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Silicon Motion’s Preliminary Results Disappoint, Stock Down

Zacks

Shares of Silicon Motion Technology Corp SIMO fell more than 6% to close at $44.70 on Jul 7, following the company’s second-quarter 2017 preliminary results. The company now anticipates revenues to be slightly below the original guided range of $134–$140 million issued on Apr 28.

The disappointing revenue guidance reflects continuing NAND memory supply constraints that adversely impacted client SSD controllers’ revenues. Silicon Motion’s original revenue guidance range reflected 5–10% growth on a sequential basis. The anticipated growth was based on strong demand for embedded storage products (80% of revenues) in addition to industrial and hyper-scale SSD solutions.

Moreover, gross margin is now expected to be at the low-end of the company's original range of 48.5–50.5%, which apparently reflects increasing impact from higher NAND prices.

In the original guidance, operating margin was projected to be in the range of 25.5–27.5%. Operating expenses were anticipated to be similar to $31 million reported in the first quarter.

Silicon Motion Technology Corporation Revenue (TTM)


Silicon Motion Technology Corporation Revenue (TTM) | Silicon Motion Technology Corporation Quote

Silicon Motion Underperforms

We note that since first-quarter 2017 results (Apr 28, 2017), Silicon Motion shares have decreased 7.9%, massively underperforming the Zacks Electronic-Semiconductor industry’s gain of 4.9%. The disappointing preliminary results will keep the stock price under pressure in the near term.



We believe that any shortfall in revenues in the second-quarter will negatively impact full-year 2017 guidance. The company had projected revenues to increase 0–10% over 2016 to $556–$612 million driven by significant improvements in NAND flash supply in the second-half 2017.

Nevertheless, we expect share price to rebound in the second half on the back of strategic product launches like the new SD 6.0 controller solutions.

Zacks Rank & Key Picks

Silicon Motion carries a Zacks Rank #3 (Hold). Broadcom Limited AVGO, Applied Optoelectronics AAOI and Advanced Micro Devices AMD are better-ranked stocks in the sector. While Broadcom sports a Zacks Rank #1 (Strong Buy), both Applied Optoelectronics and AMD carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Broadcom, Applied Optoelectronics and AMD are currently pegged at 13.6%, 18.8% and 6.3%, respectively.

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