Instinet (Nomura) Downgrades Silicon Motion Technology (SIMO) to Neutral

Instinet (Nomura) downgraded Silicon Motion Technology (NASDAQ: SIMO) from Buy to Neutral with a price target of $50.00 (from $62.00).

Analyst Donnie Teng commented, "SIMO has been our top Buy idea over the past 18 months, but in the past quarter the stock price has been under pressure, due mainly to: 1) potentially slower earnings growth; 2) slower eMMC business and customer Hynix’s inhouse UFS controller; 3) tight NAND supply maybe muting SIMO’s controller shipment growth. Our arguments were: 1) earnings growth would slow but not reverse; 2) slower China/EM smartphone demand is a risk but the UFS adoption rate is slow and Hynix has limited progress; 3) SIMO’s eMMC/client SSD controllers are mainly for the OEM market so there is less impact from a NAND shortage. We maintain these arguments. However, our non-consensus concern is SIMO's enterprise SSD business. After strong growth in 2016, enterprise SSD now takes 10-15% of sales. While the Street expects it to grow by at least double digits in 2017, we find that Intel is very aggressive in trying to take share. With limited new customers and rising NAND price, SIMO’s enterprise SSD growth could be muted. This kind of constrained growth driven by share loss could make our early PE multiple unsustainable in the near future (Fig. 1~2). We make minor changes to our revenue and earnings estimates on the back of preliminary results, and downgrade SIMO to Neutral from Buy, with a new TP of USD50 based on 12x (from 15x) 2017F non-GAAP EPS of USD4.1. SIMO trades at 10-11x our 2017F non-GAAP EPS."

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

Shares of Silicon Motion Technology closed at $42.29 yesterday.

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