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To: Acesinthehole who wrote (1720)7/28/2017 10:30:22 AM
From: Elroy
   of 1767
 
We got SK Hynix saying the NAND supply tightness will loosen in Q4.
We got WDC reporting Q2 and falling 7% the next day.

I'm not sure all the signs are that NAND supply will remain tight through next year. WDC says their customers have ordered up through next year, probably because they want to lock in supply, but there were also questions about double ordering and what have you. The tea leaves are starting to shift mildly in SIMO's favor, no idea whether it will continue or not, but the story has always been NAND production will pick up a good bit in H2 2017, and it might happen.

What SIMO really needs is for NAND over production to become clear, and then for the investment community to do the pair trade of short the NAND makers and buy SIMO. THAT would be a nice cycle to go through!

We can only dream......

Did you read the SK Hynix tidbits? Lots of good stuff in their conference call that make the SIMO stumble in Q2 sounds pretty temporary and already over. Hopefully the train gets chugging again after the upcoming conference call.

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From: Elroy7/31/2017 5:16:19 AM
   of 1767
 
Demand for high-speed transmissions surges
Cage Chao, Taipei; Jessie Shen, DIGITIMES [Monday 31 July 2017]


Emerging applications arising from IoT, cloud and artificial intelligence (AI) are demanding high-speed transmissions, while high-speed interfaces such as USB, PCI Express (PCIe) and DisplayPort (DP) continue to upgrade. Taiwan-based suppliers engaged in the development of high-speed transmission chips are expected to grow their shipments substantially starting the second half of 2017, according to industry sources.

With the adoption of USB Type-C interface looking to increase among smartphones, particularly those from China-based vendors, related chip suppliers including ASMedia, Weltrend, On-Bright, Etron and Amazing Microelectronic are set to benefit, said the sources. The adoption of USB Type-C is also expected to rise among new notebook models in 2017.

Other interfaces including PCIe and DP have upgraded to provide higher data speeds, and have been supported by Taiwan-based chip suppliers engaged in the server industry supply chain, the sources indicated.

Memory device controller suppliers Silicon Motion Technology and Phison Electronics have both expanded their PCIe SSD offerings to include those for industrial, cloud and car electronics applications, the sources said. Shipments PCIe SSDs are expected to hike starting the second half of 2017.

Mixed-signal IC design house Parade Technologies' embedded DP (eDP) solution has reportedly been adopted by an international vendor for data center applications, the sources noted.

Unlike their larger international peers which focus on core solutions such as CPU, GPU and SoC chips, most Taiwan-based fabless IC firms specialize in PC peripherals and chips, and tend to cooperate with their international rivals. Such a scenario will remain unchanged in the era of IoT, cloud and AI, the sources said.

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From: Elroy7/31/2017 8:01:22 PM
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Yikes, Q3 guidance is a disaster. Revenues declining heading into the seasonally strongest quarter of the year. Bathe only green light is theur guiding Q4 revenues to go up to $145m r so, using the middle of Q3 and Q4 guidance. Shorts seem to like SIMO, I think it's going to tank on thus news, maybe see $30?

Hard to believe the expected Q3 revenue decline is due to tight NAND supply. But I need to see SSD and eMMC/UFS market share info to understand the cause. Have they lost design slots in SSDs? I don't know, to whom?

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From: Elroy7/31/2017 8:40:31 PM
   of 1767
 
TAIPEI, Taiwan and MILPITAS, Calif., Aug. 01, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation ( SIMO) (“Silicon Motion” or the “Company”) today announced that its Board of Directors has authorized a new program for the Company to repurchase up to $200 million of its ADS over a 12 month period. Separately, Silicon Motion executive officers have notified the Company that they intend to purchase $2.5 million of its ADSs.

“We believe that we are building a great business with a strong foundation of increasing depth and breath of storage products, from differentiated turnkey SSD controllers to unique SSD solutions that address the growing needs of PC OEMs, hyperscaler data centers, automotive OEMs and other applications,” said Wallace Kou, Silicon Motion’s President and CEO. “This year, our business is facing very strong headwind caused by temporary NAND supply tightness. As supply growth accelerates from new 3D NAND capacity coming on line, we believe current headwind will turn to tailwind and our business will rebound.”




====




They've got about $300m cash and $25m debt. I don't want to see them blow through $200m of $300m cash on share repurchases. A token $40m share repurchase would have been fine.




In 2008 they also had a miss and the shares declined. They spent $70m buying stock around $15, then the financial crisis hit and the shares went to $2. They halted the share repurchase to conserve cash, so they were buying at $15 and not buying at a$2.

