Silicon Motion: Fiscal 4Q11 Financial Results

Silicon Motion Technology Corporation announced its financial results for the quarter ended December 31, 2011.

For the fourth quarter of 2011, net sales increased 6% quarter-over-quarter to US$67.1 million from US$63.2 million in the third quarter of 2011.

Net income (non-GAAP) increased in the fourth quarter to US$16.1 million or US$0.47 per diluted ADS from a net income of US$13.6 million or US$0.40 per diluted ADS in the third quarter of 2011.

Net income (GAAP) for the fourth quarter decreased quarter-over-quarter to US$12.2 million or US$0.37 per diluted ADS from a net income of US$18.3 million or US$0.56 per diluted ADS in the third quarter of 2011.

Commenting on the results of the fourth quarter, Silicon Motion’s President and CEO, Wallace Kou, said: "We are excited to report that the US$67.1 million revenue for the fourth quarter and the US$224.3 million revenue for full year 2011 are the highest quarterly and annual revenue in the company’s history. Revenue for full year 2011 grew a strong 69% when compared to 2010. We delivered stellar sales this quarter while at the same time increasing gross margins. Our revenue this quarter benefited from continued strength of our mobile storage OEM business together with unexpected growth from our module maker business. These strengths more than offset the expected, temporary mobile communications slowdown in the quarter.

"Our mobile storage OEM sales increased by 35% sequentially and accounted for 50% of our overall flash controller sales in the fourth quarter as our NAND flash maker and tier-1 consumer electronics OEM customers ramped device sales for the year-end holiday season. In addition to strong OEM sales, our module maker sales also increased by a solid 10% sequentially as module makers took advantage of another quarter of benign NAND flash market conditions to build memory cards and USB flash drives for sales primarily targeting China and other emerging markets. Our investments in R&D for leading-edge controller technology continue to pay dividends as our ASPs increased by 6% sequentially and 13% compared to the fourth quarter 2010. Over 65% of our controller sales are for the 2X nm class of NAND flash, including controllers for the newest 19 to 21nm class of NAND flash. Sales of TLC controllers increased over 60% sequentially to account for almost 50% of our overall controller sales. We began mass production of our eMMC controllers in December and are progressing our projects with our NAND flash partners and module maker customers to ramp our eMMC revenue throughout 2012.

"As per our prior guidance, our mobile communications business declined as our LTE transceiver sales reverted this quarter to a more normalized rate of growth after Samsung’s accelerated product build in the third quarter. We are pleased with the growth of our LTE transceiver business last year and have already secured over five LTE design wins that are expected to enter mass production in the first half of 2012. We believe the product quality of and demand for Samsung’s next-generation LTE handsets and tablets remain unmatched in the marketplace and we are excited about our LTE transceiver growth in 2012. In the fourth quarter of 2011, Samsung began shipping the Galaxy Nexus handset to Verizon using our LTE and CDMA EV-DO transceivers. The Galaxy Nexus is one of the top selling handsets at Verizon Wireless."

Sales
Net sales in the fourth quarter were US$67.1 million, an increase of 6% compared with the previous quarter. For the quarter, mobile storage products accounted for 70% of net sales, mobile communications 22% of net sales and multimedia SoCs 4% 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 21% sequentially in the fourth quarter to US$47.0 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, decreased 28% from the third quarter of 2011 to US$14.6 million this quarter.

Net sales of multimedia SoC products, which are primarily embedded graphics processors, decreased 22% from the third quarter of 2011 to US$3.0 million in the fourth quarter.

Gross and Operating Margins
Gross margin (non-GAAP) increased to 49.8% in the fourth quarter from 49.4% in the third quarter of 2011. GAAP gross margin increased to 49.7% in the fourth quarter from 49.3% in the third quarter of 2011.

Operating expenses (non-GAAP) were US$16.6 million, which was higher than the US$14.8 million expended in the third quarter. Research and development expenditures (non-GAAP) were US$10.8 million, which was higher than the US$8.8 million in the previous quarter. Selling and marketing expenses (non-GAAP) were US$3.6 million, which was higher compared to the US$3.3 million in the previous quarter. General and administrative expenses (non-GAAP) were US$2.2 million, which was lower compared to the US$2.7 million in the previous quarter. Stock-based compensation was US$2.8 million in the fourth quarter, which was less than the US$2.9 million in the third quarter. There were no acquisition-related charges in the fourth quarter.

Operating margin (non-GAAP) was 25.1%, a decrease from 26.0% in the previous quarter. GAAP operating margin was 21.0% for the fourth quarter, a decrease from the 21.4% in the third quarter.

Other Income and Expenses Net total other income (non-GAAP) was US$0.2 million, unchanged from the third quarter. GAAP net total other expense was US$0.8 million, a decrease from a net total other income of US$7.8 million in the third quarter. The decrease in GAAP net total other income was primarily due to a foreign exchange loss in the fourth quarter of US$1.1 million compared to a foreign exchange gain in the third quarter of US$7.6 million.

Earnings Net income (non-GAAP) was US$16.1 million this quarter, an increase from US$13.6 million in the third quarter. Diluted earnings per ADS (non-GAAP) were US$0.47 in the fourth quarter, an increase from US$0.40 in the third quarter.

GAAP net income was US$12.2 million during the fourth quarter, a decrease from the net income of US$18.3 million in the third quarter. Diluted GAAP earnings per ADS in the fourth quarter were US$0.37, a decrease from US$0.56 in the previous quarter.

Balance Sheet
Cash, cash equivalents, and short-term investments increased to US$91.7 million at the end of the fourth quarter from US$69.8 million at the end of the third quarter of 2011.

During the fourth quarter of 2011, we had US$2.2 million of capital expenditures primarily relating to the purchase of testing equipment, software and design tools. 

Business Outlook
Silicon Motion’s President and CEO, Wallace Kou, added: "2011 was another outstanding year for Silicon Motion and we are excited and proud to have delivered a strong 69% revenue growth, especially when global economic conditions were challenging. We are therefore also excited about generating further growth in 2012 from our card controllers, as well as new growth products such as LTE transceivers and eMMC controllers. We believe our new growth products could account for about a quarter of our total revenue this year and perhaps more next year.

"For the current first quarter, we expect our overall mobile storage revenue to decline sequentially because of seasonal factors and stronger than expected module maker device build in the prior quarter. We believe that our LTE transceiver business should grow as new handset design-wins begin to ramp, which should partially offset mobile storage weakness."

For the first quarter of 2012, management expects:

• Revenue to be down 5% to 15% sequentially

• Gross margin (non-GAAP) to be in the 47% to 49% range
• Operating expenses (non-GAAP) of approximately US$15.5 to US$17.0 million

For the full year 2012, management expects:

• Revenue to be up 20% to 30% compared with full year 2011
• Gross margin (non-GAAP) to be in the 48% to 50% range
• Operating expenses (non-GAAP) of approximately US$65 to US$70 million