Silicon Motion: Fiscal 3Q20 Financial Results

(in $ million)	3Q19	3Q20	9 mo. 19	9 mo. 20
Revenue	110.5	126.0	304.1	395.6
*Growth*		14%		*30%*
Net income (loss)	4.2	24.3	39.0	78.4

Silicon Motion Technology Corporation announced its financial results for the quarter ended September 30, 2020.

For this 3FQ20, net sales on in second quarter 2020.

Net income (GAAP) decreased to $24.3 million or $0.70 per diluted ADS (GAAP) from net income (GAAP) of $28.2 million or $0.80 per diluted ADS (GAAP) in 2FQ20.

Net income (non-GAAP) decreased to $26.7 million or $0.76 per diluted ADS (non-GAAP) from net income (non-GAAP) of $28.6 million or $0.81 per diluted ADS (non-GAAP) in 3FQ20.

Third Quarter 2020 Review
“Our third quarter results exceeded expectations due to stronger sales of SSD controllers,” said Wallace Kou, president and CEO. “And as expected, our eMMC+UFS controller sales declined due to a temporary customer inventory adjustment, while our SSD solutions sales were softer than anticipated.“

During the third quarter, the firm had $2.6 million of capital expenditures for the routine purchase of software, design tools and other items.

Returning Value to Shareholders
On October 25, 2019, the board of directors declared a $1.40 per ADS annual dividend to be paid in quarterly installments of $0.35 per ADS. On August 20, 2020, it paid $12.3 million to shareholders as the fourth installment of our annual dividend.

On October 26, 2020, the board of directors declared a $1.40 per ADS annual dividend to be paid in quarterly installments of $0.35 per ADS. The first installment of annual dividend will be paid on November 25, 2020.

On November 21, 2018, it announced that the board of directors had authorized a new program for the company to repurchase up to $200 million of our ADS over a 24-month period. In 3FQ20, it purchased $25.0 million of our ADSs at an average price of $39.91 per ADS. Since the start of this program, it has repurchased $84.8 million of our ADSs and $115.2 million remains unused under the program.

On October 26, 2020, the board of directors authorized the extension of the expiration of this program to November 21, 2021.

Business Outlook
“We expect our fourth quarter revenue to rebound as SSD controller sales strengthen further,” said Kou, president and CEO. “In addition, our eMMC+UFS controllers are making good progress towards recovery in the fourth quarter while SSD solutions are expected to be seasonally down. We expect our fourth quarter to be a solid finish to an unpredictable year and a good foundation for a stronger 2021.”

Comments

Net sales for the quarter were $126.0 million compared to expectations of $114 million to $120 million as stated during the former 3-month period.

Wallace Kou, president and CEO, commented: "Our third quarter results exceeded expectations due to stronger sales of SSD controllers. And as expected, our eMMC+UFS controller sales declined significantly due to temporary customer inventory adjustments, while our SSD solutions sales was softer than anticipated. Our stronger-than-expected SSD controller sales in the third quarter, is a solid reversal of softer sales in the second quarter. As you may remember, our second quarter SSD controller sales were affected by our NAND flash customers redirecting NAND away from client SSD to meet the surge procurement of data center SSD by the hyperscalers due to unexpected working and learning-from-home demand. Hyperscalers surge procurement is now over. In the third quarter, we saw hyperscaler procurement of data center SSD drop off, which frees up NAND flash for client SSD."

This quarter, with better availability of NAND, he company delivered about 20% sequential SSD controller sales growth, with growth in both NAND and module maker customers as well as for both PC OEM and for channel markets. Based on its SSD controller sales growth during the first 9 months of this year, the firm said it is likely growing twice as fast as the market, and expects momentum to continue through next year.

Three years ago, SMI shipped a little over $150 million of SSD controllers. This year, it is tracking towards doubling that.

This quarter eMMC+UFS controller sales declined sharply as firm's large UFS customer has had to temporarily digest its elevated inventory.

In the first 9 months of this year, even with this inventory adjustment, the firm was able to grow its eMMC+UFS sales 70% Y/Y.

For SSD solutions, sales were softer than expected due to more competitive market conditions and slower hyperscale spending in China. They declined 10% sequentially because of continued softness in demand by Chinese hyperscalers and more intense competition from NAND flash makers in the standard enterprise NVMe SSD market. Year-to-date, sales are up about 80% Y/Y, with similar growth from both our Shannon and Ferri products. Shannon sales are up this year because firm's first-gen Open Channel SSD only started sales in 3Q last year. This year, it has the benefit of a full year of Open Channel sales. Ferri sales are up this year because last year NAND prices fell sharply; while this year, NAND prices are more stable.

For 4FQ20, the company expects revenue to increase in the range of 3% to 10% sequentially to approximately $130 million to $139 million. It expects higher SSD controller sales, higher eMMC+UFS controller sales after one quarter of UFS customer inventory adjustment and lower SSD solutions sales, as its 2020 Alibaba project seasonally ended at the end of 3FQ20 and its other solution products faced less favorable competitive dynamics. 4FQ20 gross margin should be in the range of 48% to 50%. The manufacturer expects that further contraction in SSD solutions gross margin will offset the higher sales mix and stable margins of its controllers.