Silicon Motion: Fiscal 1Q15 Financial Results

Silicon Motion Technology Corporation announces its financial results for financial quarter ended March 31, 2015.

Financial Highlights

• Net sales increased to $80.6 million from $80.5 million in 4Q14
• Gross margin (non-GAAP1) decreased to 52.0% from 52.5% in 4Q14
• Operating expenses (non-GAAP) increased to $22.5 million from $21.4 million in 4Q14
• Operating margin (non-GAAP) decreased to 24.1% from 26.0% in 4Q14
• Diluted earnings per ADS (non-GAAP) decreased to $0.48 from $0.53 in 4Q14

Business Highlights

• Announced the agreement to acquire Shannon Systems, China’s leading enterprise PCIe SSD and storage array solutions provider
• SSD controller sales doubled sequentially and is now over 10% of corporate revenue
• SSD controller shipments increased to over one million units a month in March
• Two additional PC OEMs using SSDs with our controllers, increasing the total to five PC OEMs
• Began shipping FerriSSD to a major German luxury automobile maker’s infotainment system

Net income (non-GAAP) decreased quarter-over-quarter to $16.6 million or $0.48 per diluted ADS from a net income (non-GAAP) of $18.5 million or $0.53 per diluted ADS in the fourth quarter.

GAAP net income for the first quarter increased to $15.5 million or $0.44 per diluted ADS from a GAAP net income of $12.1 million or $0.35 per diluted ADS in the fourth quarter.

Commenting on the results of the first quarter,  president and CEO Wallace Kou said: “We are off to a solid start in 2015. Our first quarter revenue benefited from strong client SATA 3 SSD controller sales momentum and stable eMMC controller sales. Client SSD controller sales doubled sequentially, now account for over 10% of our corporate revenue and shipments increased to over a million units a month in March. This quarter, our module maker customers aggressively built SSDs for channel markets. Micron and another NAND flash partner ramped sales of their SSDs with our controllers to both channel and OEM markets, and we expect a new major SSD program with our controllers, again for both channel and OEM markets, to begin shipping in the second quarter. Our storage OEM partner began shipping SSDs to three global tier-1 PC OEMs in the first quarter and recently started shipping to two additional OEMs. Our overall embedded products sales rebounded to well over half of total sales.

“Separately, I am excited to announce that we have entered into an agreement to acquire Shannon Systems, a leading supplier of innovative enterprise PCIe SSD and storage array solutions to China’s e-commerce, cloud computing and other industries. With this acquisition, which we anticipate closing in the next few months, we will supply enterprise-grade SSDs to the internet companies that operate in the world’s largest internet market.”

Sales
Net sales in the first quarter were $80.6 million, a slight increase compared with the fourth quarter. For the quarter, mobile storage products accounted for 79% of net sales and mobile communications 19% of net sales.

Net sales of our mobile storage products, which primarily include eMMC, SSD, memory card and USB flash drive controllers, decreased 3% sequentially in the first quarter to $63.6 million.

Net sales of mobile communications products, which primarily include LTE transceivers and mobile TV IC solutions, increased 14% sequentially to $15.2 million in the first quarter.

Gross and Operating Margins
Gross margin (non-GAAP) decreased to 52.0% in the first quarter as compared to 52.5% in the fourth quarter. GAAP gross margin decreased in the first quarter to 52.0% as compared to 52.4% in the fourth quarter.

Operating expenses (non-GAAP) in the first quarter were $22.5 million, an increase from $21.4 million in the fourth quarter. Operating margin (non-GAAP) was 24.1%, a decrease from 26.0% in the previous quarter. GAAP operating margin was 22.1% for the first quarter, an increase from 20.9% in the fourth quarter.

Earnings
Net income (non-GAAP) was $16.6 million for the first quarter, a decrease from $18.5 million in the fourth quarter. Diluted earnings per ADS (non-GAAP) were $0.48 per ADS in the first quarter, a decreased from $0.53 per ADS in the fourth quarter of 2014.

GAAP net income was $15.5 million for the first quarter, an increase from $12.1 million in the fourth quarter. Diluted GAAP earnings per ADS in the first quarter were $0.44, an increase from $0.35 per ADS in the fourth quarter.

Balance Sheet
Cash and cash equivalents, and short-term investments increased at the end of the first quarter to $200.5 million from $194.9 million at the end of the fourth quarter.

Returning Value to Shareholders
On January 26, 2015 the board of directors of the company declared a $0.15 per ADS quarterly dividend. On February 20, we recorded $5.2 million as dividend payments to our shareholders.

Business Outlook:
Silicon Motion’s president and CEO, Wallace Kou, added:” The fundamentals of our business have never been stronger and we are excited about starting the next chapter of our growth. We believe that we are gaining share in the client SSD controller market and rapidly winning sockets and new designs with a broad range of OEMs. We remain on track to grow our market leading eMMC business as previously communicated. And with the proposed addition of Shannon Systems, we will be entering the world’s largest internet market and will become one of the leading suppliers of enterprise SSDs to leading Chinese internet companies.“

For the second quarter of 2015, management expects:

• Revenue to increase 5% to 10% sequentially
• Gross margin (non-GAAP) to be in the 50% to 52% range
• Operating expenses (non-GAAP) of approximately $23 to $24 million

For the full-year 2015, management expects:

• Revenue to increase 17% to 25% as compared to full-year 2014
• Gross margin (non-GAAP) to be in the 49.5% to 51.5% range
• Operating expenses (non-GAAP) of approximately $91 to $97 million

To hear the earnings call webcast