Silicon Motion Stock Plummets Following BofA's Double Downgrade

Silicon Motion stock down as BofA issues a double downgrade on soft growth By Investing.com

Shares in Silicon Motion Technology (NASDAQ:SIMO) slipped in premarket trading Friday after Bank of America analysts issued a double downgrade on the NAND flash controller supplier. The company's shares fell 2.5% in the premarket trade. Bank of America analysts cut their SIMO rating from Buy to Underperform as they do not expect any significant growth for SIMO following the upturn in the first half of 2024. They note that the company's guidance for the second half already suggests minimal top-line growth compared to the second quarter of 2024. Their new analysis also indicates low growth in 2025 for sales, operating profit (OP), and earnings per share (EPS). "A key reason is likely the low exposure to AI and enterprise SSD, areas more dominated by Samsung Electronics and SK Hynix, respectively," analysts said in a note. As a result, the investment bank has cut its EPS estimates for the second half of 2024 and 2025 by about 20% due to lower revenue and operating margin assumptions compared to their earlier projections. Bank of America notes that SIMO's revenue primarily comes from "controller IC chips" for NAND products, unlike its competitor, Phison Electronics. Given their expectation of limited growth after the first half of 2024, analysts have lowered their price objective for SIMO to $60 from $90, implying a 6% downside risk from current levels. More broadly, Bank of America says its review of the memory sector shows that demand for AI server chips should remain strong, however, commodity memory demand has notably weakened. Furthermore, the industry's sequential growth in the second half of the year is likely to be lower compared to the upturn in the first half. Analysts suggest that it wouldn't be surprising if consensus estimates are frequently revised downward in the coming months, driven by lower volume and price assumptions.

Silicon Motion receives double downgrade due to low-growth outlook: BofA

Silicon Motion (NASDAQ:SIMO) received a double downgrade to Underperform from Buy by Bank of America as the analysts do not see any meaningful growth in the quarters ahead. Taiwan-based Silicon Motion specializes in supplying NAND flash controllers for solid-state storage devices. It reported its second quarter 2024 financial results on August 1. While earnings per share and revenue slightly bested estimates, the outlook fell short for industry observers. "The triggers behind our review include the significantly increased stock volatility, weakened commodity memory demand and investor concerns on AI theme," said BofA analyst Simon Woo. "We do not expect any meaningful growth after the 1H24 upturn," he added. "Silicon Motion's 2H guidance already reveals minimal top-line growth versus the 2Q24 level ... A key reason is likely the low exposure to AI and enterprise SSD, areas more dominated by Samsung Electronics (OTCPK:SSNLF) and SK Hynix (OTCPK:HXSCF), respectively." Silicon Motion addressed market issues, but remains confident it can deliver growth going forward. "Despite the softness in the retail SSD market that is evident across the industry, we are confident that we can achieve our previous full-year outlook based on the ongoing strength of our growing NAND OEM business," said Silicon Motion CEO Wallace Kou.