Silicon Motion: Fiscal 2Q11 Financial Results

(in US$ millions)	2Q10	2Q11	6 mo. 10	6 mo. 11
Revenues	32.5	50.5	58.5	93.9
*Growth*		55%		*61%*
Net income (loss)	2.2	4.5	0.1	11.0

2Q11 Financial Highlights

Net sales increased 16% quarter-over-quarter to US$50.5 million from US$43.4 million in 1Q11
Gross margin excluding stock-based compensation increased to 46.9% from 46.2% in 1Q11
Operating expenses excluding stock-based compensation, acquisition-related charges, and other items decreased to US$13.1 million from US$13.4 million in 1Q11
Operating margin excluding stock-based compensation, acquisition-related charges, and other items increased to 21.1% from 15.5% in 1Q11
Diluted earnings per ADS excluding stock-based compensation, acquisition-related charges, net foreign exchange gain (loss), and other items increased to US$0.29, from US$0.18 in 1Q11

2Q11 Business Highlights
Sixth consecutive quarter of revenue growth

Second highest quarter of revenue in the Company’s history
Total storage controller unit shipments declined 3% sequentially but increased 41% year-over-year
Blended storage controller ASPs increased 12% sequentially
Increased OEM business 40% sequentially to about 50% of mobile storage revenue
Increased 3-bits per cell (TLC) controller revenue 45% sequentially to over 35% of all controller revenue
Won 3 of the top 6 channel vendors for ultra high speed SD UHS-I card business
Over 12 eMMC controller design wins for smartphones and tablets, with majority for the Android platform
Began shipping our 4G LTE transceiver for the world’s first Android LTE tablet

Silicon Motion Technology Corporation announced its second quarter of 2011 financial results.

For the second quarter of 2011, net sales increased 16% quarter-over-quarter to US$50.5 million from US$43.4 million in the first quarter of 2011. Net income (GAAP) for the second quarter decreased quarter-over-quarter to US$4.5 million or US$0.14 per diluted ADS from a net income of US$6.4 million or US$0.21 per diluted ADS in the first quarter of 2011.

Net income excluding stock-based compensation, acquisition-related charges, foreign exchange gain (loss), and other items increased in the second quarter to US$9.9 million or US$0.29 per diluted ADS from a net income of US$5.8 million or US$0.18 per diluted ADS in the first quarter of 2011.

Second Quarter 2011 Financial Review
Commenting on the results of the second quarter, Silicon Motion’s President and CEO, Wallace Kou, said: "We are excited to report that our US$50.5 million of revenue this quarter represents the second biggest quarter of revenue in our history. For us, the achievement of this milestone demonstrates that the strategies and investments which we have made in the last two years are bearing solid results, whether relating to our mobile storage or mobile communications products.

"Our mobile storage business experienced its sixth consecutive quarter of solid growth momentum as our second quarter revenue increased 9% sequentially. This quarter, our ASPs increased 12% sequentially, and on an annual basis, our ASPs have also been growing for six consecutive quarters. These achievements are the result of our OEM strategy, emphasis on higher value-added products, and focus on new SSD+embedded solutions. Sales to our flash maker customers and other OEMs increased 40% sequentially and accounted for about half of all mobile storage sales, up from about 40% in the prior quarter. Sales of our TLC controllers, which are ideally suited for cards bundled with smartphones, increased 45% and now accounted for over 35% of all our controller sales. Well over 50% of our controllers sold are used in the management of the latest 2x nm NAND flash, whether MLC or TLC – a strong endorsement by customers of our technological excellence. Our SSD+embedded solutions grew 30% sequentially as our sales of controllers for low density industrial and networking storage applications rebounded. For our eMMC solutions, we are currently executing over 12 projects for applications, such as Android smartphones and tablets. We continue to believe in the prospects for significant growth in 2012 from our SSD+embedded business.

"Our mobile communications segment delivered a phenomenal 55% sequential revenue growth, largely as a result of a rebound in mobile TV IC sales relating to Korea T-DMB market share gains and a continued ramp of our 4G LTE transceivers for Samsung Android phones, currently rolling out at Verizon and MetroPCS in the U.S. We have also started shipping our 4G LTE transceiver for the world’s first Android LTE tablet."