Oh well, I guess at least it indicates SIMO management believes their current problems are temporary. Time will tell if they're correct. But I think this is going to be a painful 3 months for SIMO shareholders. Next Q I think the results are going to have EPS below 50 cents, so maybe they get 12x $2 + $8 cash as a share price? $30?




Depressing......

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From: Elroy7/31/2017 9:22:31 PM
   of 1767
 
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!

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From: Elroy8/1/2017 7:33:26 AM
   of 1767
 
Something odd about SIMO's Q3 guidance, it implies a big uptick in Operating Expenses

Revenues in the middle of guidance are $125.5m
Gross margin in the middle of guidance is $57.6m

And they say operating margin in the middle of guidance will be ~16%, which is about $20.1m

That means operating expenses need to be $37.5m, which is a big jump from Q2's $32.8m

Oh well, it's just numbers at this point, I'm wondering whether the shares will stay above $30 today.....

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From: Elroy8/1/2017 7:56:01 AM
   of 1767
 
I can't believe this. SIMO is actually up a few pennies in pre-market trading.

nasdaq.com

If it holds above $40 today I'll be amazed.....

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From: Elroy8/1/2017 9:02:06 AM
   of 1767
 
I'm listening to the call now, I'll try to write down important new stuff.

CEO prepared remarks:

SSD stuff
NAND industry supply conditions are the biggest factor limiting SIMO's growth. NAND flash makers are directing available flash to enterprise applications and away from client SSDs, and this trend increased in the past few months. Flash supply is inadequate for client SSD. Supply will improve over the next few quarters, and flash makers will transition from 256GB units to 512GB units.

SIMO expects to ship QLC client SSD controllers in H1 2018.

Flash makers are increasing CapEx, and the tightness since 2016 will reverse over time. NAND supply will reverse and become plentiful for a few years to come. Flash industry cyclicality has not changed, excess supply will come, it is just taking time.

Last year NAND makers took NAND from module makers to their own client SSD products, recently NAND makers have took NAND supply from their own client SSD products to their own enterprise NAND products. SIMO's pipeline is unchanged, the timing of client SSD projects has just been pushed back a bit. Programs will ramp in Q4 2017 and beyond.

We are well placed to benefit when NAND supply improves.

We have added a second customer for enterprise SSD controllers, and now have two hyperscale "direct" customers. One of these programs have been pulled in and will launch before the end of 2017.

eMMC/UFS stuff:

Our new UFS controller program remains on track, and we expect initial shipments to a top 5 Android OEM to begin later in 2017. For most cell phone makers we think eMMC will be preferred over UFS now due to price differences.

Shannon and Ferri:

Tight NAND supply limits out growth. If not for NAND supply both Shannon and Ferri would grow meaningfully this year. High grade NAND is available, but very expensive now. Ali Baba (he named the Chinese Shannon customer) continues to purchase Shannon products from us. Ferri is doing well. We have Japanese, European, Chinese and US commercial OEMs, and we have signficant orders we cannot fill because NAND flash is not available.

We have a strong pipeline and are well positioned in all three segments to rebound when more NAND supply comes on line.

CFO - Finances.

Client SSD controller sales we weak because high prices slowed adoption and NAND was directed toward enterprise. Beyond this year we remain confident of rapid growth, most future NAND products are much cheaper than current NAND, and the replacement of disk by SSDs will accelerate.

eMMC controller sales will decline in H2 as SK allocates flash from mobile to SSDs. Longer term eMMC will be stable (but this sounds like BS to me, I think they're losing SK's UFS biz).

Shannon and Ferri - SSD solutions will grow in Q3, and peak for the year.

Full year client SSD will be flat, eMMC down slightly, and SSD down by less than previous guidance.

Head count is 1,153. Tax was 22% compared to 27% in Q1. We think the effective tax rate will remain above 18% due to inability to realize tax benefits of entities generating pre-tax losses.

Balance sheet

Cash is up $86.9m year on year. Accounts receivable and inventory are both up a lot sequentially.

Revenue will rebound and gross margins will also rebound from Q3 weakness. Q3 projects were pushed back to Q4 due to NAND supply weakness.

Q&A:

eMMC in second half will be down compared to H1. SK Hynix built inventory of eMMC in Q2, and those numbers will decline in H2 as Sk will allocate flash to SSDs rather than mobile.

MRVL and internal solution are showing price competition? No changes to competitive landscape. We dominate the client SATA controller market, PCI controller products are coming on line later.

How can client SSDs sales be flat with Q1 down 20%, Q2 down 10% and Q3 down slightly? No real answer, but Q4 will rebound and client SSDs will be flat for the full year.

