Yahoo Finance Why Silicon Motion (SIMO) Appears to be a Solid Pick Now
Shares of Silicon Motion Technology Corporation SIMO have risen 24.6% over the past year, driven by healthy revenues on the back of a flexible business model and a quick time-to-market schedule to meet clients’ evolving needs.
With healthy fundamentals, this Zacks Rank #1 (Strong Buy) semiconductor firm appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Growth Drivers
Silicon Motion has restructured its organizational framework to boost growth amid a challenging macroeconomic environment. The company has also executed some management changes to better navigate the volatile market conditions.
The changes include the establishment of two business units, namely the Client & Automotive Storage (“CAS”) and the Enterprise Storage & Display Interface Solution (“ESDI”), with a focus on delivering the best-in-class solutions for customers. The CAS business unit comprises the company’s client solid-state drive (SSD) controllers, mobile controllers, Ferri products and expandable controllers, while the ESDI unit encompasses the enterprise SSD controllers and display interface products.
The dedicated business units will enable Silicon Motion to develop the most advanced controller technology and deliver industry-leading solutions to tap new market segments for long-term growth. The core focus on controller technology was primarily driven by the increasing adoption of NAND in consumer, industrial, commercial and enterprise applications.
Silicon Motion has established itself as the leading merchant supplier of client SSD controllers to module makers, including most market leaders in the United States, Taiwan and China. Most of the company’s clients are ditching MLC flash for TLC flash. This has made the company focus on manufacturing SSD controllers that can manage TLC flash.
Going forward, Silicon Motion believes the market will be dominated by SSDs that use TLC flash, which will further bolster their use in PCs, thereby displacing mechanical hard disk drives (HDDs). As TLC SSD offers higher performance and competitive advantage over HDDs, PCs are increasingly adopting them. Furthermore, the company believes a majority of its client SSD controllers will be used for managing 3D flash.
The company appears to be well-equipped to adapt to industry changes. It has collaborated with flash vendors to develop proprietary controller technology to overcome the existing weakness of 3D NAND and outshine peers. The company has commenced initial sales of 3D SSD controllers to flash partners. It expects this controller to be a significant SSD controller growth driver for the next year as NAND Flash partners’ 3D capacity expands. Also, it commenced mass production of PCIe NVMe client SSD controllers for flash partners. We believe accelerated product sales and favorable industry trends signal bright prospects for Silicon Motion.
Silicon Motion’s eMMC is showing strong signals of rebound, thereby adding to the strength of its overall embedded storage market that comprises both SSD controllers and eMMC embedded memory. As market trends suggest that the balance is gradually tilting from eMMC 4.5 toward eMMC 5.0, the company foresees lucrative prospects for eMMC 5.1 controller sales. We believe an expanding customer base and innovative products will likely act as tailwinds for the company’s top-line growth. Over the last decade, Silicon Motion has shipped more than 6 billion controllers cumulatively — more than any other company in the world. On a yearly basis, Silicon Motion ships more than 750 million NAND controllers. We remain impressed with the inherent growth potential of the stock.
The stock delivered an earnings surprise of 4.7%, on average, in the trailing four quarters. It has a long-term earnings growth expectation of 38.2%.
Other Key Picks
Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy) at present, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experiences. Arista has a long-term earnings growth expectation of 15.7% and delivered an earnings surprise of 15.4%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products. It is well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Ooma, Inc. OOMA offers cloud-based communications solutions, smart security and other connected services. Its smart software-as-a-service and unified-communications-as-a-service platforms serves as a hub for seamless communications and networking infrastructure applications. Currently, Ooma holds a Zacks Rank #2.
It delivered a trailing four-quarter average earnings surprise of 8.90%. In the last reported quarter, Ooma delivered an earnings surprise of 27.27%.
Motorola Solutions, Inc. MSI, carrying a Zacks Rank #2 at present, delivered an earnings surprise of 7.5%, on average, in the trailing four quarters. It has a long-term earnings growth expectation of 9.5%.
Motorola provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure service providers. It develops and services both analog and digital two-way radio, voice and data communications products, and systems for private networks, wireless broadband systems and end-to-end enterprise mobility solutions to a wide range of enterprise markets.
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