Silicon Motion Announces Results For The Period Ended September 30, 2013

Third Quarter 2013

Financial Highlights
  • Net sales decreased 2% quarter-over-quarter to US$57.1 million from US$58.3 million in 2Q13
  • Gross margin (non-GAAP1) increased to 48.8% from 48.4% in 2Q13
  • Operating expenses (non-GAAP) decreased to US$14.9 million from US$16.8 million in 2Q13
  • Operating margin (non-GAAP) increased to 22.7% from 19.7% in 2Q13
  • Diluted earnings per ADS (non-GAAP) increased to US$0.32 from US$0.27 in 2Q13

Business Highlights
  • Introduced our new SM2246EN SATA III client SSD controller targeting PC SSDs, hybrid SSDs and NAND-cache storage solutions
  • Started initial sales of our SATA III client SSD controller to several module maker customers targeting both retail channels and local Chinese notebook OEMs
  • Introduced our new SM3267 ultra high-performance, cost-effective USB3.0 flash drive controller
  • Secured design-wins for SM3267 from most of our existing USB flash drive customers, including many top-tier global OEMs
  • Began production of new long-term Samsung UHS-1 microSD card program using its 19nm TLC NAND flash

TAIPEI, Taiwan, Oct. 25, 2013 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (Nasdaq:SIMO) ("Silicon Motion" or the "Company") today announced its financial results for the quarter ended September 30, 2013. For the third quarter of 2013, net sales decreased 2% quarter-over-quarter to US$57.1 million from US$58.3 million in the second quarter of 2013. Net income (non-GAAP) increased in the third quarter of 2013 to US$10.8 million or US$0.32 per diluted ADS as compared to a net income (non-GAAP) of US$9.2 million or US$0.27 per diluted ADS in the second quarter of 2013.

GAAP net income for the third quarter of 2013 increased quarter-over-quarter to US$9.6 million or US$0.29 per diluted ADS from a GAAP net income of US$7.5 million or US$0.22 per diluted ADS in the second quarter of 2013.

1 Non-GAAP measures represent GAAP measures excluding the impact of stock-based compensation, acquisition-related charges, foreign exchange gain (loss), litigation expenses, gains from settlement of litigation, impairment of long-term assets, and other non-recurring items. For reconciliation of non-GAAP to GAAP results and further discussion, see accompanying financial tables and the note "Discussion of Non-GAAP Financial Measures" at the end of this press release.

Third Quarter 2013 Financial Review

Commenting on the results of the third quarter, Silicon Motion's President and CEO Wallace Kou said:

"In the third quarter, our Mobile Storage sales grew further led by solid eMMC controllers sales growth and a modest rebound in our card controller sales. Mobile Communications sales, however, declined further as our previous LTE transceiver projects at Samsung are reaching end-of-life.

Our SSD+embedded sales, led by continued eMMC controller sales growth, increased approximately 10% sequentially this quarter and, for the first three quarters of this year, have increased approximately 110% compared to the same period a year ago. Our eMMC controller sales continue to strengthen with our high performance and cost competitive solutions targeting both global flagship devices as well as the low cost smartphone and tablet markets. These solutions support our NAND flash customers in winning global eMMC memory market share and we believe that with our eMMC design-win momentum, we are on track to achieve 15 to 20% of the global market for eMMC controllers this year.

We believe our card controller sales have stabilized as the smartphone card debundling risk has largely played out. Card bundled rates in the US and China have already fallen to roughly 10 to 20%. A growing part of our card controller sales are now related to the relatively stable high-performance, premium segment of the card market, and our UHS-I cards controllers, which serve this segment, already account for over a third of all our SD card sales.

Our LTE transceiver business remains in transition this year and revenue from this product declined in the third quarter as expected. Samsung recently began testing our next-generation LTE-Advanced transceiver with their new LTE-Advanced baseband. We look forward to sharing with you further progress on this at a later date."

