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2005/10/27
 

Silicon Motion Technology Corporation Announces Third Quarter 2005 Results

Net income jumped 85% sequentially on the back of strong flash memory
                           controller sales growth

    Third Quarter 2005 Financial Highlights:
    * Revenue grew 20% year-over-year and 35% sequentially to NT$747 million
      (US$23.1 million)
    * Gross margin increased from 46.9% in 2Q05 to 52.3% in 3Q05
    * Net income increased 83% year-over-year and 85% sequentially to NT$215
      million (US$6.7 million)
    * Diluted earnings per ADS was NT$6.85 (US$0.21), up from NT$4.51
      (US$0.13) in 3Q04 and NT$4.32 (US$0.14) in 2Q05

    Third Quarter 2005 Business Highlights:
    * Unit shipments of mobile storage products grew 143% year-over-year and
      72% sequentially to 24 million units
    * Unit shipments of multimedia System-on-Chip (SoC) products grew 218%
      year-over-year and 21% sequentially to approximately 407,000 units
    * The Company shipped over 10 million SD and MMC controllers in the month
      of September

TAIPEI, Taiwan, Oct. 27 /PRNewswire-FirstCall/ -- Silicon Motion Technology Corporation (Nasdaq: SIMO; the "Company"), a leading fabless semiconductor company that designs, develops, and markets universally compatible, high-performance, low-power semiconductor solutions for the multimedia consumer electronics market, today announced its third quarter 2005 financial results. Under accounting principles generally accepted in the United States of America (US GAAP), diluted earnings per ADS was NT$6.85 (US$0.21) in the third quarter of 2005 or 3Q05, an increase of 52% from NT$4.51 (US$0.13) in the same period of the previous year or 3Q04 and an increase of 59% from NT$4.32 (US$0.14) in the second quarter of 2005 or 2Q05. Net income for 3Q05 was NT$215 million (US$6.7 million), an increase from NT$117 million in 3Q04 and NT$116 million in 2Q05.

Commenting on the results, Silicon Motion's President and CEO, Wallace Kou, said, "We are pleased with our performance in the third quarter. We saw robust demand for our products in the quarter, particularly in flash memory card controllers for use in Secure Digital (SD) and MultiMediaCard (MMC) products. Despite constrained foundry and substrate capacity among our suppliers, we shipped a record 24 million flash memory card controllers and USB 2.0 flash disk controllers. Additionally, in an effort to constantly improve our customer relationships and meet their needs, we continued to build our R&D and technical support teams. In the fourth quarter of 2005, we anticipate launching a number of upgrades to our current products, and we believe that we should see continued strong demand for our products."

Third Quarter Financial Review(1)

Sales

Net sales in the third quarter totaled NT$747 million (US$23.1 million), an increase of 20% from the third quarter of 2004 and 35% from the second quarter of 2005. By product, net sales from mobile storage products accounted for 87% of total net sales, which was an increase from 80% in the second quarter of 2005. Net sales from multimedia SoCs represented 13% of total net sales, which was down from 19% in 2Q05. Net sales from other products accounted for less than 1% of net sales.

    As % of Net Sales         1Q04   2Q04   3Q04   4Q04    1Q05   2Q05    3Q05
    Mobile Storage Products    80%    80%    87%    92%     86%    80%     87%
    Multimedia SoCs            20%    18%    13%     7%     13%    19%     13%
    Others                      0%     2%     0%     1%      1%     1%      0%
    Total                     100%   100%   100%   100%    100%   100%    100%

Net sales from mobile storage products, which include flash memory card controllers and USB 2.0 flash disk controllers, grew 21% from 3Q04 and grew 47% from 2Q05 to NT$650 million (US$20.1 million). Unit shipments increased 143% from 3Q04 and 72% from 2Q05 to 24 million units. Both the year-over-year and sequential increases were driven by strong demand for the Company's newer generation of SD, MMC, and USB 2.0 flash disk controllers. The average selling price or ASP per unit declined 15% from 2Q05.

