Chipmaker Silicon Motion (SIMO 2.93%) reported third-quarter results this Tuesday evening. The company, which focuses on controllers for solid-state storage devices (SSD) and radio-frequency circuits for mobile connectivity, posted solid surprises on both the top and bottom lines. Moreover, management set up fourth-quarter sales guidance far above the current Street view. It's no surprise to see Silicon Motion's shares closing Wednesday's trading session 11.2% higher.
Here's a closer look at the company's results.
Silicon Motion's third-quarter results by the numbers
|
Metric |
Q3 2019 |
Q3 2018 |
Change |
|---|---|---|---|
|
Revenue |
$110.5 million |
$138.6 million |
(20%) |
|
GAAP net income |
$4.21 million |
$29.2 million |
(86%) |
|
Adjusted earnings per American depositary receipt (diluted) |
$0.69 |
$0.96 |
(28%) |
Data source: Silicon Motion. GAAP = generally accepted accounting principles.
What's up with Silicon Motion?
- Your average analyst would have settled for adjusted earnings near $0.56 per ADR on roughly $108.5 million in top-line revenues, and Silicon motion exceeded both of these targets by a respectable margin.
- The results may be impressive in comparison to analyst projections, but we're still talking about sales falling 20% year over year while the most forgiving measure of earnings dropped by 28%. However, Silicon Motion may have seen the worst of a deep trough here. Compared to the second quarter, the company showed a sequential sales growth of 20% and a 33% improvement in adjusted earnings per ADR.
- On the second-quarter earnings call three months ago, CEO Wallace Kou said he expected to have seen the worst of the latest market downturn and a decent sequential bounce in many ways. Kou also noted that the improvement should continue in 2020 as flagship smartphones start to ship with his company's latest eMMC+UFS controller chips. These controllers offer much faster read and write speeds than the previous generation's solutions, setting the stage for both larger and faster mobile storage solutions.
- This solid earnings report arrived a couple of days after Silicon Motion boosted its dividend payouts by 17%. Starting with the payout on Nov. 21 to shareholders of record as of Nov. 7, each ADR will pay out $1.40 per year in four quarterly installments. At current prices, that works out to a generous dividend yield of 3.2%.
Image source: Getty Images.
What management wanted to say
In this earnings call, Kou provided the following background for Silicon Motion's return to sequential sales growth and expectations of year-over-year improvements in the coming quarters.
"In Q3, SSD controller sales, which continued to account for well over half of total sales, grew approximately 15% sequentially and achieved a new quarterly company sales record," he said. "Our client SSD controller sales benefited from favorable NAND flash market conditions, rapid client SSD adoption, our controller tech leadership, and our strong, diversified base of customers."
Inventory overload has largely been cleared out of the company's distribution and customer networks, resulting in an order pipeline that supports the sequential growth extending from this year into 2020.
"Lower dollar-per-gigabyte NAND prices have created more market demand, and more balanced industry supply demand dynamics have helped stabilize market conditions and visibility for business activity through the industry's food chain," Kuo said.
Looking ahead
Silicon Motion expects fourth-quarter sales to continue the sequential uptrend, landing near $136 million. Hitting that target would amount to a 10% year-over-year increase as well.
The stock now trades 41% above its annual lows and just 8% below the 52-week highs. You can pick up shares at a fairly reasonable 14 times forward earnings, and don't forget about that juicy 3.2% dividend yield. If the business improvements work out as Kou expects in 2020 and beyond, Silicon Motion could be a great buy for long-term investors right here.
