So....I've listened to the SIMO conference call and read the transcript. Interesting times for SIMO, that's for sure.
Lets see. The Good.....
The sale of FCI seems a good thing. It removes about $18m in annual operating expenses, and should increase gross and operating margins, all else being equal.
SIMO didn't buy any stock in Q1, so they have about $9.50 per share cash plus $1.30 per share coming in from the sale of FCI. Lots of cash.
SSD controllers are expected to grow 25% in Q2, and also grow strongly in H2 2019. This is 55% of sales, and is the growth area. Also, higher margins than other SIMO products. SIMO believes it will gain meaningful market share in SSD controllers in 2019, so the internal threat from WDC and now MU is not bothering them all that much. Seems good.
eMMC/UFS controllers shrunk so much in Q1, perhaps much of the decline of this segment has occurred, in Q1 2019, and it's done shrinking. Manamgement indicated the SK Hynix business would remain flat going forward (from low Q1 levels), UFS would grow (from a small base) and Chinese module makers would grow their eMMC + SIMO controller business strongly. So, maybe this segment has bottomed, and going forward it will move up from the low Q1 2019 level? I guess it's good to get the expected decline all out of the way ASAP. Yeah, 45% sequential decline is pretty awful, so hopefully this is flattish or better going forward.
Open Channel systems with the 2 Chinese hyperscale customers seems to be on track. Revenues commence in Q3 2019 hopefully.
Enterprise controllers will have initial sales in H2 2019 (from zero base) and then grow from 2020 on if the program is successul. Lets see, it may take a while, but this is a big greenfield space for SIMO. In 2020 and 2021 this could be a significant business if they do well.
The Bad....
Chinese procurement of enterprise SSD systems (Shannon, Ferri) are weak due to macro internet weakness in China. Fair enough.
The Unbelievable.
SIMO guided full year revenues to be about flat with 2018. So (excluding FCI) that means Q1 = $89m, Q2 is guided to about $103m, and full year 2018 (excluding FCI) was $500m. So H2 2019 revenues for SIMO need to be ~$300m, or $150m per Q. Seriously? Revenues are going to jump ~50% from Q2 to Q3?
SIMO also says H2 visibility is weaker than normal, and their forecast could be completely wrong.
Model
The good thing is due to the removal of FCI the model looks much better from EPS on a lower revenue level. For Q2 we have
Revenues = $104m.EPS = 59 cents.
And if they actually deliver $150m in Q3 (or Q4) on the same expense level ($27.5m without FCI, we get)
Revenues = $150m, EPS = $1.14
Hmmm, so it doesn't seem like it takes that much to get SIMO's EPS run rate back up to about $3.20 per year. If revenues are $122m per Q, they do about 80 cents EPS.
Well, I don't know what to say about them other than they seem to think a massive SIMO revenue pump is on the horizon, so might as well wait and see what they can do. |
