Silicon Motion Technology Corporation (SIMO) Conference August 11, 2025 03:30 PM ET Company ParticipantsJason Tsai - CFOConference Call ParticipantsJohn Vinh - MD & Senior Research AnalystJohn VinhGreat. Good afternoon, everybody. My name is John Vinn. I cover SMEs here at KeyBanc Capital Markets. We're pleased to have Silicon Motion here, Jason Tsai, CFO. Welcome, Jason.Jason TsaiThanks, Sean. Appreciate the opportunity. Just kick things off, I mean, just we'll be making forward looking statements. So plea ...

Key Takeaways SIMO's Q2 revenues of $198.7M and EPS of $0.69 both beat Zacks estimates despite Y/Y declines.SSD controller sales rose sequentially, while eMMC+UFS sales improved both sequentially and Y/Y.SIMO guides Q3 revenues of $219-$228M, driven by new product rollouts and market expansion efforts.Silicon Motion (SIMO) reported relatively healthy second-quarter 2025 results, with both the top and bottom lines beating the Zacks Consensus Estimate.However, the leading developer of microcontroller integrat ...

Financial Data and Key Metrics Changes - Revenue for Q2 2025 increased by 19.3% sequentially to $198.7 million, exceeding guidance due to strong mobile demand and growth in PCIe five client SSD business [26] - Gross margin improved to 47.7%, while operating margin increased to 12.8%, both above the guided range [27] - Earnings per ADS was reported at $0.69, with total stock-based compensation of $200,000 in Q2 [27] Business Line Data and Key Metrics Changes - The mobile business saw significant growth, driven by strong demand for eMMC and UFS controllers, with robust booking momentum from both flash makers and module makers [13][14] - The SSD market stabilized, with expectations for low single-digit growth in 2025, and a strong second half anticipated due to seasonal factors [15][16] - The automotive segment is experiencing increased design win activity, with expectations that it will account for at least 10% of revenue by 2026-2027 [19] Market Data and Key Metrics Changes - The NAND flash environment improved in Q2, with rising prices and declining inventory levels in the PC and smartphone markets [10][11] - Demand for memory and storage solutions is expanding across various end markets, including consumer, commercial, industrial, automotive, and enterprise [12] Company Strategy and Development Direction - The company is focused on scaling high-end UFS PCIe controllers and expanding into automotive and other markets, aiming for a $1 billion revenue run rate by year-end [9][10] - Partnerships with NAND flash makers are emphasized to maintain industry leadership and drive long-term revenue growth [11] - The company plans to invest in next-generation advanced geometry products to enhance market share and diversify its product portfolio [31][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong revenue growth in the second half of 2025, driven by new product ramps and design wins [31] - The company anticipates continued improvement in gross margins as new products scale and the enterprise business ramps up [31] - Management highlighted the importance of maintaining flexibility in response to market dynamics and customer needs [11] Other Important Information - Cash and cash equivalents at the end of Q2 2025 were $282.3 million, down from $331.7 million at the end of 2024, primarily due to dividend payouts and increased inventory [28] - The company did not repurchase any shares in Q2 2025 [28] Q&A Session Summary Question: Clarification on operating expenses and exchange rate impact - Management noted that the strengthening of the Taiwan dollar impacted operating margins, which would have been about one percentage point higher without the exchange rate fluctuations [36] Question: Update on enterprise business and customer ramps - Management indicated strong design momentum for the MonTitan products, with initial ramps expected in Q4 2025 and significant growth anticipated in 2026 [41][42] Question: Expectations for operating expense intensity and leverage - Management expects operating margin leverage as gross margins improve and revenue scales, while continuing to invest in new projects [51][52] Question: Automotive engagement and margin profile - Management expressed optimism about the automotive business, expecting it to contribute over 10% of total revenue by 2026-2027, with similar R&D costs to client SSD controllers [63] Question: Roadmap for enterprise and future engagement - Management outlined plans for the next generation of MonTitan products and emphasized the growing demand for high-capacity enterprise SSDs [66]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 increased by 19.3% sequentially to $198.7 million, exceeding guidance [27] - Gross margin improved to 47.7%, while operating margin increased to 12.8%, both above the guided range [28] - Earnings per ADS were reported at $0.69, with total stock-based compensation of $200,000 in Q2 [28] Business Line Data and Key Metrics Changes - The mobile business saw strong performance, driven by increased demand for eMMC and UFS controllers, with significant growth in bookings from both flash makers and module makers [12][13] - The SSD business is expected to grow in the low single digits in 2025, with a strong second half anticipated due to seasonal demand [15] - The automotive segment is projected to account for at least 10% of revenue by 2026-2027, driven by design wins and increased demand for high-speed storage solutions [20] Market Data and Key Metrics Changes - The NAND flash environment improved in Q2 2025, with rising prices due to reduced inventory levels in the PC and smartphone markets [10] - Demand for memory and storage solutions is expanding across various end markets, including consumer, commercial, industrial, automotive, and enterprise [12] - The enterprise storage market is evolving rapidly, with increased adoption of SSDs driven by AI applications [21] Company Strategy and Development Direction - The company is focused on scaling and shifting to high-end UFS PCIe controllers and expanding into automotive and Mount Titan products [8] - A backlog diversification strategy and design win momentum are expected to support strong growth in the second half of the year [9] - The company aims to achieve a revenue run rate of $1 billion by the end of 2025, supported by new product introductions and market share gains [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong revenue growth and improved profitability in the second half of 2025, driven by new product ramps and project wins [31] - The company anticipates continued improvement in gross margins as new products scale and the enterprise business ramps up [31] - Management highlighted the importance of maintaining strong relationships with flash makers and module makers to drive long-term revenue growth [32] Other Important Information - Cash and cash equivalents at the end of Q2 2025 were $282.3 million, down from $331.7 million at the end of 2024, primarily due to dividend payouts and increased inventory [29] - The company plans to continue investing in R&D to support a growing pipeline of customer projects [32] Q&A Session Summary Question: Impact of exchange rate fluctuations on operating expenses - The Taiwan dollar strengthened significantly in Q2, impacting operating margins by approximately one percentage point [36] Question: Engagement on the enterprise side of the business - Initial customer ramps for MonTitan are expected to start in Q4 2025, with strong momentum anticipated in 2026 [42] Question: Incremental revenue increase from new PCIe projects - Incremental revenue is driven by strength across various segments, including eMMC, UFS, and initial ramps of MonTitan and Bluefield [49] Question: Operating expense intensity in 2026 - Operating margin leverage is expected as gross margins improve and revenue scales, despite continued investments in new projects [53] Question: Automotive engagement and margin profile - The automotive business is expected to contribute significantly to revenue, with a strong design win pipeline and production ramping in late 2025 [65] Question: Roadmap for monetization and future engagement - The company is developing new products for enterprise SSDs, including high-capacity solutions, with a focus on meeting market demand [68]