How do we know NAND capacity will expand going forward? It hasn't happened yet. Client SSD for SIMO will rebound whether NAND supply improves or not. We have a major PCIe program to launch in Q4 with 3D NAND.

For eMMC they may add a second NAND maker as OEM, and enter new markets other than smartphones.

Q When will supply-demand get more "normal"? A: Flash makers are ramping 3D NAND and spending Cap Ex to ramp capacity sooner. NAND makers are saying yield and output are ahead of expectation. This year the NAND growth is back half loaded, but 2018 should be a meaningful year for NAND supply growth. So early in 2018 or mid-2018 NAND supply should be more "normal".

10% of SIMO eMMC today goes into non-smartphone applications.

Ferri SSDs have a diverse customer base, Shannon is more concentrated at Ali Baba.

Do you plan to spend all $200m on the buyback? No real answer.

If you executed the entire buyback, are there any acquisition candidates for you? No answer, of course.

Charlie Chan of Morgan Stanley! How about SIMO's SSD growth versus the industry growth? SSD units are increasing even though supply is tight. Last year it was 40% and this year 45%. So....why isn't SIMO growing since the SSD client controller space is growing? Answer - we don't think we're losing market share. SSD prices have gone up a lot, and adoption is slowing. 64 layer and 96 layer NAND should push SSD prices down, and we think that will cause SSD adoption to accelerate. We don't think adoption is increasing in 2017.....

Charlie Chan of MS on Op Ex - Is Op Ex for SIMO in Q3 going down? A: It should be stable in Q3 compared to Q2. Enterprise SSD controllers are contributing to OpEx now, but not yet shipping.

Charlie Chan of MS asks.....will NAND supply increase soon? You were wrong earlier in the year when you said Q3 or so, why should we trust your view now? A: We use the rolling guidance from our customers, and they have been inching higher especially in Q4.

The proportion of Ali Baba where SIMO buys the flash is higher this year than last year.

Again, client industry growth is about 10% to 15% in 2017. But SIMO client SSDs are expected to be flat. Why? A: We think your industry forecast is wrong.

Which products have the strongest visibility for Q4, which is most risky? We are confident across the board for our key products - client SSDs, eMMC and SSD solutions.

Q4 gross margins will snap back due to material rebound in high gross margin client SSD solutions and decline in Ali Baba 2017 program in Shannon Systems. And in Q1 2018 we can renegotiate pricing based on higher prices.

Why is Q3 declining sequentially? Tight NAND and their customers are rebalancing to non-SIMO products.

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From: Elroy8/1/2017 9:50:37 AM
   of 1767
 
Well, so much for SIMO going to $30, it looks like it's decided to go the other way for some reason.

I wonder what would have happened if they had beaten and raised?

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From: Elroy8/4/2017 5:23:56 AM
   of 1767
 

Desktop sales expected to resume growth in 3Q17


Monica Chen, Taipei; Joseph Tsai, DIGITIMES [Thursday 3 August 2017]


Desktop demand remained weak in the first half of 2017, but is expected to start growing in the third quarter driven by new products from AMD and Intel for the gaming and high-end desktop markets, according to sources from the upstream supply chain.

AMD's new top-end 16-core Ryzen Threadripper 1950X and 12-core 1920X will become available in the retail channel on August 10, while its 8-core 1900X is scheduled to be released at the end of August.

Several vendors have already begun accepting pre-orders for desktop models using AMD's latest top-end CPU processors since the end of July including the Alienware Area-51 Threadripper from Dell.

AMD also recently announced its new Vega-based GPUs including the Radeon RX Vega 64, using either liquid or air cooling modules, and Radeon RX Vega's prices start from US$399. AMD also offers free games and discounts on hardware including Samsung's CF791 monitor as well as price-cuts on CPU/motherboard bundles to help consumers save up to US$300.

Intel has also prepared to release its next-generation 14nm Coffee Lake processors in the near future and will initially launch products such as the Core i7 8700K.

AMD and Intel are also seeing growing sales in the server ssegment. AMD's EPYC 7000 series processors were unveiled at the end of June. Although the processor series currently only accounts for less than 1% of the server market, orders for related server makers have been picking up recently and are expected to stay strong in the second half of 2017 with players including Microsoft, Baidu, Dell, Hewlett-Packard (HP), Supermicro, Inventec, Wistron, Asustek Computer, Gigabyte Technology and Tyan eagerly promoting their systems.

Intel debuted its Purley server platform in July and is currently seeing strong orders from enterprises looking to replace their existing server systems. Some market watchers believe the replacement trend will last for a whole year and shore up Intel's profitability and revenues.

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