Sales

Net sales in the third quarter were US$57.1 million, a decrease of 2% compared with the second quarter. For the quarter, mobile storage products accounted for 85% of net sales and mobile communications 11% of net sales.

Net sales of our mobile storage products, which primarily include flash memory cards, USB flash drives, SSD and embedded flash controllers, increased 4% sequentially in the third quarter of 2013 to US$48.4 million.

Net sales of mobile communication products, which primarily include handset transceivers and mobile TV IC solutions, decreased 27% from the second quarter to US$6.4 million in the third quarter of 2013.

Gross and Operating Margins

Gross margin (non-GAAP) increased to 48.8% in the third quarter of 2013 from 48.4% in the second quarter of 2013. GAAP gross margin increased to 48.7% in the third quarter of 2013 from 48.4% in the second quarter of 2013.

Operating expenses (non-GAAP) in the third quarter of 2013 were US$14.9 million, a decrease from the US$16.8 million expended in the second quarter. Operating margin (non-GAAP) was 22.7%, an increase from 19.7% in the previous quarter. GAAP operating margin was 20.0% for the third quarter of 2013, an increase from 17.1% in the second quarter of 2013.

Other Income and Expenses

Net total other income (non-GAAP) was US$0.4 million, similar to the second quarter of 2013. GAAP net total other income was US$0.7 million, an increase from the US$0.3 million in the second quarter.

Earnings

Net income (non-GAAP) was US$10.8 million for the third quarter of 2013, an increase from US$9.2 million in the second quarter of 2013. Diluted earnings per ADS (non-GAAP) were US$0.32 in the third quarter, an increase from US$0.27 per ADS in the second quarter of 2013.

GAAP net income was US$9.6 million for the third quarter of 2013, an increase from the net income of US$7.5 million in the second quarter of 2013. Diluted GAAP earnings per ADS in the third quarter of 2013 were US$0.29, an increase from US$0.22 per ADS in the previous quarter.

Balance Sheet

Cash and cash equivalents, and short-term investments increased to US$163.4 million at the end of the third quarter of 2013, an increase from US$156.4 million at the end of the second quarter of 2013.
 
Cash Flow
Our cash flows were as follows: 
3 months ended September 30, 2013
  (In US$ millions)
Net income  9.6
Depreciation & amortization 1.5
Changes in operating assets and liabilities (2.7)
Others 1.1
Net cash provided by (used in) operating activities 9.5
Acquisition of property and equipment (1.2)
Others (0.2)
Net cash provided by (used in) investing activities (1.4)
Dividend (4.9)
Others 0.1
Net cash provided by (used in) financing activities (4.8)
Effects of changes in foreign currency exchange rates on cash 0.8
Net increase (decrease) in cash and cash equivalents 4.1

During the third quarter of 2013, we had US$1.2 million of capital expenditures primarily relating to the purchase of testing equipment, software and design tools. 

Share Repurchase Program

In January 2013, the Company announced a US$40 million share repurchase program. We did not repurchase any shares in the third quarter. Year-to-date, we have repurchased 0.9 million ADSs for a total cost of US$10.0 million at a weighted average price per ADS of US$11.24.

Business Outlook:

Silicon Motion's President and CEO, Wallace Kou, added:

"We believe we are well positioned for renewed growth beginning in the first half of next year, with potential growth contributions from incremental eMMC controller sales, our new SATA III client SSD controllers, and our new LTE-Advanced transceivers. However, in the fourth quarter, we are expecting seasonal decline for our eMMC controllers, as well as further weakness in our Mobile Communications products. In the first quarter, we expect our eMMC sales to recover strongly as new OEM programs begin."

