<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Chipset oriented storage & nbsp;Silicon Motion & nbsp;(NASDAQ: SIMO) announced its results for the fourth quarter of 2018 on January 29th. The company, which primarily manufactures controller chips for products such as solid state drives (SSDs) and smartphone storage, recorded a $ 123.4 million business turnover, down 9 percent. % compared to the previous year. same period a year ago. Diluted earnings per share were $ 0.83 on aGAAP base, up about 5% from one year to the next. & nbsp; "data-reactid =" 11 "> Storage-oriented chip maker Silicon movement (NASDAQ: SIMO) announced its Q4 2018 results on January 29. The company, which primarily builds controller chips for products such as Solid State Drive (SSD) drives and smart phone storage, recorded a $ 123.4 million business turnover, down 9% compared to the same period of the previous year. Diluted earnings per share were $ 0.83 on a non – GAAP basis, up approximately 5% from one year to the other.

The company's outlook for the first quarter of 2019 is based on non-GAAP revenue, which is expected to be between $ 97.5 and $ 103.6 million, down significantly from 130, $ 3 million generated in the first quarter of 2018.

A smartphone logic board with a chip being removed.

More

Source of the image: Getty Images.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "To get an additional perspective on the results, the outlook for the first quarter of 2019 and the long-term vision of management, here are three key quotes from the company's latest report call for winnings. & nbsp; "data-reactid =" 25 "> For an additional perspective on results, outlook for the first quarter of 2019 and management's long-term vision, here are three quotes you can not miss from the company's latest financial results call.

NAND pain is the gain of Silicon Motion

The prices of NAND flash memory – a type of computer memory used as storage memory for personal computers, smartphones and data center servers – are dropping, much to the chagrin of major producers of flash memories NAND. This pain, however, is the gain of Silicon Motion.

Silicon Motion CEO, Wallace Kou, explained about the announcement of the results that in 2019, the company thought that "sales of its customer SSD controllers will continue to grow as NAND prices fall. more. "

The idea is simple: the NAND flash is the main contributor to the nomenclature of an SSD. So, if NAND prices go down, SSD flash drives should become cheaper, which would boost sales. Silicon Motion manufactures controller chips that control how data is read and written to NAND flash memory – not the NAND itself – so that the company benefits when more SSDs are sold.

That said, Kou warned that despite the "positive trend of the industry, the visibility of sales this year is significantly more limited than in the past." Previously, the company's NAND flash partners gave Silicon Motion an overview of the number of controllers they would need for the next 12 months. Now, some of these partners "have reduced their forecast period to only six months," Kou said.

"We believe that they are struggling with their own limitation of operational visibility due to the uncertainty of demand related to the weakening of the Chinese economy, the US-China trade negotiations, and the lack of business." 39, other problems, "he said.

Longer term opportunity

Kou commented in the longer term on the opportunities offered by the customer SSD market, namely the SSD market for personal computers. He said the company was "optimistic that in the next few years, nearly 300 million customers [hard-disk drives] currently being shipped each year will be mainly replaced by the customer [SSDs]and we remain the leading merchant provider of controllers for these drives.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This is not an exaggeration. hard drive manufacturers, & nbsp;Western Digital & nbsp;(NASDAQ: WDC), indicated at analyst day in december Expect the total addressable market (TAM) of hard disk-based client devices to rise from $ 11.4 billion in 2018 to $ 5.6 billion by 2023 at the latest. However, Western Digital has its own relatively large SSD business. to talk about parts of the hard drive TAM that SSDs will outgrow. "data-reactid =" 34 "> This prediction is not exaggerated.One of the two major manufacturers of hard drives, Western Digital (NASDAQ: WDC), announced during its analyst day in December that it expects the total addressable market (TAM) hard disk-based client devices to grow from $ 11.4 billion in fiscal year 2018 to only $ 5.6 billion by fiscal year 2023. Digital has its own relatively large business of SSDs, so it is not reluctant to talk about parts of the TAM of the hard drive that SSD drives will overtake.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "It is important to keep in mind, however, that Silicon Motion has taken the trouble to say that this is the first & nbsp;merchant & nbsp;provider of these controllers. Many major SSD manufacturers, such as Western Digital, build their own SSD controllers internally. Thus, although Silicon Motion still has a large and growing TAM, much of the SSD market will be closed to the company as a result of this vertical integration. "Data-reactid =" 35 "> It's important to keep in mind, however, that Silicon Motion has been careful to say that this is the first Merchant provider of these controllers. Many major SSD manufacturers, such as Western Digital, build their own SSD controllers internally. Thus, while Silicon Motion still has a large and growing TAM, a large part of the global SSD market will be closed to the company due to this vertical integration.

The story continues

Progress of the data center

Silicon Motion occupies an important position in the SSD client controllers, but the company is also striving to break into the market for data center-based SSD controllers. At the call, Kou gave an overview of the progress made by the company in this regard.

For the company to sell SSD controllers to Chinese customers of data centers on a very large scale, it is not enough to hand them a controller chip and call it a day. Instead, he said, "we need to convert our controller into complete SSD solutions".

This drove the 2015 acquisition by the company of Shannon Systems, a company that has established itself as "a leading provider of enterprise class PCIe solutions. [peripheral component interconnect express] SSD and network storage solutions for the Chinese Internet and other industries. "

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" We are doing well with our two hyperscale clients, setting performance of the Shannon open-channel SSD hard drive for Ali Baba and another BAT[unacronymepourlesgéantschinoisdelatechnologie[anacronymforChinesetechgiants[unacronymepourlesgéantschinoisdelatechnologie[anacronymforChinesetechgiantsBaidu, Alibaba and Tencent]customer, "Kou explained. The use of this new controller is progressing smoothly and we are still ready to begin mass commercial production of our open channel SSD by the middle of this year. "& nbsp;" data-reactid = "44"> "We are doing well with our two hyperscale clients, adjusting the performance of the Shannon open-channel SSD drive for Ali Baba and another BAT[unacronymepourlesgéantschinoisdelatechnologie[anacronymforChinesetechgiants[unacronymepourlesgéantschinoisdelatechnologie[anacronymforChinesetechgiantsBaidu, Alibaba and Tencent]customer, "Kou explained. The use of this new controller is progressing smoothly, and we are on track to begin mass commercial production of our open-channel SSD drive by the middle of this year. "

The SSD opportunity for data centers could be a great opportunity for Silicon Motion and, in the next few years, investors should begin to see these efforts bear fruit in the company's financial performance.

Take away food

Silicon Motion deserves a look for investors who wish to capitalize on the industry's turn towards SSD drives. The company's product performance in its core markets looks sound and it extends to new areas, such as data center SSD solutions, which could potentially generate significant revenue and profit growth. long-term.

The stock is not particularly expensive, trading at about 13.1 times the expected profit for 2019 and only 11.2 times the profit forecast for 2020. I will keep this one on my watch list of technology stocks .

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 49 "> More from The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Ashraf Eassa has no position in the mentioned actions. The Motley Fool owns shares and recommends Baidu and Tencent Holdings. Motley Fool is a short part of Western Digital. The Motley Fool has a disclosure policy."data-reactid =" 57 ">Ashraf Eassa does not hold any of the shares mentioned. The Motley Fool owns shares and recommends Baidu and Tencent Holdings. Motley Fool is a short part of Western Digital. Motley Fool has a disclosure policy.