Could a Samsung Partnership Fuel This Company's Growth?

Silicon Motion 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 , 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 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.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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