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   Technology StocksSilicon Motion Inc. (SIMO)


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From: Elroy10/20/2021 2:22:50 PM
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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.

Whew!

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....

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To: Elroy who wrote (2412)10/23/2021 10:16:32 PM
From: Anonymous895
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Elroy,

SIMO is not actually 4x Phison, as we've spoken about other times. I'm pretty sure that when SIMO says they're 4x the next largest merchant controller, they are specifically not counting any controllers used for internal use or for joint ventures/partnerships. So they're not counting Phison's controllesr for the flash that they themselves sell nor the Phison controllers used in Kingston drives. I think they're not counting the Phison controllers used in Toshiba drives as well. They're considering all this to be "in-house" controllers. But it does of course count as competition to SIMO.

All that said, I do agree that SIMO has gained massive market share this year, and I believe a lot of it will be sticky.

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To: Anonymous895 who wrote (2413)10/23/2021 11:38:27 PM
From: Elroy
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SIMO is not actually 4x Phison, as we've spoken about other times. I'm pretty sure that when SIMO says they're 4x the next largest merchant controller, they are specifically not counting any controllers used for internal use or for joint ventures/partnerships. So they're not counting Phison's controllesr for the flash that they themselves sell nor the Phison controllers used in Kingston drives.

Yes, that may be true. I'm not really sure how the controller market share battle between Phison and SIMO and then divided along SSD, UFS and eMMC product lines splits out.

It's a bit tough for me to get a handle on the scope of SIMO's controller business (internal consumption and external sales), and it seems like market share on this topic (flash controllers) isn't easily available from the normal market share guys.

Phison doesn't give broken down revenues by those three product lines (SSD, UFS and eMMC flash controllers), so ..... who knows how they're doing? I don't.

I would be interested to better understand the UFS controller market. SIMO has MU as a large UFS cell phone controller customer. SIMO said something about adding 5 or 6 more UFS OEM customers in the Q1 2021 call, then I think didn't mention it in the Q2 2021 call. I've read speculation that SK may be coming back to SIMO for UFS controllers, but if that's true I'd expect to read/hear more about it. I really don't have a great idea what's going on with UFS controller market in general, and don't know how Phison is doing in that market at all.

SIMO indicated Samsung is exiting the eMMC controller market (because the memory chips for it are too small to pursue), so I assume that sort of leaves SIMO as a monopoly, which seemed attractive. Smart speakers, TVs, etc etc should be an OK market for many years. But is Phison even in the eMMC controller market? Donno.

For SSD controllers I know Phison has products, but it's hard to get their market share. It is this space where I think SIMO means they have 4x the unit volume of Phison, but again I'm not sure.

It would be really helpful if Phison would publish it's annual sales of eMMC, UFS and SSD controllers, then we'd all know the answer!

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To: Elroy who wrote (2414)10/24/2021 10:12:08 AM
From: Anonymous895
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My reply was apparently not posted, so I'm trying again.

SIMO said that they're adding one NAND flash manufacturer as a UFS customer (starting small this year and ramping next year) and then another 5 customers next year. They did not say whether these five new customers are NAND flash manufacturers or OEM customers. I expect that some, maybe all, of these five customers are module makers.

Phison definitely makes eMMC controllers. Just google Kingston's eMMC products which go back years and use Phison's controllers. (Until recently, Kingston exclusively used Phison's controllers from the Phison/Kingston joint venture. I'm pretty sure that Silicon Motion considers these "in-house" controllers.) If Phison only made SSD controllers, their ASP would have to be much higher.

When SIMO says that they're basically the only significant merchant supplier in the eMMC market, that may technically be true, but that's not counting any "in-house" controller competition, including Kingston. I don't know what market share Kingston has in the eMMC market, but they are a significant player in the SSD market, and I would not discount Kingston as a player in the eMMC market. Of all the module makers, Kingston, due to their size and importance in the market, is practically an OEM.

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To: Anonymous895 who wrote (2415)10/24/2021 1:08:21 PM
From: Elroy
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If Phison only made SSD controllers, their ASP would have to be much higher.

Not sure what you mean by this. Historically SIMO said that eMMC controllers were 50 cents and SSD controllers were $5 on average. I don't think they've updated eMMC ASP info since UFS became widespread, so eMMC may have shifted down somewhat.

Does Phison give controller ASPs?

I haven't got a great handle on Phison's market share in anything because Phison doesn't clearly provide the info. IF Phison were dominant in something, I'd expect them to make it crystal clear to investors.

SIMO says they think they will have 50% of the design slots for gen4 PCIe SSD controllers by the end of 2022. Phison has a comparable gen4 SSD controller. They quote the phenomenal growth of this product year over year in recent press releases, but (if I recall) it is growing from something like $1 million in sales in the quarter a year ago to $2.5 million this year, something like that. High growth, but off a miniscule base.

Do you have any idea of Phison's expected market share in gen4 SSD controllers by the end of 2022? That would give us a fair comparison of the two companies in the leading edge SSD PC controller.

