Silicon Motion: Fiscal 4Q17 Financial Results

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For this fourth quarter, net sales increased 7% Q/Q and -6% Y/Y.

For the next one the company expects revenue between $127 million to $132 million or -7% to -3% Q/Q.

For FY18, figures are between $550 million to $576 million or +5% to +10% Y/Y/

Abstracts of the earnings call transcript:

Wallace Kou, president and CEO:
"2017 was a challenging year as NAND flash industry’s supply tightened and the high NAND prices limited our growth. These two issues were especially tough in the first half of 2017. Tight supply of NAND limited our ability to procure components, to build Shannon and FerriSSD solution. More critically, tight supply also drove up the price of NAND. High price for NAND in turn affected the affordability of the client SSD and reduced demand of our SSD controllers.
"By the second half of the year, however, NAND was no longer tight as supply had increased meaningfully from the ramp of a new 3D NAND capacity. And the price was softening.
"Overall, we expect NAND supply and lower prices will continue to improve further in 2018.
"We believe NAND industry supply will continue to grow in 2018 due to a number of factors. First, our 64 and 72-layer 3D NAND manufacturing yields continued to improve. Flash maker will further accelerate production and be output throughout this year. Additionally, several NAND flash makers have already started sampling their [indiscernible] and industry supply will growth, as these QLC components enter commercial production by mid-year.
"By the end of this year, NAND supply will grow further as new 96-layer 3D NAND enters production. Recently, as a result of increasing expectation of industry supply growth, NAND makers have across the board been increasing the industry supply growth forecast for 2018. The cost per bit of new generation of NAND is falling rapidly, a 64-layer has ramped up over the past few months. We have already seen pricing begin to soften. We expect that 64 and 72-layer production ramping further supplemented by the introduction of QRC in the migration to 96-layer later this year. Each of these new generation of NAND will further drive down the dollar cost per bit of NAND, improving our affordability and adoption across many end markets.
"The price of the NAND directly affected the price of client SSD and therefore demand for client SSD, the most price sensitive of all of the major application for NAND. As a revenue point of pricing and adoption, when the OEM price were 128GB, client SSD fell to $25 in 2016. Demand for SSD was very strong as client SSD were rapidly displaced. In contrast, when OEM prices of this 128GB SSD grew to at least $40 in mid-2017 comparable to the OEM price of HDD, demand for SSD stagnated.
"Demand for our client SSD controllers contracted sequentially for three quarters and now rebound until the fourth quarter when the price of NAND softened and the OEM price of 128-gigabyte client SSD has fallen to $30. We expect demand for our client SSD controllers to grow faster when NAND prices and SSD prices fall further in 2018.
"Additionally, given the continuing shortage of DRAM supply and very high price of DRAM, many customers have been actually seeking DRAM-less SSD controller solutions.
"We delivered our first pre-production commercial sample to our first hyperscale customer at the end of 2017 and anticipate our open channel NVMe SSD to enter commercial production by mid-2018, which will likely be the world’s first open channel NVMe SSD controller to enter commercial production. Separately, we are on track to begin commercial sampling with our second hyperscale customer by mid-2018.
"Our relationship with SK Hynix remains strong today and we continue to very effectively support SK Hynix with our very competitive low cost high performance controllers.
"Now, turning to our SSD solutions. Revenue increased again this quarter driven by stronger than expected demand for our Ferri industrial SSD. In 2017, sales of our SSD solution grew stronger than expected in spite of higher NAND prices. Because NAND supply was better in the second half of the year.
"Today, we are no longer facing any NAND supply constraints. NAND prices have started coming down, but still remain elevated. We believe that as long as the NAND industry remains highly competitive, NAND prices will quickly trend down, similar to the falling cost of a new NAND component and our business will accelerate, especially our client SSD controllers."

Riyadh Lai, CFO:
"For full year 2017, our SSD controller sales declined a little over 10% and accounted for almost one-third of sales. In Q1, we expect our SSD controller sales to continue to grow as our flash partners’ SSD programs scale further.
"In Q1, we expect our SSD controller sales to continue to grow as our flash partners’ SSD programs scale further.
"For full year 2018, based on today's NAND and SSD prices, we believe our SSD controller sales will likely grow roughly 20%.
"For full year 2017, our eMMC controller sales declined about 5% and accounted for almost one-third of sales. In Q1, we expect our eMMC controller sales to increase sequentially as SK Hynix accelerates the rebuilding of their eMMC inventory.
"For full year 2018, we believe our eMMC controller sales should be flat, in line with 2018 smartphone industry forecasts. In Q4, sales of our SSD solutions grew over 15% sequentially because of strong Ferri industrial SSD sales. For full year 2017, our SSD solution sales grew over 15% and accounted for almost 20% of sales. In Q1, we expect our SSD solution sales to decline meaningfully quarter-over-quarter, largely because Shannon's new 2018 data center SSD projects will restart from a low base.
"We had $366 million of cash, cash equivalents and short term investments, 34 million than in the previous quarter and 89 million more than a year ago.
"Total headcount at the end of Q4 increased to 1250 employees, which was 36 more than at the end of Q3 and 128 more than a year ago. We are planning on adding fewer headcount in 2018."

Read also:
Silicon Motion: Fiscal 3Q17 Financial Results
SSD solutions sales increased 50% Q/Q
2017.11.01 | Press Release | [with our comments]