Silicon Motion: Fiscal 2Q14 Financial Results

Silicon Motion Technology Corporation announced its financial results for the quarter ended June 30, 2014.

For the second quarter, net sales increased 31% quarter-over-quarter to $69.4 million from $52.8 million in the first quarter. Net income (non-GAAP) of $14.1 million or $0.41 per diluted ADS in the second quarter increased as compared to $5.4 million or $0.16 per diluted ADS in the first quarter.

GAAP net income for the second quarter increased quarter-over-quarter to $13.9 million or $0.41 per diluted ADS from a GAAP net income of $3.8 million or $0.11 per diluted ADS in the first quarter.

Second Quarter 2014 Financial Review
Commenting on the results of the second quarter, Silicon Motion’s president and CEO Wallace Kou said: “The second quarter was an outstanding quarter for the company as all our new growth products contributed to strong 31% sequential growth. Our SSD plus embedded revenue grew over 55% and accounted for well over 50% of total revenue. Within our SSD plus embedded products, both our eMMC controllers and SATA 3 client SSD controllers grew strongly. Our eMMC controllers grew 65% as one of our Korean NAND flash partners increased its global eMMC market share more rapidly than anticipated and our other NAND flash partner continued ramping its new TLC eMMC. Our eMMC controllers are now used in the devices manufactured by all of the top ten non-iOS smartphone OEMs, two more than last quarter. Our SSD controller sales also grew stronger than expected as our module maker customers aggressively marketed SSDs with our controllers to consumers. Additionally this quarter, we expanded our pipeline of SSD design-wins with OEMs by securing a new SSD platform-win targeting PC OEMs by our SSD OEM partner, a new NAND flash vendor customer and a new project with our first NAND flash OEM. We believe these new SSD and embedded controller businesses should scale through next year. In the second quarter, we began initial sales of our LTE-Advanced transceiver to our Korean handset partner and secured two additional design wins for mass production in the third quarter of this year.“

Sales
Net sales in the second quarter were $69.4 million, an increase of 31% compared with the first quarter. For the quarter, mobile storage products accounted for 85% of net sales and mobile communications 12% of net sales.

Net sales of our mobile storage products, which primarily include flash memory card, USB flash drive, SSD and embedded flash controllers, increased 30% sequentially in the second quarter to $58.8 million.

Net sales of mobile communications products, which primarily include handset transceivers and mobile TV IC solutions, increased 54% sequentially to $8.6 million in the second quarter.

Gross and Operating Margins
Gross margin (non-GAAP) increased to 52.2% in the second quarter as compared to 48.6% in the first quarter. GAAP gross margin increased in the second quarter to 52.2% as compared to 48.5% in the first quarter.

Operating expenses (non-GAAP) in the second quarter were $19.9 million, an increase from US$16.9 million in the first quarter. Operating margin (non-GAAP) was 23.5%, an increase from 16.7% in the previous quarter. GAAP operating margin was 22.7% for the second quarter, an increase from 14.2% in the first quarter.

Other Income and Expenses
Net total other income (non-GAAP) was $0.5 million, unchanged from the first quarter. GAAP net total other income was $1.0 million, an increase from $0.2 million in the first quarter.

Earnings
Net income (non-GAAP) was $14.1 million for the second quarter, an increase from $5.4 million in the first quarter. Diluted earnings per ADS (non-GAAP) were $0.41 in the second quarter, an increase from $0.16 per ADS in the first quarter.

GAAP net income was $13.9 million for the second quarter, an increase from $3.8 million in the first quarter. Diluted GAAP earnings per ADS in the second quarter were $0.41, an increase from $0.11 per ADS in the previous quarter.

Balance Sheet
Cash and cash equivalents, and short-term investments increased at the end of the second quarter to $160.9 million from $158.6 million at the end of the first quarter.

During the second quarter, the company had $1.5 million of capital expenditures primarily relating to the purchase of software and design tools.

Returning Value to Shareholders
On April 22, 2014 the board of directors declared a $0.15 per ADS quarterly dividend. On May 16, the company paid $5.0 million as dividend payments to its shareholders.

Business Outlook:
Kou, added: “While we are pleased with our robust 2014 year-to-date performance and our expectations for the balance of this year, we are also looking forward to 2015 and are excited by our growing pipeline of SATA 3 client SSD and eMMC design-wins at major OEMs. We believe that we will increase our eMMC controller market share to 25% this year and have secured new programs with our NAND flash partners to drive strong continued eMMC growth next year. We now have one SSD OEM and two NAND flash partners with multiple new SSD program-wins that we believe will all start ramping in 1H 2015.”

For the third quarter of 2014, management expects:

• Revenue to increase 15% to 20% sequentially
• Gross margin (non-GAAP) to be in the 50% to 52% range
• Operating expenses (non-GAAP) of approximately US$21 to US$23 million

For the full year 2014, management expects:

• Revenue to increase 22% to 27% year-over-year
• Gross margin (non-GAAP) to be in the 49.5% to 51.5% range
• Operating expenses (non-GAAP) of approximately $78 to $80 million