Silicon Motion: Fiscal 2Q13 Financial Results

Silicon Motion Technology Corporation announced its financial results for the quarter ended June 30, 2013.

Financial Highlights

• Net sales increased 2% quarter-over-quarter to $58.3 million from $57.4 million in 1Q13
• Gross margin (non-GAAP) increased to 48.4% from 41.0% in 1Q13
• Operating expenses (non-GAAP) increased to $16.8 million from $15.6 million in 1Q13
• Operating margin (non-GAAP) increased to 19.7% from 13.7% in 1Q13
• Diluted earnings per ADS (non-GAAP) increased to $0.27 from $0.17 in 1Q13

Business Highlights

• Entered mass production for 55nm eMMC 4.5 controller and secured nine design wins, including several global Android and Windows 8.1 flagship smartphone and tablets
• Began mass production of 55nm UHS-1 SD controller supporting TLC flash, enabling high-performance, low-cost UHS-1 SD cards
• Secured two tier-one Japanese OEMs for FerriSSD solution for multifunction printers
• Entered mass production for high-performance CompactFlash 5.0 professional-grade controller with a Japanese and a US-based flash OEM

For the second quarter of 2013, net sales increased 2% quarter-over-quarter to $58.3 million from $57.4 million in the first quarter of 2013. Net income (non-GAAP) increased in the second quarter to $9.2 million or $0.27 per diluted ADS from a net income of $6.0 million or $0.17 per diluted ADS in the first quarter of 2013.

Net income (GAAP) for the second quarter of 2013 increased quarter-over-quarter to $7.5 million or $0.22 per diluted ADS from a net income of $4.8 million or $0.14 per diluted ADS in the first quarter of 2013.

Commenting on the results of the second quarter, Silicon Motion’s President and CEO, Wallace Kou, said: "In the second quarter, revenue from new growth products increased by approximately 30% sequentially as a result of stronger than expected sales of SSD+embedded controllers, in particular, sales of our eMMC controllers. Strong sales of smartphones and tablets, both global flagships and low-cost models, in both global markets and in China, have been driving strong demand for our eMMC controllers from our flash partners Samsung and SK Hynix. We believe we have about half of the fast growing China eMMC market. In the second quarter, due to strong SSD+embedded growth, revenue from SSD+embedded products was larger than our combined card and USB flash drive revenue and accounted for over half of our total controller sales.

"While our SSD+embedded sales exceeded expectations, limited flash availability affected the sales of our card and USB flash drive controllers, especially to module maker customers. Our LTE transceiver business also declined in the second quarter as we are transitioning to next-generation LTE-Advanced transceivers for Samsung smartphones and tablets."

Sales
Net sales in the second quarter were $58.3 million, an increase of 2% compared with the first quarter. For the quarter, mobile storage products accounted for 80% of net sales and mobile communications 15% 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 8% sequentially in the second quarter of 2013 to $46.8 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, decreased 27% from the first quarter to $8.7 million in the second quarter of 2013.

Gross and Operating Margins
Gross margin (non-GAAP) increased to 48.4% in the second quarter of 2013 from 41.0% in the first quarter of 2013. GAAP gross margin increased to 48.4% in the second quarter of 2013 from 43.8% in the first quarter of 2013.

Operating expenses (non-GAAP) in the second quarter of 2013 were $16.8 million, which was higher than the $15.6 million expended in the first quarter of 2013. Operating margin (non-GAAP) was 19.7%, an increase from 13.7% in the previous quarter. GAAP operating margin was 17.1% for the second quarter of 2013, an increase from 12.2% in the first quarter of 2013.

Other Income and Expenses
Net total other income (non-GAAP) was $0.4 million, a decrease from $0.6 million in the first quarter of 2013. GAAP net total other income was $0.3 million, similar to the first quarter of 2013.

Earnings
Net income (non-GAAP) was $9.2 million for the second quarter of 2013, an increase from $6.0 million in the first quarter of 2013. Diluted earnings per ADS (non-GAAP) were $0.27 in the second quarter, an increase from $0.17 in the first quarter of 2013.

GAAP net income was $7.5 million for the second quarter of 2013, an increase from the net income of $4.8 million in the first quarter of 2013. Diluted GAAP earnings per ADS in the second quarter of 2013 were $0.22, an increase from $0.14 in the previous quarter.

Balance Sheet
Cash and cash equivalents, and short-term investments decreased to $156.4 million at the end of the second quarter of 2013, a decrease from $166.0 million at the end of the first quarter of 2013.

During the second quarter of 2013, we had $6.6 million of capital expenditures primarily relating to the purchase of additional office space, and to a lesser degree, the purchase of testing equipment, software and design tools.

Share Repurchase Program
On January 22, 2013, the Company announced a $40 million share repurchase program. In the second quarter, we repurchased 0.9 million ADSs for a total cost of $10.0 million. The weighted average price per ADS repurchased was $11.24.

Business Outlook:
Kou added: "The continuing growth of our SSD+embedded controllers and the transition away from our card and USB flash drive controllers is improving our long-term prospects. The markets for our SSD+embedded products are growing rapidly and we are expanding our product portfolio and customer base to address these market opportunities. We expect sales of our SSD+embedded products to continue growing in the third quarter, offsetting weakness caused by ongoing flash tightness and more limited consumer demand for cards and USB flash drives."

For 3Q13, management expects:

• Revenue to decrease 2.5% to increase 2.5% sequentially
• Revenue (excluding LTE transceiver revenue) to increase 2% to 7% sequentially
• Gross margin (non-GAAP) to be in the 47% to 49% range
• Operating expenses (non-GAAP) of approximately $17.5 to $19.5 million

For FY13, management expects:

• Revenue (excluding LTE transceiver revenue) to decrease 5% to 10% compared with full year 2012 (excluding LTE transceiver revenue)
• Gross margin (non-GAAP) to be in the 46% to 48% range
• Operating expenses (non-GAAP) of approximately $70 to $73 million

Management Discusses 2Q13 Results (Webcast)