For the fourth quarter of 2013, management expects:
  • Revenue to be down 6% to 12% sequentially
  • Revenue (excluding LTE transceiver revenue) to be down 4% to 10% sequentially
  • Gross margin (non-GAAP) to be in the 47% to 49% range
  • Operating expenses (non-GAAP) of approximately US$16 to US$18 million

Conference Call & Webcast:

The Company's management team will conduct a conference call at 8:00 am Eastern Time on October 25, 2013. 
 (Speakers)
 Wallace Kou, President & CEO
 Riyadh Lai, CFO
 Jason Tsai, Director of Investor Relations and Strategy
 
 CONFERENCE CALL ACCESS NUMBERS:
 USA (Toll Free): 1 866 519 4004
 USA (Toll): 1 845 675 0437 
Taiwan (Toll Free): 0080 112 6920
 Participant Passcode: 7336 5037
 
 REPLAY NUMBERS (for 7 days):
 USA (Toll Free): 1 855 452 5696
 USA (Toll): 1 646 254 3697
 Participant Passcode: 7336 5037

A webcast of the call will be available on the Company's website at www.siliconmotion.com

Discussion of Non-GAAP Financial Measures

To supplement the Company's unaudited selected financial results calculated in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures that exclude stock-based compensation, acquisition-related charges and other items, including non-GAAP cost of sales, non-GAAP gross profit, non-GAAP selling, general, and administrative expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per diluted ADS. These non-GAAP measures are not in accordance with or an alternative to GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measure. We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

Our non-GAAP financial measures are provided to enhance the user's overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses, gains and losses that we believe are not indicative of our core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Company. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with our forecasts, and for benchmarking our performance externally against our competitors. Also, when evaluating potential acquisitions, we exclude the items described below from our consideration of the target's performance and valuation. Since we find these measures to be useful, we believe that our investors benefit from seeing the results from management's perspective in addition to seeing our GAAP results. We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provide useful information to investors by offering:

–  the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;

–  the ability to better identify trends in the Company's underlying business and perform related trend analysis;

– a better understanding of how management plans and measures the Company's underlying business; and

– an easier way to compare the Company's operating results against analyst financial models and operating results of our competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of each of the adjustments that we incorporate into our non-GAAP measures, as well as the reasons for excluding each of these individual items in our reconciliation of these non-GAAP financial measures:

Stock-based compensation expense consists of non-cash charges related to the fair value of stock options and restricted stock units awarded to employees. The Company believes that the exclusion of these non-cash charges provides for more accurate comparisons of our operating results to our peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, the Company believes it is useful to investors to understand the specific impact of share-based compensation on its operating results.

Foreign exchange gains and losses consist of translation gains and/or losses of non-US$ denominated current assets and current liabilities, as well as certain other balance sheet items which result from the appreciation or depreciation of non-US$ currencies against the US$.    We do not use financial instruments to manage the impact on our operations from changes in foreign exchange rates, and because our operations are subject to fluctuations in foreign exchange rates, we therefore exclude foreign exchange gains and losses when presenting non-GAAP financial measures.

Other non-recurring items:

Litigation expenses consist of legal expenses relating to intellectual property disputes, commercial claims and other types of litigation. While litigation may arise in the ordinary course of our business, we nevertheless consider litigation to be an unusual, non-recurring and unplanned activity and therefore exclude this charge when presenting non-GAAP financial measures.

–  Vendor dispute charges relate to the write down of certain unsalable inventory due to defects in the components provided by our vendor. These parts were supplied to us at a quality below levels previously specified and agreed. All parts known to be defective have been identified and are within our control. We have resolved this matter with our vendor and recovered in 1Q 2013 the full value of the inventory being written off. This charge (as well as the amount recovered) has been excluded from our non-GAAP results as we believe this is an unusual, non-recurring and unplanned activity.
 
Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
   
  For the Three Months Ended
  Sep. 30, 2012 Jun. 30, 2013 Sep. 30, 2013
   (US$)  (US$)  (US$)
Net Sales 77,066 58,322 57,132
Cost of sales 41,424 30,122 29,312
Gross profit 35,642 28,200 27,820
Operating expenses      
 Research & development 12,076 12,012 10,469
 Sales & marketing 4,234 3,363 3,274
 General & administrative 2,776 2,876 2,656
Operating income 16,556 9,949 11,421
       
Non-operating income (expense)      
 Gain on sale of investments 1 -- 3
 Interest income, net 378 384 415
 Foreign exchange gain (loss),net 362 (93) 306
 Others, net 17 2 10
 Subtotal 758 293 734
Income before income tax 17,314 10,242 12,155
Income tax expense (benefit) 1,692 2,698 2,576
Net income  15,622 7,544 9,579
       
Basic earnings per ADS $0.48 $0.23 $0.29
Diluted earnings per ADS $0.46 $0.22 $0.29
       
Margin Analysis:      
Gross margin 46.3% 48.4% 48.7%
Operating margin 21.5% 17.1% 20.0%
Net margin 20.3% 12.9% 16.8%
       
Additional Data:      
Weighted avg. ADS equivalents2 32,428 33,199 32,879
Diluted ADS equivalents 33,647 33,529 33,318
       
       
       
2 Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents four ordinary shares.
   
Silicon Motion Technology Corporation  
Reconciliation of GAAP to Non-GAAP Operating Results  
(in thousands, except percentages and per ADS data, unaudited)  
     
  For the Three Months Ended  
  Sep. 30, 2012 Jun. 30, 2013 Sep. 30, 2013  
  (US$) (US$) (US$)  
GAAP net income  15,622 7,544 9,579  
Stock-based compensation:        
 Cost of sales 114 33 38  
 Research and development 2,092 821 853  
 Sales and marketing 679 383 402  
  General and administrative 543 192 203  
 Total stock-based compensation 3,428 1,429 1,496  
         
Non-recurring items:        
 Litigation expenses -- 87 63  
Foreign exchange loss (gain),net (362) 93 (306)  
Non-GAAP net income 18,688 9,153 10,832  
         
Shares used in computing non-GAAP diluted earnings per ADS 34,547 33,965 33,637  
         
Non-GAAP diluted earnings per ADS $0.54 $0.27 $0.32  
         
Non-GAAP gross margin 46.4% 48.4% 48.8%  
Non-GAAP operating margin 25.9% 19.7% 22.7%  
         
 
Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
   
  For the Nine Months Ended
  Sep. 30, Sep. 30,
  2012 2013
  (US$) (US$)
Net Sales 210,766 172,819
Cost of sales 109,399 91,653
Gross profit 101,367 81,166
Operating expenses    
 Research & development 36,678 34,121
 Sales & marketing 12,120 10,019
 General & administrative 9,189 8,658
Operating income  43,380 28,368
     
Non-operating expense (income)    
 Gain on sale of investments 2 3
 Interest income, net 972 1,252
 Foreign exchange gain (loss),net 438 (98)
 Others, net 18 124
 Subtotal 1,430 1,281
Income before income tax 44,810 29,649
Income tax expense 5,522 7,689
Net income  39,288 21,960
     
Basic earnings per ADS $1.22 $0.66
Diluted earnings per ADS $1.17 $0.65
     
Margin Analysis:    
Gross margin 48.1% 47.0%
Operating margin 20.6% 16.4%
     
Weighted average ADS:    
Basic 32,264 33,120
Diluted 33,561 33,632
 
Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
   
  For the Nine Months Ended
  Sep. 30, Sep. 30,
  2012 2013
  (US$) (US$)
GAAP net income 39,288 21,960
Stock-based compensation:    
 Cost of sales 269 148
 Research and development 5,023 3,199
 Sales and marketing 1,806 1,306
  General and administrative 1,346 750
 Total stock-based compensation 8,444 5,403
     
Non-recurring items:    
 Vendor dispute -- (1,717)
 Litigation expenses -- 254
Foreign exchange loss (gain), net (438) 98
     
