Silicon Motion: Fiscal 1Q12 Financial Results

Silicon Motion Technology Corporation announced its financial results for the quarter ended March 31, 2012.

For the first quarter of 2012, net sales decreased 4.7% quarter-over-quarter to $64.0 million from $67.1 million in the fourth quarter of 2011. Net income (non-GAAP) decreased in the first quarter to $14.0 million or $0.41 per diluted ADS from a net income of $16.1 million or $0.47 per diluted ADS in the fourth quarter of 2011.

Net income (GAAP) for the first quarter increased quarter-over-quarter to $13.0 million or $0.39 per diluted ADS from a net income of $12.2 million or $0.37 per diluted ADS in the fourth quarter of 2011.

First Quarter 2012 Financial Review
Commenting on the results of the first quarter, Silicon Motion’s President and CEO, Wallace Kou, said: "I am pleased to deliver our first quarter revenue at the high-end of our quarterly guidance. Our first quarter revenue of $64.0 million is 48% higher than the same period a year ago and is the highest first quarter revenue in the company’s history. This quarter, our eMMC controllers for a major NAND flash partner went into production and four new Samsung LTE smartphones using our LTE transceivers started selling to end consumers, sales from which helped propel a 20% sequential increase in our New Growth Products.

"Our mobile storage business and the OEM part of this business declined as seasonally expected. However, our module maker business was stronger than expected primarily because of increased availability of low-cost NAND flash for module makers to build bundled cards for Chinese OEMs targeting the growing low-cost smartphone market. Separately, we are excited to announce that our eMMC controllers for a NAND flash partner has entered mass production. These eMMC modules, including MCPs, using our controllers are now shipping in volume to several leading Asian handset OEMs for their smartphones, including some highly anticipated, high-end global flagship models. We have a number of new eMMC design wins for production in the second quarter and the second half of this year and now have design wins with seven smartphone OEMs. As a result, we believe that our eMMC is on track to deliver significant growth.

Our mobile communications business grew in the first quarter with increasing LTE transceiver sales. During the quarter, Sprint, Metro PCs, and US Cellular began sales of four new Samsung LTE smartphones using our LTE transceivers: the Galaxy Attain 4G, Galaxy S Aviator, Galaxy Tab 10.1, and Galaxy Nexus. We are excited about the outlook for our LTE business with Samsung and are pleased to announce that we now have a total of 11 design wins for 2012."

Sales
Net sales in the first quarter were $64.0 million, a decrease of 4.7% compared with the previous quarter. For the quarter, mobile storage products accounted for 72% of net sales, mobile communications 23% of net sales, multimedia SoCs 4% of net sales and other products accounted for 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, decreased 2% sequentially in the first quarter to $45.9 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, increased 3% from the fourth quarter of 2011 to $15.0 million this quarter.

Net sales of multimedia SoC products, which are primarily embedded graphics processors, decreased 10% from the fourth quarter of 2011 to $2.7 million in the first quarter.

Gross and Operating Margins
Gross margin (non-GAAP) decreased to 49.5% in the first quarter from 49.8% in the fourth quarter of 2011. GAAP gross margin decreased to 49.4% in the first quarter from 49.7% in the fourth quarter of 2011.

Operating expenses (non-GAAP) were $16.8 million, which was higher than the $16.6 million expended in the fourth quarter. Research and development expenditures (non-GAAP) were $10.4 million, which was lower than the $10.8 million in the previous quarter. Selling and marketing expenses (non-GAAP) were $3.5 million, which was lower compared to the $3.6 million in the previous quarter. General and administrative expenses (non-GAAP) were $2.9 million, which was higher compared to the $2.2 million in the previous quarter. Stock-based compensation was $1.6 million in the first quarter, which was less than the $2.8 million in the fourth quarter. There were no acquisition-related charges in the first quarter.

Operating margin (non-GAAP) was 23.3%, a decrease from 25.1% in the previous quarter. GAAP operating margin was 20.8% for the first quarter, a decrease from the 21.0% in the fourth quarter.

Other Income and Expenses
Net total other income (non-GAAP) was $0.3 million, higher than the fourth quarter amount of $0.2 million. GAAP net total other income was $0.9 million, an increase from a net total other expense of $0.8 million in the fourth quarter. The increase in GAAP net total other income was primarily due to a foreign exchange gain in the first quarter of $0.6 million compared to a foreign exchange loss in the fourth quarter of $1.1 million.

Earnings
Net income (non-GAAP) was $14.0 million this quarter, a decrease from $16.1 million in the fourth quarter. Diluted earnings per ADS (non-GAAP) were $0.41 in the first quarter, a decrease from $0.47 in the fourth quarter.

GAAP net income was $13.0 million during the first quarter, an increase from the net income of $12.2 million in the fourth quarter. Diluted GAAP earnings per ADS in the first quarter were $0.39, an increase from $0.37 in the previous quarter.

Balance Sheet
Cash, cash equivalents, and short-term investments increased to $94.7 million at the end of the first quarter from $91.7 million at the end of the fourth quarter of 2011.

Business Outlook:
Silicon Motion’s President and CEO, Wallace Kou, added: "Retail demand for memory cards and end demand for smartphones sold with bundled cards – other than those sold by certain OEMs – have been weak. We expect this weakness to impact our business in the second quarter. However, increasing sales of our New Growth Products should offset this weakness. We are excited about the ramp of our new eMMC controllers with our NAND flash partner and its smartphone OEM customers, as well as the continued growth of our Samsung LTE business. We expect our eMMC business with another NAND flash partner to begin mass production in late second quarter."

For the second quarter of 2012, management expects:

• Revenue to be up 0% to 10% sequentially
• Gross margin (non-GAAP) to be in the 48% to 50% range
• Operating expenses (non-GAAP) of approximately $17 to $18 million

Full-year 2012 guidance remains unchanged:

• 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 $65 to $70 million