Net sales from multimedia SoC products, which include multimedia display processors and portable audio SoCs, grew 18% from 3Q04 and decreased 12% from 2Q05 to NT$94 million (US$2.9 million). On a sequential basis, net sales of portable audio SoCs grew 21% while net sales of multimedia display processors fell by 16%. Unit shipments of multimedia SoC products increased 218% from 3Q04 and 21% from 2Q05 to approximately 407,000 units. The ASP per unit for multimedia SoC products declined 27% from 2Q05 primarily because portable audio SoCs, which have lower selling prices compared to multimedia display processors, constituted a greater proportion of the total multimedia SoC product sales in the third quarter. Increased competition in the portable audio SoC market also contributed to the decline in ASP.

    Unit Shipment
     (thousand units)         1Q04   2Q04   3Q04   4Q04    1Q05   2Q05    3Q05
    Mobile Storage Products  4,824  4,913  9,983 14,549  10,912 14,120  24,265
    Multimedia SoCs            112    114    128    111     163    337     407
    Others                       2     34      3      -      17     59       3

The Company's top customers in the quarter included A-Data Technology, All American Semiconductor, ATP Electronics Taiwan, Dynacard, Kingmax Digital, Lexar Media, Macrotron Systems, Power Digital Cards, Siltrontech Electronics, and Sunvision. The Company's top 5 customers accounted for 48% of total net sales in 3Q05, compared to 38% in 2Q05.

Expenses

The cost of sales in 3Q05 totaled NT$357 million (US$11.0 million), an increase of 3% from 3Q04 and an increase of 22% from 2Q05. The year-over-year increase was driven primarily by higher assembly and test costs as a result of the higher unit shipments, though this was partially offset by lower total wafer costs. The sequential increase was driven primarily by higher total wafer costs and, to a lesser extent, higher assembly and test costs as a result of the higher unit shipments overall. Gross margin for the quarter was 52.3%, up from 44.2% in 3Q04 and from 46.9% in 2Q05.

Total operating expenses in 3Q05, which include sales and marketing expenses, general and administrative (G&A) expenses, research and development (R&D) expenses, and amortization of intangible assets, were NT$183 million (US$5.7 million), an increase of 68% from 3Q04 and an increase of 24% from 2Q05. Total operating expenses represented 24.5% of net sales, compared to 17.5% and 26.7% of net sales in 3Q04 and 2Q05, respectively. The Company's operating margin increased from 26.7% in 3Q04 and 20.2% in 2Q05 to 27.8% in 3Q05.

Sales and marketing expenses in 3Q05 increased by 22% from 3Q04 and 21% from 2Q05 and represented 5.0% of net sales. The year-over-year increase was primarily driven by higher salary and benefits as well as higher commissions. The sequential increase was primarily due to higher salary and benefits and the higher expenses associated with samples for use in compatibility testing.

General and administrative expenses in 3Q05 increased by 133% year-over- year and 120% sequentially and represented 6.5% of net sales. The year-over- year and sequential increases were primarily due to higher professional fees associated with the ongoing legal and reporting requirements for publicly listed companies in the US, salary and benefits, and travel expenses.

Research and development expenses in 3Q05 increased 80% year-over-year and 2% sequentially and represented 12.8% of net sales. The year-over-year increase was driven by higher salary and benefits due to the higher R&D headcount, and higher project costs that resulted from greater number of R&D projects under development. The sequential increase in R&D expenses was due to increases in salary and benefits from the increase in R&D headcount, partially offset by decreases in project expenses and IP license fees.

In 2Q05, the Company incurred a loss on its inventory in the possession of a subcontractor due to fire. The Company is currently in the claims process with the subcontractor for an amount exceeding the book value of lost inventory. After consultation with its outside legal counsel, the Company believes it is highly probable for the Company to receive reimbursement for the lost inventory at full book value, and the Company subsequently recorded NT$42 million of inventory loss, offset by NT$42 million of fire loss reimbursement, resulting in zero impact to the earnings for the period. In connection with the inventory loss, the Company also recorded NT$8 million in other expenses in 3Q05 for amounts paid to certain customers for delays in shipment caused by the fire.

