An Eye on Earnings
Michael Comeau
Analysts expect Silicon Motion to report a profit of 36 cents a share on revenue of $45 million, with the revenue number being roughly in line with guidance. We believe there could be some upside to revenue expectations, given solid flash-card industry unit growth and potential strength in Silicon Motion's mobile TV business. Earnings could be boosted by the company's $40 million share- repurchase program, which was announced March 12. Depending on how aggressive management was in terms of buying back stock, there could easily be a few cents of upside on the earnings line.
On the call, we believe investors' main concern will remain Silicon Motion's relationship with key customer Samsung. When it reported first-quarter results, Silicon Motion said card controller shipments to Samsung would increase at least 35% sequentially in the first quarter, which implies that the relationship remains strong. In addition, when Samsung manufactures flash cards sold by its own customers, those customers choose the card controller, not Samsung. So while Samsung is a major Silicon Motion customer, we are not overly concerned about the revenue concentration.
We believe Silicon Motion shares have been unfairly beaten down due to weak memory pricing trends over the past few months, but readers should note that this does not directly affect the company. Prices for all semiconductors fall over time, but the pricing on Silicon Motion's card controller products fall much more slowly than the actual flash memory products. We believe this is evidenced by Silicon Motion's relatively stable and high gross margins, which imply that the company's intellectual property is pretty valuable.
Silicon Motion remains rated a One, and we view the stock as significantly undervalued.
