Silicon Motion Technology Corporation (SIMO) is a prominent global provider of semiconductor solutions. Based in Hong Kong, the company specializes in developing NAND flash controllers for solid-state storage devices. It also offers SSD controllers for servers, PCs, and other client devices and is the leading supplier of eMMC and UFS embedded storage controllers.

SIMO’s business performed well in the second quarter of 2024, with revenue exceeding the high end of its guided range and gross margins at the high end of its expectations. The company reported second-quarter net sales of $210.67 million, surpassing the analysts’ estimate of $209 million.

The company’s SSD controller sales for the second quarter grew 25% to 30% year-over-year. Moreover, its eMMC=UFS controller sales rose 190% to 195% year-over-year, and its SSD solutions sales increased 20% to 25% quarter-over-quarter. Silicon Motion’s non-GAAP gross margin was $46%. It posted an EPS per ADS of $0.96, compared to the consensus estimate of $0.95.

Wallace Kou, President and CEO of Silicon Motion, said, “Our SSD controller revenue increased for the fifth consecutive quarter and strength from our eMMC and UFS business accelerated as smartphone OEMs build in anticipation for a seasonally stronger second half and modest handset industry growth this year.

“The first half of the year was a strong start to 2024, and we remain confident that our increasing share with flash makers and expanding product portfolio will continue to grow our business and profitability throughout this year,” he added.

For the third quarter of 2024, the management expects revenue in the range of $205-$216 million, up 19% to 25% year-over-year. Silicon Motion is expected to report a non-GAAP gross margin for the quarter of 46% to 47% and a non-GAAP operating margin of 14.3% to 15.3%.

Shares of SIMO have gained 3.1% over the past five days to close the last trading session at $60.61.

Let’s look at factors that could influence SIMO’s performance in the upcoming months.

Recent Strategic Developments

On August 7, SIMO launched the SM2508, the most power-efficient PCIe Gen5 NVMe 2.0 client SSD controller designed for AI PCs and gaming consoles. As the world’s first PCIe Gen5 client SSD controller built using TSMC’s 6nm EUV process, it delivers a 50% reduction in power consumption compared to competitors using the 12nm process.

Several leading SSD manufacturers, including major NAND suppliers are designing the SM2508. Production of the SM2508 is slated to ramp up in the fourth quarter of this year.

In May, Silicon Motion introduced the SM2322, the industry’s fastest single-chip solution for high-performance, low-power, and cost-effective solution for external portable SSDs. It supports up to 8TB of storage and delivers exceptional data transfer rates of 20Gbps for managing large volumes of content from AI smartphones, multimedia devices, and game consoles.

“The new SM2322 now sets the bar even higher, introducing enhancements to support the higher speed USB3.2 specifications and providing greater capacity, catering to the needs of the AI era for large-scale digital media content storage and access,” said Nelson Duann, Senior VP of Client & Automotive Storage Business at Silicon Motion

Robust Financials

For the second quarter that ended June 30, 2024, SIMO’s net sales increased 50.1% year-over-year to $210.67 million. Its non-GAAP gross profit grew 62.2% from the year-ago value to $96.84 million. Its non-GAAP operating profit was $34.71 million, an increase of 197.1% year-over-year.

Furthermore, the company reported second-quarter non-GAAP net income and non-GAP earnings per ADS of $32.46 million, or $0.96 per share, up 157.9% and 152.6% from the prior year’s period, respectively. Silicon Motion’s cash and cash equivalents were $289.18 million as of June 30, 2024, compared to $249.83 million as of June 30, 2023.

Favorable Analyst Estimates

Analysts expect SIMO’s revenue for the third quarter (ending September 2024) to grow 21.7% year-over-year to $209.77 million. The consensus EPS estimate of $0.85 for the ongoing quarter indicates an improvement of 35.6% year-over-year. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Street expects SIMO’s revenue and EPS to increase 28.2% and 53.2% from the previous year to $819.38 million and $3.48, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 9.8% and 36.3% year-over-year to $899.49 million and $4.74, respectively.

Low Valuation

In terms of forward non-GAAP P/E, SIMO is trading at 17.43x, 23.8% lower than the industry average of 22.87x. Similarly, the stock’s forward EV/Sales of 2.14x is 21% lower than the industry average of 2.71x. Also, its forward EV/EBITDA of 11.80x is 13.1% lower than the industry average of 13.58x.

Moreover, the stock’s forward Price/Sales and Price/Book multiples of 2.49 and 2.53 are favorably compared to the industry averages of 2.78 and 3.92, respectively. Its trailing-12-month Price/Cash Flow of 15.08x, 17.6% lower than the industry average of 18.29x.

POWR Ratings Reflect Promise

SIMO’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SIMO has a B grade for Growth, consistent with its robust financial performance in the last reported quarter. Further, the stock has a B grade for Value, in sync with its lower-than-industry valuation.

Within the Semiconductor & Wireless Chip industry, SIMO is ranked #8 out of 90 stocks.

Beyond what I have stated above, we have also given SIMO grades for Quality, Momentum, Sentiment, and Stability. Get all SIMO ratings here.

Bottom Line

SIMO’s second-quarter results demonstrated significant business growth, with revenues and EPS surpassing analysts’ estimates. Silicon Motion’s SSD controller revenue surged for the first consecutive quarter, with significant strength from its eMMC and UFS business.

After a solid first half of 2024, the company seems positioned to grow its business and profitability throughout the remaining year by increasing its share with flash makers and expanding its product portfolio. Given its robust financials, optimistic analyst estimates, and low valuation, SIMO could be an ideal buy for substantial gains.

How Does Silicon Motion Technology Corporation (SIMO) Stack Up Against Its Peers?

While SIMO has an overall POWR Rating of B, investors could also check out these other stocks within the Semiconductor & Wireless Chip industry with B (Buy) or B (Buy) ratings: Qualcomm Inc. (QCOM), United Microelectronics Corp. (UMC), and Cirrus Logic, Inc. (CRUS).

To explore more A or B-rated chip stocks, click here.

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SIMO shares were trading at $59.68 per share on Friday morning, down $0.93 (-1.53%). Year-to-date, SIMO has declined -0.42%, versus a 12.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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