|Ok, we're about due for a week of SIMO news, so lets assess the shares.|
News - sometime between tomorrow and next Tuesday SIMO will announce the new dividend amount for the next four quarters. The current dividend is 35 cents per Q. My guess is it goes to 50 cents per Q, but it's really just a guess. The CFO has said their historical plan to return capital to shareholders has been to deliver half of free cash to shareholders in dividends. That doesn't mean the "half" number will be the what they do going forward, and it isn't clear if he meant trailing free cash or expected future free cash. Also, SIMO should be spending $$ to build their new headquarters over the next 6-10 quarters, so it's also not clear how that expenditure affects their calculation of "free cash". Anyways, the dividend should increase from 35 cents per Q, by how much we will find out soon.
Then next Wednesday afternoon we'll get the actual Q3 numbers and Q4 guidance. They've already pre-announced revenues slightly ahead of forecast 12.5% sequential growth, and gross margins between 50.0% and 50.5%. Previously they indicated that Q4 would have higher sales than Q3, and that they expect backlog ($1.5 billion at the end of Q2) to grow throughout the year. They also said they would discuss 2022 in general terms in the Q3 call, and give formal guidance in the Q4 2021 call.
SIMO has gained tremendous market share in 2021. Phison is the only other major merchant flash controller maker, and SIMO says they are 4x larger than Phison in SSD controllers, and that there is no merchant competition in eMMC and UFS controllers. It remains to be seen how this significant share gains will affect future profitability, but one would expect gross margins to increase down the road as reduced competition should allow SIMO to raise prices. In addition SIMO expects to rapidly ramp their gen4 SSD flash controller in 2022, and that chip is made at 12nm and will have higher ASPs since it's brand new. So ramping a higher priced chip which may have lower cost of production per unit due to reduced line widths should (one would think) translate into higher corporate gross margins for SIMO in 2022. SIMO says at the end of 2022 they expect that chip to have 50% share of gen4 design slots, and, well, THAT'S A LOT!
The only thing I see going WRONG with SIMO currently is the equity valuation. I think management needs to explain how the 2021 changes in the market (massive share gains by SIMO) perhaps give them a stronger moat going forward, if that is true. The only major major threat to SIMO has always been loss of design slots to internal controller groups inside the NAND flash makers (SK, WDC, MU, etc.). Is that concern increased, diminished, or what as a result of market development of the current year? If that concern is significantly reduced, I think SIMO may experience multiple expansion, but who knows?
Optimistic on the coming big news week, and hoping Lucy does not appear to pull the football away, so lets see what happens....