Silicon Motion: Fiscal 4Q18 Financial Results

(in $ million)	4Q17	4Q18	FY17	FY18
Revenue	138.6	123.4	523.4	530.3
*Growth*		-11%		1%
Net income (loss)	9.8	17.3	75.0	100.3

Business Highlights

Embedded storage sales declined almost 15% Q/Q and accounted for approximately 80% of total sales
SSD controller sales decreased about 20% Q/Q
eMMC+UFS controller sales decreased about 15% Q/Q
SSD solutions sales increased about 5% Q/Q
Began shipping SSD controllers to an US NAND partner for 96-layer TLC-based SSD

Silicon Motion Technology Corporation announced its financial results for the quarter ended December 31, 2018.

For the fourth quarter, net sales decreased sequentially to $123.4 million from $138.6 million in third quarter 2018.

Net income (GAAP) decreased to $17.3 million or $0.48 per diluted ADS (GAAP) from a net income (GAAP) of $29.2 million or $0.81 per diluted ADS (GAAP) in third quarter 2018.

For the fourth quarter, net income (non-GAAP) decreased to $30.2 million or $0.83 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $34.5 million or $0.95 per diluted ADS (non-GAAP) in third quarter 2018.

Fourth Quarter 2018 Review
“Our fourth quarter sales declined as expected, near the midpoint of guidance,” said Wallace Kou, president and CEO. “Our client SSD controller sales weakened largely due to more cautious than expected procurement of NAND flash from module makers that face the transitional risk of operating during a period of rapidly falling NAND prices. Our eMMC+UFS controller sales declined because of weak smartphone sales. Sales of our Shannon data center SSDs declined while our Ferri industrial SSDs increased.”

Business Outlook
“We expect NAND prices to continue falling through 2019, which will drive meaningful increase in client SSD adoption in PCs starting in the middle of this year,” he said. “As one would expect, benefits from this price elasticity of demand does not happen immediately. Also, during the current transitional period of rapidly falling NAND prices, our module maker customers may be more cautious than usual in their NAND and controller procurements. NAND flash vendors have also been temporarily limiting sales and building inventory. Finally, our OEM customers are operating with worse than usual business visibility due to weakening economic conditions, compounded by the US-China tariff situation and other uncertainties.”

Comments

Silicon Motion is another victim of the falling prices of NAND chips and SSDs with revenue down 11% Q/Q and 9% Y/Y.

Sales of Mobile Storage*
(in $ million)

4Q17

125.3

Q/Q growth

Y/Y growth

-4%

3Q18

129.8

Q/Q growth

Y/Y growth

11%

4Q18

113.4

Q/Q growth

-13%

Y/Y growth

-10%

* Mobile Storage products include embedded storage products (eMMC+UFS and SSD controllers and data center and industrial SSD solutions) and expandable storage products (SD memory cards and USB flash drive controllers.

Clients SSD sales increased about 30% for the full year, much stronger than was expected in the start of this year, although a bit less than company's revised 35% target in 3Q.

SSD controller sales to NAND flash partners did increase by about 35% Y/Y.

For the full year 2018, sale of eMMC and plus UFS controller were down about 10%, and UFS controller sales accounted for more than 10% of overall UFS plus eMMC controller sales.

The company had $289 million of cash, cash equivalents and short term investments at the end of 4Q, $20 million less than in the previous quarter and 78 million less than a year ago.

For 1FQ19, management expects revenue between $97.5 million to $103.6 million or -21% to -16% Q/Q with broad based weakness in near-term demand

The firm ended the year with 1,307 employees, an increase of 15 employees from 3Q and an increase of 57 employees from year-end 2017.

Abstract of the earnings call transcript:
Wallace Kou, president and CEO:
"Looking to 2019, we believe our clients SSD controller sales will continue to grow and NAND prices will fall further.
"It is very likely that NAND prices will continue falling rapidly in the first half of the year and increasing likely that the NAND prices will fly at a more moderate rate in the second half.
"Exiting Q4, we had over 70% more clients SSD controller program, with our three NAND flash partners that we had to prior years.
"For Chinese hyperscalers, unlike their US counterparts, we cannot just provide them with an SSD controller. In order for us to sell an SSD controller to Chinese hyperscalers, we must convert our controller in to complete SSD solutions.
"In Q4, we provided a small shipment of open-channel NVMe SSD to Alibaba and another Chinese hyperscaler for live testing in their datacenters."
Riyadh Lai, CFO:
"In Q1, we expect our client SSD controller sales to be roughly flat sequentially.
"We expect eMMC plus UFS controller sales to decline further in Q1 as both smartphone and demand and related smartphone build activity remain weak. For the full year, we expect global smartphone shipments to continue falling and this could affect our eMMC plus UFS controller sales."