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To: Elroy who wrote (2416)10/24/2021 9:08:37 PM
From: Anonymous895
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We've been through this in the past. In 2019, Phison made $143 million USD in revenue from controllers (not counting their own modules of combined flash+controller) and sold approximately 411 million such stand-alone controllers. That comes out to an average ASP of about 35 cents. Which is exactly why I say that they obviously are not selling all that many stand-alone SSD controllers -- their ASP is too low for them to much of it to be coming from SSD controllers. Which is why I think that the majority of these controllers are for lower-end applications, such as eMMC (and, of course, USB keys, SD cards, and the like).

I just looked up the 2020 numbers. In 2020, Phison sold $268 million USD of stand-alone controllers, numbering 355 million units. That's an average ASP of 76 cents, much higher than 2019 but still relatively low.

I agree with you that Silicon Motion is apparently smoking Phison's in SSD controller market share, especially for next year.

There is a lot of information to be gotten from Phison's financials and annual report, freely available (in English) on their website. And you can read the transcripts of their conference calls as well, in not-quite-English.

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To: Anonymous895 who wrote (2417)10/24/2021 11:28:34 PM
From: Elroy
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I just looked up the 2020 numbers. In 2020, Phison sold $268 million USD of stand-alone controllers, numbering 355 million units.

Interesting. That's about half SIMO's 2020 revenues, which were mainly controllers (other than Shannon and Ferri).

Ok, so Phison is fairly large in the low end controller space.

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From: Elroy10/25/2021 10:26:15 AM
1 Recommendation   of 2454
 
Silicon Motion Technology Corporation ... announces today its annual cash dividend of $2.00 per ADS, a 43% increase from the $1.40 per ADS declared in 2020.


https://finance.yahoo.com/news/silicon-motion-announces-annual-dividend-120000943.html

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To: Elroy who wrote (2416)10/26/2021 12:01:38 PM
From: Area51
1 Recommendation   of 2454
 
Silicon Motion Technology (NASDAQ:SIMO) is set to give its latest quarterly earnings report on Wednesday, 2021-10-27. Here's what investors need to know before the announcement.

Analysts estimate that Silicon Motion Technology will likely report an Earnings Per Share (EPS) of $1.64


https://www.benzinga.com/news/earnings/21/10/23559987/silicon-motion-technology-earnings-preview

Do they report after the close?

Good Luck. I added a single call just to make it more interesting. The trading from the last earnings report was interesting: four strong days after earnings took it up about 22% and then it lost about two-thirds of that gain over the rest of the quarter despite a nice distribution increase just announced. I figure if earnings were bad they would have held back the distribution increase to mitigate the effects of a bad report. Hopefully a nice beat and a nice warm-up for UAN's earning release next week.

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To: Area51 who wrote (2420)10/26/2021 12:54:21 PM
From: Elroy
   of 2454
 
SIMO reports after the close of market Wednesday. Unlike most companies which report in the first 15 minutes after the close, SIMO usually reports 2-3 hours (I can't recall which, it's either 2 or 3) hours after the close. So....don't wait at market end eagerly looking for the news, it's coming a few hours later.

SIMO's current revenue growth spurt is so amazing that I haven't got a clue what to expect in terms of guidance. It seems like they should slow down at some point, but then again they indicate foundry constraints are impeding their revenue growth, so as long as that is the story, I guess SIMO's revenue growth will continue until their ability to supply catches up with demand.

My hunch is Q3 2021 is about $260m sales and EPS about $1.70-$1.85. Q4 guidance perhaps up a bit from Q3, but who knows?

That level would position them (if the demand is really there) to fairly easily deliver $1.2 billion in sales in 2022, and I'd expect operating margin to increase due to leverage, so maybe $400 million in operating profit, $80m taxes, and you've got $320m net income, almost $10 per share.......

They say they have $1.5 billion in firm backlog as of Q2 2021, and they expect backlog to increase in Q3 and Q4, so the 2022 revenue number could be higher than $1.2 billion.

And I can see gross margins going up since they've said repeatedly that the major growth driver of 2022 is their latest SSD chip which is made at 12nm, so presumably carries a higher gross margin compared to legacy products made at 26nm and below.

The main question I have about SIMO is if these numbers are even remotely close to what is coming, why doesn't a larger semiconductor with a 30x forward PE buy SIMO for $150? It would be immediately accretive to their buyer's EPS and revenue per share growth, and SIMO generates loads of cash which could benefit lots of these debt laden larger semi company's balance sheets. Maybe there is Taiwanese law which blocks acquisitions? Buying SIMO seems (to me, at least) to be a no brainer.

MCHP makes high end flash controllers. So does MRVL. Intel makes logic processors for consumer devices. AVGO used to be an acquisition machine. Why one of them doesn't scoop up little SIMO for 15x?

SIMO has low valuation and (currently) high growth. What else does a buyer want?

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