|If Silicon Motion has an inside track on Chinese sales, there could be large orders. They also are marketing in India. The Shanghai Composite is still down from all time highs, meanwhile Taiwan Semiconductor Manufacturing is at an all time high. New markets opening up for a low cost manufacturer in Taiwan. It should be interesting to see if this stock reaches 75 soon.|
You're confusing the device maker and SIMO. SIMO doesn't sell anything in India. SIMO sells NAND controllers to device makers (cell phones, USB sticks, etc.) and those device makers may sell their products India. And most often, SIMO sells its controller to one of the six NAND flash makers (SK Hynix, Intel, Micron, WDC, Toshiba, Samsung), and those NAND flash makers package the SIMO controller with their NAND memory, and sell that module to a device maker (Oppo, Vivo, Huawei, Acer, HP, etc.) who manufacture in Asia, and then sell the cell phones, USB sticks and/or notebook PCs all over the planet.
So SIMO has very few very large customers.
For example, NAND maker SK Hynix buys eMMC controllers from SIMO, packages it with SK Hynix NAND flash, and cells that package to a cell phone maker. For SIMO that is ONE customer (SK Hynix). SIMO may need to customize the firmware for each final model, but the key relationship for SIMO is the SK Hynix relationship. That one relationship with SK Hynix gives SIMO about 30% of its sales.
Stocks with one LARGE customer don't generally get high multiples unless we can be confidant that they relationship will not go away. With SIMO, we can't be all that confident about that, so it doesn't get a high PE multiple.
Same thing with Shannon. Ali Baba is probably 50% or more of Shannon sales. As long as Ali Baba buys Shannon products from SIMO, that's awesome. Shannon will grow like a weed. But maybe some year Ali Baba finds a product which is better than Shannon, then what? It's that uncertainty which keeps SIMO's PE low.
The main macro issue for SIMO now is NAND flash supply. As the NAND makers spent the last 4 quarters transitioning from 2D planar NAND to 3D NAND the supply of NAND declined, the transition has been tough. However, once the NAND makers master 3D NAND production they will ramp up NAND output, NAND will decline in price, and NAND applications will proliferate throughout the electronics device markets, all of them. THAT's the key driver of SIMO at the moment, not the Shanghai index or low cost providers or anything in China. It's NAND supply, NAND supply, NAND supply.
Are the 6 NAND makers ramping supply? Hard to say. If they are, they don't tell us because.....that would cause the price of NAND to fall, and they sell NAND. They want high prices. But we know all 6 NAND makers are trying their best to make as much NAND as they can (because prices and profits in NAND are very high at the moment). So we wish them luck, and wait. Don't worry, they will get good at making 3D NAND, production will ramp, and SIMO's sales will rocket. It's just a matter of waiting for that to occur.
A good indicator for SIMO is the WDC (makes NAND and disk drives) share price. When WDC's stock goes down, it means the NAND price is falling and more cheap NAND SSDs are replacing PC disk drives.
That's great for SIMO, and awful for WDC.