Silicon Motion Technology Corp. :SIMO-US: Earnings Analysis: Q3, 2016 By the Numbers : November 16, 2016

Silicon Motion Technology Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Silicon Motion Technology Corp. – Intel Corporation, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and Siliconware Precision Industries Co., Ltd. Sponsored ADR (INTC-US, TSM-US and SPIL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 162.56 million, Net Earnings of USD 33.54 million.
  • Gross margins narrowed from 50.93% to 48.48% compared to the same period last year, operating (EBITDA) margins now 25.80% from 22.77%.
  • Year-on-year change in operating cash flow of 311.08% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 162.56 141.33 110.04 95.32 92.32
Revenue Growth (%YOY) 76.09 61.75 40.08 21.68 7.37
Earnings (mil) 33.54 29.18 22.47 13.04 12.76
Earnings Growth (%YOY) 162.91 59.81 49.22 12.42 -12.15
Net Margin (%) 20.63 20.65 20.42 13.68 13.82
EPS 0.94 0.8 2.54 0.39 0.35
Return on Equity (%) 33.17 29.96 24.81 15.09 15.1
Return on Assets (%) 23.86 22.8 19.12 11.86 12.09

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Market Share Versus Profits

Revenues History
Earnings History

SIMO-US‘s change in revenue this period compared to the same period last year of 76.09% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SIMO-US is holding onto its market share. Also, for comparison purposes, revenues changed by 15.02% and earnings by 14.95% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 22.77% to 25.80%. For comparison, gross margins were 48.05% and EBITDA margins were 27.66% in the last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SIMO-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 161.19 days from 243.90 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

SIMO-US‘s change in operating cash flow of 311.08% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 20.36% to 24.29% and (2) one-time items. The company’s pretax margins are now 24.41% compared to 21.12% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Silicon Motion Technology Corp. engages in developing microcontroller for flash storage and mobile devices. It involves in designing and developing semiconductor solutions. The company was founded in November 2005 and is headquartered in Jhubei City, Taiwan.

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