Silicon Motion Technology Corp - ADR

Silicon Motion Technology is benefiting from an unusual dynamic in the NAND supply chain, where constrained memory makers are increasingly outsourcing controller development to the company rather than handling it internally. This trend is driving share gains in embedded eMMC/UFS and client SSDs, which are more than offsetting broader unit declines in smartphones and PCs. The company’s strong positioning in this niche market suggests a positive outlook for continued growth.

Silicon Motion Technology is benefiting from an unusual dynamic in the NAND supply chain, where constrained memory makers are increasingly outsourcing controller development to the company rather than handling it internally. This trend is driving share gains in embedded eMMC/UFS and client SSDs, which are more than offsetting broader unit declines in smartphones and PCs. The company’s strong positioning in this niche market suggests a positive outlook for continued growth.

We still own Silicon Motion (SIMO). Both benefitted from the shortage in memory caused by strong demand from AI data centers. We are not blind to the cyclical nature of those businesses, and we have been early in taking some chips off the table.

Silicon Motion Technology Corporation (SIMO) has shown resilience and potential for growth, particularly as it transitions from lower-margin consumer electronics to higher-margin applications driven by hyperscaler demands. The company is benefiting from robust data center capex growth and has reiterated positive outlooks for its PC and smartphone markets. Despite trading at $117, we believe SIMO is undervalued, with a target price of $185, supported by a multiple of 15X EBITDA and an anticipated $160 million cash settlement from ongoing arbitration.