SIMO moving up before their earnings report Wednesday after the close.
Their guidance is sales of $175m-$183m with an operating margin between 9% and 11%.
What's more important than the Q2 results though is the fact that the promised revenue growth is about to begin. SIMO has said they expect sales of about $250m in Q4 2025, and all product areas to grow in 2026. They're gaining significant market share in client PC SSDs due to the significant design wins of their new 6nm PCIe Gen5 controllers. The 8 channel high end controller enters production in Q3 and the 4 channel mid range PC controller enters production in Q4, and both of those are expected to deliver significant market share gains over the next 12-24 months. Their Mon Titan enterprise controller chip is supposed to ramp sales starting in Q3 and expected to grow for years. Their new NVidia relationship (boot storage module for Bluefield 3) is expected to enter production in Q3, and the call may hopefully have new news about Mon Titan design wins for the enterprise SSD controller slots for Bluefield 3. And their UFS 4.1 mobile controller enters production in H2 2025. All of those new products have gross margins above the company's corporate average, and all are expected to start growth now and more meaningfully in 2026.
Oh yeah, auto memory controllers are also supposed to ramp starting in Q3.
SIMO currently is an under appreciated growth story. My plan is to sit back and just see what happens over the coming 4 quarters. Sales are definitely going up, and probably the gross margin line is going up as well, how high on either I don't know but it will be fun to watch and find out.
What's a reasonable price target for SIMO? I don't know, lets see......
If they can get to $1.2b in annual sales (2027?) with a 25% operating margin and 18% tax rate, that's $250m net income, against 33m shares, so ..... $6.50 EPS? Give it a 16x PE (maybe higher with the new products and rapid sales growth, but I don't know) = $110.
They could easily have $20 per share by 2027, and perhaps pay a $3.00 per year dividend. So, maybe $11- - $140 is reasonable as a two year price target. That's about a 90% gain from the current price.
It's possible.
Everything would need to go right to get there. But Mon Titan and NVidia sales can easily go much more than "right". And they indicate that in client PC controllers the market is getting LESS competitive as the cost of fabbing 6nm chips is outrageous. Competitors that lack SIMO's scale can't justify the expense to fab their own controller chip. NAND makers that are in the market but are not the major players in client PC SSDs can't justify the fabrication expense and prefer to pay SIMO a price per chip, and let SIMO deal with the manufacturing costs and inventory issues that go along with high volume standardized chips. The client PC story makes sense, and it's SIMO's LARGEST segment (2/3rds of sales) today. For them to have their largest segment GROW meaningfully over the next two years should have a great effect on the share price. |