Group 1 - Silicon Motion's stock closed at $72.80, down 1.41% from the previous session, underperforming the S&P 500's gain of 0.4% [1] - The stock has increased by 0.96% over the past month, lagging behind the Computer and Technology sector's gain of 6.84% and the S&P 500's gain of 4.61% [1] Group 2 - Silicon Motion is set to announce its earnings on July 30, 2025, with projected EPS of $0.52, reflecting a 45.83% decline year-over-year, and expected revenue of $180.4 million, down 14.37% from the prior-year quarter [2] - For the entire year, the Zacks Consensus Estimates forecast earnings of $3.41 per share and revenue of $815.03 million, indicating changes of -0.58% and +1.43% respectively compared to the previous year [3] Group 3 - Recent changes to analyst estimates for Silicon Motion are important as they reflect short-term business trends, with positive revisions indicating analysts' confidence in the company's performance [4] - The Zacks Rank system, which assesses estimate changes, currently ranks Silicon Motion as 2 (Buy), indicating a favorable outlook [6] Group 4 - Silicon Motion has a Forward P/E ratio of 21.63, which is higher than its industry's Forward P/E of 19.82, and a PEG ratio of 10.2, compared to the industry average PEG ratio of 3.69 [7] - The Computer - Integrated Systems industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 50, placing it in the top 21% of over 250 industries [8]

Core Insights - The article compares Hewlett Packard Enterprise (HPE) and Silicon Motion (SIMO) to determine which stock is more attractive to value investors [1] Group 1: Stock Performance and Rankings - Both HPE and SIMO currently hold a Zacks Rank of 2 (Buy), indicating a positive earnings outlook due to favorable analyst estimate revisions [3] - The Zacks Rank emphasizes earnings estimates and revisions, which are crucial for value investors [2] Group 2: Valuation Metrics - HPE has a forward P/E ratio of 10.80, while SIMO has a higher forward P/E of 21.63, suggesting HPE may be undervalued [5] - HPE's PEG ratio is 1.86, indicating a more favorable valuation when considering expected earnings growth, compared to SIMO's PEG ratio of 10.20 [5] - HPE's P/B ratio is 1.12, significantly lower than SIMO's P/B of 3.25, further supporting HPE's stronger valuation metrics [6] - Based on these valuation figures, HPE is rated as a superior value option with a Value grade of A, while SIMO has a Value grade of D [6]

