Silicon Motion: Fiscal 1Q13 Financial Results

Silicon Motion Technology Corporation
announced its financial results for the quarter ended March 31, 2013.

For the first quarter of 2013, net sales decreased 19% quarter-over-quarter to $57.4 million from $70.6 million in the fourth quarter of 2012.

Net income (non-GAAP) decreased in the first quarter to $6.0 million or $0.17 per diluted ADS from a net income of $12.4 million or $0.36 per diluted ADS in the fourth quarter of 2012.

Net income (GAAP) for the first quarter of 2013 decreased quarter-over-quarter to $4.8 million or $0.14 per diluted ADS as compared to a net income of $7.9 million or $0.23 per diluted ADS in the fourth quarter of 2012.

Commenting on the results Silicon Motion’s president and CEO, Wallace Kou, said: "In the first quarter, our eMMC controller sales grew much stronger than expected, increasing nearly 30% sequentially. Our SSD plus embedded products group, of which eMMC is a part, now accounts for well over a quarter of our total sales. We have been successful with our high performance, cost competitive controllers, enabling our flash partners to grow the embedded market and capture market share at both tier-1 smartphone OEMs, as well as in the fast growing China low-cost smartphone market. Eight out of the world’s ten largest (non-iOS) smartphone OEMs are already using eMMC embedded memory with our controllers.

The strength of our SSD plus embedded business was however offset by the temporary weakness in several of our other key products. Our LTE sales declined as Samsung products are in cyclical transition. The first quarter is typically seasonally weak for our card and UFD controller sales to our module maker customers, and our first quarter sales this year followed the same pattern. In addition, in the first quarter, we were affected by the rebalancing of our large OEM customer’s card sales. We believe that we are well positioned for renewed growth as these temporary factors unwind and our SSD plus embedded products continue their growth."

Net sales in the first quarter of 2013 were $57.4 million, a decrease of 19% compared with the previous quarter. For the quarter, mobile storage products accounted for 76% of net sales and mobile communications 21% of net sales.

Net sales of mobile storage products, which primarily include flash memory cards, USB flash drives, SSD and embedded flash controllers, decreased 18% sequentially in the first quarter of 2013 to $43.4 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, decreased 20% from the fourth quarter to $12.0 million in the first quarter of 2013.

Gross margin (non-GAAP) decreased to 41.0% in the first quarter of 2013 from 44.6% in the fourth quarter of 2012. GAAP gross margin increased to 43.8% in the first quarter of 2013 from 43.0% in the fourth quarter of 2012.

Operating expenses (non-GAAP) in the first quarter of 2013 were $15.6 million, which was lower than the $17.8 million expended in the fourth quarter of 2012. R&D expenditures (non-GAAP) were $10.1 million, which was lower than the $12.3 million in the previous quarter. Selling and marketing expenses (non-GAAP) were $2.9 million, which was lower compared to the $3.1 million in the previous quarter. General and administrative expenses (non-GAAP) were $2.7 million, which was higher compared to the $2.4 million in the previous quarter. Stock-based compensation was $2.5 million in the first quarter of 2013, lower than the $3.4 million in the fourth quarter of 2012.

Operating margin (non-GAAP) was 13.7%, a decrease from 19.5% in the previous quarter. GAAP operating margin was 12.2% for the first quarter of 2013, a decrease from 13.2% in the fourth quarter.

Net total other income (non-GAAP) was $0.6 million, an increase from $0.3 million in the fourth quarter. GAAP net total other income was $0.3 million, higher than the fourth quarter amount of $0.2 million.

Net income (non-GAAP) was $6.0 million for the first quarter of 2013, a decrease from $12.4 million in the fourth quarter. Diluted earnings per ADS (non-GAAP) were $0.17 in the first quarter, a decrease from $0.36 in the fourth quarter.

GAAP net income was $4.8 million for the first quarter of 2013, a decrease from the net income of $7.9 million in the fourth quarter. Diluted GAAP earnings per ADS in the first quarter of 2013 were $0.14, a decrease from $0.23 in the previous quarter.

Cash and cash equivalents and short-term investments declined to $166.0 million at the end of the first quarter of 2013, from $169.6 million at the end of the fourth quarter. The decline is partially the result of the company’s first quarterly cash dividend which was paid in the first quarter.

During the first quarter of 2013, the company had $1.8 million of capital expenditures primarily relating to the prepayments made to purchase a building and the purchase of testing equipment, software and design tools.

Business Outlook
Kou added: "Our business is rapidly transitioning from our traditional card and USB flash controller products to SSD plus embedded products. As we further transition our business towards SSD plus embedded products this year, we believe the non-LTE part of our business, which is approximately 85% of our sales last year, should grow in the range of 0 to 10% this year. For the second quarter, we expect sales of our non-LTE products in aggregate to grow 10 to 20% sequentially. Our LTE products are moving to next-generation solutions and until design wins are secured, we are unable to provide revenue targets. At a minimum though, we believe we can achieve $15 million in LTE revenue in 2013."

For the second quarter of 2013, management expects:

• Revenue to increase 5% to 10% sequentially
• Revenue (excluding LTE transceiver revenue) to increase 10% to 20% sequentially
• Gross margin (non-GAAP) to be in the 45% to 47% range
• Operating expenses (non-GAAP) of approximately $17 to $18 million

For the full year 2013, management expects:

• Revenue (excluding LTE transceiver revenue) to be flat to increase 10% compared with full year 2012 (excluding LTE transceiver revenue)
• Gross margin (non-GAAP) to be in the 46% to 48% range (excluding one-time items)
• Operating expenses (non-GAAP) of approximately $72 to $76 million