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Technology Stocks : Silicon Motion Inc. (SIMO) -- Ignore unavailable to you. Want to Upgrade?

To: Elroy who wrote (19)	3/13/2011 4:06:37 AM
From: Elroy	Read Replies (1) \| Respond to of 2992

Better Ability To Cope With Fluctuations Of NAND Supplies; Raise Price Target To $9.50 We reiterate our Buy rating and raise our price target to $9.50 from $8.50, despite recent weakness in the semiconductors space. We like SIMO at the current level because worldwide demand for NAND flash is set to grow significantly in the next few years due to higher content per box and increasing popularity of smartphones and tablet PCs, and SIMO is well positioned to benefit from this trend with its technology lead in NAND flash controllers. We do not believe a shortage of NAND (if there is one) in 2Q11 and 3Q11 will throw SIMO off the trajectory of revenue and EPS growth in 2011 and 2012, as more exposure to large OEM customers has improved SIMO's ability to cope with fluctuations of NAND supplies. We see reward outweighing risk at the current level, given SIMO’s opportunities in TLC and 2x NAND flash controllers, CDMA EVDO transceivers, and eMMC (embedded multimedia card). • SIMO's ability to cope with fluctuations in NAND supply appears to be better this time. Many investors anticipate that NAND flash will be in a shortage in 2Q11 and 3Q11, as no meaningful additional production capacities will come online at major NAND flash vendors until 4Q11, and Apple's (AAPL, Not Rated) iPad 2 and iPhone 5 and other tablet PC vendors' products will likely soak up a significant portion of the NAND output. Conventional wisdom thinks that SIMO's operating performance is negatively correlated with NAND availability in the open market; we note that large OEMs now account for a much bigger proportion of SIMO's mobile storage revenue than a few quarters ago, and SIMO's ability to cope with the fluctuations in NAND supply has improved significantly, as large OEMs typically do not reply on open market purchases and are usually in better positions to secure NAND supplies than smaller players during a shortage. In our opinion, if there is a shortage of NAND in 2Q11 and 3Q11, NAND flash controller makers that have strong ties to large OEMs and NAND flash vendors (such as SIMO, Phison [8299.tw, Not Rated], and Skymedi [3555.tw, Not Rated]) will likely gain market shares at the expenses of their smaller competitors. • Model changes. We increase our 2011 revenue and pro-forma (excluding share-based compensation) EPS estimates to $171mln/$0.73 (consensus $165mln/$0.66) from $165mln/$0.65. We also increase our 2012 revenue and EPS estimates to $193mln/$0.93 (consensus $184mln/$0.81) from $190mln/$0.89. • Valuation. Our new $9.50 price target is 13x our new 2011 pro-forma (excluding share-based compensation) EPS estimate of $0.73. Our old $8.50 price target was based on 13x our old 2010 pro-forma EPS estimate of $0.65.