The company-wide headcount increased 14% from 196 at the end of 2Q05 to 224 at the end of 3Q05. A large majority of the headcount increase took place in our research and development department.

Earnings

Net income totaled NT$215 million (US$6.7 million) in 3Q05, an increase of 83% from NT$117 million in 3Q04 and an increase of 85% from NT$116 million in 2Q05. The net margin was 28.8%, up from 18.9% in 3Q04 and 21.0% in 2Q05. Diluted earnings per ADS were NT$6.85 (US$0.21), up 52% from NT$4.51 (US$0.13) in 3Q04 and up 59% from NT$4.32 (US$0.14) in 2Q05.

As part of the Company's initial public offering, 4.3 million American Depositary Shares were issued in July 2005. Using the as adjusted share count, the Company's basic earnings per ADS in the first and second quarters of 2005 would have been NT$3.13 (US$0.10) and NT$3.79 (US$0.12), respectively, and the Company's diluted earnings per ADS in the first and second quarters of 2005 would have been NT$3.13 (US$0.10) and NT$3.73 (US$0.12), respectively.

Balance Sheet

At the end of the third quarter of 2005, the Company had NT$1,625 million (US$49.0 million) in cash and cash equivalent funds and NT$993 million (US$29.9 million) in short-term investments. Accounts receivable (A/R) increased from NT$296 million at the end of 2Q05 to NT$479 million (US$14.4 million) at the end of 3Q05. The average A/R turnover days increased from 45 days to 47 days. Inventory increased from NT$202 million at the end of 2Q05 to NT$232 million (US$7.0 million) at the end of 3Q05. The average inventory turnover days decreased from 87 days to 56 days. Total assets grew from NT$1,975 million at the end of 2Q05 to NT$3,832 million (US$115.5 million) at the end of 3Q05, primarily due to the approximately US$41 million net cash proceeds received from the closing of the Company's initial public offering in July 2005.

Current liabilities increased from NT$309 million at the end of 2Q05 to NT$582 million (US$17.5 million) at the end of 3Q05, primarily due to increases in accounts payable and accrued expenses. There was no material change in the Company's long-term liabilities.

In early July, Silicon Motion issued 17.2 million new ordinary shares, representing 4.3 million American Depositary Shares as part of the Company's initial public offering. Since the offering, there are now 122.612 million ordinary shares outstanding, which is equivalent to 30.653 million American Depositary Shares.

4Q05 Business Outlook:

The Company currently expects its revenues in 4Q05 to grow by 10-15% from 3Q05. The Company estimates that its operating margin in 4Q05 may be flat or slightly up from the 3Q05 level.

Webcast of Conference Call:

The Company's management team will conduct a conference call at 11:00 am Eastern Time on October 28. A webcast of this conference call will be accessible on the Company's web site at http://www.siliconmotion.com.

                    Silicon Motion Technology Corporation
                      Consolidated Statements of Income
     (in thousands, except percentages, per share data, and share count)
                                 (unaudited)


                          For the   For the  For the   For the
                              3        3        3         3
                           Months    Months   Months    Months
                            Ended     Ended    Ended     Ended   Change Change
                          Sep. 30,  Jun. 30, Sep. 30, Sept. 30,    from   from
                             2004      2005     2005      2005     3Q04   2Q05
                             (NT$)     (NT$)    (NT$)     (US$)(2)   (%)   (%)
    Net Sales             621,988   551,747  747,012    23,131      20     35
    Cost of sales         347,172   292,886  356,688    11,045       3     22
    Gross profit          274,816   258,861  390,324    12,086      42     51
    Operating expenses
     Research &
      development          53,112    93,480   95,690     2,963      80      2
     Sales & marketing     30,651    30,827   37,372     1,157      22     21
     General &
      administrative       20,851    22,054   48,489     1,501     133    120
     Amort. of
      intangible assets     4,439     1,125    1,126        35     (75)     -
     Subtotal             109,053   147,486  182,677     5,656      68     24
    Operating income      165,763   111,375  207,647     6,430      25     86

