in the fourth quarter, a slight decrease from $0.32 per ADS in the third quarter.

GAAP net income was $5.4 million for the fourth quarter, a decrease from a net income of $9.6 million in the third quarter. Diluted GAAP earnings per ADS in the fourth quarter were $0.16, a decrease from $0.29 per ADS in the previous quarter.

Balance Sheet
Cash and cash equivalents, and short-term investments of $162.5 million at the end of the fourth quarter was a decrease from $163.4 million at the end of the third quarter.

Business Outlook
Silicon Motion’s president and CEO, Wallace Kou, added: “2013 was a transitional year. In 2014, with our SSD plus embedded products now our largest product line and targeting growth markets, we believe that we are well positioned for renewed growth. We currently anticipate, however, that revenues in the first quarter will decline due primarily to seasonal weak card and USB flash drive sales. Sales will recover as the year progresses when new eMMC programs ramp, eMMC sales to our third flash partner scale, and our SATA 3 SSD controllers enter the global PC OEM food chain. We expect to successfully complete testing of our new LTE-Advanced transceiver with Samsung and begin shipments for their new flagship smartphone in the second quarter.”

For the first quarter of 2014, management expects:

• Revenue to be down 0% to 10% sequentially
• Gross margin (non-GAAP) to be in the 48% to 50% range
• Operating expenses (non-GAAP) of approximately $16 to $18 million

For the full year 2014, management expects:

• Revenue to increase 5% to 15% as compared to full-year 2013
• Gross margin (non-GAAP) to be in the 48% to 50% range
• Operating expenses (non-GAAP) of approximately $70 to $75 million