Sales
Net sales in the second quarter were US$50.5 million, an increase of 16% compared with the previous quarter. For the quarter, mobile storage products accounted for 67% of net sales, mobile communications 25% of net sales, multimedia SoCs 7% of net sales, and others 1% of net sales.

Net sales of our mobile storage products, which primarily include flash memory cards, USB flash drives, SSD and embedded flash controllers, increased 9% sequentially in the second quarter to US$33.9 million.

Net sales of mobile communication products, which primarily include mobile TV IC solutions and handset transceivers, increased 55% from the first quarter of 2011 to US$12.8 million this quarter.

Net sales of multimedia SoC products, which are primarily embedded graphics processors, increased 10% from the first quarter of 2011 to US$3.5 million this quarter.

Gross and Operating Margins
Gross margin excluding stock-based compensation increased to 46.9% in the second quarter from 46.2% in the first quarter of 2011. GAAP gross margin increased to 46.8% from 46.2% in the first quarter of 2011.

Operating expenses excluding stock-based compensation, acquisition-related charges, and other items were US$13.1 million, which was lower than the US$13.4 million expended in the first quarter. Research and development expenditures, excluding stock-based compensation, were US$7.7 million, which was lower than the US$8.1 million in the previous quarter. Selling and marketing expenses excluding stock-based compensation were US$2.9 million, which was higher compared to the US$2.7 million reported in the previous quarter. General and administrative expenses excluding stock-based compensation and litigation expenses were US$2.5 million, which was comparable to our previous quarter. Stock-based compensation was US$2.4 million in the second quarter, which was higher than the US$0.8 million in the first quarter. Acquisition-related charges were US$0.2 million, a decrease from the US$0.6 million in the first quarter.

Operating margin excluding stock-based compensation, acquisition-related charges, and other items was 21.1%, an increase from 15.5% in the previous quarter. GAAP operating margin was 15.9%, an increase from the 12.3% in the first quarter.

Other Income and Expenses
Net total other income excluding net foreign exchange gain or loss, and other items was US$0.1 million, similar to the first quarter. GAAP net total other income was a loss of US$2.7 million, a decrease from a gain of US$2.1 million in the first quarter. The decrease in the GAAP total other income was primarily due to a foreign exchange loss in the second quarter of US$2.8 million compared to a foreign exchange gain in the first quarter of US$2.0 million.

Earnings
Net income excluding stock-based compensation, acquisition-related charges, net foreign exchange gain or loss, and other items was US$9.9 million this quarter, an increase from US$5.8 million in the first quarter. Diluted earnings per ADS excluding stock-based compensation, acquisition-related charges, net foreign exchange gain or loss, and other items were US$0.29, an increase from US$0.18 in the first quarter.

GAAP net income was US$4.5 million, a decrease from the net income of US$6.4 million in the first quarter. Diluted GAAP earnings per ADS were US$0.14, a decrease from US$0.21 in the previous quarter.

Balance Sheet
Cash, cash equivalents, and short-term investments decreased to US$55.1 million from US$57.6 million at the end of the first quarter of 2011.

Business Outlook:
Silicon Motion’s President and CEO, Wallace Kou, added: "The second quarter exceeded our expectations as strong OEM sales more than offset weak module maker sales. We continue to believe that while NAND flash industry supply will continue to increase in the second half of 2011, incremental supply of flash could be consumed by growing demand for smartphones, tablets, and SSDs, and less by module makers for the retail market. Our rapidly growing OEM sales currently cater primarily to the increasing demand for cards bundled with smartphones, as well as low density SSD+embedded solutions. Because of the strength of our business year-to-date, we are increasing our full year guidance and believe we are on track to delivering the largest annual revenue in the Company’s history."

For the third quarter of 2011, management expects:

Revenue to be down 5% to up 5% sequentially
Gross margin excluding stock-based compensation to be in the 46% to 48% range
Operating expenses excluding stock-based compensation, acquisition-related charges, and other items of approximately US$14 to US$16 million

For the full year 2011, management is increasing guidance
as previously announced in April and now expects:

Revenue to be up 40% to 50% compared with full year 2010

Gross margin excluding stock-based compensation to be in the 46% to 48% range
Operating expenses excluding stock-based compensation, acquisition-related charges, and other items of approximately US$55 to US$58 million