    Non-operating
     income (expense)
     Gain on sale of
      investments           1,544     2,783    3,394       105     120     22
     Interest income
      (net)                    40       518   11,725       363  29,213  2,164
     Foreign exchange
      gain                    673     1,362    4,710       146     600    246
     Others                    80       264   (6,356)     (197) (8,045)(2,508)
     Subtotal               2,337     4,927   13,473       417     477    173
    Income before tax     168,100   116,302  221,120     6,847      32     90
    Income tax (expense)
     benefit               50,802       179    6,021       186     (88) 3,264
    Net income                NT        NT       NT
                         $117,298  $116,123 $215,099    $6,661      83     85

    Basic earnings per
     ADS                  NT$4.51   NT$4.41  NT$7.02     $0.22
    Diluted earnings
     per ADS              NT$4.51   NT$4.32  NT$6.85     $0.21

    Margin Analysis:
    Gross margin            44.2%     46.9%    52.3%
    Operating margin        26.7%     20.2%    27.8%
    Net margin              18.9%     21.0%    28.8%
    Additional Data:
     ADS equivalents
     (thousand)(3)        25,994    26,353   30,653
    Diluted ADS
     equivalents
     (thousand)           25,994    26,872   31,389



                    Silicon Motion Technology Corporation
                      Consolidated Statements of Income
     (NT$ thousands, except percentages, per share data, and share count)
                                 (unaudited)


                                         For the       For the
                                            Nine          Nine
                                          Months        Months
                                           Ended         Ended
                                         Sep. 30,      Sep. 30,
                                            2004          2005      Change (%)

    Net Sales                          1,403,697     1,814,020             29
    Cost of sales                        782,249       940,303             20
    Gross profit                         621,448       873,717             41
    Operating expenses
     Research & development              167,290       258,206             54
     Sales & marketing                   101,907       100,207             (2)
     General & administrative             83,718        95,841             14
     Amortization of intangible assets    13,318         3,376            (75)
     Subtotal                            366,233       457,630             25
    Operating income                     255,215       416,087             63

    Non-operating income (expense)
     Gain on sale of investments           5,597         9,122             63
     Interest income (net)                   241        12,773          5,200
     Foreign exchange gain (loss)         (3,367)        4,522            234
     Others                                  521        (6,109)        (1,273)
     Subtotal                              2,992        20,308            579
    Income before tax                    258,207       436,395             69
    Income tax expense                    84,254         9,128            (89)
    Net income                        NT$173,953    NT$427,267            146

    Basic earnings per ADS               NT$6.73      NT$15.37

    Diluted earnings per ADS             NT$6.73      NT$14.98

    Margin Analysis:
    Gross margin                           44.3%         48.2%
    Operating margin                       18.2%         22.9%
    Net margin                             12.4%         23.6%

    Additional Data:
    ADS equivalents outstanding
     (thousand)                          25,840        27,792
    Diluted ADS equivalents
     (thousand)                          25,840        28,527


                    Silicon Motion Technology Corporation
                          Consolidated Balance Sheet
                                (NT$ thousands)
                                 (unaudited)


                                         Dec. 31,      Jun. 30,       Sep. 30,
                                            2004          2005           2005
    Cash and cash equivalents            727,165       149,658      1,624,817
    Short-term investments               154,428       885,551        993,382
    Accounts receivable, net             449,572       295,590        478,878
    Inventories                          509,149       202,143        232,341
    Refundable deposits - current        107,527        95,000         95,000
    Deferred income tax assets, net       35,330         9,944          7,798
    Prepaid expenses and other
     current assets                       68,337       177,931        214,583
    Total current assets               2,051,508     1,815,817      3,646,799

    Long-term investments                  3,142         3,142          3,142
    Property and equipment (net)          65,657        78,717         82,064
    Intangible assets, net                 6,843         4,593          3,468
    Other assets                          39,887        72,975         96,289
    Total assets                    NT$2,167,037  NT$1,975,244   NT$3,831,762

    Accounts payable                     545,818       131,872        353,485
    Income tax payable                    78,133        45,224         64,518
    Accrued expenses and other
     current liabilities                  88,139       132,146        164,114
    Total current liabilities            712,090       309,242        582,117

