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Silicon Motion: Fiscal 3Q13 Financial Results

Y/Y revenue decreased 26% but SSD+embedded sales growing 110% for 9-month period

 (in US$ million) 3Q12 3Q13  9 mo. 12   9 mo. 13
 Revenues 77.1 57.1 210.8  172.8
 Growth -26%  -18%
 Net income (loss) 15.6 9.6 39.3 22.0

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

For the third quarter of 2013, net sales decreased 2% quarter-over-quarter to $57.1 million from $58.3 million in the second quarter of 2013.

Net income (non-GAAP) increased in the third quarter of 2013 to $10.8 million or $0.32 per diluted ADS as compared to a net income (non-GAAP) of $9.2 million or $0.27 per diluted ADS in the second quarter of 2013.

GAAP net income for the third quarter of 2013 increased quarter-over-quarter to $9.6 million or $0.29 per diluted ADS from a GAAP net income of $7.5 million or $0.22 per diluted ADS in the second quarter of 2013.

Third Quarter 2013 Financial Review
Commenting on the results of the third quarter, Silicon Motion’s president and CEO Wallace Kou said: “In the third quarter, our mobile storage sales grew further led by solid eMMC controllers sales growth and a modest rebound in our card controller sales. Mobile communications sales, however, declined further as our previous LTE transceiver projects at Samsung are reaching end-of-life.

“Our SSD+embedded sales, led by continued eMMC controller sales growth, increased approximately 10% sequentially this quarter and, for the first three quarters of this year, have increased approximately 110% compared to the same period a year ago.

“Our eMMC controller sales continue to strengthen with our high performance and cost competitive solutions targeting both global flagship devices as well as the low cost smartphone and tablet markets. These solutions support our NAND flash customers in winning global eMMC memory market share and we believe that with our eMMC design-win momentum, we are on track to achieve 15 to 20% of the global market for eMMC controllers this year.

“We believe our card controller sales have stabilized as the smartphone card debundling risk has largely played out. Card bundled rates in the US and China have already fallen to roughly 10 to 20%. A growing part of our card controller sales are now related to the relatively stable high-performance, premium segment of the card market, and our UHS-I cards controllers, which serve this segment, already account for over a third of all our SD card sales.

“Our LTE transceiver business remains in transition this year and revenue from this product declined in the third quarter as expected. Samsung recently began testing our next-generation LTE-Advanced transceiver with their new LTE-Advanced baseband. We look forward to sharing with you further progress on this at a later date.”

Net sales in the third quarter were $57.1 million, a decrease of 2% compared with the second quarter. For the quarter, mobile storage products accounted for 85% of net sales and mobile communications 11% of net sales.

Net sales of mobile storage products, which primarily include flash memory cards, USB flash drives, SSD and embedded flash controllers, increased 4% sequentially in the third quarter of 2013 to $48.4 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, decreased 27% from the second quarter to $6.4 million in the third quarter of 2013.

Gross and operating margins gross margin (non-GAAP) increased to 48.8% in the third quarter of 2013 from 48.4% in the second quarter of 2013. GAAP gross margin increased to 48.7% in the third quarter of 2013 from 48.4% in the second quarter of 2013.

Operating expenses (non-GAAP) in the third quarter of 2013 were $14.9 million, a decrease from the $16.8 million expended in the second quarter. Operating margin (non-GAAP) was 22.7%, an increase from 19.7% in the previous quarter. GAAP operating margin was 20.0% for the third quarter of 2013, an increase from 17.1% in the second quarter of 2013.

Other income and expenses net total other income (non-GAAP) was $0.4 million, similar to the second quarter of 2013. GAAP net total other income was $0.7 million, an increase from the $0.3 million in the second quarter.

Earnings net income (non-GAAP) was $10.8 million for the third quarter of 2013, an increase from $9.2 million in the second quarter of 2013. Diluted earnings per ADS (non-GAAP) were $0.32 in the third quarter, an increase from $0.27 per ADS in the second quarter of 2013.

GAAP net income was $9.6 million for the third quarter of 2013, an increase from the net income of $7.5 million in the second quarter of 2013. Diluted GAAP earnings per ADS in the third quarter of 2013 were $0.29, an increase from $0.22 per ADS in the previous quarter.

Balance sheet cash and cash equivalents, and short-term investments increased to $163.4 million at the end of the third quarter of 2013, an increase from $156.4 million at the end of the second quarter of 2013.

Comments

Abstracts the earnings call transcript: Wallace Kou, CEO and president: "We are now in initial stage for scaling our SATA III client SSD controller business. This quarter our SSD+embedded revenue grew by nearly 10% sequentially and now account for about 55% of our total Mobile Storage revenue that’s from above 50% the previous quarter. Our eMMC controller sales grew well in excess 10% this quarter as OEM device makers increased their procurement for end of the year helped their sales. Year-to-date, our eMMC sales are already up over 150% compared to the same period a year ago. "We supply high performance in cost competitive eMMC controller to Samsung and SK Hynix. "eMMC memory modules with our controller are widely used in 8 out of top 10 non-iOS smartphone OEMs. We have exceptionally strong presence in China where we have almost 50% of this eMMC market with also controller for eMMC 4.01 and 4.5 product that are built into global flagship devices as well as low cost smartphones whether on a Android, Windows or Blackberry OS. Our eMMC 4.5 controller accounted for nearly 25% of our shipment in the third quarter and we are on track to become sampling our next generation eMMC 5.0 controller this quarter and for this to enter (indiscernible) in the first quarter of 2014. "In the third quarter our flash partner use our eMMC controller to secure 15 new design-ins and design wins. "This year we would grow our eMMC sales well around 150% significantly faster than eMMC market growth. Next year we believe the market of eMMC should grow about 25% and we believe our sales to Samsung and SK Hynix should grow at least as fast. "Our next milestone for SSD+embedded to account for the majority of our overall corporate revenue. "Until the second quarter of next year we do not expect our SATA III client SSD controller sales to contribute meaningfully. "In this quarter we began controller production for Samsung for its new multi-quarter UHS SD card program during its 90-nanometer TLC NAND Flash. Our USB flash drive controller sales have dropped sharply since last year." Riyadh Lai, CFO: "Mobile storage revenue increased 4% sequentially, mobile storage controller shipments increased 7% sequentially, mobile storage controller ASPs decreased by 3% sequentially have increased 8% year-over-year, our 15th consecutive quarter of annual ASP increases. Our card controller revenue increased by 8% sequentially and our USB controller revenue decreased by 23% sequentially. OEM revenue again accounted for nearly 70% of our controller sales in the third quarter similar to the second quarter."

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