Company Performance - Silicon Motion (SIMO) closed at $74.67, reflecting a +1.84% change from the previous day, outperforming the S&P 500's daily gain of 0.14% [1] - Prior to the latest trading session, shares had gained 4.8%, which lagged behind the Computer and Technology sector's gain of 7.37% and the S&P 500's gain of 5.35% [1] Upcoming Earnings - The upcoming earnings release is scheduled for July 30, 2025, with analysts expecting earnings of $0.52 per share, indicating a year-over-year decline of 45.83% [2] - Revenue is projected to be $180.4 million, representing a 14.37% decrease compared to the same quarter of the previous year [2] Full-Year Estimates - Zacks Consensus Estimates for the full year predict earnings of $3.41 per share and revenue of $815.03 million, reflecting year-over-year changes of -0.58% and +1.43%, respectively [3] - Recent changes in analyst estimates suggest a direct relationship with stock price performance, with positive revisions indicating analyst optimism [4] Zacks Rank and Valuation - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), currently ranks Silicon Motion at 2 (Buy), with an average annual return of +25% for 1 ranked stocks since 1988 [5] - The Forward P/E ratio for Silicon Motion is 21.48, which is a premium compared to the industry average of 19.71, while the PEG ratio stands at 10.13, significantly higher than the industry average of 4.27 [6] Industry Overview - The Computer - Integrated Systems industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 50, placing it in the top 21% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]

Company Overview - Silicon Motion Technology Corporation is a global leader in NAND flash controllers for solid state storage devices, supplying more SSD controllers than any other company worldwide for servers, PCs, and other client devices [3] - The company is the leading merchant supplier of eMMC and UFS embedded storage controllers used in smartphones, IoT devices, and other applications [3] - Silicon Motion also provides customized high-performance solutions for hyperscale data centers and specialized industrial and automotive SSDs [3] Financial Results Announcement - The company plans to release its second quarter 2025 financial results after the market closes on July 30, 2025 [1] - A conference call will be hosted on July 31, 2025, at 8:00 a.m. Eastern Time, with participants required to pre-register [1][2]

Core Viewpoint - Silicon Motion (SIMO) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][4]. Earnings Estimates and Ratings - The Zacks rating system is based solely on a company's changing earnings picture, tracking the Zacks Consensus Estimate for EPS from sell-side analysts [2]. - The upgrade reflects an improvement in Silicon Motion's earnings outlook, which could lead to increased buying pressure and a rise in stock price [4][6]. Impact of Earnings Estimate Revisions - Changes in a company's future earnings potential, as shown by earnings estimate revisions, are strongly correlated with near-term stock price movements [5]. - Institutional investors utilize earnings estimates to determine the fair value of stocks, influencing their buying and selling actions, which subsequently affects stock prices [5]. Performance of Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [8]. - The system maintains a balanced distribution of "buy" and "sell" ratings, ensuring that only the top 5% of stocks receive a "Strong Buy" rating [10]. Specifics on Silicon Motion - Silicon Motion is projected to earn $3.41 per share for the fiscal year ending December 2025, with no year-over-year change, but the Zacks Consensus Estimate has increased by 5.3% over the past three months [9]. - The upgrade positions Silicon Motion in the top 5% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [11].

Company Performance - Silicon Motion (SIMO) closed at $74.29, down 1.17% from the previous trading session, underperforming the S&P 500's loss of 0.11% [1] - Over the past month, shares of Silicon Motion have increased by 18.27%, while the Computer and Technology sector gained 8.76% and the S&P 500 gained 5.17% [1] Earnings Expectations - The upcoming earnings report is expected to show an EPS of $0.52, reflecting a 45.83% decline compared to the same quarter last year [2] - Quarterly revenue is anticipated to be $180.4 million, down 14.37% from the previous year [2] Full Year Projections - For the full year, earnings are projected at $3.41 per share and revenue at $815.03 million, indicating changes of -0.58% and +1.43% respectively from the prior year [3] Analyst Estimates and Rankings - Recent changes in analyst estimates for Silicon Motion are indicative of shifting business dynamics, with positive revisions suggesting optimism about the business outlook [3] - The Zacks Rank system currently rates Silicon Motion as 2 (Buy), with a 0.21% increase in the consensus EPS estimate over the last 30 days [5] Valuation Metrics - Silicon Motion has a Forward P/E ratio of 22.02, which is higher than the industry average of 20.09 [6] - The company also has a PEG ratio of 10.39, compared to the industry average PEG ratio of 4.32 [6] Industry Context - The Computer - Integrated Systems industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 22, placing it in the top 9% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]