    Accrued pension cost                   4,813         6,144          7,855
    Other long-term liabilities            1,901         1,592          1,467
    Total liabilities                    718,804       316,978        591,439
    Shareholders' equity               1,448,233     1,658,266      3,240,323
    Total liabilities &
     shareholders' equity           NT$2,167,037  NT$1,975,244   NT$3,831,762


    About Silicon Motion:

Silicon Motion Technology Corporation is a leading fabless semiconductor company that designs, develops, and markets universally compatible, high- performance, low-power semiconductor solutions for the multimedia consumer electronics market. The Company's semiconductor solutions include controllers used in mobile storage media, such as flash memory cards and USB flash drives, and multimedia systems on a chip, or SoCs, used in digital media devices such as MP3 players, PC cameras, PC notebooks and broadband multimedia phones.

Forward-Looking Statements:

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding trends in the multimedia consumer electronics market and our future results of operations, financial condition and business prospects. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties, and actual market trends or our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied in these forward looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, our belief in the outcome of any claim or lawsuit, including our claim against one of our subcontractors for the inventory loss that we sustained during a fire at the subcontractor's factory; unpredictable volume and timing of customer orders, which are not fixed by contract but vary on a purchase order basis; the loss of one or more key customers or the significant reduction, postponement, rescheduling or cancellation of orders from these customers; general economic conditions or conditions in the semiconductor or multimedia consumer electronics markets; decreases in the overall average selling prices of our products; changes in the relative sales mix of our products; changes in our cost of finished goods; the availability, pricing, and timeliness of delivery of other components and raw materials used in our customers' products; our customers' sales outlook, purchasing patterns, and inventory adjustments based on consumer demands and general economic conditions; our ability to successfully develop, introduce, and sell new or enhanced products in a timely manner; and the timing of new product announcements or introductions by us or by our competitors. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission, including the registration statement on Form F-1 filed on June 24, 2005, as amended. We assume no obligation to update any forward- looking statements, which apply only as of the date of this press release.

    (1) Note: Unless otherwise stated, all financial information used in this
        press release is unaudited, consolidated, prepared in accordance with
        US GAAP and denominated in New Taiwan dollars.  US dollar amounts are
        translated for convenience only.  Such financial information is
        generated internally by us and has not been subjected to the same
        review and scrutiny, including internal auditing procedures and review
        by independent auditors, to which we subject our audited consolidated
        financial statements, and may vary materially from the audited
        consolidated financial information for the same period.  Any
        evaluation of the financial information presented in this press
        release should also take into account our published audited
        consolidated financial statements and the notes to those statements.
        In addition, the financial information presented is not necessarily
        indicative of our results for any future period.

    (2) The Company maintains its accounts and expresses its financial
        statements in New Taiwan dollars.  For convenience only, U.S. dollar
        amounts presented in the income statement have been translated from
        New Taiwan dollars, using an average exchange rate of NT$32.2948 to
        US$1 for the third quarter of 2005 based on the average of the noon
        buying rate for cable transfers of the NT dollar as certified for
        customs purposes by the Federal Reserve Bank of New York.

    (3) Assumes all outstanding ordinary shares are represented by ADSs.  Each
        ADS represents four ordinary shares.

SOURCE   Silicon Motion Technology Corporation
    -0-                             10/27/2005
    /CONTACT:  Investor - Richard Wei, Chief Financial Officer, US -
+1-408-501-5386, Taiwan - 886-3-552-6888, x2886, Fax: +886-3-552-6988,
ir@siliconmotion.com; Media - Sara Hsu, Project Manager, +886-2-2219-6688,
x3509, Fax: +886-2-2219-6868, sara.hsu@siliconmotion.com.tw /
    /Web site:  http://www.siliconmotion.com /
    (SIMO)

CO:  Silicon Motion Technology Corporation
ST:  Taiwan
IN:  SEM CPR
SU:  ERN CCA ASI

MC
-- LNTH007 --
7354 10/27/2005 16:00 EDT http://www.prnewswire.com

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