No, I'm not nearly as optimistic on SIMO today as I have been in the past. There are lots and lots of moving parts, some very positive, others very negative, and I don't know which will win over the other.
The good
Shannon product sales to the 2 major Chinese cloud service providers should commence in Q2 this year, and then may ramp strongly, hopefully for years and years.
Client SSDs are supposed ramp strongly as NAND prices are super low
MRVL has exited the client SSD controller space, leaving it to SIMO. At the beginning of 2019 SIMO says they have 70% more client SSD design wins that at the beginning of 2018.
SIMO is buying back shares. Maybe they really believe the current slowdown is temporary, and their sales will rebound strongly. If so, buying shares now is good idea. But still.....
The bad
eMMC is getting displaced by UFS as the cell phone memory connectivity technology. SIMO's market share in UFS is likely to be lower than it was in eMMC, so this segment should decline going forward. It's about 30% of sales.
Both WDC and now MU have created internal client SSD controllers. Those two NAND makers also buy SSD controllers from SIMO. If their internal client SSDs with their internal controllers do well, that's market share loss for SIMO.
Q1 2019 sales are downright awful. SIMO says full year 2019 sales should be equal to full year 2018, but that requires a MASSIVE revenue increase from Q1 2019 to the rest of the year. Often, massive revenue increases do not occur.
The confusing (things not working out the way they are supposed to.....)
NAND prices have fallen sharply over the past year. Everyone in the industry knew and expected this. As NAND prices fall, we would expect client SSD adoption in PCs to accelerate significantly, and general NAND usage in device to accelerate significantly. So here we are one year into the NAND price decline, and SIMO is reporting 2-3 year low revenue levels. Should be the opposite, and It's unclear why the decline in NAND price is not driving significant increases in NAND controller sales (which always happened in previous NAND downturns).
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So, currently SIMO has lots of headwinds, and uncertain tailwinds, so it seems more of a mystery than a solid BUY selection. In order for the share price to do well, I think it needs a massive jump in revenues. What tech stock won't do well with a massive jump in revenues? In other words, the thing that makes SIMO stock work now (huge jump in sales) is not something that gives you confidence as an investment pick. ANY tech stock will do well with a massive jump in revenues.
If I didn't own it now, I wouldn't buy it now, that's for sure. |
