(BY Mani) Silicon Motion Technology Corp. (NASDAQ:SIMO) could deliver above market revenue growth through its strong position in flash controllers and LTE wireless solutions at Samsung Electronics, which accounts for 30 percent of its revenue.
Taiwan-based Silicon Motion is a fabless semiconductor company that designs, develops and markets high performance semiconductor solutions for multimedia and consumer electronics markets.
The company sells its semiconductor solutions to leading module makers, original design manufacturers ("ODMs") and original equipment manufacturers ("OEMs") worldwide. Its major clients for controllers include Samsung, Netcom, Micron, Sony, and Transcend.
Its multimedia system on chips (SoCs) are sold mainly to companies such as Advantech, Siemens, ThinNetworks, and Toshiba-TEC. The company's communications ICs are sold to customers like LG Electronics, Samsung, Pantech, etc.
The company's controller IP is increasingly differentiated in the market and underpins a trend of higher average selling prices (ASPs).
"We believe SIMO is poised to grow revenue 27% y/y in 2012 and 12% in 2013, well above industry growth of 1% and 5%, respectively, as the company is focused on the high-growth flash and LTE markets," Bob Gujavarty wrote in a note to clients.
Beyond unit growth, the company's has the ability to benefit from increased complexity. The semiconductor industry experiences consistent ASP declines and, therefore, many firms struggle to translate unit growth into revenue growth. In contrast to many peers, ASPs boosted revenue growth in 2010 and 2011.
"We believe SIMO's higher ASPs reflect the increased difficulty of designing NAND flash controllers as well as the ability to address more higher value add markets such as SSDs and Embedded storage," the analyst added.
Silicon Motion offers a range of 3G CDMA EV-DO and 4G LTE transceivers. The company's LTE transceivers are designed specifically to support Samsung's LTE baseband solutions while the CDMA EV-DO transceivers are designed to support VIA Telecom CDMA EV-DO baseband specifically, support CDMA 1x, and EVDO Rev.A operation.
"Even with a more muted outlook for SIMO's LTE wireless solutions in 2013 (-3% y/y), we expect the company to continue to outperform its peers," Gujavarty said.
The company expects third quarter revenue to grow 5-8 percent sequentially, gross margin in a range of 47-49 percent. It maintained a full-year revenue growth target of 25-30 percent with new growth products representing 30- 35 percent of total revenue.
Over the long term, the company believes it can continue to outperform the semiconductor industry due to the growth of NAND flash and greater penetration of the NAND market (eMMC and SSDs).
Silicon Motion is a fabless semiconductor company that has no need for leading edge process technology. The company has relatively low capex requirements (2-3 percent of sales) and free cash flow margin over 20 percent. The company has a healthy balance sheet with no long- term debt and $113 million of cash at the end of the second quarter 2012.