Could a Samsung Partnership Fuel This Company's Growth?

Silicon Motion (NASDAQ: SIMO  ) is a small, fabless semiconductor company that develops a number of interesting products. Its bread-and-butter product category -- storage controllers for mobile devices, and, increasingly, PCs -- has proven to be quite a strong growth area for the company over the last couple of years. Another big product category for the company -- RF transceivers for cellular devices -- was an initial source of strength before falling off significantly. The company hopes that these revenues can be renewed -- but can they?

What's the scoop?
Silicon Motion's RF transceivers are designed to be paired with a cellular baseband processor, i.e. the cellular modem. Silicon Motion's initial success in LTE was driven by the fact that Samsung (NASDAQOTH: SSNLF  ) , Silicon Motion's primary transceiver customer, had paired a Silicon Motion RF transceiver with its own cellular baseband in a number of phones back in 2011. However, as cellular chip vendor Qualcomm (NASDAQ: QCOM  ) raced ahead of the industry with LTE-Advanced, Samsung's baseband group couldn't keep up.

This meant that during 2012, Silicon Motion saw a sharp drop-off in its transceiver sales, particularly as the use of a Qualcomm baseband meant the use of a Qualcomm transceiver. This pain extended throughout 2013, but there was hope that in 2014 -- when/if Samsung was able to develop its own competitive LTE-Advanced baseband -- Silicon Motion would start winning some major sockets, and revenue from that would reinvigorate its RF business.

Some wins did come through, and $12 million is coming in 2014
In a March press release, Silicon Motion announced that it had secured an LTE-Advanced transceiver win with a leading Korean handset OEM. This OEM is most likely Samsung. Further, on the company's April conference call, an executive claimed that Samsung is evaluating its transceivers for several other LTE programs. All told, the company expects to hit its goal of at least $12 million in LTE revenue during 2014.

This is interesting not only from the perspective of Silicon Motion (which will apparently see a nice revenue boost for the year), but from the perspective of the cellular baseband landscape in general. Right now, Samsung sources LTE chipsets from a number of vendors including Qualcomm, Broadcom, and Intel. It will be interesting to see if Samsung's efforts are able to rival Qualcomm's and, to a lesser extent, Intel's and Broadcom's.

Is the stock a buy?
The good news is that Silicon Motion's business looks pretty healthy, with its storage controller business continuing to boom as mobile devices grow and its RF business reinvigorated. Further, the stock trades at under 12 times the 2015 earnings consensus and has a fortress of a balance sheet, with a whopping $4.78 per share in net cash. The stock is dirt cheap and, despite its rather nice run over the last 12 months, still should have legs as the LTE story plays out. This is a name well worth considering on a broad market dip if you're not afraid of the volatility that small-cap tech can bring to your portfolio.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recent recruited a secret-development Dream Team to guarantee their newest smart device was kept hidden from the public for as long as possible. But the secret is out...and some early viewers are even claiming its everyday impact could trump the iPod, iPhone, AND the iPad. In fact, ABI Research predicts 485 million of these type of devices will be sold per year. But one small company makes this gadget possible. And their stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2014, at 11:39 AM, hudsondusters wrote:

    Cool. I used to see your articles on Seeking Alpha. Always a well-informed take. Nice to see you at the Fool.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2968958, ~/Articles/ArticleHandler.aspx, 8/29/2015 9:44:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
SIMO $25.43 Down -0.05 -0.20%
Silicon Motion Tec… CAPS Rating: ***
BRCM $51.79 Up +0.14 +0.27%
Broadcom Corp CAPS Rating: ****
INTC $28.42 Up +0.70 +2.53%
Intel CAPS Rating: ****
QCOM $57.45 Up +0.09 +0.16%
Qualcomm CAPS Rating: ****
SSNLF $875.00 Up +25.00 +2.94%
Samsung CAPS Rating: ***