Non-GAAP net income 47,294 25,998
     
Shares used in computing non-GAAP diluted earnings per ADS 34,439 34,034
     
Non-GAAP diluted earnings per ADS $1.37 $0.76
     
Non-GAAP gross margin 48.2% 46.1%
Non-GAAP operating margin 24.6% 18.7%
 
Silicon Motion Technology Corporation
Consolidated Balance Sheet 
 (In thousands, unaudited)
  Sep. 30, Jun. 30, Sep. 30,
  2012 2013 2013
   (US$)  (US$)  (US$)
Cash and cash equivalents 146,570 156,358 160,430
Short-term investments -- -- 2,946
Accounts receivable (net) 37,593 32,143 30,444
Inventories 36,801 29,330 28,816
Refundable deposits - current 15,240 15,215 15,280
Deferred income tax assets (net) 2,565 552 1,111
Prepaid expenses and other current  assets 3,248 2,788 4,696
Total current assets 242,017 236,386 243,723
       
Long-term investments 178 133 133
Property and equipment (net) 23,490 29,170 28,780
Goodwill and intangible assets(net) 35,465 35,461 35,471
Other assets 4,835 4,283 4,327
Total assets 305,985 305,433 312,434
       
Accounts payable 27,502 16,216 13,533
Income tax payable 3,506 4,635 7,309
Accrued expenses and other current liabilities 21,216 23,308 22,676
Total current liabilities 52,224 44,159 43,518
Other liabilities 3,922 3,449 3,921
Total liabilities 56,146 47, 608 47,439
Shareholders' equity 249,839 257,825 264,995
Total liabilities & shareholders' equity 305,985 305,433 312,434

About Silicon Motion:

We are a fabless semiconductor company that designs, develops and markets high performance, low-power semiconductor solutions for the multimedia consumer electronics market. We have two major product lines, mobile storage and mobile communications. Our mobile storage business is composed of microcontrollers used in NAND flash memory storage products such as flash memory cards, USB flash drives, SSDs, and embedded flash applications. Our mobile communications business is composed primarily of handset transceivers and mobile TV IC solutions.

Forward-Looking Statements:

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements about Silicon Motion's expected fourth quarter 2013 and 2013 revenue, gross margin and operating expenses, all of which reflect management's estimates based on information available at this time of this press release. While Silicon Motion believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts for the third quarter. Forward-looking statements also include, without limitation, statements regarding trends in the multimedia consumer electronics market and our future results of operations, financial condition and business prospects. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties, and actual market trends or our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to the unpredictable volume and timing of customer orders, which are not fixed by contract but vary on a purchase order basis; the loss of one or more key customers or the significant reduction, postponement, rescheduling or cancellation of orders from these customers; general economic conditions or conditions in the semiconductor or consumer electronics markets; decreases in the overall average selling prices of our products; changes in the relative sales mix of our products; the payment, or non-payment, of cash dividends in the future at the discretion of our board of directors; demand, adoption and sales of our New Growth Products; the effect, if any, on the price of our ADS as a result of the implementation of the announced share repurchase program; changes in our cost of finished goods; the availability, pricing, and timeliness of delivery of other components and raw materials used in our customers' products; our customers' sales outlook, purchasing patterns, and inventory adjustments based on consumer demands and general economic conditions, its customers and consumers; our ability to successfully develop, introduce, and sell new or enhanced products in a timely manner; and the timing of new product announcements or introductions by us or by our competitors. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 20-F filed on April 30, 2013, as amended on May 29, 2013. We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release.
CONTACT: Investor Contact:         Jason Tsai         Director of IR and Strategy         Tel: +1 408 519 7259         Fax: +1 408 519 7101         E-mail: jtsai@siliconmotion.com                  Investor Contact:         Selina Hsieh         Investor Relations         Tel: +886 3 552 6888 x2311         Fax: +886 3 560 0336         E-mail: ir@siliconmotion.com                  Media Contact:         Sara Hsu         Project Manager         Tel: +886 2 2219 6688 x3509         Fax: +886 2 2219 6868         E-mail: sara.hsu@siliconmotion.com

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