Needham & Company Would Buy Silicon Motion (SIMO) on Recent Weakness

Needham & Company affirms Silicon Motion (Nasdaq: SIMO) at Buy with a price target of $37 following a modestly improved outlook for Q3 revenue growth.

Analyst Rajvindra Gill noted the following:

• Client SSD and eMMC continue to shine. We believe the beat was driven by continued execution in SIMO's growth segments: eMMC and client SSDs. The client SSD business continues to benefit as its four flash partners (we believe MU, SNDK, SK Hynix, & Intel) enter production. We estimate this portion of the business increased ~60% in 2Q15 and currently represents 15-20% of consolidated revenue. We believe that eMMC saw tempered growth in the current quarter when compared to 3Q14's 21.6% Q/Q increase due to comparatively softer China handset demand, but is continuing to see strong growth in emerging markets.
• Expect in-line 4Q. Looking to 4Q15, we expect a roughly in-line guide on the upcoming earnings call and we are consequently leaving our estimates unchanged. The client SSD business will continue to ramp, but we are somewhat cautious on the eMMC business. Given commentary we received on our supply chain tour in Asia, we believe there could be decelerating growth due to slowing demand in the China handset market. Net, we expect roughly an in-line guide from SIMO for 4Q.
• Not concerned about Micron Tidal acquisition. SIMO traded down 3.6% yesterday, we believe due to an announcement that Micron had purchased Tidal Systems, a small SSD controller company. We believe these fears are misguided as our checks indicate the company was formed just one year ago and was pre-product/pre-revenue. We believe the company does not compete in Silicon Motion's wheelhouse and is focused on high-end enterprise applications, not mainstream products. SIMO generally waits until OEMs have sufficient volume before supplying controllers, preferring to have its partners develop and manufacture high-end, low-volume products internally.

For an analyst ratings summary and ratings history on Silicon Motion Technology click here. For more ratings news on Silicon Motion Technology click here.

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