Silicon Motion’s third-quarter 2015 revenues increased 10.2% year over year to $95.4 million. The top line also surpassed the Zacks Consensus Estimate of $94 million.

Sales from mobile storage products (which include Embedded Storage products and Expandable Storage products) were up 12.1% to $80.9 million from $72.2 million a year ago. Moreover, mobile communications products (which include LTE transceivers and mobile TV ICs) sales inched up 0.8% year over year to $12.5 million.

During the quarter, outstanding performance of the Embedded Storage Products (including eMMC and SSD controllers), accounting for 60% of total sales, supported the top-line growth. High SSD controller sales, accounting for 20% of total revenue during the quarter, were driven by expanding demand for the company’s two major NAND flash partners and multiple module makers.

Morever, the company’s eMMC controller sales witnessed a rebound in the quarter, primarily fueled by increased orders from its client SK Hynix, the world's second-largest memory chipmaker. Greater demand for new smartphones and other OEM design wins were also conducive to the growth in eMMC controller sales.

Gross profit for the quarter improved almost 7.4% on a year-over-year basis to $49.2 million.

However, the company’s operating income in the third quarter fell 1.3% year over year to $23.4 million.

Notable Developments

During the third quarter of 2015, Silicon Motion commenced the shipment of eMMC controllers which are capable of managing Triple-Level Cell (“TLC”) NAND flash devices for SK Hynix. Moreover, the company won automotive OEM contracts for its Ferri-embedded storage solution, which are expected to supplement profitability, going forward.

During the second quarter, Silicon Motion had completed the acquisition of China's leading enterprise-grade PCIe SSD and storage array vendor, Shannon Systems. Following this development, in the third quarter, the company started shipping PCIe SSDs to a well-renowned e-commerce company and a payment service provider, both based in China.

Liquidity & Cash Flow

Exiting the quarter on Sep 30, 2015, Silicon Motion’s cash and cash equivalents decreased to almost $183 million from $201 million as of Jun 30, 2015.

The company’s total cash from operating activities for the three-month period ended Sep 30, 2015 was $13.5 million compared with $14.8 million at the end of Jun 30, 2015.

Outlook

Concurrent with the quarterly results, Silicon Motion offered its guidance for fourth-quarter 2015. Management expects revenues to increase 0–3% on a sequential basis and non-GAAP gross margin to come within 50–52%.

Management believes that top-line growth will continue to benefit from robust SSD controller sales as well as modest eMMC controller sales. Moreover, PCIe SSD sales are expected to act as a significant tailwind during the quarter. However, the company anticipates sluggish revenues in specialty RF ICs and expandable storage products to strain growth to some extent.

To Conclude

For the past few quarters, Silicon Motion has benefited significantly from the stellar performance of its SSD controllers market and we believe this trend is unlikely to fade any time soon. Supported by a robust pipeline of design wins, the company aspires to become the largest merchant supplier of SSD controllers by the end of this year.

Moreover, as Shannon enjoys the support of flash makers in China, we believe Silicon Motion is well positioned to reap the benefits of rapidly growing SSD markets in the country. This apart, the company’s strong commitment toward product development will likely be conducive to growth in the near future.

Silicon Motion currently sports a Zacks Rank #1 (Strong Buy). Other well-ranked stocks include Integrated Device Technology, Inc. IDTI, Mellanox Technologies, Ltd. MLNX and CEVA Inc. CEVA. All three stocks hold the same Zacks Rank as Silicon Motion.