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Technology Stocks : Silicon Motion Inc. (SIMO)
SIMO 75.52-5.2%Jul 17 3:59 PM EDT

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To: Elroy who wrote (2759)4/11/2024 10:11:21 AM
From: franklin1  Read Replies (1) of 2782
Updated: 09-Apr-24 11:44 ET
Silicon Motion moving lower despite raising Q1 guidance as good news is already baked in (SIMO)
Silicon Motion (SIMO), a Hong Kong-based manufacturer of NAND flash controllers and solid state storage devices (SSD), raised its Q1 revenue guidance and expects gross margin to come in near the high-end of its prior guidance range of 44-45%. With shares surging by 35% on a year-to-date basis, the stock was already pricing in bullish news ahead of SIMO's Q1 earnings report on May 2. That upbeat sentiment is a function of strengthening demand for SIMO's SSD and eMMC+UFS controllers, as well as the company's emergence as an AI play via its new MonTitan Enterprise State Development platforms.

  • In this morning's press release, SIMO didn't provide much detail in terms of the drivers behind its brighter outlook. However, looking back to SIMO's Q4 earnings report in early February, it was evident that momentum for its eMMC+UFS and SSD controllers was building.
    • eMMC, or, embedded multimedia card, is advanced managed NAND flash memory that's primarily used in mobile applications. Last quarter, eMMC+UFC controller sales jumped by 25-30% qtr/qtr, fueled by new wins with flash maker partners and stronger pricing.
  • SSD controller sales grew by 15-20% qtr/qtr, despite modest growth in the PC and smartphone markets. SIMO credited its technology leadership and ongoing share gains for the solid growth, but it does expect business conditions to also improve. During the earnings call, SIMO stated that it anticipates demand to pick up this year in both the PC and smartphone markets following steep declines over the past two years.
  • What has investors especially excited, though, is MonTitan, which is SIMO's new enterprise chip platform that's targeted for edge AI applications within the data center and hyperscaler end markets. At the end of 2023, SIMO began sampling MonTitan to customers and now the company has over a dozen customers that are in the process of evaluating the product.
    • Better yet, SIMO has already secured one design win with another one expected later this year. Looking ahead, the company appears poised to generate substantial revenue from MonTitan.
  • On a non-operating basis, SIMO also may be in line to rake in a $160 mln breakup fee after MaxLinear (MXL) terminated its merger agreement with SIMO last year. SIMO believes the action constituted a material breach of the agreement and the issue is currently being arbitrated between the two companies.
The main takeaway is that the recovery in SIMO's business is gaining steam, and the company has a compelling growth catalyst on the horizon with the recent lauch of MonTitan, but this good news is largely priced in following the stock's huge runup to start 2024.
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