|So lets see, a few thoughts before the conference call.|
I find it hard to believe that NAND tightness alone is causing a year on year decline in sales. It means that there are lower units of client SSDs being sold in 2017 than 2016, which seems amazing. There probably is a decline in merchant made SSDs (as opposed to NAND maker made SSDs), since NAND is expensive and hard to get, so I suppose it's possible. Still, it seems amazing. SIMO's client SSDs grew almost 200% in 2016, and they are going to decline in 2017 due to ....... weak NAND supply? It doesn't quite add up. I wonder if there is market share loss (to MRVL? to whom?) or if there really is a decline in client SSD units.
SIMO's balance sheet ate up $17m of free cash, Inventories jumped a bit (SIMO probably over built and then undersold in Q2), and Accounts Receivable jumped a lot, $17m!! (which usually indicates a back end loaded quarter). Accounts Payable jumped, but by nowhere near as much (about $3m). So it seems SIMO shipped a lot of product out the door in the last two weeks of the quarter. In the past we'd call this stuffing the channel, but SIMO doesn't have much of a channel (most sales are direct) and it's hard to imagine stuffing the channel when product is in very tight supply (low NAND availability). So.....if things sort of roll along as expected, this balance sheet arrangement positions them for huge cash generation quarter in the next Q or 2 since they've already got lots of inventory on hand to sell, revenues next Q are doing down, and they've got a lot of Accounts Receivable to collect. But....in the big picture, this isn't too important to the share price.
Using their Q1/2 actual revenues ($260m in sales) and the middle of Q3 and Q4 forecasts, we get them doing the following
Q3 = $125m
Q4 = $520m minus ($260m + $125m) = $135m
Q4 may be a rebound, but since they did $140m, $167m and $144m in the last three quarters of last year $135m in Q4 doesn't sound too exciting. It is good that Q4 2017 will be up from Q3 2017, but it implies either share loss (to whom??) or a declining market size (which seems hard to believe).
I'm afraid this quarter throws a bucket of cold water on the SIMO story. Are market share reports going to show client SSD units in 2017 declining from 2016 levels? That's hard to believe. However, I haven't heard any reports of NAND makers developing their own client SSD controllers, and MRVL is more focused on the enterprise, so ........ the cause of the year on year decline remains a mystery. But the fact is it's happening, maybe the conference call will provide some clarity.
As for the share repurchase, they've announced $200m? That's wayyyyy too much unless the shares go to $12 or so. That's 1/3rd of their cash position. Management is buying as well. I guess that indicated they believe in the long term SIMO story, which is good, but it doesn't guarantee much. The last time SIMO bought shares was spring 2008, around $15, and then the financial crisis hit and SIMO went to $2. Hopefully this time things are different!